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BLOG: Anti-money laundering not an easy weapon to use against timber crime

by Mark Gregory

Estimates suggest that between 15% and 30% of the international trade in timber comes from illicit sources. Nobody knows how much criminal money this generates but the figure is certain to run into billions of dollars every year.

It would be reasonable to think, then, that more effective use of anti-money laundering procedures would be an ideal mechanism for cracking down on criminals responsible for destroying forests.

The World Bank has taken this view. Its 2012 report, ‘Justice for forests’, presented a strong case for action on timber-related money laundering.  Similarly, the European Union’s 2003 FLEGT Action Plan initially made anti-money laundering a pillar of Europe’s efforts to tackle illegal timber imports.  

Meanwhile, for reasons unrelated to forests, anti-money laundering has in general become more of a priority in recent years.  This has been partly driven by the US government’s concern to track down sources of terrorist funding in the wake of the 9/11 attacks. 

 

 

 

 

 

Image: TaxRebate.org.uk via Flickr

 

 

Political impetus

Prodded by Washington, authorities in most countries have adopted tougher rules on money laundering, following international guidelines laid down by the Financial Action Taskforce, an inter-governmental body. 

Meanwhile, commercial banks have recruited armies of anti-money laundering compliance staff and poured resources into sophisticated computer systems for identifying suspicious transactions.

This huge increase in political impetus and technical capability to track down even quite  small sums of criminal money has in theory created new opportunities for tackling money flows linked to illegal timber.

Against that background, Fern decided to take a closer look at the value of anti-money laundering in combatting timber crime.  

Frustratingly, we discovered some serious obstacles which, in our view, make it difficult to see how it can be an effective weapon for the good guys in this particular war.   

One issue is doubt about the level of illegality involved in the illicit timber trade.  While law breaking is obviously rampant, the offences committed may not be serious enough to generate large pools of criminal “hot money” that need to be hidden. If that is the case, there may be little money laundering to uncover.

 

Predicate offences

From a legal standpoint, money laundering means concealing, or even just handling, the financial proceeds of a “predicate offence”.  Countries vary in how they define this threshold but it always requires a significant crime to take place.

In most jurisdictions, pure timber offences – such as felling trees without a permit or breaking the terms of permit – are seen as technical infringements, not full-blown crimes.  Handling the proceeds, therefore, does not count as money laundering.  

However, while timber offences themselves may be technical in nature, a lot of other activities that commonly take place in the process of illegal logging are universally seen as substantial crimes. Bribery, corruption and fraud, for example, are endemic in the illegal timber trade and also qualify as predicate offences everywhere.  

This makes it more feasible to bring money laundering cases. But, of course, to demonstrate money laundering the predicate offence has to be proven, which can be a high hurdle, especially in developing countries with weak legal systems.  

A few timber producing nations in Africa and Asia have passed laws that specifically make illegal logging a predicate offence. But these laws have rarely resulted in cases coming to court.

 

Limited resources

Fern was keen to find out if the increased focus on tackling money laundering in the world’s major financial centres provides opportunities for curbing financial crime linked to logging.

The answer appears to be no. A key issue is the difficulty of getting anyone with power to do anything to make logging a priority. 

London, Europe’s leading financial centre, provides a good case study. British banks are required to report suspect transactions to the country’s Financial Intelligence Unit, a body set up under international anti-money laundering guidelines. 

Last year, this organisation was deluged with 350,000 such reports, far more than it could possibly investigate.

In these circumstances, it is inevitable that limited resources are devoted to investigating money laundering associated with British priorities – like curbing local drug dealing, organised crime and funding for terrorism.

Dodgy dealings relating to logging thousands of miles away simply aren’t seen as a sufficiently pressing issue for UK financial regulators to spend much time on, and similar pressures apply in other major financial hubs. It is hard to see this situation changing.

Click here to read the full report


 

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