CIFOR presents…

1. CIFOR presents…

2. CENTER FOR INTERNATIONAL FORESTRY RESEARCH

3. Forests and Forest Crime in the Asia-Pacific Region Frances Seymour Center for International Forestry Research (CIFOR) Presentation for Asia-Pacific Group Typologies Meeting November 14, 2006 Sultan Hotel, Jakarta

4. Forests in the Asia-Pacific region • > 500 million ha of natural forests in Asia-Pacific • Forests cover ~ 50 % (or more) of total land area in: Indonesia; Malaysia; PNG; Laos; Vietnam; Myanmar; Russia Far East

5. Forests are vital resources – locally, regionally and globally • Forests provide essential environmental services • Forests sustain livelihoods for rural poor • Forests contribute to economic development • Forests are an important source of government revenues

6. Forests are being lost at an alarming rate -- > 1.6 m hectares/yr in Indonesia alone!

7. Major causes of deforestation and forest degradation in Asia-Pacific (1) • Unsustainable logging and weak law enforcement • > 200 million ha of natural forest made available for commercial logging • Very limited enforcement of sustainable harvesting regulations

8. Major causes of deforestation and forest degradation in Asia-Pacific (2) • Over-investment in wood processing • In Indonesia, industrial wood demand is ~ 3 x the sustainable harvest level • Since early-1990s, US$ 15 billion invested in pulp & paper mills without a secure plantation base

9. Major causes of deforestation and forest degradation in Asia-Pacific (3) • Conversion of forests for oil palm and agro-industry plantations

10. Major causes of deforestation and forest degradation in Asia-Pacific (4) • Growing regional and global market demand, especially from China • China’s wood imports have tripled since 1997… • … and likely to double again by 2015 • China imported 130 million m3 (rwe) in 2005 • 80 % of logs and sawnwood are re-exported, mostly to North America & Europe Projected Growth of China’s Wood Imports to 2015

11. Forest crime is a global problem, with major implications in Asia-Pacific Illegal logs as a portion of timber-based exports: • 35 % for Malaysia • 50 % for Russian Far East • 70 % for PNG • 70-80 % for Indonesia • 90 % for Cambodia • Globally, World Bank (2006) estimates annual losses of: • US$ 10 billion in assets & revenues, due to illegal logging on public lands • US$ 5 billion in government taxes and royalties, due to legally sanctioned logging

12. Several key policy initiatives address forest crime • Forest Law Enforcement, Governance (FLEG) processes – coordinated by World Bank • Asia Forest Partnership • US President’s Initiative on Illegal Logging • EU proposal to certify legality of forest imports • Government of Indonesia MOU’s with UK and China • Individual corporate policies (i.e. Citibank, ABN Amro, Int’l Paper)

13. What is forest crime? Forest crime is most commonly associated with illegal logging and trade -- which can take many forms: • Logging in protected areas • Logging outside licensed concession areas • Logging above approved levels within concession sites • Harvesting trees below legal diameter • Logging of protected species (i.e. mahogany, ramin) • Transport of illegally harvested timber • Among many other violations of forestry laws ….

14. Illegal logging is often linked to other types of serious crimes These include common predicate offences to money laundering: • Corruption • Bribery • Tax evasion • Bank fraud • Smuggling • Racketeering

15. ‘Need-based’ vs. ‘greed-based’ forest crime Key distinction: • ‘Need-based’ forest crime is driven by poverty, and involves small-scale actors seeking to meet basic needs • ‘Greed-based’ forest crime is driven by profit and is highly organized, involving large amounts of money and powerful actors

16. Forest law enforcement often focuses on ‘need-based’ crime • Forest laws frequently render forest-based income for rural communities technically illegal • Government ‘crackdowns’ usually target poor people, rather than powerful actors • Recent case in Ujung Kulon (Java) • Ultimately, law enforcement needs to target large-scale actors involved in ‘greed-based’ crime • APG can play a key role in curtailing forest crime by restricting options to launder proceeds

17. ‘Greed-based’ forest crime – Who’s involved? Illegal timber mafias include: • Military, police, and other law enforcement agencies • Corrupt forestry officials • Illegal timber brokers • Licensed concession-holders operating beyond contract • Wood processing companies • Shippers, exporters, customs officials • Financiers (both formal and informal sector) These networks are often national and regional in scale

18. Role of military and political elites In many Asia-Pacific countries, forests are used for political patronage • Governments allocate timber concessions to military and political elites to secure their loyalty and to enrich key individuals • Involvement of powerful actors means that corruption and illegality are widespread at all levels Prevalence of ‘Politically Exposed Persons’ in forestry sector necessitates enhanced due diligence and innovative law enforcement

19. What role do banks play? Banks routinely provide or facilitate: • Working capital for logging activities • Corporate loans for investments in wood processing, plantation development • Underwriting of bonds, and other debt issues • Trade financing and foreign exchange transactions • Correspondent banking transactions • Depository accounts, and financial advisory services • Given the prevalence of forest crime, otherwise legitimate transactions may lead banks to finance illegal activities and/or to launder proceeds • In Indonesia prior to 1997-98 financial crisis, some forestry groups owned banks -- often used for illicit finance.

20. Why should APG make forest crime a priority? • Forests are vital resources – and weak law enforcement is contributing to their rapid loss • Forest crime is highly organized and involves large amounts of money and powerful actors • Forest crime is a regional problem, with transnational transfer of assets (timber & money) • Banks play an active role in financing forest crime and laundering the proceeds • Forest crime is linked to corruption, bribery, bank fraud, money laundering and other serious crimes

21. CIFOR’s recommendations (1) Engage in active dialogue with forestry stakeholders to better understand links between forest crime and money laundering • Forest regulatory agencies • NGOs and forest research organizations • Participants in FLEG process and other international initiatives The APG Typologies meeting is an excellent first step!

22. CIFOR’s recommendations (2) Formally endorse listing of forest crimes as a predicate offense in national anti-money laundering laws, and prioritize its inclusion in APG and FATF processes • Indonesia became the first country to define forest crimes as a predicate offense, in its 2003 anti-money laundering law – others APG members should follow its lead…

23. CIFOR’s recommendations (3) Apply experiences from other types of serious crime to design effective ‘Know Your Customer’ (KYC) guidelines and tools for monitoring suspicious transactions for forestry • Can banks identify financial transactions associated with forest crime? • What lessons can be learned, for instance, from anti-money laundering efforts related to non-forestry corruption or narcotics trafficking?

24. Ensure that senior political and military officials with forestry assets are listed in major databases of ‘Politically Exposed Persons’ (PEP’s) This will help ensure that banks conduct enhanced customer due diligence for transactions related to these individuals, their family members, and close associates CIFOR’s recommendations (4)

25. CIFOR’s recommendations (5) Provide cooperation and support for Indonesia and other countries seeking to curtail money laundering and corruption related to forest crime • Prosecution of a forest crime ‘test case’ under Indonesia’s anti-money laundering law would provide useful lessons for all APG members • Success is likely to require cooperation of authorities in other countries if timber and money are moved transnationally