The Global Initiative Against Transnational Organized Crime recently published a research report entitled "China’s New Silk Road: Navigating the organized crime risk" examining the convergence of planned infrastructure and trade route development projects as envisioned within China’s Belt and Road Initiative (BRI) and established trafficking routes for criminal activities such as drugs, illicit environmental commodities and people. The paper argues that the economic benefits across Asia and Africa, for example increased trade, employment opportunities and economic growth are likely to be exploited by criminals and suggests that risks of this nature should also receive appropriate levels of consideration.
This should apply not just to the governments and authorities that are seeking to capitalise on BRI but also to the companies that attempt to benefit from the emergence of new markets and trading opportunities.
It's an important issue as many of the proposed development initiatives are situated in less mature regulatory environments and are already exploited by prolific criminal activity. Illegal activity is likely to be made easier by the increase in connectivity that new transport links and free trade zones will create.
Companies that are seeking to take advantage of the opportunities generated by the BRI should assess the criminal risks to help avoid being unwittingly involved in activities that breach legal and regulatory requirements.
Whilst the spectrum of potential criminal activity is wide ranging, companies should never overlook the following three risk areas.
- Bribery and corruption - as discussed in the recent Clyde & Co post "Corruption in the Shipping and Ports Sectors", the increased volume of interactions with port and other transport hub authorities, inspection officers and import/export officials creates an environment in which bribery and corruption can thrive. The BRI will result in many more opportunities for trade and transport focused corruption and companies should factor this into their risk assessments.
- Trade based money laundering (TBML) - already described by the Financial Action Task Force (FATF) as one of the top three methods used by criminals to launder the proceeds of their crimes, TBML should be considered by all companies involved in international trade and transportation. A good starting point is the recent guidance discussing TBML Risk Indicators, published recently by FATF and the Egmont Group of Financial Intelligence Units.
- Understanding who you are doing business with. The BRI will increase the size of the market and create new ones, not just for well managed and compliant companies, but also for criminals involved in illegal activities including evasion of economic sanctions, money laundering, fraud, corruption, wildlife trafficking, abuse of workers rights, human trafficking, slavery and illegal mining, logging, fishing or other environmental crimes. It's vital that companies have a robust due diligence process in place to help identify high risk trade participants and take mitigating action.
The benefits of the BRI are clear. Creating new trading routes and developing the supporting infrastructure will help generate prosperity and economic growth. Companies that aim to take advantage of BRI opportunities will also need to consider the criminal risks and how they may impact their own business objectives.
If you would like some help to consider these or other criminal or regulatory risks, please contact Neal Ysart, Lead Regulatory & Investigations Advisor at neal.ysart@clydeco.com / Tel: +971 55 138 9250 or your usual Clyde & Co point of contact.
Failing to acknowledge that development and trade create vulnerabilities in contexts where governance and regulatory capacity is weak, crime levels are high and illicit markets are well established opens up the risk of systematic criminal exploitation of the BRI, either through boosting existing illicit routes or facilitating the emergence of new ones.
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