Governments Must Go After the Money to Combat Transnational Crime: Report

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A new report estimates that transnational crime in the developing world may be a multi-trillion dollar annual business, generating huge illicit financial flows that should be investigated and disrupted as part of the global fight against organized crime.

The report from Global Financial Integrity (GFI), a Washington DC-based advocacy organization, estimated that transnational criminal activities generate between $1.6 and $2.2 trillion annually.

Counterfeiting was the most profitable crime in the developing world, the report found, estimating the annual value of the business between $923 billion and $1.13 trillion. China and India are the major global players in the trade, but counterfeit cash, drugs, and other goods are also commonly produced and consumed in Latin America.

Annual revenues from drug trafficking, estimated at between $426 and $652 billion, were the second highest of the 11 illegal activities examined in the report. Virtually all of the world’s cocaine is produced in Latin America, as is a large proportion of other commonly-used drugs like marijuana, heroin and methamphetamine.

Illegal logging, human trafficking and illegal mining were also among the highest-valued crimes examined in the report.

According to the report, drug trafficking, illegal logging and illegal mining had a more specific impact on Latin America than the other crimes that were researched. While Latin America has long been a stronghold for drug trafficking organizations, criminal groups have begun to diversify and expand their operations into illegal logging and mining. 

Illegal logging is the most profitable natural resource crime, the report found, and is worth an estimated $52 to $157 billion annually. And South America’s Amazon basin is at the heart of the industry.

In particular, the value chain for Peruvian mahogany highlights the disparity in the revenues the industry generates. Loggers, who are often members of indigenous communities, earn about $70 per cubic meter of Peruvian mahogany. However, as the wood travels through the supply chain, illegal importers and exporters are the ones reaping the benefits. The report found that exporters of Peruvian mahogany earn $1,804 per cubic feet, a 2,477 percent increase in revenue compared to those who log the wood. Moreover, the report found that importers earned $3,170 per cubic meter, a staggering 5,200 percent increase.

Oftentimes this illicit industry is tied to drug trafficking organizations in drug-producing countries like Colombia. In order to clear land for coca cultivation and landing strips used to traffic illicit drugs, thousands of hectares of forest have been logged in recent years. 

Illegal mining began to surge in Latin America around 2002, and consequently, the GFI report found, this activity has severely impacted Latin America in the intervening years. Based on a study from the Global Initiative against Transnational Organized Crime that focused on nine specific Latin American countries, the GFI report’s authors valued illegal gold mining at $7 billion each year.

Colombia, Peru and Venezuela had the largest amount of illegal gold mining as it relates to total value, the report found. In particular, Colombia’s illegal gold mining industry is estimated to be worth $2 billion annually, accounting for 80 percent of total gold mining. Only Venezuela held a greater share of illegal gold mining as a percentage of the total (between 86 and 91 percent), but annual revenues from the trade in that country reached only $700 million.

InSight Crime Analysis 

The report’s primary authors, GFI policy analyst Channing May and program manager Christine Clough, told InSight Crime that transnational crime must be treated as a “business” that is “profit motivated.” In order to effectively combat transnational organized crime, they said, governments should place greater emphasis on the illicit financial flows generated by criminal activities.

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“These are businesses, and you can’t try to use techniques that have been used. They don’t work,” May said. “We have to go after the money. Any business, regardless of goods or services, they have to have money in order to function.” 

Clough echoed these statements, adding that too often the discussion about curtailing transnational crime centers on money as it relates to lining the pockets of the criminals involved. What is often overlooked, Clough suggests, is the need for organized crime groups to reinvest their money to allow their illicit activities to continue. 

For that to happen, the profits of organized crime groups must often pass through legitimate financial institutions. Organized crime groups often use so-called “shell companies” to launder money through banking systems without detection. They have also made use of trade-based money laundering schemes that seek to hide illicit financial flows by making them appear as legitimate business transactions.

Clough and May stressed that financial transparency could combat these crimes. Specifically, they argue for mandatory disclosure of beneficial ownership information for corporations — that is, forcing coporations to reveal the living person or persons who ultimately benefit from the corporation’s existence. 

“We must know who is behind these accounts, who benefits from them and who controls them,” Clough told InSight Crime. “Just look at the Panama Papers. We know what is happening and we know who is behind it. Oftentimes it’s illicit actors using a web of corporate structures around the globe to launder and move money in order to conduct business.” 

The report describes disclosure of beneficial ownership information as the “most important ?nancial transparency tool for combatting transnational crime.” But the authors also recommend increasing scrutiny of transactions involving entities located in so-called “secrecy jurisdictions” whose laws make it difficult to determine the beneficial owners of a given corporation.

In addition, the report recommends greater scrutiny of global trade flows in order to detect discrepancies that could be the result of trade-based money laundering.

More broadly, GFI says that implementing its recommendations will require greater cooperation both within and across governments.

The “fundamental goal” of the authors’ recommendations “is to increase the availability of information on the money ?ows underpinning transnational crime in order to combat it,” the report states. “Sharing that information within and across governments will amplify its impact by allowing connections to be made more easily between traditionally separate oversight and enforcement areas.

Read the full report below: 

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