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Environmental crime and threat finance

By October 3, 2018 No Comments

An inconvenient truth – environmental crime and threat finance

Environmental crimes are the most important stream of revenue in conflict finance today. This is the stark finding of the “World Atlas of Illicit Flows” which was released last week by the Global Initiative Against Transnational Organized Crime and Interpol. The report details how armed non-state actors and terrorist organizations are now relying, to an unprecedented extent, on revenue that comes from the exploitation of natural resources. Environmental crimes are a broad category and include everything from illegal logging and mining to selling illegal charcoal. The report estimates that these crimes now earn groups between $110-281 billion a year, a 44% increase from 2016 – making environmental crimes the third most profitable in the world after drugs and counterfeit goods.

The impact of these crimes is twofold; firstly they damage the environment and secondly their profits perpetuate conflicts which damage societies and cost lives. The Atlas advises that we find ourselves in this situation due to a lack of criminal investigations and limited enforcement by the international community which has given a “free ticket” to criminal groups. As illicit interest continues to grow in this sector, it is important to increase awareness of these crimes so that it becomes as difficult as possible to profit from them.

SPV – the next buzz-acronym?

President Trump delivered a strong “America-first” rhetoric last week at the United Nations General Assembly. For other nations however, the theme was less America-first and more, can American sanctions be sidestepped? The leaders of China, Russia and the EU, in particular, took the opportunity to discuss the feasibility of a “Special Purpose Vehicle” (SPV) which would allow them to keep a finance channel open to Iran without being subject to US primary or secondary sanctions.

Talks about the viability of a SPV have been ongoing since the US re-imposed sanctions back in August. Federica Mogherini, the European Foreign Policy Chief, announced at the Assembly that it could be up and running in time for the second round of US sanctions which come into force in early November. This would be good news for Iran but little is known about what form the SPV will take. Current predictions surround a “Cold War-esque” barter system where Iran could exchange oil for European goods. With only a month until the US imposes its next round of sanctions, the time to create such a highly complex SPV is running out.

The EBA rules on Pilatus Bank and the MFSA

While the world waits to discover the punishment for Danske Bank for endemic money laundering, another scandal-ridden European bank had an update on their sentence last week. The European Banking Authority (EBA) recommended that the European Central Bank (ECB) officially withdraw the banking license of Pilatus Bank. The Maltese based-lender has been under scrutiny since the beginning of the year when its chairman was indicted by US authorities for creating a scheme to evade US sanctions on Iran. Furthermore, the bank was allegedly first established with the primary purpose of laundering money for the Azerbaijani ruling elite.

The ECB will likely follow the advice of the EBA and remove the license of Pilatus. Just this morning the European Commission announced that it will be using a “binding demand” to force the Maltese financial regulator, the MFSA, to do more to strengthen its enforcement of anti-money laundering regulations in the country. The case of Pilatus Bank is just one of many that have recently shone a light on systemic failings of financial crime controls in Malta but also more widely in Europe. The Union finds itself under increasing pressure to be seen to be doing something about these problems. Expect to see more regulatory actions trying to address this before the year is out.

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