8. Illegal Transport, Processing & Trade

The space between the point of harvest and the point of export can be simple or complex. In some countries, for example Laos, timber is loaded on to trucks close to the point of harvest and moved directly to border crossings. In others the supply chain can involve many more steps, individuals and entities. In Indonesia, for example, timber felled in Papua may be subject to some basic processing, moved by ship to the island of Java, sold to furniture manufacturers by a broker and exported by an agent.

Investigating this stage in the supply chain offers two benefits. Firstly, it can identify the movement of timber from an illegal source to the point of export, from where it can be traced to sensitive markets. Secondly, it can identify illegalities not related to harvesting. The transport, processing, trade and export of timber is subject to a range of regulations to ensure products are appropriately taxed and to support forest management through down-stream mechanisms. The violation of these regulations is captured by the definition of legality in both the EUTR and Lacey Act. Indeed, successful prosecutions under the Lacey Act have been predicated on illegalities committed at this stage of the supply chain. Even if the timber was harvested legally, it becomes illegal if rules further down the supply chain are broken.

‘Successful prosecutions under the Lacey Act have been predicated on illegalities committed at this stage of the supply chain’

Illegalities during Transport, Processing & Trade

Transport violationsAfter timber is harvested, in most cases there is a legal requirement to mark logs, often using purpose-made hammers (see Log Markings). This is commonly to enable some degree of traceability back to source further along the supply chain. Some harvesting regimes include checking by government officials subsequent to harvest, producing documents that attest to the legality of harvest. It also enables checks against forest inventories or cutting plans, to ensure companies are not over-harvesting.

Another common feature is the use of timber transportation permits, issued by authorities, that should accompany timber from the point of harvest. In Indonesia, for example, timber from natural forests should be accompanied by a certificate of legality, attached to a log list. These kinds of documents are designed to prevent illegal wood being moved, while also allowing officials to reconcile raw materials used in processing against a specific legal harvest. Official wood transport documents and markings may only be required for logs, but in some countries are also required for secondary processed wood such as sawn timber.

Log markings and transportation documents are often associated with illegality. In many instances logs are not marked at all. In Cameroon, Greenpeace has documented logs that were harvested illegally but nonetheless marked (see Case Study 4). In Indonesia, JPIK has identified companies illegally sourcing timber from community forests and moving it to sawmills without transport documents (see Case Study 5).

Illegal use of transport documents is also used to facilitate over-harvesting or other legal violations. In Peru, transport documents have been duplicated and falsified, to enable the laundering of illegally-harvested timber through concessions where there is a ‘legitimate’ right to harvest (see Case Study 6). In the Republic of the Congo laundering is facilitated in a similar way, through the duplication of logs and log stump numbers. In Cameroon, fraudulent transport documents linked to community forestry are used to launder illegal timber. In some states, prohibitions are placed on the movement of products or product types within the country, such as a ban on the shipment of logs out of a particular province.

Processing violations

Processing facilities, including upstream sawmills and downstream factories, are subject to a regulatory regime distinct from that which regulates the source of timber they use. Mills often need valid permits from the forestry authorities to operate, and may be subject to periodic audits. Timber that has been legally-harvested or traded, may be delegitimised if processed in a facility that violates the prevailing regulations.

‘It is common for companies to breach export controls, often with the collusion of officials’

Export prohibition violations

In an effort to suppress over-exploitation and support domestic processing industries, many states have imposed bans or restrictions on the export of unprocessed logs and some cases also rough sawn timber. Some, including Brazil and Indonesia, have an outright ban on raw log exports. In others the picture is more complicated, in ways that facilitate circumvention of the restrictions.

In Laos, for example, there is a ban on log exports, but the government reserves the right to exempt specific shipments. In reality log exports are the norm, with a lack of clarity over the decisions behind, or legal basis for, the exemptions. Rules in the Republic of the Congo limit the proportion of its harvest each timber company may export as unprocessed logs, but special approval can be obtained to expand this limit. In practice, the proportion of logs exported exceeds the standard limits on a routine basis. In some states, such as Mozambique, log export bans are restricted to specific (commonly high-value) species.

It is common for companies to breach such export controls, often with the collusion of officials. Timber may be exported inside shipping containers and mis-declared. Logs may be smuggled out in small vessels and then transferred to larger vessels at sea or in neighbouring countries. On arrival in destination countries, the illegal logs may be falsely declared as originating elsewhere, complete with entire sets of forged documents.

Tax evasion

The same practices that enable companies to obscure the illegal origin of timber can be employed to minimise tax liability. Harvesting taxes may be evaded by under-declaring total volumes extracted from a forest or falsifying species. Export duties and tariffs (both general and timber-specific) can be evaded by the same methods. In just one month in 2012, for example, authorities in the Republic of the Congo estimated that 12 companies had failed to declare almost 4,500m3 of logs, with a commercial value of 2.5 million euros.15 Even more pervasive than under-declaration of volumes at point of export, and harder to detect, is under- declaration of prices paid. Harder still is transfer mispricing, where actual prices charged and paid by related companies are lower than true values. In 2008, for example, Greenpeace published leaked internal documents from a Swiss-based logging multinational indicating systematic mispricing during the early 2000s regarding log exports from the DRC and Republic of the Congo. Greenpeace estimated that the activities exposed may have denied the governments of the two countries nearly $10 million in revenues.16

CITES violations

The UN Convention on the International Trade in Endangered Species (CITES) imposes controls on international trade in certain species. Species that are threatened with extinction if international trade continues unregulated can be added to one of three Appendices to the Convention, affording varying restrictions on trans-border shipments. The advantage of CITES to states struggling to enforce domestic laws is that, as an international agreement, it is enforceable in destination or market countries, not only the country of source.

By definition, CITES regulates species that are increasingly rare and, by extension, usually high value. This includes various Dalbergia species targeted as precious rosewoods, and Bigleaf Mahogany. To enable export of certain specified products of CITES-listed species, companies must first obtain a permit from the CITES Management Authority of the source country. For Appendix III species exported from countries other than the listing country, a CITES Certificate of Origin is required.

In all other instances, a CITES Export Permit is needed. Export permits can only be issued providing the timber has been sourced legally and (for Appendix II) if the export will not be “detrimental to the survival of the species”.17 This adds another layer of protection and oversight to these species, but one that is frequently violated.

Timber subject to CITES controls but without the required paperwork may be smuggled by false declaration as other species, by false declaration as product categories not captured by a listing, or by shipping more than a given permit allows. Even where shipments are covered by a CITES permit, illegalities are frequent. Permits can be obtained through fraud, issued through corruption, or simply forged. Examples of these practices for CITES-listed timber have been documented in recent years in both Peru and the DRC (see Case Study 6). Shipments with valid CITES permits are exempt from the EUTR.

‘CITES permits can be obtained through fraud, issued through corruption, or simply forged’