Site icon Conservation news

Investors told to wise up over cost of environmental crime

In 2015, the largest seizure of Peruvian timber was made in the Yacu Kallpa vessel. Photo courtesy of the Environmental Research Agency (EIA).

In 2015, the largest seizure of Peruvian timber was made in the Yacu Kallpa vessel. Photo courtesy of the Environmental Investigation Agency (EIA).

  • Lack of knowledge of environmental crimes doesn’t protect companies or financial investors from prosecution, warns a new Climate Advisers report.
  • The case of U.S. hardwood flooring company Lumber Liquidators is a salutary reminder to others of the pitfalls of ignoring where timber products are sourced from.
  • The report also calls for U.S. authorities to use a greater range of laws to tackle forest crimes.

Companies and their investors are exposing themselves to massive legal and financial risks by trading, sometimes unwittingly, in products derived from illegally harvested timber, according to a new report.

Published earlier this month by the Washington, D.C.-based consultancy Climate Advisers, the report recommends that U.S. authorities look beyond purely environmental legislation to prosecute any crimes associated with the illicit sourcing of timber products.

“Despite recent progress, a continued lack of transparency in sectors most at risk of illegal forest clearing, such as cattle, oil palm, soy and timber, means that investors may not know the extent of their exposure to material financial risks from deforestation through companies they invest in,” the report says.

The potential for companies to become involved in such activities is vast, with Interpol estimating the scale of illegal logging at somewhere between $50 billion and $150 billion a year.

Climate Advisers highlights the case of Lumber Liquidators in its report: in 2016, the U.S. firm paid more than $13 million in fines and forfeited assets in connection with the importing of hardwood flooring from timber that had been illegally logged in Russia’s Far East.

The Mongolian oak the company used for its products came from forests that are home to two of the world’s rarest big cats: the Amur, or Siberian, tiger (Panthera tigris tigris) and the Amur leopard (Panthera pardus orientalis).

Forest clearance and plantation development in PT Megakarya Jaya Raya (PT MJR) palm oil concession in Papua. New Guinea Island is home to the world’s third-largest rainforest, but is facing intense pressure due to the logging and palm oil industries. Image by Ulet Infansasti/Greenpeace.

The Lumber Liquidators case showed “the true cost of turning a blind eye to environmental laws,” U.S. Assistant Attorney General John C. Cruden said at the time in a statement released by the Department of Justice. “This company left a trail of corrupt transactions and habitat destruction. Now they will pay a price for this callous and careless pursuit of profit.”

Lumber Liquidators was prosecuted under the Lacey Act, a law dating back to 1900 that bans trafficking in illegal wildlife. It was amended in 2008 to include plants and plant products such as timber and paper.

More can be done, according to Anthony Mansell, director of policy and research at Climate Advisers. Mansell said his organization’s report highlighted how activities such as illegal logging could also be addressed using other laws. “Forest crime involves many of the same crimes or violations of the law that goes with any other organized crime,” Mansell said in an interview. “Crimes such as money laundering, racketeering and corruption, for example.”

The next Lumber Liquidators

There are an increasing number of examples of corporate involvement in illegal forest clearing or land grabs leading to financial hits, according to Susanne Breitkopf, policy manager for the Environmental Investigation Agency (EIA). The nonprofit works to expose environmental crimes through its on-the-ground investigations, and was responsible for uncovering Lumber Liquidators’ role in the illegal timber trade.

The share price of Lumber Liquidators fell nearly 90 percent, from a high of $119.44 before the scandal broke in 2013, to less than $20 in 2015.

“This case had big consequences for the industry,” Breitkopf said in an interview. “Nobody wants to be the next Lumber Liquidators. But if investors are not looking where they are putting their money, especially when it comes to land banks, they are taking really high risks.”

In a different case, in 2017 United Cacao was delisted from the London Stock Exchange’s Alternative Investment Market after the EIA said it had financed more than 111 square kilometers (43 square miles) of illegal deforestation in the Peruvian Amazon. A report in the U.K.-based Mail on Sunday newspaper in February 2017 revealed that United Cacao’s share price had plummeted by a third in just over two years. It was described as having been “a disastrous investment.”

Using the law more extensively

The Climate Advisers report sets out a whole suite of U.S. statutes, not specifically environmental in nature, that could be used against companies involved in illegal logging, including the Foreign Corrupt Practices Act (FCPA), anti-money-laundering laws, and wire and mail fraud legislation. The FCPA has already been used extensively in multiple international lawsuits against companies with complaints of aiding and abetting terrorism.

The report gives a hypothetical example of a U.S. investor that funds an agricultural commodity producer knowing it will offer bribes to officials to turn a blind eye to illegal forest clearing.

Red ruffed lemur (Varecia rubra), a species that lives in northeastern Madagascar, where rosewood logging has been severe. Photo by Rhett A. Butler.
Red ruffed lemur (Varecia rubra), a species that lives in northeastern Madagascar, where rosewood logging has been severe. Photo by Rhett A. Butler.

“Because of its global reach and robust enforcement, the FCPA has major, if untested, potential in application to forest crime,” the report says. “Bribes help unscrupulous companies to obtain forest land rights, to frustrate enactment and enforcement of relevant regulatory regimes, and to export and market illegally-trafficked agricultural products.”

Mansell said one of the advantages of using laws other than the Lacey Act (or the Endangered Species Act), like the FCPA, was that it could make it easier to prosecute environmental crimes.

“Proving something is a particular species is very hard,” Mansell said, pointing to highly technical issues like the need to demonstrate that a particular wood was illegally logged. “Money laundering is the same, no matter where it occurs.”

The bottom line, according to the 2013 EIA report that blew the lid off the Lumber Liquidators issue, is that companies and investors should take extra precautions if timber is being sourced from countries where illegal practices are known to be rife.

Breitkopf pointed out, though, that the concept of using additional laws on the books was still far from simple. “I agree there are more laws that lend themselves to prosecute this type of illegal activity,” she said, “but crimes such as corruption and money laundering are very difficult to prove.”

Banner image: In 2015, the largest seizure of Peruvian timber was made from the ship called the Yacu Kallpa. Photo courtesy of the Environmental Investigation Agency (EIA).

Exit mobile version