Insight archive for David Fein | Standard Chartered

To fight the illegal wildlife trade, we must disrupt its business model

David Fein — Wed, 10 Oct 2018 15:10:28 +0000

When it comes to the fight over illegal wildlife trade, the criminals have been winning. This brutal business has become the world's fourth most profitable criminal trafficking enterprise, generating revenues of between US$7bn and US$23bn a year.

Conservation gains are being reversed and species pushed to the edge of extinction. Tigers have become so rare that there are more of them living in US captivity than in the wild. The killing of rhinos for their horns has exploded. In 2006, 60 of them were killed on the African continent; now four are killed on average every day.

This has been exclusively a conservation issue for too long. Now banks are making it theirs. This week, more than 20 global financial institutions are coming together to form the Royal Foundation's United for Wildlife Financial Task Force, chaired by former UK foreign secretary William Hague. We want to bring to bear what we've learnt in tackling human trafficking and terrorist financing to take the fight to wildlife traders' doors.

Far-reaching effects

This illegal trafficking is not just a threat to biodiversity. It is a transnational organised crime with links to modern slavery, narcotics and the arms trade. It fuels corruption, impoverishes communities and inspires violence. It reaches from the savannahs of east Africa to the megapolises of east Asia.

The attraction for criminal gangs is obvious: the trade has high profit margins and a comparatively low risk of getting caught. We cannot seize and arrest our way out of the problem. If one shipment is stopped, another follows.

"We need to create a coalition of partners that gives law enforcement, regulators and banks the ability to spot patterns that no one can see alone"

We need to rethink our game plan. That means disrupting the business model. The Achilles heel of the illegal wildlife trade is the very thing that motivates it - the money. The need to move, store and realise proceeds gives governments and the financial sector the power to identify networks via their financial footprints and close the net.

Yet such trafficking has received barely any attention as a financial crime. According to the UN Office on Drugs and Crime, only 26 per cent of jurisdictions look at the finances behind the trade and a meagre 11 per cent investigate the wider criminal networks beyond poachers and couriers.

To crack down on the trafficking, we need to do three things

First, enable conservation activists to deliver intelligence right to the heart of the financial sector. Too little has been done to map the monetary flows, so the banking industry is not well enough attuned to the activity that courses through the system. A key first assignment for the task force will be to work with government and non-governmental organisations to develop a set of ‘red flags’ for the crime.

Second, banks must apply the armoury of tools that they use to fight other financial crimes. At Standard Chartered, we will be training bank branch tellers in source countries to spot the signs, making illegal wildlife trade a focus for our financial crime investigators, and enabling those efforts through new artificial intelligence and machine-learning tools. We are also sharing what we have learnt with our correspondent banking clients around the world.

Third, given the global nature of the trafficking, we need to create a broad, transnational coalition of partners that gives law enforcement, regulators and banks, working with not-for-profits, the ability to spot patterns that no one can see alone.

"We call on all financial institutions to join the UK Foreign Office's effort to end wildlife crime"

We also need to expand initiatives, like the one spearheaded by the UK's Royal United Services Institute, that strengthen the ability of law enforcement in key hotspots to use financial intelligence. That will help deliver the arrests, seizures and prosecutions needed to disrupt this activity.

We call on all financial institutions to join the UK Foreign Office's effort to end wildlife crime. Financial intelligence can have a transformative effect, not just for tracing and seizing assets but also for mapping criminal networks, tracking associations between people and ultimately proving cases in court.

This article was originally published by the Financial Times.

Illegal wildlife trafficking: it will take a network to defeat the networks

David Fein — Mon, 06 Aug 2018 11:24:59 +0000

If asked to name the most profitable organised crime predicates, most people would list drugs, human trafficking or the arms trade. Few would identify illegal wildlife trafficking, but recent estimates have put the global proceeds of this pernicious trade at around US$10-23 billion per annum, with wider links to other forms of organised crime, money laundering and corruption.

While the nature of this hidden crime makes it hard to be more precise, its impact is more quantifiable. International networks traffic illegally in wildlife to fill demand for so-called medicine, pets, ornaments and souvenirs, with a devastating impact on many endangered wildlife species, such as elephants, rhinos, tigers and the pangolin.

According to the WWF, it is estimated that between 35,000 and 50,000 African Elephants are poached each year, and there are more tigers in American backyards (estimated 5,000) than there are in the wild (estimated 3,200). Three rhinos are poached every day, and more than one million pangolins have been traded in the past 10 years.

"Illegal wildlife trades are tragedies in their own right, but they also have a wider impact on national and economic security"

According to the WWF, three rhinos are poached every day. We can play our part to stop illegal wildlife trafficking

These are tragedies in their own right, but this illegal trade also has a wider impact on the national and economic security of both the source and destination countries of the trade. According to a report by Chatham House, the trade “threatens the stability and security of societies involved at every point along the chain”. Evidence suggests that the trade erodes state authority and undermines the rule of law, through the corruption and violence associated with it; tragically, over 1,000 rangers have been killed in the past 10 years.

The economic impact is also disturbing. The trade deprives nations of development opportunities through the associated instability it causes and through the loss of lawful tourist income. All of this undermines the efforts of countries to safeguard their natural resources for future generations.

The combination of these environmental, social, human and economic costs demonstrates the need for urgent action. For too long this trade has been seen by the criminal perpetrators as low risk and high profit, in part because the trade was viewed as primarily an environmental issue rather than one requiring the type of response public, private and third sectors have offered to better known types of organised crime.

Different commodities, same system

While the commodities in illegal wildlife trade are unique (and often endangered), the methods used by the traffickers are not. The further we explore this issue, the more we see commonalities with the other organised crimes we are working in partnership across the globe to tackle.

The trade in illicit wildlife is facilitated by global networks of criminals who see it as just another means of creating profit alongside other illicit commodities. The trade overlaps with crimes such as weapons and drugs smuggling, through its transportation networks and use of corruption as tools of the trade. And like all proceeds-generating crimes, greed is its primary driver and finance its lifeblood. As with other proceeds-generating crime, finance is also its Achilles heel. The need to move, store and realise the proceeds of the trade provides a critical vulnerability.

Illegal wildlife trafficking is having a devastating impact on many endangered wildlife species

Due to the advocacy work of key sovereigns and NGOs, and the political impetus provided by the forthcoming UK Government Conference on Illegal Wildlife Trade, the need for robust action at a global level is being not only recognised but prioritised. And there is a growing recognition of the need to involve the private sector in the response, in particular the financial sector which, through existing anti-money laundering systems and processes, has a unique ability to root out suspicious activity in this trade.

As a global bank with a strong footprint in Eastern and Southern Africa and China and Southeast Asia (the leading source and demand countries), we recognise the role we have to play as part of a coalition of government, law enforcement, private sector and NGO stakeholders. We are actively working with a range of partners to increase our own and the industry’s understanding of the financial flows associated with the illegal wildlife trade and thereby grow the role that financial institutions play in tackling it.

Partnerships for protection

We are honoured to be working with The Royal Foundation through their conservation programme, United for Wildlife, and a number of other partners in forming the IWT-Financial Taskforce, which aims, among other things, to deliver conservation intelligence to the financial sector. As Vice-Chair of the taskforce I will be working with partners across the financial sector to lead the sector’s contribution to solving this problem.

"Optimising partnerships within banking and between the public and private sectors is essential to helping reverse the human-led decline of protected species"

We also support the Royal United Services Institute (RUSI) in delivering a programme of awareness raising to financial institutions, financial intelligence units and law enforcement in Africa, and we are building and delivering content for our Correspondent Banking Academy initiative in relevant markets.

By raising awareness and providing information, we increase vigilance. By increasing vigilance, we increase the leads available to law enforcement and others to disrupt and prevent the trade.

All of this is a starting point in the battle to reverse the human-led decline of many protected species. But more is needed if we are to turn words into action. Increasing, expanding and optimising partnerships within the industry and between the public and private sectors is essential. As is supporting under-resourced law enforcement agencies in source countries and destination markets with time-critical intelligence. To paraphrase a famous military quote, it takes a network to defeat a network, and we are excited to be part of the building of this network.

How to beat the money launderers

David Fein — Thu, 24 Nov 2016 11:53:13 +0000

When it comes to money laundering, the criminals are winning. More than USD1 trillion of illicit financing moves through the financial system each year. Only 0.2 per cent of those proceeds are seized by authorities, making the financial crime industry the largest and most profitable in the world.

Since money laundering enables pernicious crimes such as bribery and corruption, human trafficking and terrorist financing, it is essential for banks to improve their detection and reporting of suspicious activity to law enforcement. Such efforts are under way but they require broad public and private support to transform the financial system into a hostile environment for criminals and terrorists.

At the centre of the problem — and the solution — are ‘suspicious activity reports (SARs)’, which are filed with the government when a bank suspects that funds are the proceeds of criminal activity. Various factors have had the unintended consequence of banks promoting the quantity of SAR filings over their quality.

"Law enforcement struggles to find the signal in the noise"

The UK and US have experienced huge increases in SAR filings in the past decade. These may protect banks from regulatory sanctions that carry massive fines and costly remediation programmes but they do not help fight financial crime as law enforcement struggles to find the signal in the noise.

Impacts the most unprepared

This defensive approach has caused many banks to end relationships with broad groups of customers who, as groups but not individuals, might be considered more risky – simply because of their location, for example.

The result is felt by those most unprepared to deal with its impact: innocent citizens in parts of the world whose future depends on access to mainstream financial services. The International Monetary Fund made the withdrawal of banks from emerging markets a major issue at its annual meeting in October.

To focus financial crime compliance efforts more effectively on the most serious suspicious activity, the SAR framework needs to be transformed into a technologically based, cost-effective model for the 21st century. Fundamental to this change is a paradigm shift that aligns banks, bank regulators, law enforcement and the public.

Three ways banks can be more effective

Several global banks are working with UK and US authorities to develop a new model for discovering and disrupting financial crime built on three core principles.

First, banks will be far more effective at identifying and reporting suspected financial crime if they share information rather than acting on their own as they do now. We know that money launderers take advantage of these silos by using different banks for different parts of their schemes.

Second, by partnering with technology companies, banks can more efficiently and effectively identify suspicious activity. Third, financial intelligence is most robust when information flows between the public and private sectors. In the case of human trafficking, for example, presentations by leading non-governmental organisations and government enforcement agencies have improved the banks’ ability to detect potentially related financial transactions. In turn, they have helped law enforcement disrupt trafficking networks.

"The financial industry, regulators and law enforcement should work together"

In pilots, this model has demonstrated that combined identification and reporting of financial crime is more likely to be used by law enforcement and more likely to lead to the disruption of criminal enterprises. The financial industry, regulators and law enforcement should work together. After all, we share the same goal: to stop financial crime from being the most profitable industry in the world.

A version of this article first appeared in the Financial Times on 22 November 2016