Qatar – Legitimate Investors Are Funding Critics…


(MENAFN- Gulf Times)

One of the most profitable global criminal enterprises is one you might not expect. These are crimes such as illegal fishing and logging, trash trafficking and wildlife trade. And the financial sector is reaping enormous rewards from these attacks on the natural environment on which we depend.
It is difficult to overstate the damage caused by environmental crimes. By destroying ecosystems and depleting natural resources, these crimes destroy livelihoods, undermine government institutions and hamper our ability to deal with climate change.
As a new report from Finance for Biodiversity (F4B) points out, these crimes generate up to $280 billion every year, cutting tax revenues by about $30 billion a year, the poorest and richest countries alike. in the most losing environment. Financial institutions support the incitement – ​​often without their knowledge – by investing in companies that profit from these crimes. Through the profits derived from these investments, these institutions effectively launder the proceeds of environmental crime.
Anti-Money Laundering (AML) rules are meant to prevent the proceeds of illegal activities from being converted into clean money. For example, stricter rules and stronger enforcement in recent years have made it more difficult to finance terrorism. But a lack of information and inadequate technology hampers these efforts, with regulators struggling to keep up with increasingly sophisticated approaches to mask funding sources.
In terms of environmental offences, enforcement of the AML rules is particularly weak. To its credit, the Financial Action Task Force – the intergovernmental agency charged with combating money laundering and the financing of terrorism – has raised its profile in this area. But significant actions have remained largely confined to the illegal wildlife trade – a criminal enterprise which, though affecting thousands of wildlife species and millions of people, is only a small part of the problem.
But even if the existing AML rules were applied to more environmental crimes, that would not be enough. As the F4B report shows, investment returns derived from environmental crimes should also be subject to AML rules.
Financial institutions, including pension funds, not only provide channels through which environmental criminals launder profits; they also invest in nature-dependent sectors such as food, wood products and infrastructure, the profitability of which can be increased through environmental crime. For example, illegal logging can make more land available for agricultural production, thereby reducing costs, increasing production and improving quality. This results in higher profits for companies – and greater returns for their investors. While the investments may technically be legal, the returns come in part from criminal activity, thus amounting to illicit proceeds that need to be regulated accordingly.
In theory, financial institutions already have incentives not to support companies that profit from environmental crimes: these companies are threatened with fines or even forced suspension of certain activities, which makes it a riskier bet for investors. But the risks are too low to effectively deter investors; in most cases, environmental laws are poorly enforced, and when fines are imposed, they are usually low.
But if credit risks don’t deter investors, rising reputational risks might. As increasingly sophisticated, data-driven public campaigns link investments and specific environmental crimes, financial institutions will become increasingly vulnerable to public backlash against their destructive investments.
Helpfully, new mandatory environmental due diligence requirements – most immediately relating to deforestation – will soon come into force in key jurisdictions including the European Union and the UK. In Brazil, where widespread environmental crimes have serious global implications, the central bank is already integrating social, environmental and climate factors into financial regulation.
As disclosure increases, public interest litigation for environmental crimes will also increase. Already, climate litigation is beginning to have some success, building on a long history of lawsuits against companies for complicity in illegal activities within their value chains.
But none of this eliminates the need for stronger action by governments, starting with broader application and stricter enforcement of anti-money laundering rules. Unfortunately, major obstacles to progress remain, including the challenge of discerning illicit financial flows linked to environmental crimes, especially when mixed with uncontaminated financial flows. — Project syndicate


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