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2. Illegal activities in the forest sector and their root causes

WHAT ARE ILLEGAL ACTIVITIES?

A wide range of actions

Illegal operations in the forest sector take place when wood is harvested, transported, processed, bought or sold in violation of national laws. While illegal logging and trade of illegal wood products have received international attention, many other illegal operations may occur in the forest sector. A non-exhaustive list is provided in Box 1.

A problem affecting developing and developed countries

While illegal activities are not confined to developing countries, the problems there are usually worse as resources are limited, forest land tenure is often unclear and/or discriminatory against local, forest-dependent communities and civil society is weaker. Therefore, the best practices presented in this report are mostly based on case studies carried out in developing countries.

A problem with considerable economic and social impacts

As in other sectors, the clandestine nature of illegal forest activities makes their scale and value difficult to estimate. In many countries where illegal logging occurs, the volumes of illegally harvested wood may exceed the official annual wood harvest. For example, illegal harvests in Indonesia were estimated to have reached up to double the officially sanctioned harvest level of 25-30 million m 3 during the 1990s (Richards, 2004). Furthermore, illegal logging and illegal timber trade are usually associated with other illegalities, such as money laundering, drug trafficking, corruption of government officials and tax evasion. Thus, illegal logging and illegal timber trade can lead to huge tax losses for governments as well as negative long-term economic impacts caused by environmental degradation and increased poverty. Illegal logging also jeopardizes the livelihoods of rural communities engaged in small-scale forestry by exposing them to unfair competition and depleting the resources on which they depend. Unless these problems are addressed, investments to promote sustainable forest management will remain ineffective.

ROOT CAUSES OF ILLEGAL ACTIVITIES

Case studies in the eleven countries examined for this report indicate that there are five general factors contributing to the occurrence of illegal activities in the forest sector (Box 2):

Flawed policy and legal framework

A number of illegalities in the forest sector can be traced back to inadequate policy and legislation (Box 3). Laws may be technically unrealistic if they prescribe activities, procedures and institutional arrangements which are not matched by adequate financial and human resources in government and civil society. Laws might also be perceived as unfair and be socially unacceptable, for instance when they neglect or even penalize local practices and norms. In many cases, laws are inconsistent or conflicting with other bodies of legislation and the consequences of their implementation are badly assessed. Combined with lack of public participation in law design and forest-related decision-making processes, this can lead to long-term adverse social, economic and environmental impacts, including increased levels of illegal forest operations (Box 4). Forest land tenure is also often unclear or discriminatory. It is therefore of utmost importance to reform the policy and legal framework in order to ensure that such flaws are eliminated and compliance facilitated. Examples of best practices to develop a sound policy and legal framework are presented in Chapter 4.

Poor implementation/enforcement capacity

Many forest laws are not utilized or under-utilized due to lack of political will, weak institutional capacity, corruption, overall disregard for the rule of law and so on. While improving law implementation requires attention to external economic, social and institutional factors, law enforcement can also be significantly influenced by the way legislation is drafted in the first place (see previous section). There is therefore a danger in making too much of a distinction between legislation, on the one hand, and its implementation on the other (Lindsay, Mekouar and Christy, 2002). None the less, case studies carried out for this report show that many governments lack the necessary human, financial and managerial capacity to effectively ensure forest law compliance. When government institutions are weak, there is a greater inclination to engage in illegal activities, as the probability of being detected and punished is low. Best practices to build institutional capacity for law enforcement and use available resources in the most efficient way, along with examples of partnerships that improve compliance are given in Chapter 5.

Lack of information about the forest resource and illegal operations

Successful strategies to improve law enforcement rely on a solid knowledge of the resource base and its utilization, which governments and the general public in many countries do not possess. Forest inventories and forest management plans are either inadequate or non-existent. Many forests are located in remote and inaccessible areas, making monitoring difficult. Governments often make uninformed decisions, such as establishing allowable annual cut limits without adequate knowledge of the forest resource's sustainable yield. Without information on industrial capacities and/or utilization efficiencies, it is difficult to judge the extent to which illegal wood is being utilized. Lack of accurate information also makes it difficult to identify and monitor the occurrence and evolution of illegal acts. Forest inspectors have little knowledge of how to gather and preserve evidence against illegal operators and judges are seldom familiar with the nature of illegal forest activities. Even when information is available, it is often not used efficiently and/or shared among the relevant government agencies and stakeholders. Improving law compliance therefore requires improved knowledge of the forest resource and improved means to monitor changes over time. Examples of best practices are presented in Chapter 6.

Corruption and lack of transparency

Many illegal activities in the forest sector are associated with corruption. Corruption is a complex social, political and economic phenomenon. It involves the use of one's position for illegitimate private gains (Box 5). Although perceived differently from country to country, corruption tends to include the following types of behaviour: conflict of interest, embezzlement, fraud, bribery, political corruption, nepotism and extortion. In this publication corruption refers to deeds which engage public officials and private interests, involve public and sometimes private property and power, are perpetuated for private gain and are intentional and surreptitious.

Corruption in the forest sector involves:

The reasons for which corruption develops vary from one country to another. Among the contributing factors are: faulty government policies; programmes that are poorly conceived and managed; failing institutions; inadequate checks and balances; lack of strong and organized civil society groups; a weak and/or corrupt criminal justice system; inadequate civil servants remuneration; and a lack of accountability and transparency (UNODC, 2005).

Because forests represent a high-value natural resource often under government control or regulation, they offer an important potential source of political power, and a correspondingly high risk of abuse of that power. In some cases, corruption in the forest sector might be an intrinsic part of the patronage systems that sustain the power of a country's ruling elite (Global Witness, 2004a). State forestry institutions might be subject to regulatory capture, becoming the clients of the ruling elite's concession-holding industrial interests. A mutually beneficial relationship between selected private interests and corrupt government officials is created and sustained at the expense of the public good.

Lack of transparency in the public forest administration and other agencies such as the police and the military, unclear accountability structures, complex administrative procedures and lack of public disclosure of key documentation are all elements which should be addressed when building a strategy to increase law compliance in the forest sector. Examples of best practices are given in Chapter 4.

The strong correlation that exists between perceived corruption levels and the extent of suspected illegal log supply is shown in Figure 1.

Several international initiatives have been developed over the last few years to tackle the problem of corruption (Box 7). However, a serious impediment to the success of any anti-corruption strategy is a corrupt judiciary. If the judiciary is corrupt, the legal and institutional mechanisms designed to curb corruption, however well-targeted, efficient or honest, remain crippled. Unfortunately, evidence is steadily surfacing of widespread judicial corruption in many parts of the world (UNODC, 2005). Chapter 4 gives examples of best practices which can be applied by national governments to limit corruption in the forest sector and promote the independence of the judiciary.

Demand for timber

In some countries the growing timber market often contributes to overcapacity of the forest industry or excessive log exports from the exporting countries, which can in turn lead to illegal forest operations. Although this publication does not address the issue directly, focusing instead on the actions which can be taken at the domestic level by timber producing countries, Annex 3 provides an overview of various multilateral and bilateral initiatives aiming to promote responsible timber trade between producing and importing countries. Reducing demand for illegal timber, at least until more exporting countries are on a sustainable footing, should be a key component of future international cooperation.

Figure 1
Relationship between corruption and suspected illegal forest activities

Source: Seneca Creek Associates and Wood Resources International 2004


Conclusions


Box 1
Examples of illegal practices in the forestry and forest industries sector

Illegal logging

  • Logging timber species protected by national law
  • Buying logs from local entrepreneurs that have been harvested outside the concession
  • Logging outside concession boundaries
  • Contracting with forest owners to harvest in their land but then cutting trees from neighbouring public lands instead
  • Logging in protected areas such as forest reserves
  • Logging in prohibited areas such as steep slopes, river banks and catchment areas
  • Removing under/over-sized trees
  • Extracting more timber than authorized
  • Logging without authorization
  • Logging when in breach of contractual obligations (e.g. pre-logging environmental impact statement)
  • Obtaining concessions illegally

Timber smuggling

  • Export/import of tree species banned under national or international law, such as the Convention on International Trade in Endangered Species of Fauna and Flora (CITES Appendix I)
  • Export/import of tree species listed under CITES without the appropriate permits (CITES Appendixes II and III)
  • Export/import of log, lumber or other timber products in contravention of national bans
  • Unauthorized movement of timber across district or national borders
  • Movement of illegally logged timber from forest to market
  • Exporting volumes of forest products in excess of the documented export quantity

Practices specifically aimed at reducing payment of taxes and other fees

  • Declaring sales of forest products below market prices and inflating costs of purchases to reduce declared profits and income taxes
  • Manipulating debt cash flows (transferring money to subsidiaries or a parent company where debt repayment is freer than the export of products; inflating repayments allowing larger untaxed repatriation of profits, reducing the level of declared profits and therefore of taxes)
  • Overvaluing services received from related companies to reduce declared profits and corporate and income taxes
  • Avoiding royalties and duties by under-grading, under-measuring, under-reporting and under-valuing of timber and misclassification of species
  • Non-payment of licence fees, royalties, taxes, fines and other government charges

Corrupt procurement

  • Restricting information about procurement contracts
  • Establishing unnecessary pre-qualification requirements to exclude companies from procurement contracts
  • Tailoring contract specifications to fit a specific supplier
  • Leaking confidential bidding information to a preferred contractor
  • Manipulating bid evaluations to suppress competition

Illegal timber processing

  • Processing timber without documentation verifying its legal origin (where required)
  • Operating without a processing licence
  • Operating without other necessary licences and approvals (e.g. effluent disposal permits)
  • Failing to meet licence provisions, including pollution control standards

Source: Callister, 1999


Box 2
Factors contributing to illegal operations in the forest sector

Flawed policy and legal framework

  • Lack of adequate and overarching policy involving all relevant stakeholders
  • Legislation that is unfair (for example, that does not recognize local and traditional customary rights)
  • Legislation that is unrealistic and unenforceable
  • Contradictory and inconsistent policies and legislation, with forest laws and regulations contradicted by legislation in other sectors (agriculture, mining, oil exploitation or infrastructure development)
  • Confusing legislation, with unclear rules leaving room for interpretation
  • Legislation with a multitude of operational norms, often overlapping each other
  • Failure of legislation to generate sufficient incentives for sustainable forest management, and excessively weak disincentives for illegal acts
  • Unclear legal property rights, including those of government
  • Poor implementation capacity of the public forest administration and enforcement agencies
  • Lack of resources for enforcement in both the forest service and enforcement agencies
  • Inadequate intra- and interagency coordination
  • Lack of long-term strategizing and prioritizing regarding the use of available resources
  • Excessive discretionary power and corruption
  • Inexistent or poor mechanisms for resolving disputes

Insufficient data and information about illegal acts

  • Poor knowledge about the condition of the forest resource and its changes over time (weak baseline data and monitoring capacity)
  • Insufficient knowledge about the causes of such changes and their consequences
  • Deficient dissemination and use of existing data and knowledge

Corruption and lack of transparency

  • Potential for arbitrary decisions and corruption when government agencies or private entities are not required to make their decisions public   

Box 3
Common weaknesses of forest policy and legal framework

  • Legislative overreaching: provisions that exceed national capacities for implementation; provisions that exceed what is necessary to achieve reasonable and legitimate objectives; provisions that exceed what is   socially acceptable
  • Unnecessary, superfluous or cumbersome licensing and approval requirements
  • Lack of provisions for the transparency and accountability of forest decision-making processes
  • Lack of participation/consultation with local non-governmental actors in the sustainable management of forests
  • Lack of participatory processes in the drafting of laws
  • Ineffective direct law enforcement mechanisms set forth in forestry legislation

Source: Lindsay, Mekouar and Christy, 2002


Box 4
Logging bans might contribute to increased levels of illegal operations

Illegal harvesting is a common concern, both prior to and following the imposition of logging bans. For instance, in Viet Nam, due to the 1997 logging ban and timber shortages, the volume of illegal logging increased to at least 100 000 m 3 annually.

Logging bans might also have disruptive effects on neighbouring countries through legal and illegal trade, timber smuggling, and market disruptions. There have been allegations that Thailand's 1989 logging ban resulted in both illegal logging and greater imports along the borders with Laos, Cambodia and Myanmar. Protection of natural forests in China has led to greater imports from Myanmar and the Russian Federation, potentially contributing to unsustainable harvesting in northern Myanmar, the Russian Far East and East Siberia.

Adverse economic and social impacts have also occurred, further undermining the incentives for sustainable forest management. Lack of public participation in designing and implementing logging bans or in recognizing local dependency on forests frequently results in local resistance and continued illegal activities for day-to-day survival, especially in the absence of safety-net policies that address adverse social and economic impacts.

Only where logging bans have been accompanied by transitional adjustment policies for alternative timber supplies, social and economic safety nets to minimize local burdens, and sustained and effective conservation management, have they proven effective as a conservation strategy. This is the case in New Zealand where natural forests have been placed under the separate administration of a Department of Conservation with supporting policies, operational support and professional staffing, and where a strategy for ensuring industrial timber supplies from plantations was developed decades before the 1987 transfer of all state owned natural forests to conservation status.

Source: FAO, 2001b


Box 5
What is corruption?

Etymologically the word "corruption" comes from the Latin verb "corruptus" (to break); it literally means a broken object. Conceptually, corruption is a form of behaviour, which departs from ethics, morality, tradition, law and civic virtue.

The classic definition, followed by the World Bank and Transparency International, views corruption as the use of one's public position for illegitimate private gains. Abuse of power and personal gain, however, can occur in both the public and private domains and often in collusion with individuals from both sectors. Information International in Lebanon therefore adopted the following definition: "Corruption is the behaviour of private individuals or public officials who deviate from set responsibilities and use their position of power in order to serve private ends and secure private gains".

The United Nations Global Programme Against Corruption (GPAC) defines corruption as the "abuse of power for private gain" and includes thereby both the public and private sector.

Source: United Nations office on Drugs and Crime (UNODC), 2005


Box 6
Common corrupt practices in the award of concession and procurement contracts

  • Artificially increasing discretion in awarding contracts (e.g. by splitting contracts into smaller subcontracts and thus circumventing requirements of higher-level approval, or by drafting ambiguous bidding and contract rules to increase discretionary power of decision-makers)
  • Restricting information about the contract to give precedence to preferred parties
  • Establishing unnecessary prequalification requirements that can only be satisfied by the preferred party
  • Tailoring specifications that only a preferred party can satisfy
  • Leaking confidential information about supposedly competitive bids to a preferred party
  • Distorting the evaluation phase of bids by introducing unclear criteria for selection and obscure exceptions to the contract award rules
  • Potential bidders entering into collusive arrangements
  • Potential bidders offering bribes to bid evaluators
  • Potential bidders offering unrealistic performance in order to win the bid and then offering bribes to controllers to avoid penalties
  • Bidders presenting false documentation about their financial situation and later speculating with the concessions obtained
  • Using the forest control agents to deliberately find faults with the current operations of unfavoured bidders, so that they are rendered ineligible to bid

Source: Based on Wesberry, 2001; D. Young, Global Witness, personal communication, 2005

Box 7
Major international anti-corruption instruments since 1996

The plethora of legal anti-corruption instruments that have come into being since the mid 1990s is indicative of the increased seriousness with which corruption is now being taken. Most notably, these instruments include:

Source: Transparency International, 2004b


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