Money Laundering Within the Illegal Wildlife Trade: Why It Concerns Everyone and How Fintech Companies Can Avoid Participation

Money laundering from the IWT frequently occurs across source, transit and destination countries.

However, criminals often conceal their funds in the jurisdictions that are not associated with the IWT, such as Europe. Thus, all businesses worldwide can become a target for money launderers and should not neglect AML compliance with regards to the trade.

Methods of money laundering

In September 2020, the US authorities finally caught a multimillion-dollar syndicate that was illegally trading in drugs and wildlife.

One of the syndicate’s leaders, Mr. Terry Xing Zhao Wu, ran a front Californian company that smuggled in shark fins from Mexico and sold them in Hong Kong. In Asia, shark fin soup is considered a delicacy and is often served at weddings, since it allegedly has aphrodisiac qualities.

During the numerous arrests, police seized nearly $8m in cash and precious metals.

This case is a not only a good example that money laundering can happen in the countries that are not usually associated with IWT, but it also demonstrates a variety of methods that criminals use to ‘wash’ funds, including setting up front companies, using cash, and purchasing precious metals and luxury goods. Let’s look at these methods one by one.

• Bypassing the formal banking system

Criminals try to avoid well-regulated banking systems by using cash, mobile apps, payments through social media platforms and prepaid cards.

In 2018, the police of one Asian country caught a businessman that had been selling ivory through an ordinary mobile payment app for at least three years. This person simply exchanged photos of the products with the potential buyers via social media, received the payment through the mobile payment app and sent the shipment by an ordinary post service.

• Establishment of front companies with a complicated organization structure

Criminals set up legal companies that they use as a front to launder money.

In 2015, Singaporean authorities seized an unusual shipment. In there, ivory and other animal parts worth over $6m were stashed among bags of tea leaves. Behind the shipment stood an Asian syndicate. To justify financial flows between Asia and Africa, it opened a legal tea company that imported tea from Kenya. Overall, the syndicate moved almost 7 tonnes of ivory worth over $12m.

• Mixing of legal and illegal income

In 2018, the Indonesian authorities discovered a local criminal syndicate that ran a legal fish company to mask illegitimate income from the pangolin trade. Using this fish company, the syndicate had laundered over $9m.

• Money laundering through real estate and luxury goods

Purchasing houses, art and jewelry is a common way to disguise illicit funds from any crime as legal, including IWT.

For instance, one Indonesian policeman used proceeds from the illegal sale of armadillos to buy cars, expensive clothes, and accessories. When he was arrested in 2017, the policeman tried to hide all of his possessions. He even asked a friend to create a fake invoice as if he was selling the car to this friend.

Since criminals often use real estate and luxury goods to ‘wash’ money, non-financial companies like boutiques and art galleries play an essential role in fighting money laundering from the IWT and can face sanctions for non-compliance with AML requirements.

How to prevent money laundering from the illegal wildlife trade

Recently, both financial and non-financial businesses have come into the regulatory and public limelight in relation to the money laundering problem.

The FinCEN files scandal has brought much attention to the banking sector, showing that even major banks are facilitating money laundering instead of preventing it.

A recently leaked FBI report has revealed that private investment businesses are also under scrutinized investigation as criminals frequently use them to launder money from various crimes, including involvement in the illegal wildlife trade.

As the FATF calls upon authorities to solve the money laundering problem from the IWT, the number of financial investigations on both public and private sectors is expected to rise.

In the future, the sanctions for money laundering from the IWT can become even harsher as both criminal watchdogs, such as the UNODC, and wildlife conservation organizations, such as the CITES and the TRAFFIC, demand higher penalties for a lack of financial diligence.

Here are our insights on what businesses can do to avoid regulatory punishments for non-compliance.

AML policy for for mitigating the IWT involvement risk

The most crucial step for businesses is to recognize the illegal wildlife trade as a real financial crime and create an anti-money-laundering policy that will specifically deal with IWT-related risks.

When it comes to the illegal wildlife trade, standard AML compliance is not enough. Companies should implement additional risk-mitigation measures and consider all of the sector-specific nuances of the due diligence process.

Below, we have gathered the main customer and transaction monitoring steps that businesses should take to avoid regulatory sanctions.

Сustomer onboarding

During the customer risk assessment, in addition to usual AML checks, businesses should pay extra attention to the red flags that may indicate the involvement in the IWT:

• International trade, freight or logistic companies that operate along corridors known for the IWT;
• Private zoos, breeders, exotic animal stores, fashion brands and medical companies that produce medicine from wildlife;
• Politicians or just very wealthy people in general, who are involved in environmental or wildlife-related activities;
• Employees of businesses located in jurisdictions that have been labelled as transit or demand countries for the IWT.

Apart from client monitoring, businesses are expected to implement a transaction screening system that explicitly targets suspicious money transfers in relation to the IWT.

Transaction monitoring related to the IWT

Here are the red flags that companies should look out for when they conduct transaction monitoring, to make sure that they do not overlook money laundering from the IWT:

• Large cash deposits made by government officials working in environmental and wildlife protection institutions, or by zoos’ and wildlife parks’ employees;
• Wire transfers to jurisdictions known for the IWT;
• Wire transfers to individuals working in industries vulnerable to the IWT, such as logistics and customs;
• Financial flows connected to known poachers.

In order to track down transactions connected to poachers, companies should run adverse media checks connected to wildlife trafficking and other environmental crimes.

The United Nations Office on Drugs and Crime‘s (UNODC) report provides detailed insights into the customer red flags and due diligence procedures related to money laundering from the illegal wildlife trade.

More on transaction monitoring: From Crypto to Fiat: How to Handle Transaction Monitoring.

AML compliance in the sphere of the IWT is a win-win for both businesses and nature: not only will companies avoid financial sanctions but they will also help to save wildlife species from extinction.

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