AGEFI Luxembourg - septembre 2022

AGEFI Luxembourg 16 Septembre 2022 Fonds d’investissement By Nicolas MARINIER, Partner and Emilie RUBAYIZA, Manager at Deloitte Luxembourg T he 2022 Intergovernmental Panel on Climate Change (IPCC) report states that “Human-induced climate change has caused widespread adverse impacts …Near-term actions … would substantially reduce pro- jected losses and damages”. (i) A commonly overlooked subject that heightens these losses and damages is environmental crime, and the laundering of its pro- ceeds through legitimate finan- cial institutions. Oldproblem, newchallenge In its July2021 MoneyLaundering fromEn- vironmentalCrime report,theFinancialAc- tion Task Force (FATF) (ii) defines environmental crime as any criminal of- fenseharmingtheenvironment,suchasil- legal logging, land clearance andmining; wildlife threats; the illegal exploitation or trade of fishery and forestry; and waste trafficking.Thereportstatesthat“the‘low risk,highreward’natureofenvironmental crimemakesforalucrativeandsafesource of revenue for criminals”, as it includes high-value positive products like dia- monds, minerals and timber and also high-value negative products like waste, such as plastics or electronics (e-waste), making it amulti-billion-dollar concern. AccordingtoajointUnitedNationsEnvi- ronment Programme (UNEP) and Inter- national Criminal Police Organization (Interpol) report, environmental crime is estimated to generatemore thanUSD255 billion a year and “is aimed at benefitting individuals or groups or companies from the exploitation of, damage to, trade or theft of natural resources, including, but not limited to serious crimes and transna- tional organized crime”. (iii) It is botha regulatoryobligationanda so- cietalresponsibilityforallfinancialplayers to not only detect environmental crime, butalsotosharpenandreinforcetheirpre- ventivemeasures. As environmental resources are limited, several Luxembourgish regulations con- demn willful blindness to or damaging acts that negatively affect the environ- ment: - Article 506-1 of the Luxembourg penal code; -Article1oftheLawof12November2004 as amended to fight against money laun- dering and terrorist financing; -Article 64 of the Law of 19 January 2004 as amended toprotect nature andnatural resources; - Article 9 of the Law of 21 June 1976 as amendedonthefightagainstatmospheric pollution; -Article 26of theLawof 29 July1993 con- cerning the protection and management ofwater; - Article 35 of the Law of 17 June 1994 on thepreventionandmanagementofwaste; and -TheNationalRiskAssessmentofMoney Laundering and Terrorist Financing of 15 September 2020. At a supranational level, the third FATF recommendation (iv) and the sixth Anti- Money Laundering (AML) Directive (6AMLD) (v) , soon to be implemented in Luxembourg,criminalizethemoneylaun- deringofenvironmentalviolations.These unequivocally tie environmental crime to money laundering, creating a more coer- cive regulatory framework. Humankindhas a collective responsibil- ity to effectively address and manage this challenge, and tangible and bold ac- tions are required. Greenwashing, or merely stating that a company embraces a relevant environmental policy, is no longer enough. What canbe done? To createmeasures and controls thatmit- igate the risk of environmental money launderingorterroristfinancing(ML/TF), financial institutions can follow these pragmatic steps: 1.Formalizeasolidcommitmentfromthe topmanagementlevel,andincludeaclear definition in your risk appetite statement (RAS) about environmental crime. 2.Includeenvironmentalcrimeasafactor inyourrisk-basedapproach(RBA),show- ing clear evidence of the identifiedpoten- tial high risks of ML/TF environmental crimeandthestrategiesdevelopedtomit- igate them. These should cover all factors, including customers, geographical areas, productsandservices,anddeliverychan- nels. An in-depth andwide analysis is re- quired because of the global nature of tradedgoodsandtheirhandling.Asmost processes can be outsourced to third par- ties,caremustbetakensothatnoriskarea is overlooked. For example, according to the Commis- sion de Surveillance du Secteur Finan- cier (CSSF) communication released on 16 August 2022, financial institutions shouldmeasurewhether a newor exist- ing product that is or will be financed, developed, or insured has or will cause material damage to the environment and natural resources. (vi) Regarding geographic risk, alongside the customer’s jurisdictions, representa- tives and beneficial owners, the cus- tomer’s downstream networks should also be considered—notably the juris- dictions of their source, transit (and bor- dering countries) and destination—to ensure these are not environmental crime hotspots. These should be taken into account when calculating a client’sML/FT risk to ensure that: - Funds entering an organization; and - Customer’s business activities; are not tied to environmental crime, ei- ther directly or indirectly. 3. Extend your know-your-customer (KYC) data to include environmental, social, and governance (ESG) key per- formance indicators (KPIs). This data can be further supplemented by includ- ing specific questions on the extent of a customer’s environmental footprint (its care or delinquency) in the client due diligence questionnaire (DDQ) by: a. Performing the DDQ through both a client self-declaration and an “internal” questionnaire that is initiallyfilledout by the first line of defense (1LoD), then by the second line of defense (2LoD); and b. Comparing to targets defined as ac- ceptable in RiskAppetite Statement per customer type, and assess and monitor these throughout the relationship. An institutionwith incomplete KYC in- formation andnotmonitoring the ongo- ing business relationship could unintentionally be an accomplice to en- vironmental crime. Your ML/TF risk may increase if the client or subcontrac- tor is delinquent in its environmental agreements or responsibilities. 4. Apply an enhanced due diligence (EDD)modelwhena customer isdirectly or indirectly involved in the treatment/ tradeofnaturalresources(illustrativelist): a.Forfunctionsoutsourcedbyacompany, includinginthesamegroup,requestsup- portingdocumentationfromitscustomers and counterparties and/or obtain the nec- essary documentation from reliable sources to confirm the responsible dele- gate or subcontractor’s capability toman- age the treatment of goods. For example, regarding e-waste treatment, institutions shoulddeterminewhether the client or its subcontractor has all the technical and humancapitalcapabilitiesandexperience to recycle this e-waste. b. Obtain valid copies of exploitation, trade, or transportation licenses. c. Where necessary, use reliable, publicly searchable and satellite data to ensure the sourceof funds andwealthdoes not orig- inate from factories or refineries in envi- ronmental crime hotspots. d. Verify a customer’s production over- head, expense and variance accounts and ensure theKPIs related towaste arebeing met. Any inconsistencies should be fol- lowed-up.Ifmanagementhasnotdemon- strated suitable waste mitigation actions, this can be a red flag for illicit waste traf- ficking. (vii) SinceEDDrequirestheanalysis offinancialstatements,the1LoDmustalso verify this informationwith the ESGoffi- cer’s support, which is then reviewed by the 2LoD, until sufficient comfort is ob- tainedor not. e. Obtain and analyze transporters’ trade routesforclientsinvolvedingoodsexport, import and transportation. Data discrep- ancies can be a red flag of the illicit trade of natural resources. 5.ApplytheEDDmodeltocomplexstruc- tures. While the illegal dumping of waste is rare in the West, financial institutions should still exercise vigilance, as criminal mastermindsmayhidetheirenvironmen- tal criminal activity in a complex global legal structure or related party. Illegal goods and services may be intermingled withlegalones.Similarly,offshore-related partiesorcompaniesmaybeusedtofront or hide unanticipated production over- heads, variances orwaste. EDD is critical to this point because: - Environment crime is intertwined with other ML mechanisms, e.g., fraudulent and corrupt practices, terrorist financing, andillegaltaxschemes,tonameafew;and - Criminals use opaque structures across several jurisdictions, including non-coop- erative countries. Companies in these ju- risdictions can benefit from regulatory differences or weaker AML infrastruc- tures and controls. 6. Perform analytical review procedures ontransactionstoidentifymovementsthat contradict the customer recorded profile, as they may be related to environmental violations. The 2021 FATF report further states: - “Consultations andgeological data sug- gest that … precious metals, stones and timber…aredistributedbroadlytodesti- nationmarketsinAsia,Europe,andNorth America.” - “Illegally logged wood is also trans- ported ... to destinations in East Asia, NorthAmerica andWesternEurope.” - “With the exceptionofwaste trafficking, environmental crimes generally occur in resource-rich developing and middle-in- come countries, with proceeds coming fromlarger, developed economies.” (viii) Globalizationallowscompaniestotapinto markets across their borders, with goods and finances easily moved across the globe in an activity that generates more thanUSD255 billion a year. 7.Targetcorruptionindiciaandscrutinize relationships involving politically ex- posedpersons (PEP) and their closeasso- ciates.Theselargeandglobaltransactions require“vehicles” fabricated through the practices of connected networks: “cor- ruptees” require “corruptors”, and both are equally to blame. 8. Use anti-environment crime agencies whenscreeningcustomers and their affil- iations to assess their potential involve- ment in environmental violations. 9. Redesign employee training to in- clude the detection of environmental crime schemes. 10. Consider filing suspicious activity re- ports (SARs) to financial intelligence units (FIUs) when environmental crime is suspected. In today’s times, when wars start in the blink of an eye and crises spread globally at lightning speed, our ability to fight en- vironmental crime is one of humankind’s greatest challenges. We must realize that noEarthBexists;theclockisticking,sowe need to act now to strengthen our resolve andvigilance. i)IntergovernmentalPanelonClimateChange, Cli- mate Change 2022: Impacts, Adaptation and Vulnera- bility ,27February2022. ii)TheFinancialActionTaskForce, MoneyLaunder- ing fromEnvironmentalCrime ,July2021. iii) UNEP and Interpol, The rise of Environmental Crime,AGrowing Threat to Natural Resources, Peace, DevelopmentandSecurity ,2016. iv) Financial Action Task Force, The FATF Recom- mendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, updatedMarch2022,pp.121,139. v)Directive(EU)2018/1673oftheEuropeanParlia- mentandoftheCouncilof23October2018oncom- batingmoneylaunderingbycriminallaw. vi) Benoît Theunissen, “Les aspects ESG vont au- delàdelacompliancefinancière”, Paperjam ,August 16,2022. vii) Lawyer Chukwuma Obara, John Ohaka, EfeelooNangihandIfeanyichukwuOgaluzorOdi- nakachukwu,“TheEffectofAccountingForWaste Management Expenditure On the Profitability of Oil and Gas Companies in Nigeria,” International Journal of Economics, Commerce and Management V, No.3(2017). Basel Institute On Governance, Illegal waste trade: what’s driving this multi-billion dollar transnational crimeandwhatcouldstop it? ,July16,2021. viii) The FinancialAction Task Force, Money Laun- dering fromEnvironmentalCrime ,July2021. Environmental crime: ESG andAMLprofessionals must urgently join forces E nEurope, les chiffres de crois- sance ont surpris agréable- ment, le PIBde l’ensemble de la zone euro ayant progressé de 0,7%englissement trimes- triel. La surprise positive prove- nait avant tout des pays de l’Europe duSud, bénéficiant du fort rebonddu tourisme, alors que l’Allemagne, le pilier industriel de la zone euro, a vu son activité stag- ner, écriventGuyWagner (cf. por- trait) et son équipe dans leur dernier rapport d’analyse sur lesmarchés financiers. Les chiffres du PIB du deuxième trimestre confirment une crois- sance économique mondiale en pertedevitesse.Ainsi,auxEtats-Unis, lePIBareculéde0,9%enrythmeannua- lisépar rapport aux troispremiersmoisde l’année, enregistrant un second trimestre consécutif de baisse. «Cette évolution résultait principalement de l’affaiblissement des dépenses publiques et des investissementsimmobiliers,alorsquelaconsomma- tiondomestique, laplus grande composantedu PIB, a continué de croître», dit GuyWagner, chief investment officer (CIO) de la société de gestion BLI - Banque de Luxembourg Investments.«Vulaforceactuelledumar- ché de l’emploi, il est peu probable que le premier semestre 2022 soit officiellement classécommerécession,bienquelecritère technique de deux trimestres consécutifs de baisse duPIB soit désormais rempli.» En Chine, le PIB a progressé de seulement 0,4% en glissement annuel, en raison des mesures strictes de confinement qui, toutefois, ont été levées entre- temps.Au Japon, les exporta- tions demeurent la compo- sante du PIB la plus dyna- mique, le ralentissement de la demande mondiale ne montrant quepeud’impact jusqu’à présent. D’une manière générale, la plu- part des indicateurs d’activité dumois de juin étaient relativement faibles, aussi biendans le secteurmanu- facturier que dans les services, suggérant une pour- suite de lamodérationdu rythme de croissance de la conjoncturemondiale à l’entame du 3 ème trimestre. LaRéserve fédérale a procédé à sa deuxième hausse consécutive des taux directeurs Conformément aux attentes, le Comitémonétaire de laRéserve fédérale a procédé en juillet à sa deuxième hausse consécutive de 75 points de base, portant la fourchette cible du taux des fonds fédéraux à 2,25% - 2,50%.JeromePowell,leplushautresponsablemoné- taire américain, n’a pas donné de nouvelle indication concernant l’évolution future des taux. Un resserre- ment supplémentaire de 50 points de base lors de la prochaine réunion en septembre constitue actuelle- ment l’hypothèse la plus probable. En Europe, la Banque centrale a relevé ses trois taux directeurs de 50 points de base,mettant fin à l’ère des taux négatifs. Le taux de refinancement de la BCE, qui constitue son taux directeur le plus important, se situedésormaisà0,50%.LaprésidenteduConseildes gouverneurs,ChristineLagarde,aégalementprésenté le nouvel instrument anti-fragmentation visant à empêcher un écartement trop important des taux de financement au seinde la zone euro. «Siuntelécartementdevaitseproduire,laBCEpour- rait intervenir sous certaines conditions en achetant sans limite les emprunts des Etats les plus sous pres- sion», explique l’économiste luxembourgeois. Les rendements à échéance des obligations d’Etat ont fortement reculé Sur les marchés obligataires, les rendements à échéance des obligations d’Etat ont fortement reculé desdeuxcôtésdel’Atlantiqueenraisondesnombreux signes de ralentissement conjoncturel.Ainsi, sur l’en- sembledumoisdejuillet,letauxderéférenceà10ans a baissé aux Etats-Unis, enAllemagne, en France, en Italie et enEspagne. Vif rebonddesmarchés boursiers Après le recul historique des cours de bourse aupre- mier semestre, les marchés actions ont fortement rebondi en juillet. «La publication de bons résultats d’entreprisesparlaplupartdespoidslourdsdesprin- cipauxindicesboursiersasuscitéuneréactiondesou- lagement auprès des investisseurs, à nouveau plus enclins à laprisede risqueactions.»Ainsi, l’indicedes actions mondiales MSCI All Country World Index NetTotalReturnaenregistrélaplusfortehaussemen- suelle depuis avril 2020. Seuls les pays émergents n’ont pas participé au rebond. «Au niveau sectoriel, les meilleures performances ont été réalisées par les valeursdelatechnologieetconsommationdiscrétion- naire, qui ont rebondi après leur contre-performance dupremier semestre», conclut GuyWagner. Les chiffres de croissance surprennent agréablement en Europe