Combating money laundering and the illegal wildlife trade

EIA’s Vanishing Point report included a case study of ivory trafficking from Tanzania to China. Our research revealed that between 2009-14, approximately 40 tonnes of ivory originating from Tanzania was intercepted outside the country en route to the consumer market, with 22 tonnes seized inside the country. Based on a conservative figure of $2,100 per kilo for raw ivory tusks in China, the main destination, the 62 tonnes seized had an end market value of $130.2 million.

It is inconceivable that such large amounts of money could be moved around in cash rather than through the banking system, but no anti-money laundering investigations occurred in relation to these seizures.

One case in particular illustrates how opportunities to track the money flows associated with ivory seizures – and so to target the bosses of smuggling syndicates – are being squandered.

In November 2013, Tanzanian police raided a house in the upmarket Mikocheni area of Dar es Salaam, following a surveillance operation. At the location, three Chinese nationals were discovered packing 706 elephant tusks in preparation for export. Documents found at the scene indicated a similar shipment had already been despatched to the port of Zanzibar for export; inspection of a shipping container at the port uncovered a stash of 1,023 tusks.

This was clearly the work of a major crime syndicate. Subsequent investigations revealed that two businesses, Evergo International and YQP International, were being run from the Mikocheni house, ostensibly importing garlic and chemicals from China as a front for ivory smuggling.

Documents showed substantial money flows between the companies’ bank accounts in Tanzania and companies in Hong Kong and mainland China. Company records also identified two Chinese nationals, Deng Jiyun and Zhang Mingzhi, controlling the companies.

Lengthy jail sentences were handed down to the Chinese packers and the two Tanzanian dealers. Yet the Chinese coordinators have never been caught.

Despite all the evidence that was discovered related to illicit financial flows, nobody connected to the case was charged with money laundering.

In 2018, Malawi’s Financial Intelligence Authority (FIA) released a report on money laundering trends, recognising illegal trade in wildlife as an emerging risk and identifying as a red flag those accounts benefiting from the international inward transfer of funds from destinations associated with the ivory trade.

It quotes the case of two Malawians caught in 2013 transporting 2.6 tonnes of ivory, stating: “There was information that the two Malawians were part of a syndicate of foreign nationals who were not identified and arrested. FIA noted that one of the two convicted individuals received funds from Hong Kong through Western Union.”

EIA has conducted extensive research into this case, which aptly illustrates how financial investigations can be used to build a picture of wider transnational networks spanning source, transit and destination countries and to identify individuals and front companies involved.

The seizure occurred when two Malawian brothers, Charles and Patrick Kaunda, were stopped at a mobile customs checkpoint. Beneath sacks of cement, officers discovered 781 ivory tusks weighing 2.6 tonnes.

Follow-up investigations in Malawi and Tanzania led to a large house in Dar es Salaam, where a further 347 tusks were found. Evidence pointed towards a cross-border ivory trafficking network which had built a safe route from Dar es Salaam, home to a major port, via landlocked Malawi and out through the port of Beira in neighbouring Mozambique.

Shipping records showed that Charles Kaunda had previously shipped 14 containers allegedly containing sawn wood or semi-precious stones to Singapore, Malaysia and Indonesia, all of which have featured as transit countries for ivory shipments.

Western Union money transfer records for Charles Kaunda showed payments made to him from individuals in Hong Kong and Malaysia, often coinciding with container movements. One of the people who made transfers to Kaunda was Malaysian national Wang Yong Sai. Wang’s brother, Wang Jun Teng, was listed as the recipient of one of the shipments.

Through analysis of shipping and fund transfer records, what at first appeared to be an opportunistic ivory smuggling attempt at a remote location in northern Malawi can be connected to an Asian-led ivory smuggling ring, active in Malawi for two decades.

The two Kaunda brothers were found guilty on charges of money laundering and possession, but were sentenced to either a paltry fine of Malawi Kwacha five million ($7,000), just 0.17 per cent of the value of the tusks, or five years in jail. Unsurprisingly, they opted for the fine, which was paid in cash.

This case demonstrates that, even on the rare occasions when anti-money laundering charges are deployed against wildlife traffickers, the resulting penalty rarely fits the crime.

Subsequently, the prosecution appealed the case and in July 2019 the Supreme Court sentenced the brothers to eight years in jail. They were not in court to hear the verdict and promptly absconded.

Meanwhile, Wang Yong Sai and his brother Wang Jun Teng, the Malaysian nationals who oversaw the operation, remain free.

In April 2016, an EIA investigative team travelled to the port of Pemba, Mozambique to assess the scale of ivory trafficking in the area. By chance, they encountered a group of three Chinese men. This meeting led to a series of undercover investigations by EIA, which resulted in the discovery of the global hub of the illegal ivory trade in Shuidong, China.

This in-depth engagement with an active ivory smuggling group yielded fascinating insights into their operating methods, including financial aspects such as profit margins, payments to accomplices and the use of both underground money changers and the formal banking system.

During the investigation period (April 2016 to July 2017), members of the group claimed involvement in illegal shipments of ivory tusks from Africa to China totalling 20.7 tonnes (equivalent to 3,000 dead elephants) with a sales value of $16 million in China.

Our investigation followed the progress of 2.3 tonnes of poached ivory, which were packed in a shipping container and concealed by plastic pellets. The consignment took a circuitous route: Pemba (Mozambique) to Mombasa (Kenya) to Singapore to Busan (South Korea) to Hong Kong. It arrived safely in Shuidong in late September 2016.

The Route for the ivory trafficked from Mozambique to China (click for larger image)

Although the route did not make commercial sense, it was ideal from a smuggler’s perspective due to the involvement of an accomplice in the freight forwarding business and the use of transit countries to defeat risk-profiling systems used by the customs authorities in China, the final destination. Upon arrival in China, it would appear the shipment came from Korea and not Mozambique.

The two main financial flows associated with the ivory trafficking activities of the Shuidong group are:

• transfer of funds from China to Africa to fund ivory collection and pay the balance owing once the contraband had been inspected. The group used a network of Chinese informal money changers based in Africa. Money in Chinese renminbi would be paid into a designated Chinese account belonging to the selected money changer. The funds would then be paid out in US dollars cash in Africa and collected by the Shuidong smugglers or their accomplices. The group used trusted money changers based in Dar es Salaam, Tanzania and Lagos, Nigeria;
• payment for ivory tusks sold within China by the Shuidong group to buyers from Fujian. These transactions were all made in Chinese renminbi, either by bank transfer or sometimes cash. The Shuidong group used a system of joint investments to fund the purchase and transport of ivory from Africa in order to spread the risk in case of seizure. Members of the group also used some of the profits from a successful shipment to source ivory for the next consignment, constantly recycling some of the profits into further consignments.

Before publishing The Shuidong Connection, we shared our findings with Chinese customs authorities. They responded swiftly with a huge operation in Shuidong, comprising about 500 enforcement officers, and arrested 27 suspects, 16 of whom went on to face criminal charges.

Action taken by the China Customs Anti-Smuggling Bureau based on EIA’s intelligence has now led to the dismantling of two ivory trafficking syndicates spanning Guangdong and Fujian provinces in southern China.

Private sector financial institutions have a crucial role to play in identifying and reporting suspicious transactions linked to the illegal wildlife trade to the relevant authority, which will often be the country’s Financial Intelligence Unit. Obstacles to the effective involvement of banks in efforts to disrupt illegal wildlife trade syndicates include:

• a focus on other priority crime types;
• an overall lack of cases and awareness of the illegal wildlife trade among bank compliance officers.

The recent leak of the FinCEN files reveals the scale of the money laundering problem that faces financial institutions. The 2,500 documents that were leaked showed that some of the world’s biggest banks had moved $2tn of dirty money around the world for people involved in organised crime, terrorism and drug trafficking.

From our perspective, it was interesting to see that illegal wildlife crime was not mentioned in the news reports. Yet we know that it is the fourth largest type of crime in the world after arms, drugs and human trafficking. Therefore, undoubtedly, a significant percentage of that £2tn must have been related to illegal wildlife crime.

On a positive note, progress was made in October 2018 with the formation of the United for Wildlife Financial Taskforce, which has more than 40 financial institutions as members.

EIA is a member of the United for Wildlife Financial Taskforce. The UK Royal Foundation launched the United for Wildlife Financial Taskforce in October 2018, which is designed to transform the detection, reporting and investigating of the illegal wildlife trade as a financial crime. This taskforce includes more than 30 financial institutions from around the globe, including Africa, Asia, Australia, the Americas and Europe, and subject matter experts, including not-for-profit organisations involved in combating the illegal wildlife trade, such as TRAFFIC, RUSI and EIA.

The taskforce assists banks to identify suspicious transactions linked to the illegal wildlife trade by issuing regular alerts on trends and seizures. It also distributes a list of common ‘red flags’ to further aid detection. For their part, member banks undertake to provide training on the illegal wildlife trade to compliance staff and to include illegal wildlife trade factors in due diligence screening.

NGOs involved in researching and investigating illegal wildlife trade cases also have a role to play in assisting banks by providing appropriate information. For example, information provided by EIA to “Know Your Customer” databases, one of the tools to vet potential new clients, has led to the creation of 850 new profiles on individuals involved in wildlife crime since June 2018.

Many governments have established comprehensive systems to combat money laundering. Frequently, such systems include:

• making money laundering a criminal offence;
• giving investigative agencies the power to trace, seize and confiscate assets that have been acquired illegally;
• enabling the relevant agencies to exchange information both within their country and with other jurisdictions.

Anti-money laundering activities are often directed by a country’s Financial Intelligence Unit, but these agencies are not always involved in cases related to the illegal wildlife trade.

Another problem for governments is that criminal syndicates are constantly evolving new ways to beat the system and are highly motivated to cover their tracks and evade capture.

The inter-governmental Financial Action Task Force (FATF) is the global standard setter on anti-money laundering measures. As such, it has a potentially vital role to play in tackling illicit financial flows linked to the illegal wildlife trade.

A key tool is the National Risk Assessment (NRA) process through which a country’s Financial Intelligence Unit must assess the risk of money laundering posed by different crime types – such as the illegal wildlife trade – and demonstrate measures to mitigate the risk. Failure to do so can lead to the country being placed under review as part of the mutual evaluation process and ultimately face actions which can affect access to the global financial system.

Until recently, the FATF had been largely silent on the illegal wildlife trade, but in June 2019 the incoming Chinese presidency pledged to focus on this area during its year-long tenure. This served to raise the profile of the illegal wildlife trade within the organisation and national Financial Intelligence Units, which should leverage the wider inclusion of the illegal wildlife trade as a significant risk in more NRAs.

Other potential measures by the FATF include ensuring one of its key recommendations of carrying out parallel financial investigations in criminal cases is applied to the illegal wildlife trade and bolstering training of financial investigators in countries prone to offences in this field.