Waste disposal and dirty money: the next money laundering frontier

Illicit waste disposal and the ‘dirty’ money it generates are the next frontier for law enforcement agencies battling global financial crime.

Waste trafficking is one of the environmental crimes with a money laundering dimension listed in a report released last week by the Financial Action Task Force. The other two are illegal forestry and mining.

According to the international agency, illicit waste trafficking generates anywhere between €8 to €10 billion in criminal gains every year.

“Anti-money laundering is often not part of the public policy dialogue on environmental protection. Despite the significant proceeds involved in many cases, jurisdictions are mostly addressing environmental crime as a conservation issue rather than a serious financial crime,” FATF said.

The research suggests that financial flows from waste trafficking may be transnational, regional or even domestic. The transnational aspect normally involves the illegal export of containers filled with hazardous, non-compliant waste, or waste that is misclassified as recycled materials.

Shipments are often directed to developing or middle-income countries but in some instances the waste may never leave the country and is disposed of illegally on land and at sea, or simply stored illegally.

FATF said that criminal syndicates play “a significant role” in waste trafficking in many advanced economies.

“This includes organized crime groups owning or operating legitimate front companies in waste management, but which do not operate as stated. Instead, they often use sub-standard disposal or storage processes. These companies may engage in fraud to secure contracts for waste disposal and then illegally dumping, resulting in illicit proceeds – while also costing the government millions in clean-up costs,” the report said.

And like other crimes examined in the FATF study, proceeds from waste trafficking are often comingled with gains from legal waste trade.

Disrupting these illicit money flows presents unique challenges because unlike extracted materials from forestry or mining, waste has negative value.

“This liability provides businesses with an incentive to dispose of its waste as cheaply and easily as possible, whether legal or illegal. This provides criminal groups with many potential customers and opportunities,” the report said.

FATF noted that the problematic nature of dealing with waste also provides little motivation for jurisdictions to tackle illegal activity.

“Some companies bearing a legitimate permit for handling waste may import much larger amounts of waste than their permit allows and either export it or simply dispose of it,” FATF said, adding that this method was the most common in Europe, due to the lack of internal border controls.

Illegal methods of waste disposal as a cost saving measure serve to increase the company’s profit margins.

Despite the unique challenges posed by the waste sector, the FATF called on member states to “investigate and prosecute for money laundering and related offences”.

In a case study from Italy, a transnational criminal group was dismantled and people prosecuted for illicit waste trafficking, tax crimes, money laundering and self-money laundering.

False invoices discovered by the Italian law-enforcement agencies amounted to €57 million with proceeds of crime laundered by simulating false trade transactions with other countries. Another laundering technique used was to simulate sports sponsorship.