The United Nations estimates that environmental crime is rising between five and seven percent annually — that’s two to three times the rate of the global economy – and is costing businesses a total of up to $258 billion a year. Clearly, this is a problem that isn’t going away any time soon and is of major concern to finance companies.
What is Green Crime and how does it affect your business?
Environmental (or Green) Crime refers to any illegal activity that poses a threat to the environment, biodiversity or natural resources – as well as any attempts to flout the regulations designed to prevent environmental harm. This can incorporate wildlife trafficking, illegal logging, fishing, mining and activities that generate pollution. It inevitably poses a threat to achieving the sustainability goals set by the UN as well as a danger to security and supply chains. Green crime is often closely linked to organised crime, money laundering and corruption.
Both the Financial Action Task Force (FATF) and the latest European Money Laundering Directive (6MLD) have acknowledged the threat such criminal activity poses. This is a new area of malfeasance that financial and transactional companies need to be aware of, and so it’s important to know what to look out for and to be able to identify black market listings so as not to fall foul of regulation and future enforcement actions.
Especially today, as investors are increasingly aware of sustainable investment goals, it’s doubly important that your compliance program is aware of the threat of Green Crime and the best measures to counter it. In the wake of the coronavirus pandemic, global sustainable funds have seen inflows of an estimated $45.7 billion as the shift toward new approaches to investing has accelerated. This is clearly an opportunity for business – but also for those who are looking to exploit the situation illegally.
What can be done?
Interpol have highlighted the exploitation of natural resources as a significant threat to peace and security, particularly in conflict areas, and has identified links to terrorism and organised crime.
All financial institutions need to be aware of the increasingly sophisticated methods used in green crime and introduce measures including advanced data analytics and machine learning in order to identify any suspicious transactional activity linked to this new and growing area of concern.
Due diligence processes need to be fit for purpose, with sources of wealth rigorously investigated in order to ensure Green Crime is not a factor. Meanwhile, ESG (Environmental, Social and Governance) risks must also be weighed in assessing environmental standards and compliance.
How big a threat is this, really?
It’s serious – and it’s getting worse. According to estimates made by the UN’s Environment Programme in 2016, resources worth between $91 billion and $258 billion per year were already being stolen by criminals in this area. This means that Green Crime is already the world’s fourth-most lucrative criminal activity (behind illegal drugs, human trafficking, and counterfeiting).
This is an area of financial crime that international financial regulation authorities are having to devise increasingly sophisticated measures in order to stay on top of the perpetrators: which means you have to as well. We will be keeping a close eye on developments and making a note of what to look out for – check in for more updates.