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Criminal groups are exploiting soft commodities trading networks to conceal the trafficking of illegal wildlife and animal products, a new report has shown, prompting calls for renewed efforts by banks to investigate the underlying financial flows.

Wildlife trafficking is a highly lucrative form of transnational crime, generating as much as US$23bn per year according to World Bank estimates. Combined with illegal fishing and logging, proceeds are estimated to total up to US$2tn.

The issue has become a priority for the Financial Action Task Force (FATF) – a global standards-setting body for fighting economic crime – which warns that seemingly legitimate trading activities are being used as cover for the sale and transportation of valuable animals and animal parts.

“Illegal wildlife trade is a global threat that doesn’t just impact the jurisdictions where wildlife is killed or sold,” the task force says.

“Criminals are misusing the formal financial sector, as well as front companies and the guise of the legal wildlife trade to launder their proceeds. However, many jurisdictions are still not sufficiently prioritising efforts to put a stop to the financial flows involved in illegal wildlife trade.”

In a detailed report published after the FATF’s most recent plenary meeting in late June, the watchdog warns that front companies with connections to import-export industries are often used to justify the movement of goods and funds across borders.

In one example, the task force outlines the seizures of nearly 7 tonnes of ivory in Thailand in Singapore between April and May 2015. Investigators followed import and export data for the seizures and discovered the criminal syndicate involved had established an apparently legitimate tea trading company in Kenya to conceal its ivory business.

The syndicate also set up freight forwarding and transportation companies to buy tea from a large unwitting seller while disguising the identity of the true buyer. During transportation, the ivory shipments – registered as tea exports – changed destination locations and other information “to confuse port officials”, the report says.

For financial institutions that are involved in financing tea exports, the FATF suggests a risk indicator in this case would have been “that the final destination was East Asia that is not a major export market for tea from Africa”.

In a second case study from 2018, a large-scale criminal syndicate was identified having trafficked pangolin scales worth around US$9mn over the previous six years. The syndicate leaders owned a frozen fish company and set up a network of intermediary bank accounts masquerading as legitimate animal or farm suppliers.

The report says revenue from their legal fishing company was co-mingled with proceeds of pangolin trafficking as well as narcotics sales. Authorities eventually uncovered the scheme after finding records of imported goods did not match the payments received from fake suppliers.

Though ivory and pangolin scales are commonly trafficked items – the task force reports an 80% drop in the wild pangolin population over the last decade – there are regional variations.

In Europe, for instance, the illegal export of glass eels is highly profitable, often carrying a mark-up of more than 1,000% when sold outside the continent.

Europol’s annual Operation Lake, which targets trafficking of endangered species and associated criminal activities, this year resulted in the seizure of hundreds of kilograms of glass eels, carrying a value of over €6.2mn. Eels were often concealed beneath legitimate shipments of other fish.

Jon Godson, assistant director of the International Air Transport Association, warns that trade in foodstuff is frequently targeted because it “often gets fast-tracked and so is used as a concealment method”. Timber is another high-risk area identified by FATF.

 

Pressure mounts on financial sector

There are signs that regulated financial institutions might soon face more pressure to identify transactions that could be linked to wildlife trafficking.

So far, action within the sector has been relatively limited. The FATF says that of the 45 jurisdictions that submitted information to its report, 37 had not received a single suspicious transaction report from the financial services sector related to environmental crime over the last five years.

FATF executive secretary David Lewis says all governments have been asked to report back within a year on progress they have made, adding: “It’s time to strengthen public-private partnerships and for those profiting from the illegal trade in wildlife to be prosecuted for money laundering.”

One reason such partnerships are useful is for data sharing. Alexandria Reid, a research fellow at influential London-based think tank RUSI, says it is currently difficult for financial institutions to build accurate risk typologies for identifying suspicious transactions because there have been so few financial investigations or high-level prosecutions to draw on.

“Currently too little data makes its way into the private sector for the detection of environmental crime to be ‘business as usual’ – which is what it should be, because it should be treated like any other crime,” Reid tells GTR.

Another challenge for banks involved in trade finance is that the vast majority – likely around 80% – of trade is conducted on an open account basis, meaning they have little oversight of the underlying goods being moved.

“We’ve seen many cases where commercial vehicles are registered and used for only a few transactions before being dumped, so the level of intervention possible at the banking level varies immensely,” Reid says.

“Obviously, the first step is to make sure that basic due diligence is conducted along the supply chain, from trade finance and business incorporation through to shipping and logistics of the commodity itself, which is still a major vulnerability and not carried out as standard in many jurisdictions.

“Risk assessments are also key, but these require a basic understanding of wildlife trafficking and environmental crime that many institutions do not have compared to, say, drug trafficking.”

There have been recent efforts among some trade finance institutions to tackle the issue at an industry-wide level.

In 2018, 38 banks, law firms, government bodies and other organisations signed a declaration promising not to “knowingly facilitate or tolerate financial flows that are derived from the illegal wildlife trade and associated corruption”.

Standard Chartered, one of the declaration’s signatories, has previously said it offers training to partners in high-risk countries for wildlife trafficking.

“More recently, we have urged G20 nations to ban live wildlife markets, called for wildlife crime to be embedded in the UN Convention against Transnational Organized Crime, alongside arms, human, and narcotics trafficking, and have urged governments to commit resources to tacking the serious and urgent issue,” David Fein, the bank’s general counsel, tells GTR.