FO:LACFC/2002/14

BACKGROUND INFORMATION

1. Illegal activities in forests cause a wide range of detrimental economic, social, and environmental impacts and constitute a considerable threat to forests in the Latin America& Caribbean region. Illicit practices and corruption have recently come to the forefront of international dialogue on forests and are being addressed by governments, NGOs, the private sector and international organizations. This interest has been stimulated by an increasing awareness worldwide of the immense costs associated with illegal activities. It is also apparent that ongoing efforts to improve forest management will have limited value unless accompanied by effective measures to reduce forest crime.

ILLEGAL PRACTICES AFFECTING FOREST RESOURCES AND INDUSTRIES

2. Illegal activities go well beyond illicit logging, encompassing the entire forest production chain from harvesting and transport through to industrial processing, trade and marketing. Illegal practices in the forestry and forest industries sector can be grouped into five broad categories:

i. Illegal occupation of forest lands

• Rural families, communities or private corporations invading public and private forested lands to convert them to agriculture.
• Private corporations or individuals inducing peasant farmers to occupy forested areas illegally, in order to force governments to grant landownership rights to the peasant farmers, and then buying these lands from them.

ii. Illegal logging

• Extracting more timber than authorized.
• Logging without authorization.
• Obtaining logging concessions through bribes.
• Duplicating felling licences.
• Girdling or ringbarking to kill trees so that they can be logged legally.
• Contracting with local entrepreneurs to buy logs from protected areas.
• Logging protected species.
• Logging in protected areas.
• Logging outside concession boundaries.
• Logging in prohibited areas such as steep slopes, riverbanks and water catchment areas.
• Removing under- or oversized trees from public forests.
• Reporting high volumes extracted in forest concessions to mask the fact that part of the volume declared is extracted from non-authorized areas outside the concession boundaries.

iii. Illegal timber transport, trade and timber smuggling

• Transporting logs without authorization.
• Transporting illegally harvested timber.
• Smuggling timber.
• Exporting and importing tree species banned from trade under international law, such as CITES.
• Exporting and importing timber in contravention of national bans.

iv. Transfer pricing and other illegal accounting practices

• Declaring lower values and volumes than those actually exported.
• Declaring higher purchase prices than the prevailing market prices for inputs such as equipment or services from related companies.
• Manipulating debt cash flows to transfer money to a subsidiary or parent company, e.g. by inflating debt repayment to avoid taxes on profits.
• Undergrading, undervaluing, undermeasuring and misclassifying species exported or marketed locally.

v. Illegal forest processing

• Operating without a processing licence.
• Ignoring environmental, social and labour laws and regulations.

3. No regional assessments of the magnitude of illegal and corrupt activities in the forest sector exist and it is difficult to know whether they are increasing in frequency or magnitude. However, available information, albeit partial, shows that illegal and corrupt activities are prevalent in many countries.

SUSCEPTIBILITY OF THE FOREST SECTOR TO CRIME AND CORRUPTION

4. There are several reasons to believe that the forest and forest industry sector may be more susceptible than other sectors to illegalities and corruption. These reasons include:

• forest activities often involve large areas and take place in remote places, far from public scrutiny, the media and official controlling agencies;
• the enforcement capacity of public controlling agencies over vast and remote areas is normally low;
• harvested timber volumes and their quality are seldom known with precision;
• systems that devolve monitoring responsibilities to local forestry officers with low levels of supervision are susceptible to corruption;
• even when detailed forest inventories are available, logs are highly variable, voluminous and of different species. Commercial volumes are difficult to quantify and much must be left to interpretation and discretion rather than to objective and precise measurement;
• large numbers of regulations and permits issued by governments in their attempt to optimize the use of forest resources generate additional opportunities for corruption;
• penalties are commonly minimal in comparison with the potentially high returns from corruption; and
• in numerous cases, comparatively powerless government forest controllers operating in isolated regions are forced to participate in illegal acts or risk physical harm.

WHAT CAN BE DONE ABOUT ILLEGAL AND CORRUPT ACTIVITIES?

5. Given the reality that policies against forest crime and corruption normally face stiff resistance from vested interests, their effectiveness will largely depend on the political will and determination of government officials to push for reforms. Solutions must address the underlying causes of corruption rather than its immediate manifestations. The underlying causes are numerous and complex and include weak law enforcement, great inequalities in the distribution of economic power, a lack of protection of property rights, the prevalence of undemocratic decision-making processes, and so on.

6. Measures to combat forest crime are not likely to have an effect unless they are implemented in packages, consisting of different measures that can be used to varying degrees depending on a country's specific circumstances. Individually, each measure would contribute to fighting forest crime but would be unlikely to solve the overall problem by itself. Efforts to combat illegal practices must start with a general outline of strategies. Situations will vary, but there are three basic steps that proponents of sustainable forest management in the Latin America & Caribbean region or elsewhere can take to enhance forest law enforcement:

• assessment of the probabilities of success in improving governance in the forestry sector;
• development of a policy framework to promote sound management in the forestry sector;
• implementation of prevention, detection and suppression actions.

7. The range of specific national policy options that might be considered includes:

a. Increasing the rewards for integrity. If forestry officers are poorly paid or promotions are related more to patronage than to quality of service, there is little benefit in being honest. In such a context, the costs of losing a job are low and the propensity to accept bribes naturally increases. Thus granting higher salaries for forestry staff might be part of a complex response that creates incentives for honest behaviour.

b. Increasing the probability of detection. This set of measures includes better assessments of forest resources (including improved estimates of their commercial value) and the wide dissemination of the results. It may also include asking a third party to provide independent auditing, monitoring and reporting.

c. Increasing penalties. Penalties can act as deterrents if they are heavy enough and if they are commensurate with the economic value of the offence.

d. Reducing discretionary power of government officials. Because forest crime is more likely to occur if a few officials have considerable discretionary power over decisions that involve large values, reducing that discretionary power contributes to preventing corruption.

e. Streamlining the policy, legislative and regulatory framework. Fewer, simpler and clearer government rules would reduce opportunities for their subjective interpretation and for malfeasance. Legal recognition of the customary rights of local populations would improve the possibility of their reporting misdoings. Rules should be established that stipulate clear responsibilities and procedures for granting concessions and other access and use permits in public forests.

f. Increasing the use of market mechanisms. Markets can sometimes be used to avoid "command and control" policies and reduce opportunities for engaging in corrupt acts. If markets are reasonably competitive, administratively fixed prices (e.g. for awarding concession contracts) can be replaced by more open and transparent market mechanisms and the free play of demand and supply forces.

g. Involving the media, NGOs and the public in combating forest crime. Various independent environmental NGOs, acting as "watchdogs", in collaboration with the media, have been instrumental in uncovering illegal operations in many countries and have frequently succeeded in forcing corrective action. Enhanced public awareness of the nature of forest resources and the way in which they are used usually helps in creating pressure for better governance.

8. An important question is the extent to which (and types of activities) regional collaboration in addressing issues relating to illegal forestry activities is useful. There are obvious measures which could be undertaken in relation to trade in illegal forest products including matching of national import and export data, and areas surrounding chain of custody certification. Initiatives to rein in illicit activities by trans-national operatives is also an area which might bear fruit. For example, the Organization for Economic Co-operation and Development (OECD), Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1999) makes it a crime to offer a bribe to a foreign public official and has been adopted by 34 countries. Sharing of national experiences in counteracting illegal activities will also be useful.

TOPICS TO BE ANALYZED

9. Members of the panel are kindly invited to analyze the following problems, as well as contribute to their solutions:

• What is the scope of illegal forestry-related exploitation in the Region?
• What economic, environmental and social impact does illegal exploitation have on the countries?
• Is it possible to stop or reduce it?
• What are the underlying causes?
• What actors have to become involved when attempting to resolve this problem?
• How can the immediate benefits from as illegal exploitation be counteracted, and thus provide economic alternatives to reduce the pressure on the forests?