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Environmental crime money easy to stash in US due to loopholes, report finds

Secrecy and lax oversight have made the US a hiding place for dirty money accrued by environmental criminals in the Amazon rainforest, a report says.

Illegal loggers and miners are parking sums ranging from millions to billions of dollars in US real estate and other assets, says the report, which calls on Congress and the White House to close loopholes in financial regulations that it says are contributing to the destruction of the world’s biggest tropical forest.

“We are trying to show that the US is the easiest place to hide dirty money, which is a major problem not just in terms of national security, drug trafficking and kleptocratic corruption but also environmental crime,” said Ian Gary, the executive director of the Financial Accountability and Corporate Transparency (Fact) Coalition, which produced the report.

For the first time in 2021, the US came top in the world financial secrecy index released by the Tax Justice Networks, as a result of money laundering and gaps in its financial transparency laws.

The study by Fact draws attention to the impact this has on environmental crime in the Amazon, a region of global importance due to its impact on the climate. The report lists six case studies of links between forest destruction and companies in the US.

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Florida, which has strong cultural and linguistic connections to South America, was found to be a hotspot. The report cites the case of Goldex, formerly the second biggest gold exporter in Colombia, which supplied more than 45 tonnes of gold, worth $1.4bn, to two US refineries, including Republic Metals Corp (RMC) in Miami.

Colombian prosecutors later alleged that the gold was illegally mined, transferred through shell companies and ultimately used to launder money for organised crime groups. The company was hit with sanctions by the Colombia government and one of its suppliers was extradited to the US to face charges of drug trafficking and money laundering. After an investigation by the US attorney’s office, RMC agreed to tighten its internal money laundering guidelines. Goldex has since filed for bankruptcy.

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A still more lucrative case linking Miami with Amazon nations was that of NTR Metals, which pleaded guilty to charges that it failed to maintain an adequate anti-money-laundering programme after revelations that it dealt with $3.6bn (£3bn) of illegal gold and fake ingots from Peru.

Peru’s former president Alejandro Toledo escorted by policePeru’s former president Alejandro Toledo allegedly bought properties to hide and launder $1.2m he received in bribes. Photograph: AP

The problem was not isolated to Florida. In Maryland, the former Peruvian president Alejandro Toledo allegedly bought properties to hide and launder $1.2m he received in bribes from the Brazilian construction company Odebrecht for a contract to build the cross-Amazon interoceanic highway and other projects. Odebrecht has admitted paying bribes and a US court has ordered funds to be sent back to Peru. Toledo denies any wrongdoing.

Other case studies linked a Nevada firm to purchases of illegal timber from the Loreto region of the Peruvian Amazon, and a Connecticut company to forest clearance for a palm oil plantation in indigenous land.

Government regulators and watchdog groups in Peru said it was common for their investigations into environmental crime to run into a dead end with shell companies in the US. “We have had cases where we can directly trace the dirty money route to US company involvement,” Daniel Linares Ruesta, the director of Peru’s financial intelligence unit, was quoted as saying.

Illegal mining settlements along the interoceanic highway which connects Peru’s Pacific ports to Brazil.Illegal mining settlements along the interoceanic highway which connects Peru’s Pacific ports to Brazil. Photograph: Dan Collyns/The Guardian

The report identifies two principal flaws in the US regulation of financial flows from other countries: permissive rules on identification that allow the use of anonymous shell companies; and gaping holes in the anti-money-laundering framework that enable estate agents and refineries to accept payments without checking and disclosing the origin of funds.

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Earlier this year, the Igarapé Institute estimated that environmental crime in the Amazon generated annual profits of between $110bn and $281bn, though it has been a relatively low priority for financial authorities in Latin America. Investigations by the Insight Crime website suggest the problem may be growing as links build between environmental crime, narco-trafficking and money-laundering networks in Brazil, Colombia, Peru and Ecuador.

The Fact report urges the US to take more responsibility because it is the primary destination for illegal funds, followed by the UK and its crown dependencies such as the Cayman Islands.

Among its recommendations are for the US administration to establish anti-money-laundering obligations in the real estate market, to provide support for Amazon nations to improve financial oversight, and to implement the Corporate Transparency Act, which would establish a database of true “beneficial” owners of all companies. It also calls on the US Congress to pass the Forest Act, which would add illegal deforestation to the US money-laundering statute.

Gary said he was encouraged that the Biden administration had called out the threat posed by corruption. Now, he said, it needed to act.

“The US needs to step up,” Gary said. “Our report shows the importance of the US cleaning up its own financial secrecy house and the need to collaborate with law enforcement partners in the Amazon region to combat illegal financial flows … for the US to have such financial secrecy is a problem for the whole world.”