Proceeds of Environmental Crime Fish Forests and Filthy

Proceeds of Environmental Crime: Fish, Forests, and Filthy Lucre Money Laundering and Illegal Logging Wollongong, Australia February 22 -24, 2010 Theodore S. Greenberg Financial Market Integrity World Bank 1

Presentation Overview 1. 2. 3. 4. 5. Introduction. Corruption Money Laundering Illegal Logging Stolen Asset Recovery 2

Stolen Assets and Development n n The impact of corruption on development is enormous. Deterring such crime is thus a priority for the World Bank. Ensuring that there is no safe haven for the proceeds of corruption would contribute toward this goal by raising the cost of engaging in high-level corruption. Anti-money laundering regimes with strong confiscation components including non-conviction based confiscation laws are critical. Efforts require interdisciplinary and international approaches for identifying, tracing and confiscating the proceeds of corruption; and for developed countries to work with developing countries. 3

Corruption, Money Laundering, and Stolen Assets n The World Bank estimates that more than $1 trillion is paid in bribes each year. n The proceeds of corruption stolen from developing countries alone ranges from $20 billion to $40 billion per year – roughly the equivalent to the annual GDP of the world’s 12 poorest countries where more than 240 million people live. n Illegal Logging: $10 billion per year, plus $5 billion in lost revenues. 4

Magnitude n Even a portion of recovered assets could provide muchneeded funding for social programs or badly needed infrastructure. Every $100 million recovered: Ø Could fund full immunizations for 4 million children, or Ø Provide water connections for some 250, 000 households, or Ø Fund treatment for over 600, 000 people with HIV/AIDS for a full year; or Ø Fund 50– 100 million drug treatments for malaria. 5

Fighting Illegal Logging World Bank Strategy: “Integrate anti-money laundering and asset forfeiture laws into the fight against forest crime and related corruption: These tools, along with the UN Conventions Against Corruption and Transnational Organized Crime, provide strong and effective regimes that government can use to fight forest crime and related corruption. ” From Strengthening Forest Law Enforcement and Governance (2006), pg. xiii 6

Illegal Logging Should Be A Priority n n n n n Forests are vital resources Forest crime is highly organized and involves over $15 billion per year Forest crime is national, regional and transnational Financial institutions are used to launder crime proceeds Involves money laundering Corruption Bribery Organized crime Smuggling Bank and other fraud 7

Forest Crime Players n Illegal timber crime can include: u u u u Politically Exposed Persons Military, police, other law enforcement Forestry officials Timber brokers Licensed concession-holders outside contract Wood processing companies Shippers, exporters, customs officials Financial Institutions 8

What is Money Laundering? n Definition: The process of disguising the proceeds of crime in an effort to conceal their illicit origins and legitimize their future use. n Objective: To conceal true ownership and origin of the proceeds, a desire to maintain control, a need to change the form of the proceeds. n Techniques: They can be simple, diverse, complex, subtle, but secret. Proceeds = any economic advantage derived directly or indirectly from criminal offenses 9

Environmental Crime Is Linked To Other Money Laundering Predicate Crimes These include: n Corruption n Bribery n Bank fraud n Smuggling n Racketeering 10

Money Laundering Cycle 1. Predicate Crimes • • Corruption and Bribery Fraud Organized crime Drug and human trafficking Environmental crime Terrorism Other serious crimes… 4. INTEGRATION 2. PLACEMENT • The last stage in the laundering process. • Occurs when the laundered proceeds are distributed back to the criminal. • Creates appearance of legitimate wealth. • Initial introduction of criminal proceeds into the stream of commerce • Most vulnerable stage of money laundering process 3. LAYERING • Involves distancing the money from its criminal source: • movements of $ into different accounts • movements of money to different countries • Increasingly difficult to detect 11

Simple Bribe and Money Laundering Transaction Country 3 Country 1 Company owned by Minister’s cousin Company A • Needs to generate $1 million for bribe to Finance Minister. • Uses invoices from company in Country 2 Company Bank Account Country 2 $500, 000 - Purchase of Real Estate Country 4 $500, 000 - Purchase of Bearer Share 12

What Are The Benefits Of Money Laundering Laws? n n Money Laundering is a separate offense which carries additional jail time. Allows for seizure and confiscation of proceeds of crime. Allows law enforcement access to bank and other financial institution records. Requires financial institutions to file suspicious and sometimes cash transaction reports, and to identify the beneficial owners of legal entities. Requires establishment of Financial Intelligence Units which receive reports from financial institutions and can provide new channels for international exchange of information. 13

Illegal Logging Examples of Placement § Cash or checks from illegal logging or corruption are deposited into local bank accounts. § Cash or checks from illegal logging or corruption are used to buy life insurance. 14

Illegal Logging Examples of Layering § Transfer of payments for illegal logs or bribes to several accounts abroad; § Proceeds from marked up or ‘illegal’ transfer pricing related to legal forestry businesses are transferred to several accounts abroad; § Cash from illegal logging or corruption are used to buy trucks, which are later sold to receive ‘legal’ cash; § Cash from illegal logging or corruption are invested in share portfolios or converted to foreign money; § Selling illegal logs using legal timber transportation documents. 15

Illegal Logging Examples of Integration n A legal forestry company processes illegal logs to produce wood-based products such as pulp and plywood: u Cash from illegal logging or corruption are invested in resort businesses; u Cash from illegal logging or corruption that is already placed in financial institutions is invested in a transportation business or oil palm plantation. 16

Investigating and Prosecuting Illegal Logging Cases § Interagency and interdisciplinary cooperation, coordination and information sharing. Remote sensing can be key. § Strike Force approach. § Use the Intelligence cycle rather than the “stovepipe approach. ” 17

Information Sources Other FIUs Financial Sector Regulators Law Enforcement Other Government Departments Illegal/ML Logging Strike Force Financial Intelligence Unit (FIU) Prosecutor & Judicial System Financial Sector Non – Governmental Organisations Media & Public Sources Adapted from WB Capacity Enhancement Program - FIU Workbook 2005 18

The Intelligence Cycle Direction Dissemination Collection Analysis Source: WB Capacity Enhancement Program - FIU Workbook 2005 Evaluation 19

Using Intelligence § Analyze the profiles to establish links between them. § Evaluate the profiles and links against the known information on illegal logging. § Assess enforcement capability. § Determine aspects where enforcement action is feasible and significant effect against the illegal logging can be achieved 20

Money Laundering Analysis Can Assist Investigations n n n Identify false statements on bank loans, letters of credit, customs and shipping documents Establish patterns of cash deposits/withdrawals involving banks and other financial institutions. Follow wire transfers to foreign jurisdictions where assets are hidden and/or used to promote forest crime. Identify sources for cash used for loggers, food, chainsaws, trucks, heavy equipment, tugboat or ship. Enhanced financial sector scrutiny of politically exposed persons. Identification of items for seizure and forfeiture. 21

What Does Law Enforcement Need and When Do They Need It? n n n Establish 24/7 focal point for contact. Intelligence. Evidence: Types are Real, Documentary and Testimonial. Timely information that can be used to properly predicate criminal investigations and identify assets for seizure. Examples: Information regarding location, equipment, timing, direction, people, companies. Establish patterns and deviations from patterns. 22

Suggestion: Set Up A Special Interagency Logging Strike Force n n n Facilitates interagency, interdisciplinary and international approach. Builds trust, cooperation and full access to information. Strike Force should target important cases involving corruption and focus on investigation, prosecution, freezing and confiscation of proceeds of crime. Can be national, regional, target focused, temporary or permanent. 23

Additional Suggestions 1. 2. 3. 4. 5. Coordinate with FIU’s to develop “Red Flags” to help detect suspicious financial transactions. Survey and collect domestic laws to identify useful provisions to help in the prosecution of forest crime cases. Web and shirt pocket version. Identify impediments to successful investigation and prosecution of timber crime cases. Identify best practice guide for investigation and prosecution of timber crime cases. World Bank is beginning work on illegal logging let us know if you want to participate. Consider options for criminal, civil and administrative sanctions dealt with simultaneously. 24

Additional Suggestions (continued) 7. Creation of legal presumptions – person in possession of illegal timber responsible for cutting etc. 8. Do you have authority to declare illegally cut logs as contraband therefore forfeitable. 9. Create fast track procedure for certain forfeitures. 10. Consider establishment of a Forest Crime Forfeiture program. 25

Illegal Logging and Money Laundering n n n n Forest crime is most commonly associated with illegal logging and trade – which can take many forms: Logging in protected areas. Logging outside licenses concession areas. Logging above approved levels within concession sites. Harvesting trees below legal diameter Logging of protected species. Transport of illegally harvested timber. Among many other violation of forestry laws…; 26

Suggestion: Set Up An Interagency Strike Force n n n Facilitates interagency, interdisciplinary and international approach. Builds trust, cooperation and interagency access to and sharing of law enforcement information. Strike Force should target important cases involving corruption, money laundering and focus on investigation, prosecution, freezing and confiscation of proceeds of crime. Can be national, regional, target focused, temporary or permanent. 27

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Governments Must n Hit where it hurts – money and greed. n The process of criminal investigation and prosecution, especially involving the use of money laundering and confiscation laws (criminal and non-conviction forfeiture), must – along with other tools - be used to fight crime. 29 29

Asset Forfeiture Critical Tool to Fight Corruption and for Asset Recovery • Deprives violators of the proceeds of offences, the instruments of offences, and benefits derived from offences • Need to enact and implement laws that provide for tracing, freezing, confiscation and for mutual legal assistance. • Recognized in International Conventions (UNCAC, UNTOC, Vienna Convention) 30

Limitation of Criminal Forfeiture Cannot always forfeit property that was derived from crime or was used to commit a crime in a criminal prosecution. Defendant may be: Dead A fugitive Immune from criminal prosecution Limitations on types of international judicial assistance when there is no criminal investigation pending. 31

Criminal and NCB Forfeiture Conviction Based or Criminal Forfeiture (Common law jurisdictions) Against the person (in personam) Part of the criminal charge against a person Criminal Non-Conviction Based or Civil Forfeiture Action Against the thing (in rem) Judicial action filed by a government against the thing as the wrongdoer Jurisdiction Civil Imposed as part of sentence in criminal case When Filed before, during, or after criminal conviction, or even if there is no criminal charge against a person Criminal conviction beyond a reasonable doubt Proof required Unlawful conduct balance of probabilities. Criminal conviction not required Forfeit defendant’s interest in property Forfeiture Forfeit the thing itself, subject to innocent owners 32

NCB Forfeiture is a Critical Tool UNCAC Article 54(1)(c) Consider taking such measures as may be necessary to allow confiscation of such property without a criminal conviction in cases in which the offender cannot be prosecuted by reason of death, flight or absence or in other cases. 33

NCB Forfeiture Available when criminal conviction is not possible Examples: Defendant is a fugitive Defendant is dead Defendant is immune from criminal prosecution Defendant is unknown and assets are found (e. g. , courier) Defendant has been acquitted of the underlying criminal offense due to lack of admissible evidence the assets are held by a third party who has not been charged with a criminal offense but is aware—or willfully blind—that the property is tainted. the forfeiture is uncontested 34

Thank You Ted Greenberg Financial Market Integrity World Bank tgreenberg@worldbank. org 35