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The Intersection between Financial and Forest Crime

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By Anthony Mansell, Director of Policy and Research, Climate Advisers and Gabriel Thoumi, CFA, FRM, Director Capital Markets, Climate Advisers

This article is original research which will be submitted to the U.S. Senate September 5 for their briefing held by Senator Schatz (Hawaii) titled – Private Investment as a Driver of Deforestation: Senate Briefing on Exposure of US Investment to Deforestation, Corruption, and Governance Risks.

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Forest crime is big business. Interpol — the International Criminal Police Organization —estimates that illegal logging and related forest and financial crimes siphon off between $51 and $152 billion dollars from the global economy each year. Forest crime also rarely occurs by itself – it is typically accompanied by corruption, theft, human rights abuses and other criminal acts.

Interpol announced in June 2017 that it would lead a global effort to treat forest crime like other white collar crime. Tim Morris, Interpol’s executive director of police services, drew a parallel between networks that engage in forest crime and more notorious criminal enterprises. “Criminal intelligence held by Interpol confirms that the same routes and modus operandi used for the illegal trade of timber are also used for the illegal movement of commodities such as drugs and protected wildlife,” he said.

Agriculture is the principal driver of deforestation across the world, accounting for 80% of the total. The global agricultural sector is also worth trillions of dollars. That means institutional investors with holdings in agricultural supply chains may face legal and financial risks. When someone illegally clears a forest to produce and profit from agriculture goods, and some of the revenue generated accrues to a publicly-traded US corporation, that company may have exposure to legal liability depending on, among other things, its degree of knowledge.

Institutions that facilitate US securities and US dollar transactions involving these products may face litigation under both generally applicable and environmental statutes, including US anti-money laundering (AML) laws, the Foreign Corrupt Practices Act (FCPA), and other generally applicable statutes, and environmental statutes like the Lacey Act. Other laws that may apply include the Global Magnitsky Act and the set of laws that address wire and mail fraud.

Any and all of these legal resources are available to us in the fight to curb illegal deforestation -- but to date, not enough has been done to leverage the power of these laws. To hold both the importers of illegally-produced forest products and the financial interests accountable for enabling illegal deforestation, greater enforcement and broader application is needed.

Foreign Corrupt Practices Act (FCPA)

There are possibly both anti-bribery and accounting provisions in the FCPA that can apply to forest crime. The US government enforces these laws through the US Department of Justice, which could in fact bring criminal charges, and the US Securities and Exchange Commission (SEC), which could bring civil or administrative actions.

The FCPA’s anti-bribery statute prohibits knowingly authorizing, offering, or paying “anything of value,” whether directly or indirectly, to foreign officials in order to influence them in their official capacities or to secure improper advantage to obtain or retain business. It applies to securities that trade on US exchanges including American depositary receipts; institutions, including any related corporate individuals and agents, all US natural persons — both citizens and residents, and businesses formed in or with US headquarters; and anyone committing a foreign bribery offense while within US territory.
The FCPA’s accounting provisions require corporations issuing securities that trade on US exchanges to keep accurate books, records, and accounts of transactions, and to devise, implement, and maintain an adequate system of internal controls and financial recordkeeping.

For example, if an issuer corporation, including its non-listed subsidiary, has false accounting statements and records, fails to implement internal controls, or acts to bypass these requirements to hide forest crimes, the issuer and related-parties may be liable.

Anti-Money Laundering Laws

US anti-money laundering laws are designed to deprive criminals of the use and benefits of the US financial system. Given the US dollar’s role as a global currency, these laws have global reach. That means not only are the perpetrators of certain underlying crimes subject to money laundering liability, but so too can be those who help facilitate the financial transactions, including bankers, accountants, and lawyers.

By statute, these crimes, called specified unlawful activities (SUAs), can include bribery, misappropriation, public funds’ embezzlement, mail and wire fraud, false customs declarations, knowingly transacting in stolen or fraudulent goods over state or international boundaries, etc.

For example, the US government considers the profits earned by businesses through contracts or regulatory license approvals obtained through bribery to be SUA proceeds. In fact, one need not have committed or had any involvement in the underlying offense so long as afterwards one knowingly helped to transact the SUA’s proceeds to conceal or disguise the source, origin, nature, ownership, or control of the proceeds, to promote the SUA, or to attempt to avoid a reporting requirement. So timber, soybean, cacao, and palm oil companies that develop a land bank through corrupt means and then use the US financial system to issue equity or issue debt based upon these assets means that all parties to these actions may be liable.

Wire and Mail Fraud

US wire and mail fraud laws could also pose a legal risk to corporations involved in forest crime. The applicable statutes generally prohibit schemes that use US telecommunications or mails — including email — to obtain “money or property” through fraudulent pretenses, representations, or promises.

For example, it could be wire fraud if an agriculture commodity producer or trader uses a wire (including electronic transfers) or mails in a “transfer pricing” scheme to under-declare the value of agriculture products it sells to an affiliate or colluding trade partner to evade export duties.

Global Magnitsky Act

Passed in 2016, the Global Magnitsky Act is a sanctions law under which executive branch action can prohibit financial transactions with, and deny US entry to, listed foreign officials found responsible for corruption or human rights abuse. The law also targets those individuals and entities that support and finance such foreign officials.

For example, the current US administration has empowered US Treasury and State department officers to enforce this law. Sanctions were levied in 2018 against Dan Gertler and the people and businesses allegedly associated with him in the blood diamond trade in West Africa.


The Government Pension Fund of Norway, which has over $1 trillion in assets under management, published their anti-corruption guidelines in February 2018. Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), said, “We expect all companies we are invested in to have effective anti-corruption measures in place.”

The fund sets clear expectations that boards and executives must establish clear anti-corruption policies, integrate anti-corruption into business operations, and report and engage on their anti-corruption programs. The fund’s expectations align with the G20/OECD’s Principles of Corporate Governance. NBIM, who manages the Fund, expects corporations to engage on anti-corruption issues, including forest crime. It is partly for this reason that NBIM has divested from more than 30 palm oil companies over the past five years.

No US institutional investor sets such expectations, and only one – the California Public Employees Retirement System (CalPERS) – explicitly recognizes deforestation as an investment risk in its corporate governance policy. This means that illegal deforestation, forest crime and related corruption may impact the retirement savings of hundreds of millions of Americans.

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