Global deforestation facilitated via fraud

During the summer of 2020, images and reports of fires raging in the world’s largest rainforest pervaded news cycles and social media for the second consecutive year. Deforestation and climate change have become a focus of debates about environmental impacts and the sustainability of logging, ranching and agricultural industries.

Although Amazon countries’ governments offer legal mechanisms for timber extraction and land clearing for agricultural or livestock purposes, illegal logging continues to plague the region. Governments in the Amazon region face an immense challenge combating illegal logging and the resulting deforestation. This is because of difficulties monitoring remote operations using limited resources, which leads to significant environmental and financial impacts. (See Razing the land to feed massive timber hunger, World Wildlife Federation.)

According to the National Whistleblower Center (NWC), illegal logging dramatically increases carbon emissions, which exacerbates climate change and air quality issues, and threatens endangered species and distorts global markets. The NWC also cites examples of the illegal timber trade in Indonesia, Russia, Mozambique, Gabon, Madagascar, India, the Republic of Congo and the Democratic Republic of Congo (DRC). (See Protect Forests from Industrial Logging, National Whistleblower Center.)

Read on for examples of fraud and other crimes by region.

South America

Despite regulations forbidding commercial extraction of timber in national parks, wildlife preserves or indigenous lands, much of illegal logging in South America involves timber harvesting. In Colombia, researchers found the primary forces driving a recent increase in deforestation to be both legal and illegal land grabs for cattle ranching, clearing of land for coca cultivation and the illegal mining industry. (See How Organized Crime Profits from Deforestation in Colombia, by Bjorn Kjelstad and Felipe Puerta, InSight Crime, Jan. 7, 2019.)

Coca cultivation and subsequent cocaine refinement have expanded because of deforestation in north-central Colombia’s Santander region. Deforestation also is causing erosion of forest cover that leads to water shortages. Illegal logging in this “department” (jurisdictional equivalent of a state in the U.S.) is supposed to be prevented through monitoring and regulation by the regulatory agencies Corporación Autónoma de Santander (CAS) and Corporación para la Defensa de la Meseta de Bucaramanga (CDMB).

However, personnel from these agencies have been implicated or arrested in a variety of fraudulent offenses, including accepting or paying bribes, issuing fraudulent permits that obfuscate the source of illegally harvested timber, and laundering the proceeds from the illegal timber trade and its associated corruption payments. (See How Colombia Regulators Became Purveyors of Illegal Wood, by César Molinares and Natalia Moreno, InSight Crime, Sept. 18, 2020.)

In investigations and analyses focused on the Brazilian Amazon region, the environmental organization Greenpeace discovered that various fraud schemes common at the licensing, harvesting and commercialization stages of timber production make it nearly impossible to distinguish between illegally and legally logged timber. (See Imaginary Trees, Real Destruction, Greenpeace, March 2018.)

One scheme, known locally as “heating up the wood,” deliberately misidentifies trees and overestimates tree volume in logging permit applications that essentially provide cover for loggers to include timber logged illegally from indigenous or otherwise protected lands in legal allotments. Inspectors either deliberately ignore these misidentifications or overestimations for corrupt reasons or don’t possess the tools and knowledge to competently identify discrepancies between information in application plans and data from the official government inventory counts. (See Scientists pin down fraud that fuels illegal Amazon logging, by Henrique Kugler, Sci Dev Net, Aug. 31, 2018.)

Southeast Asia

The majority of palm oil production occurs in Malaysia and Indonesia where scientists worry that deforestation related to oil palm plantations releases vast amounts of carbon into the atmosphere and decreases the habitats of many endangered species, including orangutans, tigers, rhinoceros and elephants. (See Palm Oil, Union of Concerned Scientists, Jan. 18, 2016.)

In Indonesia, authorities recently revoked a sawmill complex’s mandatory timber legality certification after tips uncovered evidence that the sawmill’s environmental license had been faked, as had permits for oil palm plantations supplying wood to the sawmill.

An investigation by the environmental organization Earthsight revealed that an imprisoned official illegally issued permits to the world’s largest oil palm plantation, and that politically powerful individuals used fake nominees to hide their involvement. (See Sawmill legality certificate revoked in forgery fiasco at heart of Papua oil palm mega-project, Earthsight, Aug. 28, 2020.)

This series of events stretches back to Yusak Yaluwo’s election as chief of the Boven Digoel district in 2005, which gave him the authority to issue permits for large plantations. In 2007, he approved permits to seven different companies for seven contiguous blocks of forest, which represented about 10% of his entire district. A later investigation revealed that in 2007 those seven companies had been created and registered within days of each other. Individuals associated with those company registrations claimed to know nothing about the companies when investigators approached them.

Those companies and permits remained dormant until 2009 when an investor materialized and suggested Yusak take over the dormant seven permits. Shortly after,  national authorities arrested Yusak in relation to suspicious payments from the district’s budget. While incarcerated and nearing the end of his term as district chief, Yusak still approved and signed permits that led to the development of the Tanah Merah project and the deforestation of approximately 2800km²/1100mi² of tropical forest. (See The secret deal to destroy paradise, Earthsight, Nov. 28, 2018.)

Africa

The Congo Basin in Africa — which contains the world’s second-largest tropical forest after the Amazon and spans Gabon, the DRC, Republic of the Congo, Cameroon, the Central African Republic and Equatorial Guinea — features a number of valuable timber species plus land for expanding oil palm and rubber plantations. These factors have motivated deforestation efforts in the region for years. According to the National Whistleblower Center, timber companies routinely bribe ministers to illegally obtain timber concessions and avoid penalties related to overharvesting and exporting timber in excess of official quotas. Recent investigations have shown that major timber companies carry out a significant amount of illegal logging. These companies also use complicated corporate networks of shell companies — similar to those exposed in the Panama Papers — in secrecy jurisdictions to avoid paying taxes, and to obfuscate beneficial ownership and end buyers. (See Deforestation in the Congo Basin Rainforest, National Whistleblower Center.)

For example, an investigation by advocacy group Global Witness found that Norsudtimber, a European company which, through its subsidiaries, owns more logging concessions in the DRC rainforest than any other single entity, harvested timber illegally on 90% of its sites with government complicity. Global Witness also discovered that the Liechtenstein-based Norsudtimber used a network of shell companies in secrecy jurisdictions, such as Dubai and Hong Kong, to sell their timber in a manner that makes it difficult to identify the end buyers. (See Total Systems Failure, Global Witness, August 2018.)

Improvements needed

The investigations and reports highlighted in this column illustrate how fraud contributes to the negative impacts of deforestation by facilitating illegal logging. However, they also identify ways to improve efforts against illegal logging.

The NWC advocates for employee education in timber-related industries and says using whistleblower laws to report violations of environmental crimes to authorities will protect industry insiders and might help incriminate those responsible for illegal logging. The investigations covered here that exposed fraud wouldn’t have occurred without the assistance of whistleblowers, which reinforces the need for whistleblower protection laws worldwide.

Also, in the Amazon “heating up the wood” example, equipping inspectors with better equipment or knowledge about endangered and regulated timber species enabled them to more effectively identify fraudulent permit application plans or fraudulently marked shipments of illegally harvested timber.

In all examples, better governance and accountability for corrupt officials could make it more difficult for illegal loggers to make their illicit products legitimate by paying bribes for permits.

Mason Wilder, CFE, is a senior research specialist with the ACFE. Contact him at mwilder@ACFE.com.

See sidebar: TI: corruption fuels illegal logging, deforestation.

TI: corruption fuels illegal logging, deforestation

Transparency International (TI) EU says that corruption enables illegal logging and deforestation — the second-largest contributor to global warming. (See corruption, illegal logging and deforestation, Transparency International EU, June 21, 2016.)

Europe is part of the problem, TI says, by importing products, such as palm oil, beef, leather, soy cocoa and timber. The EU was the leading importer of products linked to deforestation from 1990 to 2008, which caused an area of deforestation at least the size of Portugal, TI says.

As shown in this column, TI says corruption in the forestry sector often manifests itself through corporate crimes, involving a system of fraud, tax fraud, forged permits or permits acquired through bribes, laundering of illegally procured timber and extensive smuggling operations using shell companies based in tax havens.