While not an issue that would ordinarily cross the mind of those operating in the financial sphere, the underground market of illegal wildlife trafficking (IWT) is in fact a multi-billion dollar business that continues to grow in global reach. In 2020, the trade – which encompasses the harvest and subsequent sales in live animals and plants as well as any parts or products that can be derived from them (i.e. skins, tusks, medications, etc.) – has evolved into an ever-popular means by which criminals and questionable enterprises can launder large amounts of funds relatively quickly. While difficult to find an exact figure of the collective value of the trade, analysts have estimated that together illegal logging, unregulated fishing and the illegal wildlife trade account for an estimated annual value of between $70 and $216.4 billion, thus making it the fourth largest transnational criminal industry trailing only counterfeiting, drug trafficking and human trafficking.5 In addition to the detrimental effects that illicit financial activity of this nature can have on the integrity of local and national financial systems, wildlife trafficking also presents uniquely troubling circumstances. With monumental price tags attached to exotic and endangered animals and plants, and illegal logging and other forest crimes growing in prevalence given the increasing demand for choice land, these illegal practices can have a profound negative impact on a country’s natural resources while also threatening the sustainability of the very products on which the business is based. Despite the fact that the majority of the financial sector has yet to pick up on the fact that wildlife trafficking poses a legitimate threat to financial security, it appears that several international government and law enforcement bodies have begun to take notice.
Illegal wildlife trafficking is a dark underworld marked by poaching, abuse of animals, backhanded dealings, and complex financial crime often masterminded by organized criminal groups. Career criminals have developed highly sophisticated networks to move their “products” utilizing complicit actors and shell companies, one of the top vehicles for laundering illicit funds and criminal proceeds.3 While those operating further up the value chain see exponentially larger profits than those on the frontlines of the illicit activity (in this case, poachers), altogether, the sales of the animals and other exploits provide criminal organizations with a relatively steady revenue stream that is often used to finance other illegal activities. In June, the Financial Action Task Force, perhaps the premier inter-governmental body developing policies to protect the global financial system against money laundering and terror financing, addressed this growing problem in a special report titled “Money Laundering and the Illegal Wildlife Trade.” The FATF notes that despite international authorities regularly seizing illegal wildlife and products, many countries continue to fail in conducting appropriate financial investigations in relation to said seizures to better identify the parties involved and limit the overall profitability of these crimes. The report adds that the “laundering of proceeds from wildlife crime generally involves activity to either conceal or disguise the source, movement and ownership of those funds” continuing, “due to the low number of financial investigations to date, both the private and public sector have a less developed knowledge of the trends, methods and techniques used to launder proceeds from IWT than for other major transnational crimes”6 which contributes to a response that is ineffective overall. One of the more notable points presented in the report is the fact that in many countries (developed or developing), the penalties for money laundering offenses are more severe than wildlife crimes. As such, by pursuing money laundering charges in addition to wildlife claims, countries can in turn shift the growing perception that IWT is a low-risk/high-reward crime.6 As if saving vulnerable animal and plant populations was not motivation enough for financial service providers to crack down on this illegal trade, perhaps increasing the threat of daunting financial penalties and jail time will help slow this trend.
The Australian government has also stepped forward against illegal wildlife trafficking in recent weeks. One of the largest countries on the planet, Australia is home to many distinct and exotic creatures that have become exposed as part of IWT ploys. Australia’s prime financial intelligence unit, the Australian Transaction Reports and Analysis Centre (AUSTRAC), working alongside the Department of Agriculture, Water and the Environment recently published a financial crime guide on IWT providing key information on the workings of the crime itself, while identifying specific indicators that can help financial institutions identify and report these activities. The report, titled Stopping the Illegal Trafficking of Australian Wildlife, stresses the crucial role that banks and other financial service providers play in stopping the exploitation of animals.
AUSTRAC’s report explains the Australian wildlife trafficking process and its key players in great detail. The report reads that a trafficking scheme most often begins with an overseas trader sourcing animals to the exotic pet market. This international trader relies on domestic partners, breeders, and/or poachers to obtain certain species from a particular country, specifically those with unique animal and plant populations, such as Australia or Brazil.8 The overseas trader then delivers the animals/plants to a coordinator who is often, though not always, a domestic businessperson using legitimate trade channels with licenses and permits to fulfill orders from various buyers across the globe – essentially the organizer of the trafficking network.8 To pay the coordinator and other members of the supply chain for their respective role(s) in the import/export process, the overseas trader can use a money mule; an individual who may or may not be aware of their employer’s illicit business practices, but who plays a direct role in disguising the origin of the transferred funds. The coordinator will then either ship the wildlife disguised in parcels or pay couriers to carry them overseas to customers who have likely come across listings for “exotic animals” on black market websites or even select social media platforms.8
While the process is rather intricate, and the coordinators of these schemes are themselves arguably the most elusive cog in the entire system, connecting these individuals to a paper trail is still possible for law enforcement officials – especially after identifying certain important financial indicators. Financial institutions should be wary of large price tags for sales of animals (i.e. the tens of thousands of dollars range) when conducting their customer due diligence, as domestic wildlife that is legally sold are generally found at a much smaller price point. Payment for certain expenses, such as unexplained lodging/accommodation and freight/transport services for the animals and members of the aforementioned chain should also be used by banks to detect illicit activity. AUSTRAC has also found pertinent information in the form of payment details for both domestic and international transfers that have implicated wildlife traffickers in the past. This information can include keywords and slang for certain breeds being traded, and personal information provided can also help to identify additional key members of the supply chain. Additionally, in an effort to remain anonymous, offenders have also been found to use the accounts of family, associates, or hide behind complex beneficial ownership structures to hide their financial transactions and avoid detection from investigators. The latter process is similar to that employed by criminals and politically exposed persons (PEPs) when attempting to launder their illicit cash through lucrative real estate markets throughout the world.
Now more than ever, financial institutions must remain cognizant of these schemes and are obligated to report suspicious activity whenever it is encountered. While illegal animal trafficking remains an obscure topic in the world of finance and anti-money laundering, increased surveillance on behalf of banks could lead to the recovery of millions – if not billions – of dollars in ill-gotten cash while potentially sparing the lives of hundreds of plant and animal species.
To read AUSTRAC’s financial crime guide in its entirety, click here.
Unemployment Fraud on Rise Warns U.S. Treasury
With the United States job market still reeling in wake of the ongoing coronavirus pandemic, the U.S. Treasury Department has warned banks of the growing compliance risks associated with unemployment insurance (UI) fraud. A Financial Crimes Enforcement Network (FinCEN) advisory released last Tuesday alerted banks to remain vigilant for potential red flags that could indicate unemployment fraud, a suggestion based on recently analyzed COVID-19 data obtained by law enforcement agencies and the U.S. government. Several examples of potential indicators of UI fraud mentioned in the release involve emerging ploys aimed at exploiting vulnerabilities and new avenues created by the pandemic. These include “fictitious employer-employee fraud”, where a filer falsely claims they work for a legitimate company or create a fictitious company and provide fraudulent information to obtain unemployment payments, “employer-employee collusion fraud” where an employer continues to pay an employee unreported and/or reduced wages despite the employee filing for UI payments, and even “insider fraud” where state employees engage in the unethical practice of using their credentials to approve unqualified applications or excessive payment amounts for certain individuals.1 The Wall Street Journal adds that “FinCEN also warned of customers who send unemployment insurance payments to a peer-to-peer application or app, then wire the funds to overseas accounts or deposit checks in accounts held by a suspected front company.”2
Other examples noted in the document involve more run of the mill forms of fraud such as the misrepresentation of income in unemployment applications, and identity fraud (where one uses stolen or fake personal identification information to claim unlawful benefits).1 Analysts believe that a significant number of fraudulent UI claims have flown under the radar secondary to the unprecedented volume of claims received since March. This allure of a quick cash-out opportunity has attracted fraudsters seeking personal gain at the expense of overloaded financial systems. As such, FinCEN has urged financial institutions to maintain proper due diligence, continue filing suspicious activity reports (SARs) and conduct additional investigations into potential red flags when warranted.
Deutsche Bank Fined Once More For AML Failures
German multinational investment and financial services firm Deutsche Bank AG has been fined €13.5 million (U.S. $15.9 million) for repeated failures in reporting approximately 600 suspicious transactions related to its dealings with the troubled Estonian branch of Danske Bank. The fine, issued by the economic crimes unit at the Frankfurt Prosecutor’s Office, came coupled with a decision by German prosecutors that it would discontinue a money laundering probe against senior officials of Deutsche Bank over the bank’s relations with Danske Bank, citing a lack of evidence. The aforementioned penalty is related to significant delays in reporting of suspected money laundering activity by Deutsche between 2010 and 2015. The transactions in question were allegedly linked to the Azerbaijani Laundromat, which “in 2017 exposed a complex money-laundering operation and slush fund that handled $2.9 billion over a two-year period through four shell companies registered in the United Kingdom.”4 These funds were reportedly used to pay off European politicians to exert their influence in speaking favorably about the controversial regime.
EU To Sanction Russian Officials Over Poisoning Fiasco
Last Monday, the European Union (EU) came to an agreement on the imposition of targeted sanctions against Russian officials and entities allegedly involved in the controversial poisoning of opposition politician and anti-corruption activist Alexei Navalny. In August, Navalny claimed that he was “poisoned with a new type of Novichok (a military-grade nerve agent) and that the restricted nature of the nerve agent made it clear the Kremlin was behind his attack.”7 While a final list of sanctioned parties awaits final approval, foreign ministers of France and Germany have proposed prospective lists of 6-8 individuals and one company considered to be responsible for this crime as targets of enforcement action. Russia has denied all accusations that they orchestrated the Navalny attack, citing a lack of physical evidence of their involvement. The Wall Street Journal notes the novel sanctions “are expected to be tied to chemical-weapons sanctions the bloc introduced two years ago.”7
In a separate move, the EU also created a new round of sanctions to be imposed on officials from the Republic of Belarus, including president Alexander Lukashenko over the alleged rigging of the national election held on August 9th. Thousands of citizens of Belarus have taken to the streets in protest of Lukashenko’s re-election. The eastern European country’s government has sought to suppress these rallies claiming that it is illegal to hold unauthorized mass events of this variety while deploying military and security forces to control the situation.
- “FIN-2020-A007: Advisory on Unemployment Insurance Fraud During the Coronavirus Disease 2019 (COVID-19) Pandemic.” The Financial Crimes Enforcement Network (FinCEN), U.S. Department of the Treasury, 13 Oct. 2020.
- Hagel, Jack. “Treasury Unit Warns Banks of Unemployment Fraud.” The Wall Street Journal, Dow Jones & Company, 13 Oct. 2020.
- Hardy, Peter D. “Money Laundering and the Illegal Wildlife Trade.” Money Laundering Watch, 28 June 2020.
- Ljubas, Zdravko. “German Prosecutors Drop Money Laundering Probe Into Deutsche Bank.” OCCRP, 15 Oct. 2020.
- Mavrellis, Channing. “Transnational Crime and the Developing World ” Global Financial Integrity.” Global Financial Integrity, 27 Mar. 2017.
- “Money Laundering and the Illegal Wildlife Trade.” Financial Action Task Force, June 2020.
- Norman, Laurence, and Thomas Grove. “EU to Sanction Russia Over Poisoning and Belarus Leader Over Crackdown.”The Wall Street Journal, Dow Jones & Company, 12 Oct. 2020.
- “STOPPING THE ILLEGAL TRAFFICKING OF AUSTRALIAN WILDLIFE FINANCIAL CRIME GUIDE.” Australian Transaction Reports and Analysis Centre , Australian Government, Oct. 2020.