Fly-tipping to money laundering: The environmental crime nexus

Illegal waste, trade in protected species, the unlicensed manufacture and use of chemicals and other offences are on the rise, and often linked to smuggling, bribery, fraud, corruption, and trafficking. A financial crime expert explains how your organisation can avoid becoming inadvertently involved. 

Green industries are in a boom period. A clear sign of the growing urgency around climate action, perhaps unsurprisingly a dark side of this eco-economy is rapidly growing in tandem.

According to the Environment Agency’s 2021 National Waste Crime Survey Report, illegal waste costs England £1bn each year, a 55% increase since 2015. This type of criminality — from large-scale fly tipping to illegal burning and exports — now accounts for 18% of all waste managed by the country annually, 187.3m tonnes and counting. 

As per Europol’s definition, environmental crime can also include trade in animals and other wildlife, habitat destruction, the production, importation, exportation, marketing and use of ozone-depleting substances, and the operation, without license, of plants where dangerous activities are carried out or dangerous substances are stored. The list could go on. 

Worryingly, many organisations involved are unaware, and could also be inadvertently contributing to wider forms of criminality. For example; trafficking, smuggling, bribery, corruption, and fraud. While scrutiny of supply chain emissions and sustainability has been increasing for some time, this is less true of the customer chain. Meanwhile, efforts to mask illegal environmental activities are growing more sophisticated. 

Iain Armstrong has spent the last 23 years working in the financial services sector, specifically financial crimes. His CV boasts time in the investment fraud and enforcement division of the UK Financial Services Authority, and over a decade in anti-financial crime with major banks. Recently, he joined ComplyAdvantage, a company assisting organisations that fall under anti-money laundering regulations identify customers that could be trying to clean illicit revenue. 

Among the services are comprehensive background checks and adverse media investigations. The goal not just to find if buyers are engaged in criminality, but if they’ve ever had any dealings with third parties that are. A paper trail that has legal ramifications for those at risk of being used to launder money and implications for everyone else in the chain. For example, the reputational damage that could be caused if it emerged that a UK recycling firm hired by local authorities sold waste to companies with dumping practices that break relevant laws. 

‘We see environmental crime as being an increasing area of focus for teams in our customer base – those within businesses who manage the risk of financial criminality,’ Armstrong says. ‘There’s a few different reasons why that’s happening. One is the visibility of the problem: barely a month goes by without an unusual weather event — snow storms in Southern California, wildfires in Lancashire in February. There’s also a lot of evidence that younger generations are more willing to vote with their feet… And there’s this growing focus on what we call the predicate offenses to money laundering.’ 

‘Certainly in this country, the whole of Europe, and many others, environmental crime is now seen in this way. That means, if you’re working for an anti-money laundering team you suddenly have a vested interest in making sure your organisation is not doing business with those associated with environmental crime,’ he continues. ‘The focus has shifted quite recently, over the last three or four years. And to that extent financial crime is now often under the banner of Environmental, Social and Governance (ESG).’  

Armstrong says this link is not evident across the board, the definition of ESG remains in the eye of the beholder. But large organisations in particular are taking this stance seriously, with illegal logging, fishing, and wildlife trade among the environmental offenses that form part of a wider crime nexus, including money laundering. 

‘When you talk about illegal logging, there’s a danger of thinking the problem  happens far away, in the Global South. But illegal waste is huge in the UK, so it’s actually on our doorstep,’ Armstrong says, explaining any form of environmental crime can be ‘inextricably linked’ to other illegal activities. Like a vessel illicitly transporting trash using additional capacity to carry rare species or fake goods. So, how can organisations protect themselves against a black market trying to convince us it doesn’t exist? 

‘Educating your staff, particularly those involved in taking on new contracts and reviewing existing ones, is essential. As is monitoring transactions. So training anyone in roles like that on indicia which suggests environmental crime,’ says Armstrong, advising this should be done periodically so assessments are up to date. ‘If you’re a multinational business you’ll need to understand the nuances around the term environmental crime in all countries you deal with. What constitutes environmental crime varies from place to place.

‘Conducting EDD, or enhanced due diligence, is also important. This means applying additional scrutiny to those identified as potential risks, on an ongoing basis,’ he continues. ‘Budgets for public bodies involved in enforcement are perennially tight for things like this. But what I would say is there’s an opportunity here, when the private sector is taking this much more seriously and increasingly investing money and resources, to better use public-private partnerships. The key is ensuring the appropriate channels are in place for private sector data to be put in the hands of public agencies in such a way that the latter knows what it’s actually looking at.’

Images: Ye Jinghan (Top) / nbb_photos (Middle) / Iain Armstrong; ComplyAdvantage (Bottom)