Companies financing criminal activities

How companies finance crimes?

Companies use with different means. They range from direct financing to indirect complicity. They do not seek to support the groups. These acts aim at keeping operations running. They also think it is a way to ensure safety for employees and infrastructures.

Direct financing. Companies knowingly transfer money or resources to groups. This can happen through cash payments via intermediaries. They can also pay taxes or security fees. Or they can buy material from controlled territories. In some cases, they hired armed groups as security contractors.

State-linked financing. Companies pay state entities engaged in repression or criminal activity. They can bribe officials through shell companies or offshore payments. They can also pay taxes or dividends to state-owned firms.

Turn a blind eye. Companies can buy goods from intermediaries and pretend to ignore the latter was engaged with criminal groups.

In most cases, companies do not pay directly. They use intermediaries, subcontractors, or local partners to avoid being directly involved.

Why they do it?

Some companies operate in insecure areas. This includes war zones, fragile states rich in resources, or cartel-controlled regions. They face a wide range of threats such as:

• Infrastructure destruction,

• Employee kidnapping,

• Logistics blockade,

• Attacks on sites.

Companies then face a dilemma. They can leave and lose money. Large projects often required millions or billions in investments. They will also lose market share. Less ethical competitors might take over. Or they chose to deal with whoever controls the area and keep operating. Companies must make a risk calculation. Some decided to take their chances for profit in the short-term and face potential consequences later.

Associated risks

When they engage in that kind of deals, companies face a multi-layered risk stack that can hit them years later.

They can be subject to criminal prosecution and massive fines. It is not just about corporate penalties; executives can face prison sentences. They can also be under arrest warrants and face travel restrictions. Their entire careers can be destroyed.

Along the fines, companies face costs in legal defense and sometimes settlements with victims. They can lose contracts, have their assets frozen or increased insurance costs. Shareholders can also sue them. Plus, their market access can be cut off. They can be excluded from public contracts, lose licenses, and be blacklisted by institutions and customers.

Of course, there is also a strong reputational risk. These scandals are often exposed in the media. Companies lose trust from investors, partners, governments, and people. This can affect partnerships, stock prices and recruitment. The damages can last years or decades.

Alongside the lack of ethics behind these practices, which is obvious, they expose themselves to long-term risks. These risks can cost way more than the profit gained by saving operations.

Famous cases

This week, the French Court issued its verdict in the Lafarge trial. Lafarge was a French cement-manufacturer. It was found guilty of terrorist funding in Syria. Lafarge paid millions through local intermediaries to armed groups, including ISIS. They wanted to keep a cement plant running. They also bought raw materials from territories controlled by ISIS. The company pleaded guilty in 2022 in the U.S. It was fined with 778 million USD. This week, the French Court handed prison term for the former CEO, his deputy, and seven other associates. Prison sentences range from 18 months to 7 years. Lafarge was also fined with a 1,125 million euros penalty.

The former U.S. banana company Chiquita Brands is another example. It paid a Colombian paramilitary group for security. Even after it was designated as terrorist. The company was fined 25 million USD by the U.S. in 2007.

One of the longest trials in Swedish history is the Lundin Oil case. Two former executives are accused of war crimes over their dealings. They asked Sudan’s government to make its military responsible for security at one of Lundin Oil’s exploration fields. This request led to aerial bombings, burnt villages, and killings of civilians. Both executives face long prison sentences.

In other cases, there are no criminal conviction. But reputation took a hit. TotalEnergies faced a lot of pressure over indirectly funding the Myanmar junta via gas revenues. The company decided to leave the country in 2022 after being present for 30 years.

These are just a few examples of this issue. Although these cases happened decades ago, the companies still face the consequences today.

Red flags

Some red flags can alert on a companies’ potential wrongdoings. These red flags include:

• Operations continuing in active conflict zones,

• Supply chain crossing contested areas,

• Sudden increase in security cost without official security measures identified,

• Payments to intermediaries without clear services.

That does not mean the company finances crime for sure. But extra precautions must be taken to ensure it is not. This shows the importance of thorough due diligence. It can avoid dealing with a legally reprehensible company. And avoid the PR chaos it can generate.

Decoding geopolitics isn’t a job. It’s survival.

Joy