ARNOLDO CONTRERAS-HERMOSILLA
Forest Policy Consultant
Forests of several developing countries have importance not only for local communities, business or national economy, but also for the world as some of their values spill over national frontiers. A large proportion of these forests - mainly natural forests as opposed to plantations - is under the responsibility, ownership and control of governments.
Unfortunately, governments of forest-rich developing countries are often unable to discharge their responsibilities and manage the vast wealth of forest resources under their control. Instead, various actors taking advantage of various governance failures operate outside the law causing large economic losses to the national economy, damage the environment and generally hurt the poorest and most disadvantaged populations in these countries.
Until recently, discussing illegal acts in the forest sector was taboo. A defeatist attitude prevailed with many believing that either little could be done about forest crime or that, in an act of wishful thinking, the problem would fade away as development took place. Today, in a dramatic turnaround, most analysts are convinced that objectives such as sustainable forest management will never become a reality unless forest crime is brought under control. Other initiatives to impose order in the stewardship of the sector - better management plans, training, low impact harvesting, etc. - now seem futile unless forest illegal acts can be controlled first.
This paper looks at the nature and magnitude of forest crime with a focus on its effects in developing countries' economy, environment and the condition of the poor. It concludes that in view of overwhelming evidence, forest crime is varied and astonishingly common almost everywhere in developing countries. The paper also shows that acts outside the law have a profound impact on the economies, the social fabric and the environment of these countries. The paper examines the factors that facilitate forest crime and the measures that can be implemented to control it, including actions by the forest industry.
Illegal acts include a great variety of deeds such as unauthorized occupation of public and private forest lands, logging in protected or environmentally sensitive areas, harvesting protected species of trees or prohibited dimensions of trees, woodland arson, wildlife poaching, unlawful transport of wood and other forest products, smuggling, transfer pricing and other fraudulent accounting practices, unauthorized processing of forest products, violation of environmental regulations, and bribing government officials.
Landless peasants in search of lands that would provide them with an opportunity to subsist, invade public or private forest lands especially when new roads make remote forest areas more accessible. Unscrupulous individuals and corporations steal trees, wildlife and valuable forest products or illegally harvest in ecologically sensitive areas such as riverbanks and upper watersheds. Exporters underdeclare the value of their shipments or misclassify species and qualities exported in order to avoid taxes and transfer illicit gains abroad. Others simply smuggle forest products across international borders.
Many illegal acts involve corruption. There are many interpretations of the concept of corruption. Here corruption is understood as those illegal acts that involve public officials abusing the power and influence of their office in the intentional pursue of private gain2. The differentiation of illegal acts in general and corruption in particular may seem banal but in fact corrupt acts are doubly important because they involve the apparatus of the State. The government is the only institution that has the supreme power to impose the law and if its institutions are permeated by corruption, then there is very little hope that other actors in society will respect legal norms.
It should be stressed that illegal forest acts are not an exclusive feature of developing countries. Forest crime and corruption does not fade away completely with industrialization. Furthermore, many of the illegal acts committed in developing countries involve corporations from industrialized countries, sometimes with the blessing of their government. Thus, the phenomenon involves actors from around the world, from developed and developing countries.
What is the magnitude of illegal acts in the forest sector of developing countries? Because of their surreptitious nature, illegal acts are hard to quantify precisely and assessments probably underestimate their real magnitude. World Bank estimates that the losses due to governments' failure to collect forest revenues from forest concessions reach some US$5 billion per year. In addition, the market value of losses from illegal logging is placed at over US$10 billion per year3. The value of European Union imports of illegal tropical timber has been estimated at some 2.4 billion4. These are substantial numbers. In comparison, all the official development assistance to the forest sector reaches some US$1.2-1.5 billion per year. Thus, if illegal activities could be reduced by, say, only 10 percent, this would just about equal total development assistance to the forest-based sector of less developed countries.
These global figures are supported by studies in various countries. These studies show that:
As much as 94 percent of all logging in Cambodia was illegal in the recent past5. In the mid-1990s, illegal logging was leading to losses of some US$100 million per year, equivalent to a third of all government revenue6.
In Indonesia, at least two-thirds of logging now takes place in illegal ways7. Logging is taking place in some of the most important National Parks such as the Gunung Leuser in Sumatra and the Tanjung Putting, in Kalimantan8. Arson affects some 4 million hectares per year.
Some 40 percent, of the large Indonesian pulp and paper industry wood supplies come from undocumented sources9.
In Malaysia, 35 percent of logging is illegal, 50 percent in Cameroon, 80 percent in Brazil and 70 percent in Gabon10.
The research institute, IMAZON, estimates that as much as 90 percent of all deforestation in the Brazilian Amazon is illegal11.
At least 80 percent of forest clearing in Bolivia is illegal12.
During the 1980s, illegal logging and trade was so widespread in the Philippines that the country was losing an average of US$1.8 billion a year13. Even today, with 90 percent of the primary forest gone, as much as 46 percent of domestic requirements of forest products originate in illegal logging operations14.
Illegal logging in the Primorsky and Khabarovsk regions of Russia reaches 50 percent of the total harvest15.
Besides illegal logging, forest products are also illegally traded in both national and international markets:
A study commissioned by the WWF concluded that most of the timber export trade in Asia was illegal16. Huge amounts of stolen timber flow across borders in Southeast Asia17.
According to the Secretary-General of the Indonesian Ministry of Forests and Estate Crops in charge of controlling illegal activities, major smuggling takes place from Jambi and Riau to peninsular Malaysia and Singapore; from West Kalimantan to Sarawak; from East Kalimantan to Sabah; and from Maluku and Papua to China. He estimates timber smuggling costs the Indonesian Government some US$96-120 million per year in lost revenues18. Illegal trade takes place even in species, like ramin, that are protected under CITES19.
Substantial log trade takes place between Cambodia and Viet Nam despite the legislation of these two countries prohibits such trade20.
Illegal timber trade takes place between Myanmar and China, and Thailand and India. In 1995, importer countries reported some 276 000 more cubic meters of logs than declared as exports by Myanmar. This could be equivalent to about US$86 million being undeclared or almost half of Myanmar's forest exports revenues that year21.
Exports of logs to Thailand recorded by Laos are half the Thai registered import of logs from Laos22.
An undetermined but large illegal flow of eastern Siberian logs goes to China. Russia's Institute for Economic Research estimates that at least 20 percent of the value of timber trade from the Russian Far East to Japan, China and Republic of Korea, the three main export markets, is illegal23. On average, 20 percent to 30 percent of timber imports into the European Union from Russia and the Baltics are also illegally sourced24.
In the Democratic Republic of the Congo, various companies from Uganda, Burundi and Rwanda associated with foreign armies and sometimes in partnership with Congolese firms illegally extract and export wood25.
The National Network Against the Trafficking of Wild Animals, RENCTAS, a coalition of NGOs, calculates that the Brazilian illegal traffic of wild animals reaches US$1 billion per year26.
There is no doubt that illegal production, trade and corruption are major problems posing very real obstacles to the orderly development of the sector in developing countries and emerging economies; to sustainable forest management; and to responsible industrial investment.
The economic, environmental and social consequences of illegal acts are mostly negative.
Economic consequences. Illegal acts and particularly corruption take a toll on economic performance. Corruption leads to the wrong allocation of scarce economic resources as public officers tend to allocate excessive financial resources to investments in alternatives that provide opportunities for bribes, regardless of the economic soundness of these decisions, while other more productive investments are postponed or ignored altogether. In addition, profits from illegal forest operations tend to be sent abroad thus robbing the country of scarce financial resources for further investment. And evading taxes, as well as under declaring the value of forest resources utilized in industrial processing and trade, leave already cash-starved forest administrations with reduced income and thus with a restricted capacity to improve the management of the sector. There is definitive evidence that higher levels of corruption are associated with lower economic growth27.
Illegal acts and corruption also hurt private enterprises. When illegalities are rampant, investment risks tend to be higher with the result that entrepreneurs will only start ventures that are capable of producing fast and high returns, thus discouraging investments in long-term sustainable forest management. Responsible companies may have a competitive disadvantage in comparison with those unscrupulous corporations that resort to illegal practices and corruption. Corrupt environments discourage flows of direct foreign investments28. Lower levels of economic expansion, associated with poor governance, also mean that companies will face less dynamic markets demanding their products and fewer profitable commercial opportunities. In some cases, when illegalities are systemic, its costs may be substantial and thus eat into the profits of private corporations, further discouraging investment in the sector.
Environmental consequences. Illegal and corrupt activities are normally more profitable for the perpetrators than legally imposed sustainable management options. This is in fact a main reason why economic players, given the chance, will take the illegal route rather than incur the financial sacrifices imposed by long-term legal forest management alternatives. If long-term sustainable forest management were more attractive financially, there would be no need to impose laws to force loggers and forest owners to follow sustainable forest management practices, for profit maximizing entrepreneurs would adopt them spontaneously. The same happens on the industrial production side. Legal requirements, such as effluent control, cost money. When illegal forest enterprises co-exist side by side with legal entities, the former are able to displace the latter because of their superior ability to reduce costs through bribes, fraud or outright stealing. Eventually, unscrupulous enterprises dominate the market creating a vicious circle of illegalities, corruption and resource destruction.
Social consequences. In addition to their negative economic and environmental impacts, illegal acts also result in a number of undesirable impacts on the poor. For example, petty corruption - such as the systematic and constant extortion of small amount of money to allow local poor people to enter public forest resources and collect products that are essential for their well-being - can have crippling effects on the poor. Many contend that some of the poor benefit from some illegal actions, for example by unauthorized harvesting of timber from public lands. However, these apparent gains are generally short-lived. In environments where illegalities are systemic, soon more powerful groups such as the local police or the forest ranger acquire control of access to forest resources. Also, large loggers are able to take over forest areas that may be of vital importance to the poor, areas that may have been under local community management and administered following traditional rights for generations. Illegal forest activities tend to result in deforestation and forest degradation and deprive local poor populations of essential resources such as construction materials, medicines, fuelwood and wildlife. Over time, sources of local employment and income are likely to be lost. Benefits to the poor from illegal acts, if any, tend to be transitory.
Illegal acts and corruption are symptoms of deeper problems in society, such as income inequalities, and lack of democratic institutions. Their underlying causes are complex and difficult to "unbundle" from other sources of poor governance (scarcity of financial resources, low implementation capacity, instability of forest staff in their positions, etc.). Even so, there are some factors that facilitate illegal acts. These are related to failures of the law, weak knowledge, market and institutional imperfections that allow concentration of market power and institutional weaknesses.
A faulty policy or legal framework may cause illegal acts. Potential legal failures are numerous: First, problems arise when legal rights to resources do not coincide with traditional rights. Legal norms in these cases are perceived as "unfair" and this is likely to translate into anger and contempt for the government. In these cases, the potential for illegal acts is high.
Second, laws may require certain actors to comply with unrealistic rules. Thus, rural communities may be asked to prepare detailed and highly technical forest management plans that they may be unable to produce. Under these circumstances, the law quickly may become unrealistic and unenforceable.
Third, forest regulation may be in conflict with legislation in other sectors. For example, agricultural or land ownership legislation may favour illegal deforestation. Latin American governments' initiatives to support settlement, agricultural expansion and cattle ranching in agricultural frontier areas during the sixties and seventies unintentionally led to a proliferation of illegal activities affecting forests by opening up previously inaccessible forest lands to illegal occupation. Also, policies for mining and oil exploration, or for infrastructure development are among those that cause greatest damage to forest by increasing the propensity to commit illegal acts in the forest sector.
Fourth, another common problem is the proliferation of norms that may be unclear or even contradictory thus creating confusion in their application. For example, in Bangladesh the original forest law was issued in 1927 and many amendments have been passed since then and rural courts appeared to make decisions based on versions compiled decades before. Kosovo had laws written in Albanian, Serbian and English from its days as an autonomous region of Yugoslavia, from when autonomy was revoked and since the establishment of the current United Nations administration respectively. Translations were poor and the new laws were written without a full understanding of the older laws29. At the opposite extreme, sometimes laws are passed but their operational norms are never issued thus causing uncertainty on how legal prescriptions should be applied in practice. These are all conditions that favour illegal acts.
Fifth, many forest laws consult penalties that are far too lenient and usually expressed in monetary terms that quickly lose their value because of inflation. The incentives to forest crimes in these cases are potent.
In forest rich developing countries knowledge about the attributes of forest resources is imperfect. Volumes, quality of forest resources, the distribution of species and their geographical location are only partially known. Forest inventories and forest management plans are either inadequate or non-existent. Governments may have clear boundaries on paper for their national parks and reserves but these limits are seldom demarcated on the ground. Local peasant or companies entering these lands may not even know that they are trespassing. In all these cases, which unfortunately are not uncommon, it is difficult to monitor changes and gather the necessary evidence to indict and prosecute those that do not comply with the law. Loggers and other users of forests can enter forest lands and extract scattered valuable trees or other products and this may go unnoticed for long periods.
As forests often are away from decision-making centres and communications are difficult, most forest public administrations grant considerable discretionary powers to their field officers. Unsupervised local forest officers have a great deal of latitude to decide about what forest management practices should be employed, and to certify compliance with the law. Decision makers of the central forest public administration also may have great discretion in awarding concession contracts, procurement orders and controlling staff appointments and promotions.
Substantial discretionary powers create a propitious environment for illegalities. Decision makers also have an incentive to create more rules that would allow them to increase their discretionary power, thus generating a self-feeding mechanism fostering illegal actions.
The counterpart in the private sector is monopoly power. In countries where there is a significant concentration of economic and political power, there is a higher risk that vested interests will seek to gain control of the sector, sometimes capturing the ability to influence key decisions made by the government. With concentrated power, there is a greater possibility for private individuals or corporations to influence the economic and political scene and to operate at the margin of the law with a greater impunity. Monopoly power is more likely to happen when enterprises are large. As illustrated by the experience in Indonesia, the forest raw materials demands of large industrial concerns may easily outstrip the capacity of forests to supply them31. When this happens, there is a great pressure for obtaining the balance through illegal channels: industrial investments are just too large to let them collapse.
Given that developing countries have weak government institutions and law enforcement is generally lax in the forest sector, the probability of being detected and punished is low and thus the inclination to commit illegal acts is greater. These institutional weaknesses extend beyond forest government agencies. For example, crimes committed in the forestry sector may not be subject of prosecution because the judiciary and the police force may be ineffective. Accountability in these cases evidently tends to be very low and the potential rewards of illegalities may abundantly easily exceed its probable costs, with the result that the inducements to forest crime are powerful.
Furthermore, in most developing countries the government owns or controls the nation's forest resources. But often the public forest administration staff are insufficiently trained and extended too thin with a few officers responsible for very large areas of public forests. Also, in these countries, either because of the lack of resources of the public forest administration or of land titling agencies, forestland ownership rights are often unclear or absent altogether. This facilitates the illegal invasion of forests.
Moreover, government forest officers in charge of decisions that involve large financial values are on comparatively humble salaries. The propensity for malfeasance in these circumstances increases.
Frequently the main executives of the public forest administration are political appointees that must respond to the interests of higher political powers rather than to greater constituencies. Linear authority systems like this facilitate illegal acts if the superior officer is corrupt as a reluctant political appointee can be swiftly removed from his position and replaced by a more pliant one.
Combating forest crime32
From the above it is apparent that the cause of illegal acts in the forest sector are multiple and that individual remedies focusing on one or few of them such as improving the legal framework or the capacity of the forest institution to enforce the law probably will not produce satisfactory results.
Ideally, illegal acts would be combated primarily by preventing their occurrence. Perfect knowledge about the need to impose society's values over private gain and the consequences of not doing so, as well as setting up proper incentives for aligning private action with the public good would significantly reduce the propensity for illegal acts. But reducing these propensities to commit forest crime is not enough. These measures must be accompanied by the prospect of punishment when the law is broken. Consequently, law enforcement, to be effective, needs to rest on a capacity to monitor what is happening in the sector, on the ability to separate actions that are legal from those that are not, as well as on effective means to suppress crime by inflicting adequate punishment on those that do not comply with the rules.
The objectives of preventing, improving detection and suppression have mutual dependencies and reinforce each other. For example, knowledge of the existence of an efficient system to suppress forest crime is in itself a powerful deterrent. The same is true if potential illegal actors know that the country counts with an effective structure to monitor what is happening in forest areas. In the same way, a good detection mechanism would facilitate proper enforcement of the law by providing early knowledge of the crimes being committed as well as solid evidence that would facilitate arrest and prosecution.
A number of measures can be undertaken to reduce the impact of law failures:
Simplify rules. When illegal acts are detected, there is an understandable desire to regulate more, rather than less, to limit the possibility of action by increasing the number and detail of rules. However, this approach may backfire. In many cases, regulations already are so complex, confusing and numerous that the only way to get things done is to go around them. Efforts should be aimed at simplifying rules.
Make rules realistic, particularly with regard to the recognition of traditional rights. Evidently, laws and norms should be feasible or they will fail to be implemented. In particular, developing countries affected by colonialism may make special efforts to recognize traditional rights of local populations that were ignored by colonial powers. It is not realistic to expect that local populations will surrender rights that they have enjoyed for generations.
Introduce safeguards in legislation in other sectors. For example, infrastructure legislation can include provisions for environmental impact assessments; often new roads can be redesigned to keep them away a certain distance from protected forest areas thus reducing the possibility of illegal invasion of these areas.
Establish clear property rights. As unambiguous property rights are fundamental for establishing a clear separation between legal and illegal uses, the law should dedicate particular attention to establishing the rules of the game to achieve a better definition of property rights.
Foster independent reporting. The law can foster independent reporting of forest crimes by creating incentives for citizens to look for, detect and provide testimony for illegal acts. In certain cases the law can provide for protecting whistleblowers or for rewards such as a substantial proportion of the monetary value recuperated being given to those that detect, report and document illegal activities.
Institute realistic penalties for forest crime. The problem of financial penalties losing their real value because of inflation is so common that in many cases, it may be advisable to legislate on how penalties will be set and what procedures will have to be followed in order to preserve their force. Ideally, penalties should be commensurate with the offence committed. One word of caution: excessively harsh penalties may not work. Judges may be reluctant to impose penalties that they may be perceived as disproportionate to the gravity of the illegal act committed.
Perhaps the most effective way to reduce incentives to illegal actions in the forest sector is to increase the general level of knowledge about the features of forest resources, how they are being managed by public and private sector actors and the consequences of alternative management schemes on the quality of the resource and the environment, the forest dependent poor and the economy.
Create resource baseline information. An essential element for detecting and facilitating suppression of forest crime is adequate baseline information as well as a scheme for tracking the evolution of the forest, the movement of forest products and the financial consistence of production and trade operations. To help with these tasks, modern technologies, developing at a fast pace and at prices that are more affordable, are now within the reach of most forest services. Also, systems have been developed to track logs and forest products from origin to markets (chain of custody). These and other modern technologies that still have to be widely used in the forest sector provide the means to increase knowledge about the evolution of the sector and can provide essential information for detecting and prosecuting illegal operators.
Improve production and trade statistical systems. Increased knowledge about the forest resources condition can be complemented with information about how products are manufactured and traded. Various criminal acts that are not detected at the forest can be noticed at the subsequent stages of transport, industrial processing and trade. An efficient information system that could register data about how forest raw materials are processed and then traded in national and international markets can be a powerful deterrent to forest illegalities involving false declarations of species and of volumes used in manufacturing and in import and export assessments of value. For example, comparisons of export quantities and values and corresponding figures registered by importing countries can uncover underpricing and transfer pricing schemes.
Require forest management plans and foster certification. One of the best ways to secure proper deterrents by facilitating detection of forest crimes is to demand forest management plans. The knowledge of what is intended to happen in a certain forest and the possibility of contrasting this with what is happening in practice is a powerful deterrent, facilitates detection and prompts action to suppress illegal acts. Fostering certification systems that include law compliance along the chain of custody is a promising option to enhance law compliance.
Promote public education and awareness to induce greater participation and create pressure for introducing and sustaining reforms. Reformers may contribute to increasing awareness by publicizing the results of resource and product assessments and tracking in an easily understood language. This contributes to create a public constituency for reform. Moreover, illegal acts sometimes occur simply because of ignorance of the law and its rationale. Better knowledge by the public the government and the private sector would thus contribute to better law compliance.
Foster competitive conditions in markets for inputs and outputs. Competition for timber concessions or procurement contracts can be encouraged by various means such as establishing clear rules and specifications, opening competition to international bidders, or aggressively contacting potential bidders and providing them with the necessary information. Assuring potential bidders of a clean and objective process in awarding contracts can also foster competition. In cases where decisions involve massive amount of money and resources, there may be an opportunity for splitting operations and decisions into smaller components. This may expand the number of competitors bidding for a concession or a procurement contract.
Carefully select public administration personnel in charge of awarding timber concessions and large procurement orders. The government should ensure that the highest possible quality of people serve in positions that are responsible for making decisions involving large amounts of money.
Obtain a reasonable balance between industrial demands and the level of sustainable forest harvest. Investments in industrial capacity are so large that the concentration of power and associated political pressure to keep plants operating is very strong even if in some cases this may mean obtaining forest raw materials in illegal ways. Industrial development policies should therefore ensure a reasonable balance with the capacity of forest resources to produce the raw materials required.
Support development and adoption of corporate codes of conduct. Voluntary codes of conduct complement weak laws or laws that are difficult to enforce. Responsible corporations have an interest in adopting rules of the game that would favour those that follow the law simply because this would level the "playing field", that is to say it would contribute to eliminate the comparative advantage of those that operate outside the law.
Encourage incentive contracts, performance bonds and increase penalties for non-compliance. Incentive contracts that reward companies performing above standards, for example in the implementation of timber concession contracts, may include a favourable treatment in the awarding of future contracts, a differential tax treatment linked to a clear standard of performance or a public recognition of commendable corporate efforts to comply with legal norms. These measures can be simultaneously tied to increased penalties and policies for non-compliance, such as those requiring "performance bonds" that explicitly link monetary penalties to contract implementation indicators, imposing severe criminal sanctions, and publicly "black-listing" companies that choose to disregard the law.
Reduce length of concession contracts. Long-term concession contracts are usually considered as a condition for respecting the law and implementing long-term sustainable forest management plans. However, this type of contracts effectively discourages competition. It may be much more advisable to simulate competitive market conditions and grant concessions for a limited period only but with the proviso that they will be extended if certain well-established and transparent standards of performance are satisfied. This would provide an incentive for following the law and subject all concessionaires to the discipline of the market.
Promote certification. Some systems of independent certification of forest products such as the Forest Stewardship Council (FSC) scheme, contribute to eliminate illegal logging and trade and therefore to cancel some of the incentives to forest crime associated with monopolistic corporations.
Many illegal acts occur because public officials have a considerable discretionary power in making decisions that can be less than transparent. The following policy measures can help in dealing with these factors.
Privatize selected functions of the public administration and increase the use of decisions based on market forces. Frequently some decisions can be transferred to the private sector or to groups of the civil society. While forest administrations are reluctant to do this because of the inherent differences between the public good and private interests that characterize many of the decisions in the forest sector, second best situations can still be better than exclusive public management. In other situations, the public and private interests are not dramatically divergent. Procedures to plan and award timber concessions or for procurement, for example, can be carried out by specialized international agents of the private sector utilizing transparent and open processes based on market prices rather than on administrative decisions.
Widely publicize bidding for concessions and procurement contracts. Wide publicity would contribute to eliminating monopoly conditions related to asymmetric information where only one or few preferred firms may have access to available opportunities. Publicized rules also create an information baseline that allows better public monitoring and evaluation. Further, open processes also reduce the discretionary power of a few decision-makers.
Reform disclosure rules and strengthen oversight mechanisms. Greater transparency in government and private sector operations can be achieved by strengthening the three oversight mechanisms of auditing, inspecting and investigating. Rules can be reformed to allow for a greater disclosure and access of the public to government documents.
Even with perfect laws, adequate knowledge, competitive markets and transparent decisions, forest institutions may be inadequate to ensure law compliance. The following areas of policy reform merit special attention.
Establish clear property and use rights and carry out delimitation and demarcation of priority forest lands. It is self-evident that vague property or use rights are not easy to enforce. Indisputable forestland ownership rights are a necessary condition for a better law compliance. Furthermore, uncertain rights discourage investments in forest management because of higher risks, and further instead cut and run operations. In certain cases, where the discrepancies between social and private values are not considerable, the government may consider privatization of some public forest lands with the costs of clearing property and use rights charged to the proceeds of sale.
Increase staff remuneration. Although it is not entirely clear that better salaries will deter corruption (higher paid officers may simply demand more substantial bribes to engage in corrupt activities to compensate for the risk of being caught and losing a now more desirable, better paid job) it is plausible that when salaries are so low that officers can hardly feed their families, the tendency to commit illegal acts may be higher.
De-politicize the Public Forest Administration and foster professionalism and advancement based on performance. In many countries, forest authorities are political appointees that are susceptible to higher level pressures to circumvent the law. Forest services can be shielded from excessive political interference by designing rules that would advance meritocracy instead.
Form coalitions to complement government action. It is unlikely that a reduction of forest crime will be the result of government action alone. The government should not attempt the monumental task of doing everything to ensure compliance with the law. Increasing government openness to sectors of the civil society and the private sector can be an effective tool in reducing the influence of vested interests and improving law compliance33. Various independent environmental NGOs can act as "watchdogs", often in close collaboration with the press, and be instrumental in uncovering illegal activities and in forcing corrective actions. Systems can be established for "whistleblowers" to report illegal activities and for governments to provide attractive rewards for reporting forest crime. The government can promote the adoption of codes of conduct by key corporations and support the creation of buyers groups.
Privatize. Privatization cannot only be an instrument for increasing transparency but also for divesting certain functions to the private sector and thus diminishing the administrative burden of the public forest administration. However, privatization carries its own risks of illegalities. The very act of privatization can be corrupted and therefore the appropriate safeguards must be in place to avoid these dangers.
Decentralize. With decentralization, decisions have the potential of being more sensitive to local conditions and local talent can be exploited more fully. Decentralized schemes offer opportunities for resisting political interference from the centre, more transparency in decision-making and less corruption. However, the potential advantages of decentralization are matched by formidable potential dangers. Decentralization may increase administrative difficulties and breed conditions for illegalities. Thus it should be undertaken with great care.
The implementation of actions above constitutes a formidable challenge and it is evident that governments alone cannot act in isolation: major stakeholders must also be involved. Because of the managerial, economic and technical power they are able to mobilize, the forest products and trade industrial actors have a special responsibility for contributing to law compliance.
Why should forest industrial production and trade corporations care about illegal acts? While it is true that in many cases "crime pays" there are several reasons why abiding by the law makes not only ethical but also commercial sense in the long run. The business case for corporate responsibility rests on the following considerations that are acquiring greater force as time passes:
reputation;
risk profile and risk management;
investors relations and access to capital;
competitiveness and market position; and
license to operate.
Reputation. Reputation is one of the most valuable corporate intangible assets. Research shows that the proportion of company value that can be attributed to intangible assets is substantial and growing over time. Various studies have also demonstrated a close link between reputation and financial performance. The higher the profile of the company, the more are its activities scrutinized by stakeholders. Some well-known wood products retailers have seen their profitability suffer when they have acquired an image as forest destroyers. Others, the more enlightened ones, have taken measures to ensure they are supplied from sustainable and legal sources and in the process have gained considerable reputation and various market advantages.
Corporations with bad reputations also face problems in recruiting and retaining bright professionals.
Risk profile. Corporations that do not abide by the law run the risk of being discovered and punished. This may include financial penalties and blacklisting the company from future contracts. Of course, their reputation also suffers.
Investors' relations and access to capital. More and more investors do not consider only economic performance but also the non-financial aspects of corporations. An increasing number of investment funds are now being managed according to the principles of Socially Responsible Investment (SRI) that screen out companies that do not meet environmental or social standards.
Competitiveness and market position. While it seems likely that in the short run those corporations that operate at the margin or outside the law may be more competitive in many markets, this situation is changing with more and more consumers demanding high standards of corporate behaviour. Wood product retailers such as the US-based Lowes, one of the world's largest home improvement retailers, have been switching away from suppliers that are committed to sustainability and, increasingly, to legal standards as well. While these niche markets are still small, they are bound to grow rather fast in the next few decades. Even if products that can be certified as originating in sustainable and legal sources of supply do not command a substantially higher price, if any, certification is proving to be essential to retain or expand market shares.
This is not to say that operating according to the law will always pay. Notwithstanding the long-term advantages mentioned above, legal operations usually carry costs related to compliance and opportunities foregone, particularly in the short term.
Despite this, a rather significant movement to promote "corporate citizenship" is gaining momentum. What can industrial concerns do? The following actions are suggested:
Industry could adopt transparent and verifiable codes of corporate conduct that make explicit and clear provision for excluding illegal acts such as bribery, tax evasion and transfer pricing. As mentioned, some industrial groups are already designing and adopting codes of corporate conduct that include requirements for complying with various laws in countries of origin as well as in the main markets in consumer countries.
Promote partnerships with NGOs to lobby governments to establish a level playing field for all enterprises operating in the forest sector. It is in the self-interest of industry to have government establish "bright lines" that would allow the unambiguous identification of companies that indulge in forest crime. This would require simplifying of rules and removing ambiguous regulations that open the gates for subjective interpretation and thus for discretionary decisions. The industry in association with influential NGOs can wield considerable lobbying power to prod governments to introduce policy and legislative reforms that would discriminate against corrupt corporations.
Accept certification and independent assessment of their logging, production and trade operations (chain of custody). Certification schemes that include validation of the legality of extraction, transport, processing and marketing of forest products can go a long way in enhancing the company reputation as well as contributing to law enforcement.
Foster links with consuming countries to exclude from business those enterprises that do not follow codes of corporate conduct. Forest crimes in developing countries are often facilitated by the indifference in importing countries about the legal or illegal origin of forest products. However, large transnational corporations can make a difference by inducing their subsidiaries and associated retailers to refuse buying forest products originating in sources that cannot be proven to be legal.
Use industry association pressure and support agencies such as FAO and ITTO, World Bank and other financing agencies to close harvesting and marketing opportunities for companies that fail to abide by industry agreed codes of conduct.
Agree to legalize arrangements for equitable benefit sharing with local communities and support them within concession areas in their efforts to secure sustainable livelihoods.
Foster reforestation and in appropriate situations support compensatory plantation establishment by local communities, farmers and private woodland owners to reduce risk of non-sustainable and illegal harvesting of natural forest resources.
Resist pressures to install industrial processing capacity in excess of allowable harvest volumes.
Collaborate with Transparency International and other agencies involved in the establishment of a Forest Integrity Network.
Illegal forest acts are pervasive and produce a host of undesirable impacts. They may be the single greatest threat to the world's remaining natural forests. While forest crime, just as other types of crime, will probably never be completely controlled, various measures to prevent, detect and suppress it can be adopted to reduce their incidence and impact. It is in the interest of the responsible segment of the forest industry to take a leadership role providing a strong push for penalizing those companies that are reluctant to commit themselves to comply with the law.
There has been a rapid rise in awareness of the nature, magnitude and consequences of illegal acts and this has spurred a number of initiatives by NGOs, governments, international agreements and organizations and the private industrial sector.
NGOs concerned with the theme are motivated mainly by environmental and social considerations related to illegal and corrupt acts. Global Witness action in Cambodia is one of the most organized initiatives to improve the rule of law in that country. It has also carried out actions in other countries.
Friends of the Earth International, a federation of autonomous environmental organizations from all over the world, operating in 68 countries and with over a million activists, has been instrumental in organizing campaigns to combat forest illegal actions in many countries.
Greenpeace has carried out numerous studies and organized highly publicized campaigns that focus world attention on forest use issues. It promotes boycotting forest products that originate in forest that are not managed in sustainable manner. Recently its actions in support of the Government of Brazil have increased awareness of illegal logging in the Amazon and prompted decisive governmental action.
Transparency International, an international NGO dedicated to fighting corruption produces the now famous Corruption Perceptions Index, has increased global awareness, and helps interested countries in devising strategies to combat corruption. It is now in the process of turning its attention to forestry-related corruption, hosting the Forest Integrity Network, a coalition of interested parties and individuals.
The Environmental Investigation Agency exposes and campaigns against illegal logging and illegal trade. It has carried out substantial work in exposing operations of unscrupulous transnational corporations in several parts of the world.
In early 2000, the World Resources Institute launched the Global Forest Watch an initiative that uses satellite imagery and ground checks to tract developments that may threaten forests, including illegal operations. The Global Forest Watch is a monitoring network of 75 local organizations and universities in ten countries. It is working in seven countries but it aims to cover 21 countries containing some 80 percent of the remaining undisturbed forests ecosystems by 2005. Global Forest Watch reports have already uncovered cases of illegal forest activities.
There are many examples of governments in both industrialized and developing countries taking action to address crime in general and forest crime in particular.
Developed countries and their transnational corporations share a great part of the responsibility for the spread of corruption around the world. Thus governments of industrialized countries have organized efforts to combat crime in international transactions. As early as 1977, the United States Foreign Corrupt Practices Act, a pioneer on the subject, made it a crime for American companies to bribe foreign officials.
In 1998 and as part of a broader initiative by the G-8, the United Kingdom started implementing a series of measures to improve timber purchasing procedures by government agencies, reduce consumption of illegal wood in the UK and work with other countries to improve governance in the forest sector. New legislation has come into force that extends anti-bribery laws to cover British nationals and companies abroad34.
In Bolivia, a law approved in 1996 contained a number of innovative provisions to ensure law enforcement and reduce the impact of forest crime and corruption. The use of independent agents in controlling law compliance was encouraged. As the determination of forest fees in timber concessions was an important source of corruption, the new law decreed a flat fee per hectare and per year of timber concession.
Recently the Government of Brazil suspended all trade in mahogany. The government decision followed joint monitoring research with Greenpeace that uncovered rampant illegal logging on indigenous lands and protected wildlife areas with products being sent to markets in the United States of America, Europe and Japan35. Also, Brazil has announced that it has cancelled thousands of false land ownership claims in the Amazon region covering some 20 million hectares or about 10 percent of the Brazilian Amazon36.
With the help from various donors, Cambodia has made various efforts to stamp out corruption and illegal logging, establishing a Forest Crime Monitoring Unit and appointing an independent NGO monitor (Global Witness).
Various other countries in the industrialized world as well as in the developing world are undertaking similar measures to control illegal activities and forest crime.
CITES. At present, and still lacking other relevant legislation, CITES is the only way producing and consumer countries can limit trade of endangered forest species. It is the only tool importing countries can use to legally seize illegally sourced timber. Producer countries use CITES sparingly and thus only a few species are included despite that the potential for including many others is large. For example, using CITES, Indonesia recently placed ramin on Appendix III, with a zero quota, thus outlawing imports of ramin by any CITES signatory (excepting already harvested timber or certified ramin timber). However, CITES although useful, has some problems. It only covers threatened species. Also, it suffers from problems of implementation as certificates can be forged.
Yaound้ Summit. In Africa, the Yaound้ Summit in 1999 recognized problems related to illegal poaching and logging.
Lom้ Convention. The extension of the Lom้ Convention also provisions to support certification and indirectly to reduce illegal operations.
East Asia Ministerial Declaration. In September 2001, Ministers of East Asian Governments meeting at the East Asia Ministerial Conference on Forest Law Enforcement and Governance in Indonesia issued this declaration that promises to take immediate steps to intensify efforts to address violations of the forest law and forest crime, in particular illegal logging and associated illegal trade and corruption.
World Bank. In 1997, the World Bank launched a major initiative to fight corruption in Bank-financed projects, help countries and international efforts to reduce corruption. In 1998, the World Bank-World Wide Fund for Nature Alliance was launched. The Alliance seeks the protection of 50 million hectares of forest areas under threat and 200 million hectares under certification by 2005. Although the Alliance does not aim at fighting illegal acts, achieving its certification targets will contribute indirectly to this objective. Furthermore, the World Bank new Forest Policy consults activities for improving governance through the support to reforms to concession and subsidy policies and specifically for containing illegal activities and corruption by improving laws, regulations and the law enforcement apparatus of member countries. One of the quantitative outcomes sought is to reduce illegal logging losses by US$5 billion per year mainly by strengthening institutional capacity.
OECD launched its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in February 1999. The Convention commits 34 countries, the world's biggest economies, to adopt common rules against bribery.
Anti-Corruption Action Plan for Asia Pacific. At the Seoul Conference on Fighting Corruption in Asia and the Pacific Economies organized by the Asian Development Bank, OECD and the Republic Korea in December 2000, participants from 35 countries endorsed the ADB/OECD Anti-Corruption Initiative for Asia Pacific. An Action Plan was subsequently prepared, and in November 2001 this plan was endorsed by 17 countries at the Tokyo Conference.
G-8 countries at their meeting in Birmingham in 1998 approved an Action Programme on Forests that included actions against illegal logging and trade. They confirmed their commitment to fight illegal forest acts at their Okinawa meeting in 2000.
UNIPF/IFF. The United Nations Intergovernmental Panel on Forests as well as its successor the Intergovernmental Forum on Forests, issued calls to governments to combat illegal logging and trade of forest products.
ITTO. The Libreville Action Plan of the International Tropical Timber Organization contains a number or references to undocumented trade and irregular forest activities (ITTO, 1998). Recently, the ITTO launched an initiative to improve forest law enforcement and to combat illegal timber trade. The Organization will provide support to countries interested in controlling illegal international timber trade. It will also investigate trade statistics reporting systems in selected countries to identify problems and recommend actions to strengthen these systems and to deal with apparent instances of illegal trade.
OAS. In 1997, the Inter-American Convention Against Corruption of the Organization of American States entered into force and the declarations of the second and third Summit of the Americas reinstated the decision of signatories to continue to implement measures against corruption.
FAO. The most recent State of the World's Forests report highlighted the severity and impact of forest illegal activities and contributed to increase awareness of the problem. Its support to the implementation of National Forest Programmes includes the development of policy and legislative frameworks as well as capacity building for improving forest governance in interested countries. Increased awareness also resulted in the FAO Committee on Forests emphasizing the need for organizing concrete activities to combat forest crime. In January 2002, the Organization held an informal expert meeting on the subject, to develop priority areas for FAO action.
During the recent World Economic Forum, Chief Executive Officers recommended a Framework for Action that chief managers, board directors and chief executives can use to develop strategies for managing their company impact on society. Corporate citizenship means many things but includes among its components, transparency and accountability as well as tackling corruption. Also, the International Chamber of Commerce, the only representative body that speaks with authority on behalf of enterprises from all sectors in every part of the world, with thousands of affiliate companies and associations from 130 countries, provided practical advice to its members on business principles in a paper published in May 2000 entitled Responsible Business Conduct: An ICC Approach where it states that national and international law provide the essential framework within which business has to operate37.
There are many other initiatives to develop voluntary corporate codes of conduct. In the forest sector, perhaps the most notable one is that of the certification schemes. These schemes identify those products that have been produced in accordance with a pre-established system of criteria and indicators of sustainable development production. The best-known one is that of FSC. Certification of sustainability is of course a great deal wider than the certification fulfilment of criteria of legality. However, the FSC certificate denotes that the product has followed the laws of the country including legal agreements to which that country is signatory. But making sure that products originate in legal sources also requires the certification of the "chain of custody" and the FSC is only scheme that provides for this. Certification however includes only a tiny proportion of the world's forests.
The Soci้t้ G้n้rale de Surveillance (SGS), proposes a scheme aimed to the problem of illegal sourcing. Its Independent Validation of Legal Timber proposal is based on independent monitoring and verification of land use changes, timber flows and resource management. The scheme could be linked to the certification of sustainable forest management38.
There are other proposals aimed at producing voluntary codes of conduct for forest corporations and some of them include provisions for complying with the law. The Inter-African Forest Industries Association for example has proposed a Code of Conduct for the Sustainable Management of Forest Concessions in Africa that includes prescriptions related to the respect of the legal environment of the country.
FAO intends to increase its effectiveness in the forestry sector over the next 15 years and in doing so, will contribute to improved management of trees and forests worldwide.
The scenario to aim for is an increase in the area of sustainably managed forests, a slowing of the rate of deforestation in the tropics, a decrease in forest degradation worldwide and an increase in the global area of trees and forests through afforestation and reforestation especially of degraded land. The location, extent, composition, health and value of many of the goods and services represented by forest ecosystems and trees in the landscape will be more accurately known. Informed and constructive debate between a wide range of interest groups will be increasingly used to develop consensus on forest management, particularly in defining sustainable forest management and in striking a balance between environmental and developmental objectives. Policy changes will help to remove restrictions on forestry development, will promote participatory approaches towards their management and will encourage the equitable distribution of benefits. The role of trees and forests in contributing to food security (including the wood energy required for cooking food) and environmental protection will be enhanced and better recognized. More forests will be under controlled management and periodic assessments of indicators will show a trend towards long-term sustainability. There will be a greatly increased flow of investment into the sector, particularly in developing countries and countries with economies in transition.
2 World Bank, 1997. Helping Countries to Combat Corruption. The Role of the World Bank. Washington DC, USA.
3 World Bank, 2001. A Revised Strategy for the World Bank Group. Draft, 30 July, Washington DC, USA.
4 FoE EWNI: European League Table of Imports of Illegal Timber.
5 World Rainforest Movement and Forest Monitor, 1998. High Stakes. The Need to Control Transnational Logging Companies: A Malaysian Case Study. www.forestmonitor.org/reports/highstakes/title.htm
7 FWI/GFW, 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia and Washington DC: Global Forest Watch.
8 Scotland, N. et al. 2000. Indonesia Country Paper on Illegal Logging. Paper prepared for the World Bank-WWF Workshop on Control of Illegal Logging in East Asia, Jakarta, 28 August, 2000; Environmental Investigation Agency and Telapak, 1999. The Final Cut: Illegal Logging in Indonesia's Orangutan Parks
www.eia-international.org/Campaigns/Forests/Indonesia/FinalCut/Forests01.htm; Environment Investigation Agency and Telapak, 2001. op. cit.; World Resources Institute, 2000. Trial by Fire; Forest Fires and Forestry Policy in Indonesia's Era of Crisis and Reform. Washington DC, USA.
9 Barr, C., 2000. Profits on Paper: The Political Economy of Fiber, Finance and Debt in Indonesia's Pulp and Paper Industries. CIFOR, Bogor, Indonesia.
10 Brack , D. et al. Controlling the International Trade in Illegally Logged Timber and Wood Products. The Royal Institute of International Affairs. London, UK.
11 Greenpeace 1999, Buying Destruction. www.greenpeace.org.
12 Contreras-Hermosilla, A. and M.T. Vargas, 2002. Social, Environmental and Economic Dimensions of Forest Policy Reforms in Bolivia. Forest Trends, forthcoming.
13 World Commission on Forests and Sustainable Development, 1999. Our Forests Our Future. Cambridge University Press, Cambridge, UK.
14 Acosta, R.T., E.S. Guiang. L.A. Paat and W.S. Pollisco, 2000. The Control of Illegal Logging: The Philippine Experience. Paper for the Seminar on Control of Illegal Logging in East Asia, Jakarta, Indonesia, 28-29 August.
15 Contreras-Hermosilla, A., 2001. Forest Law Compliance. An Overview. World Bank Institute., Washington DC. www.lnweb18.worldbank.org/eap/eap.nsf/Attachments/FLEG_OB3/$File/OB+3+Overview+Paper+-+Arnoldo+Contreras-Hermosilla.pdf; M. Mabel, 2000. The Flexible Domestic State: Transformation and Political Economic Control in the Khabarovsk Krai Forest Sector. Interim Report IR-00-037, International Institute for Applied Systems Analysis, Laxenburg, Austria.
16 Dudley, N., J.P. Jeanrenaud, and F. Sullivan, 1995. Bad harvest? The Timber Trade and the Degradation of the World's Forests. London, Earthscan.
17 Environmental Investigation Agency and Telapak Indonesia, 2001.Timber Trafficking. www.eia-international.org
18 Scotland, N. et al., 2000. op. cit.
19 Environmental Investigation Agency and Telapak Indonesia, 2001. op. cit.
20 Global Witness, 1999. Made in Vietnam - Cut in Cambodia.. Briefing Document, London, UK.
www.oneworld.org/globalwitness/reports/vietnam/cover.htm
21 World Resources Institute, 1998. Logging Burma's Frontier Forests. Washington DC, USA.
22 Environmental Investigation Agency and Telapak Indonesia, 2001.op. cit.
23 Contreras-Hermosilla, A. 2001. op. cit.
24 EU Forest Watch, Issue 58, December 2001.
25 UN, 2001. Report of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo. United Nations, Report to the Security Council, S/2001/357, New York, USA.
26 The international trade in animals is regulated by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). In the particular case of Brazil, the government has gone much further than the terms of the Convention by banning all trade of wild animals, endangered or not.
27 World Bank, 2001. World Development Report 2000/2001. Washington DC.
28 The Economist, 2002. The Short Arm of the Law. 28 February.
29 Rosenbaum, K. 2002. Illegal Actions and the Forest Sector: A Legal Perspective. A Discussion Paper for FAO
30 The distinction between information and knowledge is not always sharp. Information is normally understood as a logical organization of data while knowledge is something that is believed to be true and that it works in practice. Thus, knowledge may be information combined with experience, reflection and reference to specific contexts. There is no agreement on what knowledge management is either. Many prefer to use the terms "knowledge sharing" as a better reflection of the meaning of the concept.
32 This section is based on Contreras-Hermosilla, A., 2002. Policy Options to Improve Law Compliance in the Forest Sector. FAO, forthcoming.
33 Stiglitz, J. 1998. Redefining the Role of the State: What Should it Do? And How Should These Decisions be Made? Paper for the Tenth Anniversary of the MITI Research Institute, Tokyo, Japan.
34 The Economist, 2002. The Short Arm of the Law. 28 February.
35 Wall Street Journal, 2001. Brazilian Authorities Crack down on Illegal Trading of Mahogany. 14 November.
36 Environmental News Service, 2002. Brazil to Conserve Lands Reclaimed from Amazon Squatters. 9 March.
37 See document at www.iccwbo.org .
38 www.sgs.com/SGSead.nsf/Files/Legal%20Timber%20Validation/$file/LegalTimberValidation.pdf