During the past two decades or so, the sale of illegally harvested wildlife or derivatives thereof, commonly referred to as illegal wildlife trade (IWT), has developed into a highly profitable organised crime, with the World Economic Forum estimating an annual generation of approximately USD 20 billion in proceeds from wildlife products. The increasing demand for wildlife products such as pelts, ivory, furs, wildlife-based medicines and exotic pets poses major consequences for the international financial system. It also threatens biodiversity, enables corruption and increases public health risks such as the spread of zoonotic diseases which are transmitted from animals to humans. This widespread impact illustrates the seriousness of IWT.
In 2020, the Financial Action Task Force (FATF), a global financial crime watchdog, published a report ‘Money Laundering and the Illegal Wildlife Trade’ in which it investigates the link between money laundering and IWT by explaining how financial institutions may be used by IWT role players to facilitate the movement of illicit funds. It recommends the use of standard anti-money laundering (AML) controls to combat IWT. In a recent paper ‘Illegal wildlife trade: the critical role of the banking sector in combating money laundering’ published in Journal of Money Laundering Control, I explore this recommendation with reference to the banking sector. The paper has since been cited authoritatively by the United Nations Office on Drugs and Crime in the ‘World Wildlife Crime Report 2024’.
Customer due diligence (CDD) is the foundation of AML best practice. Underpinned by the ‘know your customer’ principle, it consists of identification and verification measures. CDD must be performed in accordance with a risk-based approach. This means that banks must assess and determine the level of risk posed by customers and the transactions of customers. Where the risk is low, simple or normal, CDD can be performed. Where the risk is high, enhanced CDD must be performed. Ongoing CDD entails the regular monitoring of customer accounts to ensure that customer activity is consistent with customers’ risk profile. Ongoing CDD measures are especially useful in identifying suspicious activity. The process of identifying suspicious activity is usually informed by the application of risk indicators, or red flags. Where multiple risk indicators are present, the bank is required to report the activity to the designated national authority. In the event of sanctions screening, a positive match will require of the bank to deny the customer access to their financial assets, property and other resources.
While these AML controls can easily be implemented in cases suspected of IWT, the degree to which they may be effective in identifying and disrupting trafficking networks is not immediately clear. The paucity of information on the financial flows and money laundering techniques of IWT role players is a significant concern in this regard. Against this background, it is important to emphasise, firstly, that IWT is not treated as a serious crime by all jurisdictions. Especially those jurisdictions not classified as source or transit destinations may not be willing to treat IWL as a predicate offence for money laundering or to elevate for the purposes of AML compliance IWT to the same level as other financial crimes. Consequently, insufficient attention will be directed to IWT risks. Secondly, IWT risks are unique and therefore require special resources in their mitigation. Such resources include focused training, case studies and risk indicators specific to IWT. Where such resources are not available, IWT risks may not be detected, investigated and prevented.
Fortunately, the wheels of change appear to be heading in the right direction as banks worldwide are increasingly paying attention to IWT risks in risk assessments and, further, are enabling AML professionals to effectively address IWT by providing appropriate resources. This will most likely be articulated in the bank’s compliance programme, an instrument intended to give effect to AML laws by stipulating the specific details and procedures that the bank must follow in the combating of financial crime. Overall, catering for IWT in the AML compliance system may be a positive step towards ensuring a holistic approach to risk management, which is central to effective risk mitigation.
In implementing money laundering controls, the transnational nature of IWT must be borne in mind. Major illegal wildlife syndicates invariably operate internationally. Such IWT operations are difficult to detect and disrupt owing to the cross-border movement of wildlife as well as the use of complex money laundering techniques involving large amounts of cash and front and shell companies. Therefore, cooperation at the local, regional and international level is imperative. Banks are particularly well positioned to enable cooperation between themselves in the investigation of IWT financial flows. By leveraging existing domestic, regional and international networks, banks may be able swiftly, easily and effectively to exchange financial intelligence, which in turn can be used to support the investigations of law enforcement agencies and assist in the freezing and confiscation of laundered funds or property connected to IWT. To avoid issues concerning the confidentiality of information, moreover, the model of cooperation must provide for procedures for using, handling, storing, disseminating, protecting and accessing such information.
In contemplating such a model, countries are well advised to consider the bank-to-bank cooperation model recently adopted in Singapore, known as COSMIC, which stands for Collaborative Sharing of Money Laundering/Terrorism Financing Information & Cases. Under this model, the Monetary Authority of Singapore has established a centralized digital platform that allows banks to request and share targeted information on individuals and companies confidentially to assist in investigating, identifying and preventing money laundering, terrorist financing and proliferation financing. Currently, the platform is available only to six international banks and focuses on three key risks – (i) misuse of legal persons, (ii) misuse of trade finance for illicit purposes and (iii) proliferation financing. Over time, the initiative will be expanded to include more banks and financial crime risks – hopefully IWT risks as well.
With its strong focus on compliance, coupled with possibility of introducing initiatives based on its extensive local, regional and international networks, the banking sector undoubtedly has a critical role to play in combating IWT.
Keywords: Banks, financial flows, illegal wildlife trade, money laundering, risk
AUTHOR INFORMATION
Dr Cayle Lupton is a Senior Lecturer of Law in the Faculty of Law at the University of Johannesburg and Director of the Centre for Banking Law, a centre of the University of Johannesburg. He is a Visiting Scholar at Centre for Banking and Finance Law at the National University of Singapore in June-July 2024.
Email: clupton@uj.ac.za