Closing the gaps in Environmental Crime: A risk-based approach to tackling money laundering in the timber supply chain

Deforestation in the Amazon is at a decisive moment. In Brazil alone, 91% of the deforestation recorded between 2023 and 2024 occurred without authorization. The continuation of this process brings the forest closer to a point of no return, with irreversible impacts on climate regulation, the hydrological cycle, biodiversity, and the socioeconomic stability of the region. Despite the magnitude of the crisis, environmental crime still does not occupy a central position in the agenda to combat organized crime, even though it is a large-scale illicit activity enabled by the commission of related crimes such as corruption, document fraud, false statements, and money laundering. The timber sector clearly illustrates this dynamic. Illegal extraction does not occur outside the productive system, but rather through it. Forest management plans are manipulated, authorizations are granted under conflicts of interest, documents are falsified, and illegally extracted timber is inserted into the formal market as if it were a legitimate product. The concealment of the illicit origin of environmental assets constitutes, in practice, a process of laundering. However, the absence of specific typologies and indicators creates a regulatory gap that allows illicit revenues to be integrated into the formal market and the financial system with a low level of detection. In response to this gap, the Igarapé Institute developed this study to strengthen the anti-money laundering system through the creation of techniques aimed at identifying risks of fraud, corruption, and money laundering in the timber sector. The proposed methodologies include indicators organized into three categories: (i) identification of conflicts of interest between public officials and companies in the timber sector; (ii) detection of risks associated with fraud and corruption in the approval of forest management plans; and (iii) analysis of risks linked to the extraction and processing of illegal timber. To test the applicability of these techniques, the Igarapé Institute conducted a pilot study in the state of Pará, which resulted in the identification of 125 public officials, 204 technical professionals responsible for signing forest management plans, 877 individuals, and 116 entities holding exploitation rights over the area, as well as 341 timber processing units with indications of high risk. The exercise demonstrates that it is possible to adapt the anti-money laundering system to the specificities of environmental crime and expand its capacity for prevention and detection.