Anti Terracide Financing: The New Frontier in AML
The fight against the many forms of financial crime has been going on for many decades now. It is an important issue. Financial crime can rob companies of years of hard work spent building wealth and shareholder value, at a stroke. Financial crime can subject individuals and even whole populations to a lifetime of misery and poverty. Financial crime can subvert whole economies. It can fritter away the finite natural resources of the planet.
Yet there are bigger issues than financial crime facing the planet at present, which are growing in impact and urgency, and which require concerted international action. This comes at a time when the world is becoming increasingly fragmented by nationalistic policies, exacerbated by a global pandemic and the fracturing of international trade. So the question is how we can align our global effort on money laundering and financial crime with these more pressing global issues. Here are ten key issues to address:
- Climate change
Moves towards net zero, limiting temperature rise to 1.5°C, and the forthcoming COP 26 are well aired. Yet four of the seven stock indices of the G7 countries, including the FTSE 100 and S&P 500, are on temperature pathways of 3°C or above. Not a single one of the G7’s leading stock indices is currently aligned with a 1.5°C or 2°C pathway. Financial markets will need to bite the bullet.
- Biodiversity loss
Biodiversity is the variety of all living things on the planet, and how they fit together in the web of life, bringing oxygen, water, food and other benefits to every part of the global ecosystem. Recent reports and studies about the state of nature are very worrying. In 2019 an intergovernmental panel of scientists highlighted one million animal and plant species now threatened with extinction. In 2020, a report found global populations of mammals, birds, fish, amphibians and reptiles plunged by 68%, on average, between 1970 and 2016. Illegal wildlife trafficking is now one of the five largest crimes worldwide.
About 31% of the earth’s land surface is covered by forests. More than half of all plant and land animal species in the world live in tropical forests. The most concentrated deforestation occurs in tropical rainforests. 15 – 18 million hectares of forest, an area the size of Belgium, are destroyed every year. On average, 2,400 trees are cut down each minute. Wildfires are increasing as a result of global warming.
More than 75% of the earth’s land area is already degraded, according to the European Commission’s World Atlas of Desertification, and more than 90% could become degraded by 2050. The Commission’s Joint Research Centre found that a total area half of the size of the EU (4.18 million km²) is degraded annually, with Africa and Asia being the most affected.
- Soil degradation
Soil fertility has declined considerably in many parts of the world due to intensive agriculture, over-grazing, water pollution, increasing use of fertilisers and pesticides, salinisation, deforestation and accumulation of non-biodegradable waste. Today, our food only contains 5-20% of the nutritional value of 100 years ago. Soil mineral depletion as compared to a century ago ranges from 72% in Europe to 85% in North America. Only Australia fares better at 55%.
- Plastics pollution
From having little impact on the climate just 20 years ago, the production and disposal of plastic now uses nearly 14% of all the world’s oil and gas. Plastic production is expected to grow to 20% by 2050 by which time related climate emissions could rise to 2.75bn tonnes a year and plastic could be driving half of all oil demand growth. The International Energy Agency states plastic could take up to 15% of the remaining annual carbon budget and make plastic equivalent to the world’s fifth largest climate heating country, emitting more than Germany or the UK, twice as much as all of Africa and nearly as much as shipping and aviation combined. Nearly a third of plastic goes to single use packaging and less than 10% is recycled. The rest goes to landfill, incinerators (adding to emissions and increasing air pollution), or is left uncollected (8m tons ending up in the sea). Plastic is now everywhere. We each eat a credit card’s worth every week.
- Increased toxicity
Toxicity takes many forms, from creation and mishandling of toxic chemicals to air pollution. M.V. Wakashio crashed into a coral reef on 25 July 2020 and leaked almost 1,000 tonnes of fuel oil into Mauritian waters. The Japanese ship operator has pledged a pitiful JPY 1 billion (GBP 6.5 million) for environmental preservation efforts. X-Press Pearl, a ship laden with toxic chemicals, has caused an even worse issue in Sri Lanka just a few months ago. We need to take environmental issues much more seriously, not just as regards incidents, but policy. See for example the huge numbers of EU environmental law infringements: https://ec.europa.eu/commission/presscorner/detail/en/inf_21_2743
- Ocean degradation
Oceans are important, and not just for their resources of fish. 70% of the oxygen we breathe comes from the oceans. Ocean currents are also vital in regulation of climate and there are worrisome signs that these are starting to slow down. Plastic waste is now everywhere in our oceans, and inside us. The number of overfished stocks globally has tripled in half a century and 1/3 of the world’s assessed fisheries are currently pushed beyond their biological limits
- Population increase
Global human population growth amounts to around 83 m annually (about the size of Germany), or 1.1% per year. The global population has grown from 1 bn in 1800 to 7.9 bn in 2020. UN estimates have put the total population at 8.6 billion by mid-2030, 9.8 billion by mid-2050 and 11.2 billion by 2100. It is not just raw population figures that are the issue. 1.3 bn tonnes of food are wasted each year. That is a heavy economic cost of USD 1 trn, and a huge cost to the planet and its ecosystems. Rates of consumption also differ, so each American, for example, consumes 7 times the amount of the average Indian. India has 1.4bn people, the US 330m. Yet in consumption terms, the effective population of the US (compared to India) is 2.31 bn.
- Water Shortages
Water shortages now affect more than 3 billion people around the world. The amount of fresh water available for each person has plunged by 20% in 20 years. More than 60% of irrigated cropland is highly water stressed. Water covers 70% of the earth’s surface, but only 3% is fresh water, and two-thirds of that is locked up in glaciers. Rivers, lakes and aquifers are drying up or becoming too polluted for use. Over half of the world’s wetlands have disappeared. Climate change is altering patterns of weather and water around the world, causing droughts for some and floods for others.
So how does all this fit in with the financial crime agenda? Some of the above have aspects which have been criminalised, such as environmental crime and illegal wildlife trafficking, though enforcement is difficult. Many of the above may be associated with more general financial crimes, such as corruption and money laundering. However, certain behaviours which adversely impact the planet have yet to be criminalised, or do not lend themselves easily to policy change which could result in criminalisation. Others may be regarded as new forms of fraud, such as greenwashing (see the current IOSCO consultation). However, it is certainly worth addressing how the financial crime community could assist in progress on the above planetary issues, whether through:
- changes to the sanctions environment
- blacklisting countries, industries and individuals which ignore terracide issues
- criminalisation of certain terracide behaviours
- debarring recalcitrant firms from bidding for government or international contracts
- ramping up enforcement on the financial aspects of terracide issues
- refocusing the FATF 40 Recommendations
- drawing up new conventions, toughening others and strengthening international cooperation
We may also need to reconsider certain fundamentals, such as:
- the raison d’être of companies being to provide shareholder value
- creation of new economic theory which is not GDP or growth based
- recognition of the concepts and value of “natural capital” or “earth capital”
- moving away from concepts of ownership to stewardship
- moving from assessing short term profitability and economic quick wins to planetary impact analysis and sustainability
- rebalancing spending, e.g. the UK commitment to a £3bn nature fund sounds great, but a distortion when contrasted against £100 bn plus for the HS2 rail project
- building high terracide risk into Enhanced Due Diligence programmes
- securing real cultural change
- making anti corruption agencies truly independent, armed with effective powers
There is certainly little time to lose. Our future depends on quick action and success. Now is the time to bring Anti Terracide Financing to the forefront.