License to operate =License to finance illegal operations?

An overview of policy options to regulate financial institutions

servicing deforestation

Background (1)

AIDEnvironment and Profundo RIIA-meeting on FLEGT Sectors involved in illegal logging:

– Timber– Pulp and paper– Palm oil– Soy– Mining

Background (2)

Simple question:– Is it allowed to finance a timber trader or

logging company that is involved in illegal logging?

No simple answer Conclusion: we need more research

Background (3)

Study: Preventing the financing of illegal activities outside the EU by European financial institutions– Research subsidy from NL-ministry

Research approach

General outcome (1)

There is no ‘living’ policy. The environmental policy towards financial sector is 20-30 yrs behind

‘Billions’ of voluntary measures without follow up:– UNCED, UN Finance Initiative, UN Global

Compact ... BUT: ...

General outcome (2)

Regulation of financial sector did develop quickly– Financing terrorisme, risks for financial market in

general and drugs (money laundering), debt crises Crucial terms:

– Risks Riskmanagement– Integrity Internal integrity policy– Anti-money laundering

Risks

Reputational risk Operational risk Legal risk Concentration risk Credit risk

General outcome (3)

Not only words but implementation: Basel Committee on Banking Supervision Financial Action Task Force on Money

Laundering EU-legislation National legislation: licensing system Supervising authorities

General outcome (4)

Great amount of very good policy instruments at hand

Leading to: Great amount of policy options Mainly at: EU-level National level

Six Lines of Defence Model

Example 1: National level

Act on Supervision of the Credit System– licensing

Regulations are already in place They just don’t know!!! Easy task: 1. Make sure they do know, 2.

Start court cases

Example 2: EU level

Money Laundering Directive(s)– Make money laundering legislation applicable to

loans plus: integrate timber Capital Adequacy Directive

– New implementation guideline: Banks have to show how they make sure that not involved in activities with social or environmental damage

– Not public– Accounting Directive

EU level: new approach

Lamfalussy Report: THE FOUR-LEVEL APPROACH to

implement new policy measures Impact on existing procedures, speed up

regulatory process Framework implementation measures

So what?

More reasearch and debate is needed Strategy and action is needed New coalitions are needed Two initiatives in NL FoE NL: MMOT WWF NL: report