The Tackling Illicit Financial Flows (TIFF) project, funded by the U.K. Foreign, Commonwealth & Development Office (FCDO), has been working for two years on the intersection between illicit financial flows and environmental degradation. Environmental damage is often caused by specific groups with particular interests who seek to profit. These groups include organized crime organizations, which exploit natural resources for financial gain, by destroying critical rainforests to plant drugs, trafficking illegally sourced natural resources, or laundering illicit funds through seemingly legitimate use of the land.
Illicit financial flows, as defined by the World Bank, are movements of capital associated with illegal activity or, more explicitly, money illegally earned, transferred, or used. There is a growing body of evidence to show that organized crime gangs are increasingly turning to the environment as a means of diversifying their funding base and as a way to launder profits gained from other illegal economies.
The Impact
Although the nature of environmental crimes makes it difficult to estimate their financial impact, an Interpol report suggests that environmental crimes are the third largest criminal activity globally, yielding as much as $281 billion in 2018, with the numbers increasing in recent years. Forestry crimes and illegal mining generate an estimated $152 billion and $48 billion, respectively, every year.
South America is particularly affected. The Amazon is home to nearly a third of the world’s known terrestrial species, many of which do not exist elsewhere, and contains the world’s most extensive river system. As the International Crisis Group argues, the Amazon’s “unparalleled biodiversity is essential for maintaining ecological balance. But as organised crime spreads across the Amazon it exacts a heavy price, fuelling violence, breaking up communities and furthering deforestation and other kinds of environmental degradation.” One UNODC report from 2023 suggests that “virtually all” of the deforestation in the Amazon basin is illegal, which means that efforts to address deforestation must include its illegal drivers.
Who is Affected?
Environmental destruction has the most immediate impact on local communities, particularly Indigenous peoples, many of whom have come under increasing threat in defending their territories from illegal loggers. The role of Indigenous communities is complex, with some communities playing an active role in facilitating deforestation while others are forced to participate in criminal activity by gangs.
The growing risk to environmental defenders in the region is well-reported: Global Witness indicates that at least 8 in 10 recorded killings of environmental defenders in 2023 were in Latin America, with 461 killings from 2012 to 2023 reported in Colombia. Women are disproportionately affected; as organized crime gangs move into desired areas, they are reported to use gang rape as a weapon to force the local community into submission (International Crisis Group interviews). Sexual exploitation and slavery are also common in areas where illegal mining and other unlawful economies take place.
It is not only the region’s vulnerable people who are affected: the changing ecosystems and biodiversity loss in the Amazon affect us all. One of the world’s most important carbon sinks, the Amazon stores more than 150 billion metric tons of carbon, which, according to Scientific American, if released, could lead to a 30 percent decline in rainfall and rising temperatures of several degrees regionally and up to 0.25 degrees globally. Environmental crime also impacts local economies and food security.
How Illicit Financial Flows Fuel Environmental Destruction
There are three principal ways in which organized crime is linked to the destruction of the environment and biodiversity loss. The first is connected to illegal economies rather than being explicitly connected to illicit financial flows: that is, the environment is destroyed as a direct result of criminal activity, such as land being cleared for the cultivation of drugs—including coca and marijuana. While coca cultivation was previously considered a less important driver of deforestation in the Amazon, a recent report suggests that it is now the leading cause in some areas in the tri-border area between Brazil, Colombia, and Peru. Land is cleared for crops and the roads to access sites and airstrips for transportation. The use of chemicals in the drug production process, and often illegally sourced fertilizers and herbicides, affects groundwater, pollutes rivers, and disrupts local habitats and ecosystems, as well as imposing a massive strain on water resources.
The second and third ways are more explicitly linked to illicit financial flows: the environment represents an important source of funds as criminals look to diversify their funding base and also provides opportunities to launder funds from other unlawful economies in what has become known as “narco deforestation” or “narco mining.”
There are incentives for criminals to diversify their activities into environmental crime. While the drug trade is notoriously high-risk, environmental crime is, by comparison, relatively low-risk and high-reward. As UNODC states, “Drug trafficking organizations are diversifying into new business lines, including land-grabbing, illegal logging, trafficking of precious metals and minerals, illegal mining and trafficking of wildlife. They are doing so by leveraging their technical skills and networks for shipping drugs to foreign markets in order to traffic a diverse range of raw materials.”
The exploitation of natural resources offers a significant source of illicit enrichment for criminal groups across the region. In Peru, for example, illegal gold mining is now the most profitable criminal industry, worth $871 million annually. It also represents the largest source of money laundering by value—some $8 billion in illegal transactions analyzed by the Peruvian Financial Intelligence Unit were linked to illegal mining between 2013 and 2023. In Colombia, the Office of the Comptroller General has estimated that up to 85 percent of gold exported by the country is the product of illegal mining.
Lastly, the environment offers a valuable means for laundering funds gained through other illicit activities. Money laundering typically follows a three-stage cycle to clean illegal funds and release them into the regular financial system: placement, layering, and integration. First, funds are placed into the financial system, often in cash, which is harder to trace. Second, launderers confuse the trail of funds by “layering” them within numerous transactions, such as through shell companies. Third, once launderers are confident that the origins of funds have been obscured, they integrate funds into the legitimate financial system, often by purchasing luxury items such as real estate, vehicles, or jewelry.
Money Laundering and the Environment
Igarape Institute, a Brazilian think tank specializing in money laundering and environmental crimes, argues that five stages are needed to understand the Amazonian context: the collection of dirty money, informal diversification, formal placement, layering, and integration. This process is also referred to as ‘double laundering’: first, the product must be laundered into the legal market, aided by weak oversight mechanisms or corrupt practices, and subsequently, the illegally obtained funds can enter the formal market.
Criminals reinvest proceeds into lawful activities (layering), including land acquisition, farming, agricultural ventures, and plantations. Cash is converted into assets that are easier to retain, monetize, and conceal from authorities—such as livestock, crops, and gold or silver. All these assets necessitate deforestation to clear land for agriculture or mining. The driving force behind environmental destruction is the value of the environment (especially land) in laundering funds.
Organized crime is destroying the environment for profit, putting at risk the crucial ecosystems upon which we all rely. Part 2 of this article will discuss why this happens and what can be done about it.
