Analysis of IWT in China from 2017-2021exploring a financial approach to combatting wildlife trafficking in China

Given wildlife crime networks operate alongside other global organised crimes, their illegal profits need to be laundered in similar ways as with other illegal activity. However, over 500 money laundering cases for the same period found on China Judgements Online made no connections with wild species crimes. This report provides new insights into trafficking of wildlife, including timber, from a financial crime perspective by exploring the illicit financial flows and payment mechanisms involved.

It is hoped that this report will act as a springboard to boost efforts between anti-money-laundering and wildlife crime investigations and bring down the wider criminal networks responsible for the decline in biodiversity."

Linda Chou, TRAFFIC Project Manager and a co-author of the report

Change in the law

Although smuggling is one of seven predicate offences¹ of money laundering in China, an analysis of court cases found no direct crossover between money laundering and wild species trafficking. This was because, before a Criminal Law Amendment (XI) in 2021, if the defendant was found to commit crimes of wildlife trafficking and money laundering, they would only be held criminally responsible for the crime of wildlife trafficking. At this time, trying to hide the origins of illicit money, often through multiple transfers, known as ‘self-money laundering’, was not yet deemed a crime.  

Now, China’s law amendment allows the court system to give a combined punishment for both crimes, and greater investigations into wider perpetrators can be taken.

Uncovering ways criminals clean their illicit proceeds from wild species crime

In recent years, TRAFFIC has evolved the ‘follow-the-money’ concept to track down and disrupt criminals throughout the illegal wild species trade and subsequent financial flows. The report explores the many factors that should be considered during these wider investigations and how these can be uncovered or prevented by different agencies: 

• Types of items – the report found that elephant ivory, pangolin, and rhino horn were most commonly seized, accounting for 66% of all wild animal trafficking cases. Rosewoods were the most frequent smuggled timber species.
• Trafficking channels – there are many modes of transit, but 40% of trafficking cases involving airports and land border inspection checkpoints prosecuted came from Beijing, Shanghai, Guangzhou, and Shenzhen, often smuggled by inbound passengers, unmanned border crossings, and couriers.
• Payment and transfer methods of illicit funds – these vary depending on the trafficking channel. Cash and mobile payment were commonly used in unregulated border crossing and passenger smuggling cases. The payments for postal and courier smuggling were done by bank transfer, mobile payment, and credit card. Using relatives' and friends' accounts to pay or receive funds, smurfing (breaking large transactions down into smaller ones to avoid detection), and cost premium were seen in cargo trafficking cases.
• Financial penalties – the ratios of financial penalties to case value, based on the severity of the offence and number of defendants involved, indicate the ratios for more serious offence are generally lower than that for minor offences, which means defendants in the cases of minor and relatively minor offences bear much greater cost in terms of financial punishment than those in the case of serious and particularly serious offences.

Recommendations

Money laundering and wildlife crimes are complex, and it is often difficult to identify the kingpins and upper echelons involved. Doing so has greater ramifications for the network at large, with more potential to capture those currently involved and deter future criminals. The report lays out steps for different authorities to encourage more collaboration and use of investigative techniques. For example:

Law Enforcement Authorities – improve the capacity to identify and detect concealed illicit items and conduct financial investigations.

Judicial Authorities – recognise the importance of financial investigation in wild species trafficking cases and further apply the evidence in securing convictions.

Financial Industry and Regulatory Agency-related Industries – provide regular training for practitioners to improve awareness and ability to identify red flags in suspicious transactions related to illegal wild species trade. Establishing a joint financial intelligence working group of public-private sector partners would help intelligence sharing between law enforcement agencies and financial institutions.

Useful links

Guidance for Chinese banks

AML e-course for financial sector

IWT Financial Flows Toolkit for financial sector