By Dickon Johnstone, CEO and Olivia Dakeyne, Financial Crime Researcher, Themis
Be honest. Do you consider ESG (environmental, social and corporate governance) indicators and AML (anti-money laundering) compliance slightly tiresome but necessary processes to avoid regulatory fines or the reputational risk of being labelled non-compliant? Of course, these are important considerations for the health of a business, and it is crucial to satisfy regulatory requirements. But it’s also so, so important to remember the underlying reason why such regulations have been put in place. They are there to tackle the enduring, devastating impacts that illicit activity can have on the planet and its people—on the macro-ecosystem rather than just the micro-ecosystem of your company.
I’ve made it my mission to persuade people to think less about their business actions in terms of regulatory compliance and more in terms of the broader real-world consequences: on children mining conflict minerals in South America; on bears harvested for bile in Asia; on elephants and rhinos slaughtered for their ivory tusks in Africa; on enslaved men working aboard pirate fishing vessels in Thai waters. These are all well-documented examples—and I could go on. The point is, in our globalised society, the “hidden truth” (to coin a phrase) is the existence of the shadow economy. An underground economy in which serious and organised crime groups are profiting (to the tune of approximately $870 billion globally per year) at the expense of lawful, hard-working citizens. The actions or, indeed, inactions of every business and individual who may be directly or indirectly caught up in this shadow economy can have significant social and environmental consequences.
The consequences of looking the other way
Take human trafficking: It’s the world’s third most profitable criminal activity, behind drug and arms trafficking, generating an estimated US$150 billion in profits yearly.1 Circa 40 million people worldwide live in modern slavery today and not just in far-flung factories, mines or plantations. It is estimated to affect around 136,000 people in the United Kingdom alone2—in nail bars, construction sites, restaurants, cannabis farms and across county lines, among others. What’s more, this number is on the rise, to the tune of 20 percent from 2020 to 2021.3 This is especially concerning given a survey conducted by Themis in 2020, which found that 30 percent of financial-services professionals—and 45 percent of senior managers—do not think modern slavery even exists in the UK.4
Heinous in their own right, human trafficking,5 modern slavery and child exploitation are widely utilised to undertake a plethora of other illicit activities, too, including illegal logging, palm-oil deforestation6 and conflict mineral mining7 across South America, Asia and Africa. These, in turn, fuel regional violence and human-rights abuses and leach harmful toxins into the surrounding earth and water supplies.8 Modern slavery is actually thought to be the third-highest carbon emitter globally9, with 40 percent of deforestation carried out by enslaved workers.10
These illegal activities have a very tangible effect on climate change, with deforestation and degradation contributing around 15 percent of global carbon emissions.11 The illegal wildlife trade in animals and plants—the fourth most profitable global criminal activity and one increasingly orchestrated by drug cartels seeking to diversify and complement their trade—further disrupts the balance of fragile ecosystems by endangering species, engendering infectious diseases12 and threatening global food security.13
Closer to home than you might think
At this point, you may be thinking that your financial-services business has nothing to do with illegal logging or mining, human trafficking or ivory smuggling. None of these crimes exist in isolation, however. Not only do human, wildlife and drug trafficking tend to commingle (using the same smuggling routes and networks, for example), they necessarily coalesce with other less “exotic” crimes, such as fraud, forgery, corruption and bribery, which are often requisites for facilitating and concealing transport of victims, specimens and products. What’s more, these activities are increasingly undertaken by large transnational organised crime networks, inevitably extend into jurisdictions you operate in or do business with, and are likely to benefit wealthy and untouchable community figures who will certainly interact with financial institutions in some capacity.14
In Europe, for example, the Italian Camorra Mafia syndicate has profited from burning illegal waste as part of a multibillion-dollar ecomafia racket that undercuts the cost of legal waste disposal and has relied heavily on threatening and bribing corrupt officials.15 This released toxic dioxin into the air and water supplies, poisoning livestock and causing the dairy industry in Campania, a region in southwestern Italy, to collapse, and driving the region’s cancer mortalities up to 80 percent higher than the national average.16 Even in the UK, the Environment Agency,17 the National Crime Agency18 and INTERPOL19 have all confirmed that serious and organised crime groups have used waste-management activities as a cover for human, drug and firearms trafficking; fraud; and money laundering nationally.20
Whether undertaken by lone criminals or organised gangs, financial crime threatens the capacity of governments worldwide to collect legitimate tax revenue. Cameroon, for example, is thought to lose around US$60 million annually21 just through illegal timber exploitation. Indeed, in 2016, INTERPOL22 issued a joint report with the United Nations stating that environmental crime alone had an annual growth rate of 7 percent, outstripping global gross domestic product (GDP) growth by two to three times and estimating its worth at as much as US$258 billion per year. Even in the UK, illegal waste crime costs the public up to £200,000 per site.23 That’s money that could and should be going towards our infrastructure, our health services and other public investment instead.
If none of that persuades you of the real-world impacts of financial crime, then perhaps the global security implications will. Terrorist organisations the world over fund and support their endeavours via these activities. Al-Shabaab24, for instance, has relied heavily on illegal charcoal from Somalia, while the likes of Boko Haram25 use unlawful logging as a primary source of finance. These crimes are also cyclical and self-perpetuating; when criminals rob governments of taxes and citizens of legitimate employment, resources, livelihoods, settlements and income, they create an endless and reinforcing cycle of exploitation, whereby people (and victims themselves) are forced to turn to crime to sustain themselves—and then become even more vulnerable to recruitment26 by terrorist organisations or cells.
It’s also a matter of national security, right here on our doorstep. State actors, often operating from within hostile and oppressive regimes, have invested heavily in the United Kingdom, particularly London, via real estate, assets, media, trade and other critical infrastructure. Some consider this a threat to our national security and the very fabric of our democracy; could the well-documented dirty money swilling through the streets of London actually compromise us as a country and threaten to erode our values systematically?
The role of the private sector
So, what can and should we—as individuals operating within financial institutions—be doing about this? What role can we play? Seeking to truly understand where any money really comes from is pivotal. Criminal activities are often ultimately economic in nature; perpetrators seek to turn a profit, and they must first launder the spoils of their criminal endeavours through legitimate services if they are to spend money in the wider global market. Beneficial ownership information is key and must be investigated with genuine rigour, interest and curiosity. Without it, you might unwittingly facilitate the laundering of funds derived from corruption, conflict or terrorism.
It’s vital that businesses consider all potential links to financial crimes—be they upstream or downstream. Companies must choose with whom they want to do business and accept money from and with whom they choose to partner as suppliers. Screening is pivotal in this process, and tech solutions should really be integrated as part of it. At scale, adequate screening without them is risky and burdensome. Tech also enhances the breadth of research possible; Themis Search27, for example, allows you to investigate potential criminal links and visually map out their counterparties and extended associations. Figure 1 represents a Themis Search map depicting a criminal operation in which seven individuals were convicted for illegally trading a range of products, including skins made from protected sea turtles and other wildlife.
Risk assessments are just as crucial; as well as understanding the potential threats to your own business, you should really be challenging all your third parties and suppliers to demonstrate that they have the right controls and defence mechanisms in place so that they are not exposing you to financial-crime risk in any way, even if indirectly. The Themis Risk Assessment28 is an example of a digital tool that can help you effectively identify the relative strengths and weaknesses in the anti-financial-crime governance, systems and controls of all of your suppliers and third parties with one email. With a consolidated heat map of their replies, you can understand the threats across your portfolio at a macro level and also deep dive into a specific company report.
Customer, supplier and investor due diligence and transaction monitoring are also vital to disrupting global financial crime. Information sharing, suspicious-activity reporting and whistleblowing are just as key. With financial crime increasingly orchestrated by highly efficient, organised and collaborative transnational networks, we must work together rather than guarding or squandering knowledge derived in the due diligence or transaction-monitoring process if we are to adequately safeguard against it. The other side is collaborating; we must, too.
Finally, it’s vital to avoid the so-called “race to the bottom”—that is, forgetting the wider landscape in which a business (and we as humans) exist and operate and prioritising business performance and profitability at the expense of all else—or ignoring all else in the process. The reason why everyone in the building should be thinking about financial crime is to put a stop to the direct harm criminals cause to people (who may be your customers, your team members and colleagues, or other key stakeholders), businesses, the planet and the rule of law.
In our experience, the firms that manage these risks most effectively are those in which the chief executive officer drives the culture of risk mitigation and due diligence by questioning from the top and cascading this attitude all the way down the organisation. “Does this client relationship really make sense?” “Are there any unusual activities that should be investigated?” These are the sorts of questions you should be asking and then following the thread until you are satisfied. This inquisitive approach should form the basis of a broader company-wide financial-crime framework that helps your team understand to what threats the business is exposed and how they can be mitigated.
Earlier this year, Themis and the UK Government’s Serious and Organised Crime Network developed a best-practice framework to help financial institutions tackle the money flows underpinning the illegal wildlife trade (IWT). This toolkit29 was created following consultation with more than 700 financial sector professionals to understand strategies and tools used by different financial institutions to detect and report potential links to the IWT. Although the toolkit is focused on one type of illicit activity, its principles can be applied to all financial crimes.
In 2020, Prince Charles30 declared his fundamental belief that “the private sector has a crucial role to play in solving the health, climate and biodiversity crises we all face”. We have seen that financial institutions, in particular, can play a pivotal role in identifying and putting a stop to the financial crimes and laundering operations that so often underpin or enable a whole host of devastating predicate crimes. Organisations need to make the “right” decisions, not just the financially motivated ones. We are the stewards of our planet and need to look after it for the next generation. I, for one, want my children and grandchildren to be able to learn about rhinos and pangolins as extant rather than extinct species and to witness and enjoy the world in all its beauty—not deforested, plundered and ravaged of all its special resources.
References (Accessed July 29, 2022)
1 Forbes: “Cracking The $150 Billion Business of Human Trafficking,” Carmen Niethammer, February 2, 2020.
2 Global Slavery Index: “More than 136,000 people are living in modern slavery in the United Kingdom,” July 2018.
3 UK Government: “Modern Slavery National Referral Mechanism and Duty to Notify statistics UK, end of year summary, 2021,” March 3, 2022.
4 Themis: Anti-Slavery Hub: A Toolkit for Financial Services to Help Combat Modern Slavery.
5 Verité: “Exploring Intersections of Trafficking in Persons Vulnerability and Environmental Degradation in Forestry and Adjacent Sectors: Case Studies on Illicit Harvesting of Pterocarpus Tinctorius and Road Construction in Mozambique,” August 2020.
6 One Green Planet:, “Deforestation, Human Rights Abuse, Animal Extinction and the One Industry That Unites Them All,” Lauren Kearney, 2014.
7 Ardea International: “Conflict Minerals and Human Rights in the Supply Chain,” Colleen Theron, September 18, 2015.
8 INTERPOL: “Pollution crime.”
9 Devex: “Opinion: How modern slavery threatens climate efforts,” Na’Shantéa Miller, September 3, 2021.
11 World Wildlife Fund: “Deforestation and Forest Degradation.”
12 World Bank: Blogs: “Trafficking wildlife and transmitting disease: Bold threats in an era of Ebola,” Timothy Bouley and Sara Thompson, October 2, 2014.
13 Researchgate: “A Mammalian Predator-Prey Imbalance: Grizzly Bear and Wolf Extinction Affect Avian Neotropical Migrants,” Joel Berger, Lori Bellis, Matthew P. Johnson and Peter Stacey, August 2001.
14 OSCE: “OSCE Resource Police Training Guide: Trafficking in Human Beings,” July 10, 2013.
15 Independent: “Europe’s largest illegal toxic dumping site discovered in Southern Italy – an area with cancer rates 80% higher than national average,” Michael Day, June 17, 2015.
16 BBC News: “Naples rally against mafia’s toxic waste dumping,” November 17, 2013.
17 Environment Agency: “Fighting waste crime, A war we are determined to win,” June 12, 2018.
18 The National News: “Organised crime groups driving human trafficking and modern slavery in the UK,” Taylor Heyman, May 14, 2019.
19 INTERPOL: “Hazardous materials seized in largest global operation against illegal waste,” August 8, 2017.
20 Mirror: “Illegal waste raids: Police arrest six in Environment Agency probe with two held for human trafficking,” Neil Lancefield, March 10, 2015.
21 Institute for Security Studies: “Nigeria and Cameroon must confront timber trafficking together,” July 15, 2021.
22 INTERPOL: “UNEP-INTERPOL report: value of environmental crime up 26%,” June 4, 2016.
23 Environmental Services Association Education Trust: “Waste Crime: Tackling Britain’s Dirty Secret,” March 2014.
24 The Guardian: “$213bn illegal wildlife and charcoal trade ‘funding global terror groups’,” Hannah McNeish, June 24, 2014.
25 Institute for Security Studies: “Nigeria and Cameroon must confront timber trafficking together,” July 15, 2021.
26 Waron the Rocks: “Al-Shabaab and Chinese Trade Practices in Mozambique,” Henry Tugendhat and Sérgio Chichava, September 23, 2021.
27 Themis: “Themis Search & Ongoing Monitoring.”
28 Themis: “Themis Risk Assessment.”
29 Themis: “Illegal Wildlife Trade Financial Toolkit.”
30 Business Insider: “HRH The Prince of Wales called on major businesses to appoint chief sustainability officers, saying the private sector has a ‘crucial role’ in tackling the climate crisis,” Theo Golden, November 19, 2020.