Money Laundering and Illegal Logging

Whistleblowers can use anti-money laundering laws to reveal how timber trafficking networks launder the proceeds of illegal activity.

Illegal logging is the most profitable natural resource crime around the world, generating an estimated USD 51 to 152 billion annually. Historically, efforts to combat illegal logging have focused on the possession of illegal timber, but illegal logging is facilitated by complex and sophisticated global networks. Low-level actors receive only a small portion of the proceeds, while the majority of profits go to intermediaries, exporters and retailers.

Increasingly, efforts to combat this trade aim to “follow the money” by tracking illicit financial flows and revealing powerful criminal networks that facilitate illegal logging. These approaches focus on schemes that depend on networks of shell companies, tax avoidance, and money laundering.

What is Money Laundering?

Money laundering is defined as the “processing of criminal proceeds to disguise their illegal origin.” Due to the illegal nature of money laundering, precise estimates of the scope of money laundering are difficult to produce. However, a study by the United Nations Office of Drugs and Crime (UNODC) estimated that in 2009 criminal proceeds around the world account for 3.6% of global GDP, with 2.7% laundered, equivalent to USD 1.6 billion.

Most anti-money laundering efforts focuses on two primary types of laundering, through cash or the financial system. However, a third category of money laundering focuses on laundering through trade (trade-based money laundering).

The U.S. Government Accountability Office describes trade-based money laundering as “the process of disguising proceeds of crime by moving value through trade transactions to legitimize their illicit origin.” The Financial Action Task Force, AN intergovernmental group that sets global anti-money laundering standards, identifies four common techniques of trade-based money laundering:

  • over- and under-invoicing of goods and services
  • multiple invoicing of goods and services
  • over- and under-shipments of goods and services
  • falsely describing goods.

The U.S. Treasury Department has identified TBML as particularly difficult to detect through the financial system, because banks do not have documentation for most trade transactions when they process payments. According to Government Accountability Office, as financial systems have developed stronger compliance with the Bank Secrecy Act and anti-money laundering regulations, law enforcement agencies have seen an increase in trade-based money laundering. Trade-based money laundering in the timber industry can be particularly difficult to identify because perpetrators co-mingle the timber obtained illegally with legally obtained timber, disguising the source.

The Timber and Money Laundering Nexus

Timber traffickers rely on bribing officials and complex fraud and tax evasion. In order to hide the proceeds of illegal logging or bribes received in relation to illegal logging, illicit actors may also engage in money laundering. According to the forestry NGO FERN, money laundering crimes relating specifically to the forestry sector can include:

  • cash from illegal logging deposited into local banks
  • the transfer of payments for illegal timber to accounts abroad
  • money from illegal logging already placed in a financial institution that is invested in other assets such as shares, bonds, property etc.

Compared to other types of transnational crime, less is known about the nature of money laundering related to illegal wildlife trafficking and even less is known about the relationship between money laundering and illegal logging. However, three prominent cases provide examples of how money laundering can help to facilitate illegal logging.

One prominent case involves illegal logging in Sarawak, Malaysia. According to NGO investigations, the Chief Minister of Sarawak Abdul Taib controlled a network of companies involved in illegal logging. To disguise the proceeds, Taib used a transfer pricing scheme and a network of shell companies to launder money that was then used to purchase real estate in the United States and Canada. In 2014, Taib was forced to step down as Chief Minister. Subsequent NGO investigations have illuminated how the funds moved through large banks, pension funds, and real estate groups.

In 2019, an investigation by the Organized Crime and Corruption Reporting Project, based on thousands of pages of internal bank documents, found that the former president of The Gambia, Yahya Jammeh, had embezzled nearly USD 1 billion dollars from public funds and illegal timber revenue. In July 2020, the Department of Justice filed a civil forfeiture complaint seeking the forfeiture of property acquired with USD 3.5 million by Jammeh. According to the complaint, Jammeh had corruptly obtained the money by embezzling public funds and soliciting bribes. Using shell companies and overseas trusts, he and his family laundered the money to buy real estate in the U.S.

Finally, in a notable case of trade-based money laundering, Lumber Liquidators was sentenced to pay more than $13 million, the largest fine in U.S. for importing illegal timber, “related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world.”

This case was prosecuted under the Lacey Act. While violations of the Lacey Act are not predicate offenses for money laundering, the Lacey Act specifically prohibits trading wildlife in the U.S. interstate or foreign commerce that was taken, harvested, possessed, transported, sold, or exported in violation of an underlying law in the U.S. or a foreign country.

How Whistleblowers Can Report Money Laundering in the Timber Trade

Whistleblowers can play a powerful role in detecting and prosecuting money laundering. In fact, the detection of several high-profile money laundering schemes, including the Danske Bank money laundering scandal and the Panama Papers scandal, has only been possible because of whistleblowers.

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Using powerful U.S. laws, such as the IRS whistleblower program, whistleblowers around the world can report money laundering while protecting their identity and qualifying for a reward.The IRS whistleblower program is expansive, covering tax fraud and evasion, financial institution fraud, and money laundering. Whistleblowers around the world can use the IRS whistleblower program to confidentially report attempts by individuals or groups, including financial institutions, to launder money. If there is a successful prosecution that meets the financial qualifications (over $2 million in taxes, penalties, and interest OR gross income over $200,000), the whistleblower will be entitled to an award of between 15 and 30 percent of the total amount collected by the government.

The IRS whistleblower program is extremely successful, and whistleblowers could extend this success to timber-related money laundering. Predicate offenses for money laundering related to the illegal timber trade include bribery in violation of the Foreign Corrupt Practices Act and smuggling into the United States or falsely classifying or declaring imported goods through U.S. customs.

Liability for laundering the proceeds of forest crimes extends beyond perpetrators of the original crime to third parties who facilitate financial transactions, including banks, accountants, lawyers, and real estate companies. Whistleblowers could report companies who bribe foreign officials to obtain land concessions or logging permits and then conduct transactions in the U.S. financial system with the proceeds, along with the third parties who facilitate these transactions.

Successfully combatting the illegal timber trade requires targeting the financial flows that facilitate it, and whistleblowers are uniquely suited for this role. U.S. laws provide an important avenue for whistleblowers around the world to help detect illicit financial flows and prosecute high-level perpetrators who facilitate these transactions. Thanks to the IRS whistleblower program, they are well-suited to do so while protecting their identity and qualifying for a reward.

To learn more about these and other whistleblower laws, read The New Whistleblower’s Handbook, the first-ever guide to whistleblowing. The Handbook, authored by the nation’s leading whistleblower attorney, is a step-by-step guide to the essential tools for successfully blowing the whistle, qualifying for financial rewards, and protecting yourself.   

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