How banks can stop the trade in illegal wildlife
Despite being the fourth most lucrative trade globally, the illegal wildlife trade (IWT) is often overshadowed by more prominent criminal ventures, such as drug trafficking and arms dealing. It is estimated that US$26 billion (779 billion baht) is made yearly at the cost of our natural environment, fuelling corruption, and damaging the reputation and economies of the affected countries.
Financial Action Task Force (FATF), the global money laundering watchdog, recently released a report into the matter, which makes it clear that organised crime uses the wildlife trade to exploit weaknesses in the financial and non-financial sectors, to move, hide and launder their proceeds. This happens in Asia in particular, a continent deeply entangled in wildlife trafficking due to its rich biodiversity, high demand for illegal wildlife products and strong transit points.
In recent years, more than 200 tonnes of African elephant ivory have been seized in the Southeast Asia region alone. This amount represents about 3,000 dead elephants and sadly, while these seem like staggering numbers, they are just a mere fraction of the trade brought to light by successful seizures.
The methods for trafficking wildlife, and the inevitable money laundering that it involves, are hardly new. Tactics such as mingling illicit proceeds with legal ones, mislabelling shipping containers, and forging documents, are used by criminals to move, hide, and launder their proceeds.
This has thus become a part of the wider trade-based money laundering problem because from that perspective, there is no difference between the content of a container being forged goods or ivory, or between people wanting to earn illicit money through trade fraud or selling powdered rhino horn.
To crack down on the IWT, it's important to understand how it works. Here are some of the facts:
- Trade routes are as global as those for any other illicit trade. According to Europol, the EU is a major transit point between Africa and Asia. More importantly, the European fashion industry accounts for a whopping 96% of the python skin trade. If we're looking at the trade of live animals such as tropical birds or snakes, the trade might very well be just between South and North America.
- The United Nations Office on Drugs and Crime (UNODC) has found that both the countries of origin and destination are often unknown.
- While IWT involves poaching many iconic animals, it also involves various species that most people have probably never heard of, such as glass eels, which are smuggled from the US.
Banks can help. Following the financial trails of wildlife traffickers is one of the most effective ways to identify broader criminal networks. The responsibilities that financial service organisations have to detect and fight money laundering also apply to illegal wildlife trafficking. Here are some of the key things banks should know:
- IWT risk must be part of a bank's risk framework and their AML risk assessment, eg, by adding high-risk sources (Africa, South America), transit (EU), and destination countries. Additionally, so must high-risk industries such as medical and leather goods companies but also general trading companies. Keeping an eye to ensure transactions types match profiles is a good first step.
- Shell or front companies are often used to ship wildlife or launder the proceeds. Customer due diligence to identify shell companies should also cover IWT though the same challenges often apply -- just like other items like counterfeit goods, wildlife trade items are sold under wrong descriptions like food, plants, or medicals.
- Wildlife trafficking red flags have been identified and summarised based on available information in the the FATF report. Work is underway to enhance these, particularly via the United for Wildlife's Financial Taskforce, and FATF encourages more investigations.
For example, check for increased volume of wire transfers from/to the source, transit and destination countries in combination with high-risk industries, and also if the volume of the payment does not match the type of business, e.g., schools, academies, game parks.
Unfortunately, Asean countries continue to play a major role in exacerbating the IWT. Bans on items such as pangolin scales and elephant ivory are not enough to quell demand.
Organisations such as wildlife trade monitoring network TRAFFIC are hence urging authorities to break the grip of illegal trade chains and networks through harsher penalties.
Greater collaborative efforts by governments and the private sector need to be fostered to follow the money trail and track the kingpins of criminal organisations.
This is where technology can help -- using machine learning and artificial intelligence (AI) to go beyond rule-based systems and simple red flag indicators in order to appropriately detect the complex behaviour associated with the IWT.
AI models can uncover the relevant behaviours, including identifying outlier behaviour never seen before.
For example, by using more spatial and temporal data, machine learning models can help find local park rangers or policemen accepting bribes more easily.
Alternative payment providers such as mobile money companies might be able to incorporate geodata from cell phones to uncover suspicious behaviour.
Overall, the good news is that we have seen more banks expanding the use of their technology to better monitor corresponding relationships or their trade finance products, and this is a positive step in helping to stem the tide of the illegal wildlife trade.
Timothy Choon, FICO's Compliance Lead in Asia Pacific.