- The U.S. has an estimated $466 billion in illicit funds floating around its economy, much of it from environmental crimes like illegal logging and mining sourced to Latin America.
- The FACT Coalition, a group advocating for a fair tax system in the U.S., recently made the case that more attention needs to be paid to “financial secrecy” in conservation circles fighting climate change, deforestation and pollution.
- Weak regulation of shell companies, financial institutions and the real estate market make it too easy for environmental criminal activity to hide illicit funds in the U.S., the coalition said.
When it comes to dirty money, countries like Switzerland, Panama and Spain’s Canary Islands have earned a reputation as good hiding spots. They’re rife with shell companies and laundered profits. And yet none of them comes close to the offerings of the U.S., which has an estimated $466 billion in illicit funds floating around its economy, according to the Treasury Department — around 2% of the total GDP. Treasury Secretary Janet Yellen went so far as to call the U.S. “the best place to hide and launder ill-gotten gains.”
It’s a boon for criminal activities like drug trafficking and smuggling. But it also has a big role to play in environmental crime. Groups participating in illegal mining, logging, and trafficking of flora and fauna all need a way to launder and store their profits.
The FACT Coalition, a group advocating for a fair tax system in the U.S., recently made the case that more attention needs to be paid to “financial secrecy” in conservation circles. It’s an often-overlooked part of fighting climate change, deforestation and pollution, its report said, not to mention an overlooked part of the U.S. tax code.
“Economic crime is not often part of the public policy dialogue on environmental protection,” it said. “However, the considerable damage that such crimes have and the significant criminal gains highlight the important role of anti-money laundering in tackling crimes that harm the environment.”
Take illegal mining as an example. In 2018, four Peruvians were indicted by the U.S. for purchasing billions of dollars of illegally mined gold connected to drug trafficking, money laundering and other crimes. They sent billions of dollars in wire payments from the U.S. to several Latin American countries to further the delivery of the gold before getting caught.
Illegal mining is Peru’s most profitable criminal activity, bringing in an estimated $871 million annually, but it’s also its preferred method of money laundering. Around $8.1 billion in illegal transactions linked to mining have been made in the country over the past decade. Corruption and weak oversight make it extremely difficult for U.S. buyers to trace gold to the source.
Illegal logging and timber trafficking operate under a similar dynamic. The U.N. Office on Drugs and Crime has noted an “alarming” increase in recent years, saying the complexity of timber supply chains makes it hard for U.S. buyers to trace where their wood is coming from. Timber, like gold, also converges with other crimes like drug trafficking and corruption. When cartels need to launder money through cattle ranching, for example, they often clear isolated parts of protected forests, with the timber becoming an added revenue stream.
Last year, Mongabay reported on Home Depot’s purchases of plywood sourced from mega-diverse forests like Ecuador’s Chocó, where illegal deforestation has long been a problem. And earlier this year, an investigation found that a member of Cambodia’s military was running illegal logging operations connected to wood furniture products in the U.S.
That kind of crime is only possible because of the lawyers, accountants and trust and corporate service providers who work as intermediaries, according to the Financial Action Task Force, an intergovernmental organization monitoring the financial flows of criminal groups. Freight forwarders, insurers and customs brokers can also play a role, it said. They all take advantage of huge gaps in U.S. financial regulations.
Right now, the U.S. doesn’t have a database of what’s known as “true beneficial owners” of anonymous shell companies, meaning there’s not always a way to know who set up a company and who’s profiting from it. Congress passed the Corporate Transparency Act in 2021 to improve reporting on true beneficial owners, but it still hasn’t implemented the law.
The country’s real estate market is also largely unregulated, making it relatively easy to launder illicit funds through rental properties, among other assets. It doesn’t require due diligence measures or suspicious activity reports that might weed out money linked to environmental crime. Between 2015 and 2020, more than $2 billion was laundered through U.S. real estate, according to Global Financial Integrity, a think tank focused on illicit financial flows.
The FACT Coalition said the U.S. not only needs to improve regulations on financial institutions and real estate, but also provide additional assistance — in the form of training, funding and intelligence — to Amazonian countries specifically.
“With the climate crisis upon us and the fate of Indigenous communities at stake,” its report said, “the U.S. must act urgently to address its complicity in the multi-billion dollar criminal effort to launder money from environmental crimes in the Amazon basin.”
Banner image: A pile of logs in Logpond, Papua. Photo courtesy of CIFOR/Flickr.
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