Perfect storm: many countries affected by illegal, unreported and unregulated fishing and associated illicit financial flows are also among the most impacted by climate change. Image: Alan / Adobe Stock
This is the second article in a three-part series on the emerging intersections between climate change and criminal and security challenges associated with the fisheries sector. With climate change hastening a range of disruptive effects, the need to address the illicit financial flows linked to illegal, unreported and unregulated fishing has never been more pressing.
Illegal, unreported and unregulated (IUU) fishing drains billions of dollars in the form of illicit financial flows from countries around the world. Many of these countries are among the most impacted by climate change, with many also facing debt crises and struggling to provide basic services and social protections in the wake of the Covid-19 pandemic. Globally, it has been estimated that IUU fishing generates $50 billion in estimated annual losses, making it the third most lucrative natural resource crime after timber and mining.
IUU fishing is also estimated to account for up to a fifth of the global seafood catch, playing a key role in the depletion of global fish stocks. Combined with the negative impacts that climate change is having on aquatic species themselves – with global fish biomass predicted to decline by 5% for every 1 degree of global warming – the prospects are bleak if we fail to act.
Overall, the UN Food and Agriculture Organisation predicts that the maximum catch within the world’s exclusive economic zones will decrease between 2.8% and 12.1% by 2050. This situation is putting at risk millions of people’s livelihoods, especially in poor coastal communities which are the most food insecure and dependent on artisanal fishing for protein. Notably, the effects of IUU fishing and associated illicit financial flows are felt particularly across the Global South, which also covers regions that are the most affected by climate change.
The Stakes are too High
A recent report found that nearly half of identified commercial vessels involved in IUU fishing operate in Africa, leading to economic losses in the form of illicit financial flows of up to $11.49 billion every year. Madagascar, for example, loses an estimated $80 million every year – substantial losses in a country that suffers from chronic food security issues, among other social and economic challenges. Further afield, in Argentina, losses are estimated at around $2 billion per year; in Indonesia they are estimated at $4 billion – equivalent to the country’s annual net rubber exports. Yet, to date, the global response has been inconsistent with the gravity of the situation.
Among numerous bodies, the High-Level Panel for the Sustainable Ocean Economy (The Ocean Panel) has identified ownership and financial secrecy as a key driver of IUU fishing, allowing the individuals responsible to evade detection. Indeed, a range of organisations have documented the use by international fishing operations of complex company and ownership structures, both to cover up illegal operations and to conceal ultimate beneficial ownership.
As such, the Ocean Panel identified ownership transparency as a key part of the solution for ending IUU fishing in Africa and globally. Yet, it has found that beneficial ownership information is ‘rarely, if ever, collected during the licensing or vessel registration process’. Meanwhile, limited progress has been made to date on other steps to strengthen beneficial ownership transparency in order to better tackle illicit financial flows stemming from IUU fishing. Despite the direct impact IUU fishing has on global fisheries resources and associated livelihoods, IUU fishing remains largely missing from wider debates around extractive industry transparency or the design of country-based public beneficial ownership registries.
The effects of IUU fishing and associated illicit financial flows are felt particularly across the Global South, which also covers regions that are the most affected by climate change
For instance, the Extractive Industries Transparency Initiative was launched in 2002 to facilitate the voluntary disclosure by governments and firms of the beneficial owners of extractive companies. Sadly, the initiative only targets oil, gas and mineral resources, with IUU fishing having been ignored.
Meanwhile, the Fisheries Transparency Initiative (FiTI) highlights efforts to increase transparency around beneficial ownership, covering the importance of beneficial ownership in its Standard, which defines the information national authorities should publish online about their fisheries sectors. A number of states have signed on to the FiTI Standard. As the first country to report on its commitments, in 2020 the Seychelles passed legislation (the Beneficial Ownership Act 2020) requiring the maintenance of up-to-date registers of beneficial owners, with a central register of beneficial owners in place by 2021. Yet initiatives such as FiTI face a range of issues, not least uptake by a limited number of countries to date and the fact that it only asks countries to report on their progress in implementing public beneficial ownership registries, rather than making it a requirement of adopting the Standard.
Action from the Financial Action Task Force (FATF) – the global financial crime watchdog – has also been slow. In 2020, FATF highlighted the ways in which widespread use of shell and front companies enables the import and export of endangered wildlife products. A year later, FATF expanded its focus from illegal wildlife trade (IWT) to money laundering risks linked to illegal logging, illegal mining and waste trafficking. But disappointingly, FATF has continued to ignore IUU fishing to date.
In the absence of attention paid by FATF to this issue, in 2022, the Asia-Pacific Group on Money Laundering (APG) included a chapter in its typologies report on the illicit finance dimension of IUU fishing, providing case studies and analysis that underline the industrialised nature of the issue. Other FATF-style regional bodies, however, have yet to turn their focus to IUU fishing. They have failed to follow the APG’s example despite the clear demonstration that there is no need to wait for FATF itself – particularly when the impacts of an issue such as IUU fishing are of particular concern to members (often across the Global South).This lack of widespread action comes despite the fact that the UN Sustainable Development Goals (SDGs) reference natural resource crimes including fisheries crime and tax abuse in the fishing industry as contributing factors to illicit financial flows, as included in SDG target 16.4.1.
Encouragingly, the G7 Climate and Environment Ministers’ Communiqué released in May 2021 welcomed ‘discussions by Finance Ministers on strengthening beneficial ownership transparency to better tackle the illicit financial flows stemming from IWT and other illicit threats to nature’. Yet, again, IUU fishing was not named specifically. This is despite the fact that G7 countries account for the majority of the global seafood market, with this omission reflecting the limited political will to tackle this crisis.
Meanwhile, broader trends in relation to progress on transparency of beneficial ownership could have negative implications for the fisheries sector. Notably, in November 2022, the EU Court of Justice approved a ruling that stands to stall progress by invalidating provisions of the EU’s Anti-Money Laundering Directive that allowed public access to registries detailing beneficial owners. Although it has a much wider scope than beneficial ownership in the fisheries sector, this ruling is likely to undermine progress in this area.
Financial Transparency Must be Prioritised
With climate change heightening geopolitical tensions around fisheries in certain regions and driving changes in patterns of convergence between IUU fishing and other crimes, this failure to act on the opacity and financial secrecy enabling IUU fishing must be addressed. This is particularly urgent given that IUU fishing relies heavily on the formal financial system, making it highly susceptible to concerted action by the anti-financial crime community. Given what is at stake and the need for effective deterrents, financial transparency should now be placed at the heart of efforts to tackle IUU fishing.
FATF must pay the same level of attention to IUU fishing as it has to other natural resource crimes, compelling countries to improve their responses
A range of cases show the potential results such prioritisation could yield. In October 2022, a report by the Financial Transparency Coalition found that the top 10 companies involved in IUU fishing for which there is beneficial ownership accounted for nearly one quarter of all reported vessels accused of IUU fishing. The Chinese-owned Pingtan Marine Enterprise Ltd was named as the main culprit. Using the available beneficial ownership data, the company – together with its beneficial owners – was sanctioned by the US government in December 2022 and delisted from the NASDAQ stock exchange. To deter IUU activity we need more action like this, but to enable it, key changes in terms of transparency of beneficial ownership must be made.
Specifically, public beneficial ownership registries must be instituted, whereby the fisheries sector is treated as a high-risk industry, with full disclosure of beneficial owners required when registering vessels. Meanwhile, FATF must pay the same level of attention to IUU fishing as it has to other natural resource crimes, compelling countries to improve their responses. In 2020, for example, FATF sought to galvanise action on IWT by recommending that countries assess their exposure to IWT-linked illicit finance; ensure legal powers exist to bring financial charges in relation to IWT offending; and undertake greater numbers of parallel financial investigations in IWT cases. The same galvanising action should be taken in relation to IUU fishing.
To have maximum impact, these measures must be accompanied by other transparency initiatives, with governments publishing up-to-date lists of IUU vessels and making fisheries agreements public. Together, these measures – which are not complex or overly costly to implement – will allow action to be taken against the hidden operators behind IUU activities.
With the multifaceted global threat posed by IUU fishing set to evolve significantly in a warming world, the risk of failing to enact these changes is too great.
The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.
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Organised Crime and Policing