On November 18, 2021, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”)—the lead domestic agency responsible for the enforcement of AML statutes and regulations—issued FIN-2021-NTC4 to all financial institutions with respect to the proliferation of environmental crime. The notice cautioned such institutions to be vigilant with respect to detecting and reporting suspected illicit financial activities that stem from a host of environmental crimes that contribute to the “climate crisis” by threatening ecosystems, upsetting biodiversity, and increasing the amount of carbon dioxide in the atmosphere.
FinCEN estimates that hundreds of billions of dollars in illicit proceeds are generated from such crimes on an annual basis, making environmental crime the third-largest illicit activity in the world following the trafficking of drugs and counterfeit goods. Significantly, the precipitous rise in environmental crimes is tied to increasing national security concerns as well. For example, in certain “conflict zones,” FinCEN estimates that the illegal exploitation and theft of oil contributes an estimated thirty-eight percent of the total income received by armed groups—many of which harbor strong anti-U.S. sentiments.
The November 2021 notice therefore expands the SAR obligations of affected financial institutions. Under the new requirements, such institutions are obligated to report any activity that implicates environmental crime generally, with a focus on the following activities: (1) wildlife trafficking (a/k/a Illegal Wildlife Trade (“IWT”)); (2) illegal logging; (3) illegal fishing; (4) illegal mining; and (5) waste and hazardous substances trafficking. Under the notice, regulated institutions should utilize the existing SAR reporting process to identify with particularity financial transactions suspected of being tied to environmental crime by referencing only “FIN-2021-NTC4” in SAR field 2 and selecting SAR field 38(z) as the associated suspicious activity type. FinCEN also requests that the institution filing the SAR again reference “FIN-2021-NTC4” in the narrative section of the report. The narrative section itself should clearly identify how the suspicious activity relates to suspected environmental crimes. According to FinCEN, “[f]ilers should provide any available details concerning how the illicit product, plant, or waste was solicited, acquired, stored, transported, financed, and paid for.” Names and contact information—including IP and email addresses where available—should also be reported for individuals and/or institutions suspected of engaging in the purchase or sale of illicit products, plants, or waste (or acting as an intermediary or agent for such activity), along with the volume and dollar amount of the transactions, and the identify of any beneficial owners of involved entities. With respect to illicit waste specifically, FinCEN requests that reporting institutions provide all available details and specific descriptions of the waste product, including its origin, method of transportation and ultimate destination.
FinCEN’s latest announcement is part and parcel of the Biden’s Administration’s overall strategy to implement its aggressive environmental justice agenda. In the first weeks of his Presidency, Biden issued an Executive Order on Tackling the Climate Crisis at Home and Abroad, outlining an ambitious and multi-faceted plan to coordinate domestic resources and marshal the support of the international community to “put the world on a sustainable climate pathway.” Among the items contained in that Executive Order was a policy directive emphasizing the President’s commitment to taking a “Government-wide approach” to reduce climate pollution across economic sectors. When the Executive Order was issued, it was widely anticipated that the Biden Administration would take a series of coordinated actions aimed at more vigorously enforcing existing environmental laws and regulations by enlisting the Departments of Justice and the Treasury (among others) to rededicate resources to combatting environmental crime. FinCEN’s latest announcement is merely the latest in a litany of actions taken by the President to advance his climate change agenda.
Financial institutions affected by the latest FinCEN announcement should review their AML processes and procedures to account for the latest changes to SAR reporting and specifically require AML compliance officers to report suspicious activity in this area. As combatting environmental crime becomes an international priority, the detection and reporting of illicit financial activity is merely the beginning of broader enforcement efforts to expose and prosecute individuals responsible for global environmental degradation.