• Andrés Jiménez, Partner |

Crimes, connections and consequences

Serious crimes such as drug trafficking, illegal gold mining and human trafficking seem far removed from shiny city centers and C-suite executives, but the risk of facilitation of those crimes may be closer to home if banks are not aware that those illegal practices could be slipping through the net. 

The increasing issuance of regulations from international and local regulators, particularly those related to the prevention of financial crime, have resulted in a new obligation for financial institutions to put in place controls that allow them to ensure the trades they facilitate related to riskier activities are approached with more scrutiny. 

In the particular case of gold and diamond deals, financial institutions need to ensure those minerals are not based in unlawful mining activities. When banks treat these transactions with the same levels of control they have for other types of dealings, their risks related to environmental crimes might increase. 

But perhaps that lack of knowledge is understandable. From my perspective, if there are no visible consequences, it can be easy for financial institutions to believe that they have been acting responsibly. However, in the last couple of years, that has started to change as the activities at the end of what can often be murky supply chains involving the trade of gold around the world have become more visible. Regulators and the general public have also started paying more attention.  

From a moral and legal standpoint, I believe it is important to be aware of the consequences that seemingly harmless transactions might have on the lives of real people and on the environment  - so that change can happen. Ensuring transactions are not contributing to some of the worst problems in the world is the right thing to do, but it's also important to ensure that the reputational risks are dealt with accordingly and that financial penalties are avoided.

The importance of due diligence

Once these issues are recognized and prioritized by businesses, tackling them can seem like a difficult process to navigate. To be clear, nobody is asking banks to send compliance personnel to every mining facility around the world. In order to prevent environmental crime, they need to use the tools at their disposal and ask the right questions. It's not impossible for companies to undertake a better due diligence and make positive changes for the greater good. 

Financial institutions need to step up and ask the right questions to the right people to better understand supply chains. 

This is where KPMG's Forensic services can help guide banks. Every step of the way, KPMG professionals can help ensure this often complex task is undertaken competently and ethically. Our collective knowledge of industries, international financial systems and the laws of multiple jurisdictions can provide value.  

Benefits beyond the bottom line

Financial institutions can contribute a lot in the fight against environmental crime. By enhancing their due diligence and, more importantly, acting on it and making any changes when appropriate  - such as increasing controls to prevent their clients from trading commodities derived from illegal mines  - an institution's standing with shareholders can be vastly improved. So can the opinions of their customers and staff, who will be proud to interact with an ethical business.

Just because the effects of environmental crimes cannot be seen from boardrooms, it doesn't mean they don't exist or that nothing can be done about them. It's already obvious what can happen if problems that seem remote are ignored, such as the demonstrable impact of climate change on societies, economies and ecosystems. If, however, everyone works together constructively and with a sense of urgency and duty, a real difference can be made.

Read additional blogs in our Financial Crime series.

Throughout this article, “we”, “KPMG”, “us” and “our” refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity.