Last week, the U.S. Treasury Department’s anti-money laundering watchdog, the Financial Crimes Enforcement Network (FinCEN), released its first-ever recommendation on environmental crimes. With this advisory, banks and other financial institutions are urged to file a report if any transactions that could be linked to activities that contribute to climate change and biodiversity are discovered.
Environmental crimes are frequently linked to corruption and international criminal organizations. According to FinCEN, environmental crime is the world’s third-largest illegal business, with estimated revenues of hundreds of billions. The advisory actions issued by FinCEN is a part of a larger effort by the Biden administration to reduce the causes of climate change. The new emphasis on environmental crimes highlights an upward trend in such crimes and associated illicit financial activity.
The advisory issued by FinCEN requests banks and financial institutions to screen customers and pay extra attention to money transfers for suspicious activity. FinCEN goes on and emphasizes that these environmental crime activities: wildlife trafficking, illegal logging, mining and fishing; and smuggling of waste and dangerous substances have devastating consequences for biodiversity as well as the health and safety of local people. While each type of environmental crime has its own complexity and risk profile, they are considered by their perpetrators as “low risk, high reward”.
For example, the profit from wildlife crime can reach $23 billion per year, indicating that it is a transnational organized crime and one of the world's most profitable illicit businesses. According to FinCEN, this is why these crimes are considered "low risk, high reward" because enforcement efforts are limited, criminal punishments are less severe than other illegal activities, and there is a high demand for the products and services created by these crimes. As a result, identifying and reporting a possible occurrence of environmental crime activity to FinCEN is essential.
In July 2021, FATF published a report titled “Money Laundering from Environmental Crime” that provides detailed information on the scale, nature and typologies of environmental crimes. This shows that financial institutions, banks and lawmakers are pivotal actors in combating money laundering crimes.
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