FinCEN issued a notice that provides guidance to financial institutions filing Suspicious Activity Reports (SARs) on illicit financial activity relating to environmental crimes.
Regulators and other financial crime authorities across the globe have, in recent years, increased efforts to identify and address an alarming uptick in environmental crimes. On November 18, 2021, the Financial Crimes Enforcement Network (FinCEN) issued a Notice “to call attention to an upward trend in environmental crimes and associated illicit financial activity.” FinCEN provided three reasons for the issuance of the Notice, including:
The Notice advises that environmental crimes, which include wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking, have now risen to the third-largest illicit activity globally, surpassed only by drug trafficking and counterfeit goods, and that, according to estimates from Interpol, the rate of increase in proceeds from environmental crimes is at least 5% per year.
Highlighting the important role of financial institutions in stopping environmental crimes, FinCEN provided instructions to financial institutions filing SARs related to such crimes. The instructions included:
Consistent with the increased importance with which regulators globally are treating environmental crimes, and a heightened focus from the Biden administration on the environment and combating climate change, the FinCEN Notice is a clear signal to financial institutions that identification and detection of environmental crimes should be treated as a priority in line with other crimes that have an outsize human toll, such as terrorism or human trafficking.
In the Notice, FinCEN specifically called out financial institutions as playing a critical role in preventing environmental crimes. Through analysis of financial institutions’ SAR filings, including details regarding the crimes underlying funds laundered, FinCEN should be better equipped to identify and investigate crimes against the environment. Given that the Biden administration has mandated a whole-of-government approach to the environment and mitigating the impact of climate change, financial institutions should take steps to ensure that their anti-money laundering (AML) processes and procedures are specifically tailored to identify and report environmental crimes.
Financial institutions should ensure they have an in-depth understanding of the types of illicit activity falling under environmental crimes, as well as the associated risk indicators. The appendix to the FinCEN Notice provides detailed descriptions of the five types of environmental crimes, and financial institutions should familiarize themselves with those crimes, as well as commonly associated people, organizations, and geographies. Financial institutions should also update their SAR procedures to reflect FinCEN’s instructions regarding reporting environmental crimes. In addition, financial institutions should incorporate environmental crimes into their risk assessment procedures and update their Know Your Customer and transaction-monitoring procedures to ensure they are capturing red flags associated with environmental crime, including, e.g., applying enhanced due diligence to customers in the environmental field, and reviewing unusual payments to or from areas typically associated with environmental crime. Financial institutions should consider employing advanced data analytics and machine learning to more effectively identify activity associated with environmental crimes.
How Guidehouse can Help
Guidehouse can help financial institutions review and enhance their AML programs to ensure they are effectively identifying and reporting illicit financial activity associated with environmental crimes, including developing and implementing updates to operations, policies, procedures, controls, and technology. Guidehouse’s areas of relevant expertise include the following:
Guidehouse can quickly review and assess your financial crime program to determine whether it adequately takes into account the likelihood of illicit activity relating to environmental crimes in response to the heightened focus from FinCEN and the administration on the environment and climate change mitigation.