Illegal wildlife trade: key organizational risks

There are several risks for organizations if they do not recognize the importance of risk prevention in relation to illegal wildlife trade. What are the factors that bring the management of risks of illegal wildlife trade to the forefront?

Key organizational risks related to illegal wildlife trade

Despite the fact that threats to wildlife come from a variety of sources, including pollution, deforestation, habitat destruction and climate change, the wildlife trade contributes significantly to the problem through poaching, harvesting or depletion of significant quantities of already threatened or endangered species. The trade in wildlife, animal parts and plants has far-reaching consequences, not only for the species involved, but also for human livelihoods, biodiversity and governance.

Given the diverse and important implications of wildlife trade, the conservation of wildlife, forests and fish must be part of a comprehensive approach to eradicating poverty, creating food security, achieving sustainable development (including the conservation and sustainable use of biodiversity), economic growth, social well-being and sustainable livelihoods.

Regulatory fines

The first and probably most important driver is regulatory fines. Regulatory rules are constantly evolving and expectations of what a reasonable risk-based anti-money laundering program looks like are increasing. The number, frequency, depth and intensity of exam and testing experiences are also increasing. The standard that regulators expect has largely shifted from accepting good or common practice to expecting the highest implemented standards as the norm.

The legal framework surrounding illegal wildlife trade and its links to financial crimes such as money laundering is being strengthened, with illegal wildlife trade and its links to money laundering being recognised as a predicate offence in almost 80% of jurisdictions responding to the Asia Pacific Group on Money Laundering.

On a broader scale, according to a study that assessed the anti-money laundering legislation of 110 jurisdictions, 62 percent of jurisdictions were complying with political commitments made within the UN to ensure that crimes related to the illegal wildlife trade are treated as predicate offences for money laundering.

Failure to meet legal expectations regarding the prevention of money laundering – which is certainly linked to the underlying crimes such as drug trafficking, arms trafficking, human smuggling and wildlife trafficking – exposes organisations to the risk of significant financial penalties. We can see this quite impressively in the numbers of recent enforcement actions for the year 2019.

According to an analysis by the Encompass Corporation, the US topped the list, with 25 AML-related fines imposed by its regulators, totaling US$2.3 billion. UK regulators came in second globally with 12 fines totaling almost US$400 million. France had the largest single AML fine of US$5.1 billion, handed to Swiss bank UBS after it was found guilty of illegally soliciting clients and laundering the proceeds of tax evasion. But even that fine still fell short of the US$8.9 billion AML fine imposed in 2014, when France’s largest bank was fined by US regulators for transferring billions of dollars on behalf of Sudan and other countries blacklisted by the US.

Looking across the board, the average fine was US$145.33 million in 2019 and only less than half of that was given to banks. This means that the rest was given to non-banking companies and organizations. This is quite interesting because historically the majority of these fines have been given to banks, but this year the percentage was less than half, which shows that money laundering is now recognized as a general business problem, not just a problem specific to financial services.

For example, regulators in the gambling and gaming sector were particularly active in 2019, issuing five fines, all of which were well over US$1 million. The highest fine was US$7.2 million.

Legal liability risk

The second driver relates to the legal liability risk that organisations may face if they are involved in and held responsible for illegal wildlife trade. For example, freight forwarders or logistics service providers may be held responsible for illegal products ending up in cargo if they fail to adequately ensure the safety and integrity of the filling process and/or fail in other matters relating to the due diligence of the cargo they are handling.

In one case, a freight forwarder in Singapore was fined for failing to report weight discrepancies. In 2015, customs authorities in Singapore intercepted a shipment of elephant ivory and pangolin scales, estimated to be worth nearly $1 million. The trader declared the shipment contained a load of synthetic wigs, but the weight of the cargo was over 800 kg. The court ruled that the discrepancy between the reasonably expected weight of the declared cargo and the weight of the cargo actually shipped should have been identified and reported by the freight forwarder.

Despite the freight forwarder’s full cooperation with Singaporean authorities during the investigation, the company was fined for failing to ensure that the shipment did not contain contraband. Authorities ensured that all “shipping, transport, logistics and freight forwarding companies were reminded to exercise caution and caution when accepting shipping and freight orders to ensure that their businesses are not involved in wildlife trafficking.”

Co-optation of workers by human trafficking networks

Unlike South American drug cartels that have developed their own transportation methods, smuggling networks tend to exploit legitimate transportation companies to move their products. Furthermore, wildlife smugglers may not always have access to sophisticated money launderers who provide services to move illegally obtained money around the world. Co-opting employees, such as employees of a freight forwarder or financial institution, to circumvent internal procedures has even been identified as an effective strategy for smuggling networks.

Customer Risks and Document Fraud

The use of fraudulent documents to conceal illegal wildlife products by traders is another risk for freight forwarding and logistics companies, highlighting the importance of recognizing illegal wildlife trade as an organizational risk. This includes the alteration and tampering of documents such as maritime bills of lading, road consignments or air waybills. All such export documents require the trader to clearly indicate the type of cargo being transported.

In addition, financial institutions are also at risk, particularly if they facilitate payments related to international trade or offer specialized trade finance products, such as letters of credit. As a result, financial institutions may unwittingly become involved in illegal wildlife trade if customers use fraudulent documents to conceal illegal wildlife products.

According to the World Customs Organization, the number one reason for committing document fraud in international shipping is to evade customs duties and tax payments, or to circumvent shipping restrictions and sanctions. Sanctions violations in particular can be a major concern for all organizations, including financial institutions. Sanctions fines are among the largest fines an organization can receive. In one example, French bank BNP Paribas was ordered to pay a record fine of almost $9 billion for violating sanctions.

Therefore, fraudulent shipping documents pose an increased legal risk for customs agents, freight forwarders, financial institutions active in trade finance and other involved organizations and intermediaries.

Ultimately, the level of risk to organizations from illegal wildlife trade largely depends on the effectiveness of enforcement measures by customs, border and tax authorities, as well as law enforcement authorities in source, transit and destination countries. These enforcement measures may now be strengthened as a result of broader political factors. The illegal wildlife trade has become more visible over the past decade, moving from a purely conservation discussion to increasingly focusing on negative outcomes other than biodiversity loss. It has particularly been in the news recently due to the close association of the consumption of illegal wildlife products with the coronavirus pandemic.

These types of external shocks have historically demonstrated their ability to catalyze responses by countries and the international community to what were traditionally controversial or politically overlooked issues. Consider, for example, the post-9/11 surge in trade security and regulatory measures against terrorist financing, which were implemented not only by the US but by many countries around the world.

And while 9/11 is not directly comparable to the circumstances surrounding illegal wildlife trade and the COVID-19 pandemic, it does demonstrate that despite the usual slow pace of policy development and implementation, external factors can dramatically accelerate these processes when governments decide to prioritize action. China and Vietnam have already announced bans on wildlife trade and consumption, and more traditional demand countries are expected to follow suit. This could dramatically change the level of risk that organizations face from illegal wildlife trade and should be taken into account in future compliance developments across all sectors.

Final thoughts

Wildlife trafficking undermines and jeopardizes the ability and efforts of states to manage their natural resources. It can cause serious economic losses, particularly in developing countries that rely on revenues from legal trade. Wildlife, forest and fisheries crime can endanger rural communities that rely on wildlife for their livelihoods and income, including those based on ecotourism.