The fight against financial crime
With the nature of crime evolving and bad actors exploiting a fast-changing world, there has never been a more critical time for the G7 to take leadership and collective action to tackle illicit finance and sanctions evasion
There is a need for strong leadership at the G7 Hiroshima Summit on sanctions evasion and illicit finance, as bad actors seek to exploit a fast-changing, unstable world. As like-minded partners with shared democratic values and a belief in a rules-based international order, G7 members must drive collective action, building effective frameworks to stop criminals and kleptocrats from profiting from ill-gotten gains and making it easier to identify, freeze and seize illicit financial flows, including those linked to sanctions evasion.
The drive to digitise propelled by Covid-19 has boosted fraud and cybercrime and changed how organised crime networks operate. Fraud costs the global economy $5 trillion annually, thanks to technology. Fraud and hacking are readily available ‘services’. Cybercrime costs will likely increase to $10.5 trillion by 2025. Ransomware attacks by organised criminals and state-backed hackers cost $2.3 billion in 2022. Experts expect a ‘catastrophic’ cybersecurity event linked to artificial intelligence and mutating malware that defends itself to evade detection. Organised crime networks have diversified, leading to increased illicit lending, acquisition of distressed companies and infiltration of companies in industries not previously involved in organised crime. There are also 28 million victims of human trafficking worldwide, and the growing drug trade is fuelled by more demand for cocaine, fentanyl and opioids.
Complex sanctions
The conflict in Ukraine has led to complex, extensive sanctions against individuals and entities in Russia and Belarus covering oil and gas, financial services, gold, luxury goods and dual-use goods, among others. More than $300 billion of Russian central bank assets have been blocked and global trade and financing patterns have been disrupted. With more sanctions comes more sanctions evasion, and, daily, new methods and transhipment routes. Crypto-related illicit financial flows linked to sanctions evasion peaked at $20.6 billion in 2022.
New avenues for crime
For environmental crime, criminals are exploiting the pledge to net zero, including through fraudulent carbon emissions trading via ‘phantom credits’, greenwashing and government funds to support the clean energy transition diverted by shell companies. Critical minerals needed for new energy sources are frequently found in conflict zones or captured states with high levels of corruption. Illegal logging and wildlife trade remain profitable, with 15% of timber exports found to be illegal and record levels of poaching linked to high demand in Asia. Increased exploitation of online channels such as social media and e-commerce sites, the darknet and mobile payment providers drive wildlife cybercrime. Internet companies have blocked or removed over 11.6 million posts linked to the sale of illegal wildlife products.
The G7 sets the agenda to tackle money laundering and illicit financial flows. It has pledged to strengthen the fight against cybercrime, transnational organised crime, environmental crime and human trafficking, particularly online and offline sexual and labour exploitation of women and children. The G7 has also promised a whole-of-society approach to tackle corruption and kleptocracies and to work with African countries to develop beneficial ownership registries. At the 2022 Elmau Summit, the G7 committed to sustain and intensify political pressure, including via stronger and more comprehensive sanctions.
The G7 created the Russia Proxies and Oligarchs Task Force to coordinate sanctions targeting Russia and Belarus, freezing or blocking more than $58 billion in assets. It should consider whether the task force could include allies and states vulnerable to Russian influence to improve implementing sanctions, build capacity and address sanctions evasion. The task force should work with the Financial Action Task Force and the private sector, including civil society, to identify sanctions evasion trends and share intelligence on new financing methods and networks used to support the conflict in Ukraine. Public-private partnerships are key to sharing financial intelligence that can facilitate more proactive mitigation against illicit financial flows.
Build defences
The G7 should continue implementing more stringent measures against conflict diamonds and gold, and fight money laundering linked to war crimes and atrocities, including by asking the FATF to explore this topic further, and by considering making sanctions evasion and war crimes predicate offences for money laundering. G7 members should continue to build defences against cyber-enabled and tech-enabled money laundering and fraud by working with internet and data service providers, financial institutions, civil society, law enforcement and public sector partners to identify threats and best practices to mitigate threats, including fraud, environmental and wildlife crime, and to target organised crime networks. The G7 should also continue to support the development of public beneficial ownership registries. The G7 should further commit to increasing human, technology and financial resources and lowering global barriers to effective asset seizures. Lastly, the G7 should also consider creating common data standards to support countries and financial institutions in implementing measures to fight money laundering and terrorist finance.
