FinCEN reminds financial services firms to surveil for environmental crime

FinCEN signals need to remain vigilant in identifying and reporting suspicious activity related to environmental crime.

The Treasury Department unit focused on crimes such as money laundering, human trafficking, and drug trafficking – the Financial Crimes Enforcement Network (FinCEN) – has reminded financial institutions to remain vigilant in identifying and reporting suspicious activity related to environmental crimes.

FinCEN said environmental crimes frequently involve transnational criminal activity related to several of its Anti-Money-Laundering and Countering the Financing of Terrorism (AML/CFT) National Priorities, including an array of fraudulent activity.

It has previously published resources to help stakeholders identify and combat environmental crimes and associated illicit financial activity. FinCEN’s December 2021 Financial Threat Analysis contains information on wildlife trafficking threat patterns and trend information identified in Bank Secrecy Act (BSA) data.

FinCEN’s Notice FIN-2021-NTC4 provides financial institutions with specific Suspicious Activity Report (SAR) filing instructions and highlights illicit financial activity related to several types of environmental crimes such as wildlife trafficking and illegal logging, fishing, or mining.

The agency reminds businesses that SAR filings, along with effective implementation of BSA compliance requirements, are crucial to identifying and stopping environmental crimes and related money laundering.

Financial crime and the environment

FinCEN first called attention to the upward trend in environmental crimes and associated illicit financial activity back in 2021 in the threat analysis mentioned above, noting it was highlighting such things because of environmental crimes’ strong association with corruption and transnational criminal organizations, two of FinCEN’s national priorities.

It said it wanted to enhance the reporting and analysis of related illicit financial flows and better assess environmental crimes’ contribution to the climate crisis such as the threat to ecosystems, decreasing biodiversity, and increasing carbon dioxide in the atmosphere, among other things.

These same SARs showed that funds potentially associated with wildlife trafficking move through the financial systems of some of the world’s largest economies.

Environmental crimes encompass illegal activity that harm human health, and harm nature and natural resources by damaging environmental quality, including increasing carbon dioxide levels in the atmosphere, driving biodiversity loss, and causing the overexploitation of natural resources.

Crimes that have those environmental impacts include: wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking, FinCEN said.

FinCEN’s Notice that year (FIN-2021-NTC4, mentioned above) pointed out that wildlife trafficking and the associated movement of illicit proceeds are estimated to be between $7 billion and $23 billion per year, or approximately one quarter of the amount generated from the legal wildlife trade.

FinCEN has identified funds transfers between depository institutions as the most common wildlife trafficking-related payment mechanism in SARs. These same SARs showed that funds potentially associated with wildlife trafficking move through the financial systems of some of the world’s largest economies, as well as to countries that have been a focus for wildlife trafficking.

It identified SARs referencing 12 of the most commonly trafficked animals or species, including reptiles, big cats, and turtles, as well as some of the most commonly trafficked animal parts, such as ivory.

FATF guidance

The Financial Action Task Force (FATF), the global standard setting body for AML/CFT, has also identified key money-laundering risks across incidents of illegal logging, illegal mining and waste trafficking.

FATF outlines key risk indicators for businesses to be watchful of, such as the use of intermediaries – such as timber processing facilities, sawmills and metal refineries – with financial activity that is not in line with local production levels. And customers with mining or logging licenses operating in or around active conflict zones.

The money-laundering trends they cite as having their origins in environmental crime include:

  • Criminals involved in illegal logging, illegal mining and waste trafficking are laundering their proceeds through financial, trade and company formation centers, which do not have natural resources domestically.
  • Using front companies to comingle legal and illegal goods and payments early in resource supply chains, making it hard to distinguish between legal and illegal activity, and detecting laundering later in the supply chain.
  • Making use of complex corporate structures, intermediaries (for example accountants, lawyers, etc.) to conceal financial flows and employ offshore jurisdictions, to facilitate placement and/or layering of funds, which highlights the importance of identifying the underlying owners.