More than half of financial institutions recently surveyed consider trade finance to be the highest-risk financial activity in terms of exposure to illegal mining, a report has found.
The World Wide Fund for Nature (WWF) and Themis, a financial crime intelligence provider, surveyed 647 FI professionals across 22 countries on concerns about illicit mineral transit and shipping, and found trade finance was deemed particularly risky.
However, the survey revealed that two in five financial institutions with exposure to high-risk sectors – including transport and transit, mining equipment provision and manufacturing – do not screen specifically for illegal mining.
Illegal mining is defined as extracting minerals without legal rights or permits, failing to adhere to regulatory standards, and using illegal equipment or chemicals. It can also include mining in protected areas or trespassing on mining sites.
Key red flags include clients disguising high-value commodities as low-risk goods such as apparel, transactions involving jurisdictions with known conflicts over minerals, or dealing with refineries or brokers that carry out limited due diligence.
For example, so-called ‘conflict’ minerals from countries like the Democratic Republic of the Congo (DRC) are often accompanied by environmental destruction and human rights abuses. The DRC lost an estimated US$1bn in 2023 in minerals illegally smuggled into Rwanda, according to the Institute for Security Studies.
The continued reliance on paper documentation worsened the risk for trade finance, the report said, due to the potential for alterations during transit.
Foreign exchange and project financing were the next highest-risk business activities, each chosen by 35% of respondents.
The report cautioned that because some options, such as corporate banking, were viewed as posing less of a risk for illegal mining, this could suggest that respondents “underestimate exposure” and lack an “understanding of high-risk business activities beyond transit-related risks”.
The majority – 84% – of financial institutions surveyed operate in at least one business area or market thought to be at high risk of exposure to illegal mining.
The mining sector has been given a significant boost in recent years thanks to rising demand for minerals deemed critical for digital, defence and energy technologies.
Illegal mining is not “a peripheral ESG issue” for financial institutions, the report said, but presents a “material risk” to lenders and investors, with multiple ways for financial systems to be exposed.
Potential risks for banks include non-compliance with financial crime laws, reputational harm and violation of regulatory and sustainability frameworks.
Legal risks include failing to screen for predicate crimes such as money laundering or sanctions evasion, and financing companies that violate regulations, which could lead to lawsuits, fines or even criminal charges.
“[Financial institutions] may be unknowingly exposed to primary and secondary liability through trade finance, correspondent banking, or asset portfolios,” the report said.
According to the survey, 57% of institutions felt the material risk posed by potential regulatory or legal fines was a major concern.
At the same time, illegal mining can be classed as an environmental crime because it often breaches regulations by contributing to deforestation, pollution and biodiversity loss, and causing harm to local communities.
A majority of respondents (54%) were concerned about ESG considerations, while 53% worried about financial loss from other factors. Global ESG-related fines surged by 98% in 2024, reaching US$37.7mn, the report noted, and just under half of respondents (46%) flagged reputational damage as a top concern.
The survey also revealed a gap between a relatively high awareness of the risks of illegal mining and a low implementation of actions and responses.
Just 8% of respondents said environmental crime is not a major concern for their organisation, while more than 40% of respondents said they lacked internal policies or training on environmental crime.
Financial institutions based in the UAE had the highest levels of policy adoption and training, and were most likely to have raised suspicions about client risk, while South American lenders reported the lowest levels of training and policy adoption.
Institutions in Asia were most likely to conduct screening, the report found.
While assessing exposure is complicated as mining operations can work across “informal actors, layered ownership structures, complex supply chains, and overlapping jurisdictions”, the report suggested several ways to mitigate risk.
Financial institutions should map key areas of risk exposure by client, business line and geography, and strengthen suspicious activity reporting, it said. They should also integrate environmental crime risks into existing anti-money laundering and counter-terrorist financing programmes, and train frontline and compliance teams on specific risk indicators for illegal mining.