1. 1 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

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

3. 3 Stolen Assets and Development 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.

4. 4 Corruption, Money Laundering, and Stolen Assets The World Bank estimates that more than $1 trillion is paid in bribes each year. 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. Illegal Logging: $10 billion per year, plus $5 billion in lost revenues.

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

6. 6 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

7. 7 Illegal Logging Should Be A Priority 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

8. 8 Forest Crime Players Illegal timber crime can include:   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

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

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

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

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

13. 13 What Are The Benefits Of Money Laundering Laws? 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.

14. 14 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.

15. 15 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.

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

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

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

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

20. 20 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

21. 21 Money Laundering Analysis Can Assist Investigations 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.

22. 22 What Does Law Enforcement Need and When Do They Need It? 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.

23. 23 Suggestion: Set Up A Special Interagency Logging Strike Force 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.

24. 24 Additional Suggestions 1. 1. Coordinate with FIU’s to develop “Red Flags” to help detect suspicious financial transactions. 2. 2. Survey and collect domestic laws to identify useful provisions to help in the prosecution of forest crime cases. Web and shirt pocket version. 3. 3. Identify impediments to successful investigation and prosecution of timber crime cases. 4. 4. 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. 5. 5. Consider options for criminal, civil and administrative sanctions dealt with simultaneously.

25. 25 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 and therefore forfeitable. 9. Create fast track procedure for certain forfeitures. 10. Consider establishment of a Forest Crime Forfeiture program.

26. 26 Illegal Logging and Money Laundering 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…;

27. 27 Suggestion: Set Up An Interagency Strike Force 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.

28. 28

29. 29 Hit where it hurts – money and greed. Hit where it hurts – money and greed. 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. 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. Governments Must

30. 30 Asset Forfeiture  Critical Tool to Fight Corruption and for Asset Recovery 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)

31. 31 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. Limitation of Criminal Forfeiture

32. 32 Conviction Based or Criminal Forfeiture (Common law jurisdictions) Non-Conviction Based or Civil Forfeiture Against the person (in personam)  Part of the criminal charge against a person ActionAgainst the thing (in rem)  Judicial action filed by a government against the thing as the wrongdoer CriminalJurisdictionCivil Imposed as part of sentence in criminal case WhenFiled 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 ForfeitureForfeit the thing itself, subject to innocent owners Criminal and NCB Forfeiture

33. 33 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. NCB Forfeiture is a Critical Tool

34. 34 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  Available when criminal conviction is not possible NCB Forfeiture

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