How the US financial system helps shelter profits from environmental organized crime

Environmental organized crime is a massive global enterprise, bringing in hundreds of billions of dollars each year — and the U.S. financial system appears to be helping conceal its profits.

Interpol estimates that environmental crime such as poaching and illegal logging generates up to $281 billion a year, making it the third-most lucrative illegal business worldwide.

Although the crimes themselves take place in various parts of the world, America’s financial system makes it ideal for parking and laundering the proceeds due to weaknesses in its anti-money-laundering infrastructure, according to Julia Yansura, program director for environmental crime and illicit finance at the Financial Accountability and Corporate Transparency (FACT) Coalition.

The illicit industries behind these crimes vary widely in scale and level of organization, from the smaller, less organized networks involved in the illegal wildlife trade to large, lucrative industries like illegal logging and illegal gold mining, the latter of which has financial links to other illicit economies like drug trafficking, terrorism and the funding of political corruption.

Money laundering through shell companies and other entities — which often involves moving money between countries — is a critical mechanism in these illicit economies, enabling criminal actors to disguise the illegal origins of their profits.

Susanne Breitkopf, a deputy director of the Environmental Investigation Agency's Forest Campaign, points to a recent case in which a Florida-based couple smuggled timber harvested in Russia and manufactured as plywood in China, using several different shell companies that both obscured the true supply chain and evaded duties. 

The U.S.'s anti-money-laundering infrastructure has two major weaknesses that enable this kind of activity, Yansura said.

Firstly, she said, the country requires “shockingly little” information to register a company, making it easy for actors involved in environmental crime to create a shell company or front. She pointed to research by the coalition indicating that most states require less information from a company than public libraries require to obtain library cards.

“So the problem is, we have all of these companies, we know very little about them, the government knows very little about them, and we don't really know who owns them,” she said. “That creates a huge loophole that financial criminals and environmental criminals have been exploiting.”

She cited the case of Colombia’s second-biggest gold exporter, which allegedly laundered more than $1 billion through a series of shell companies to conceal that it had been illegally mined, exporting almost all of it to two Miami refineries.

In another case, former Peruvian President Alejandro Toledo allegedly accepted more than $1 million in bribes from a Brazilian company involved in deforestation of the Amazon and then bought real estate in Maryland to hide the money.

“Obviously, this is hugely troubling. It's troubling from an anti-money-laundering perspective. It's troubling from a national security perspective, [and] it's troubling to me from an environmental perspective,” Yansura said.

It also flies in the face of the Biden administration’s efforts to lead internationally on climate and environmental issues, she added. 

“For all the U.S. is doing to help combat environmental crimes overseas, that's a bit counterproductive if we're not cleaning up our own side of the equation and making sure that these proceeds aren't being laundered and used in the U.S. financial system,” she said.

Many of the country's current efforts to counter transnational environmental organized crime flow through the 120-year-old Lacey Act, which bans commerce in illegally obtained or transported wildlife and plants. 

Although the Lacey Act isn’t a cure-all, Breitkopf said it can be applied in combination with anti-corruption and anti-money-laundering statutes. This strategy, she added, makes interagency cooperation particularly important, to ensure all aspects of this “complex web of criminal activity” are covered.

One bureau within the Treasury Department — the Financial Crimes Enforcement Network (FinCEN) — has a mandate within the department to “follow the money,” officials with FinCEN told The Hill. An official added that “we see [environmental crime] as a priority for the agency — we deal with every single type of crime but this is an especially important one.”

However, FinCEN officials noted that the bureau does not have its own criminal investigative authority, instead offering support to other agencies with investigative mandates like the Department of Fish and Wildlife Services and the Justice Department’s Natural Resources Division. “We take action to enable law enforcement to take action,” an official told The Hill.

In February testimony before the House Financial Services Committee, FinCEN Director Andrea Gacki also said the agency’s budget, and attempts to cut it, limit its options in addressing environmental crimes.

“We will of course, meet our congressional obligations in terms of implementation. But what I worry about is actually our ability to dedicate resources to important things like” a recent FinCEN exchange relating to illegal wildlife trafficking, she told Rep. Ayanna Pressley (D-Mass.). “We have record requests to do more and more exchanges focused … around illegal wildlife trafficking [and] environmental crimes. These things, I think, will suffer for lack of funding.”

Yansura said that there are positive signs for efforts to address these loopholes as well, however. For example, she pointed to the move by FinCEN at the beginning of this year to implement a registry of the “beneficial owners” of companies, those who either directly, substantially control a company or own 25 percent of it or more.

“This is really good news. It's good news from a transparency perspective, anti-money laundering, environmental, you name it,” she said. “From our perspective, we want to see that implementation continue.”

However, she added, real estate transactions can still pose a problem even with this increased transparency, because upfront payments with no mortgage can obscure the actors involved.

“We’ve seen cases where environmental criminals have taken advantage of this loophole to launder the proceeds of environmental crime into the U.S. economy,” she said.

Another step that would help address the problem, Breitkopf said, would be to add illegal deforestation to the predicate offenses covered by the federal money-laundering statute, “which would provide more tools for the authorities here.”

Legislation introduced by Sen. Brian Schatz (D-Hawaii) in 2021 and 2023, the Fostering Overseas Rule of Law and Environmentally Sound Trade, or FOREST, Act, would add deforestation to the predicates, but it died in committee in 2021 and has yet to receive a vote in the Senate Finance Committee since its reintroduction in 2023. 

If the step were taken, Breitkopf said, it would help crack down on conspirators in environmental crime organizations, and also "compel companies to trace their commodities back to the origin.” 

“We need more financial transparency, but we also need supply chain transparency, and that includes beneficial ownership transparency,” she said. “All these crimes are a product of pervasive corruption, especially in the timber sector, and crimes thrive in the dark. In order to stop it, you need to bring it to light, and that means we need transparency.”