Brazil timber imports ‘may have breached US flooring giant’s probation’

In 2016, Lumber Liquidators, a US retailer, paid a record-setting $13 million penalty after pleading guilty to importing flooring manufactured from illegally logged timber. As part of its plea deal, the company, which has since changed its name to LL Flooring, agreed to a five-year probation period during which it committed to an enhanced compliance plan and external audits of its supply chain. But a new report raises questions about the company’s adherence to the terms of its probation in its dealings with top Brazilian flooring exporter Indusparquet.

Published earlier this month by London-based NGO Earthsight, the report examines serious irregularities in Indusparquet’s supply chains, the unusual clemency shown to the company since right-wing President Jair Bolsonaro came to power at the start of 2019, and the American and European importers, such as LL Flooring, that have continued to buy from the company in spite of its troubling sourcing practices.

In May 2018, Indusparquet’s main warehouse was raided with 1,818 cubic meters of hardwood seized and the company fined $171,473 and issued a temporary ban on trading in timber. The raid was the culmination of a two-year investigation of Indusparquet by the Brazilian Environment Ministry’s anti-deforestation agency, Ibama, and the Federal Police.

Ibama first contacted the Federal Police in 2016 to notify them of suspicions that one of the anti-deforestation agency’s employees may have been involved in a scheme to launder illicitly harvested tropical timber. When the authorities finally raided Indusparquet’s warehouse two years later, they found some $2.5 million of timber stored without the necessary permits. While the company has consistently denied any wrongdoing, the lack of permits raises serious concerns over the legitimacy of the wood’s origin.

‘Probation definitely violated in spirit’

The raid also came one month into a buying spree by LL Flooring, which saw the company purchase 6.3 million square meters (over 67 million square feet) of flooring from Indusparquet between May 2018 and October 2020. According to the Earthsight report, the majority of those purchases, with an estimated market value of $6 million, came after the raid.

At the time of publication, LL Flooring, which is traded on the New York Stock Exchange and has a market capitalization of $857 million, had not responded to multiple requests for comment by either Mongabay or Earthsight.

However, Earthsight director Sam Lawson told Mongabay that LL Flooring may have violated the terms of its probation by continuing to import Indusparquet products following the seizures.

“We certainly believe it is possible that they formally breached the terms of the probation. They definitely breached the spirit of its requirements, which were meant to ensure that it avoided any risk of handling stolen wood again,” Lawson said.

Given the types of wood involved and the prevalence of illegal logging in Brazil, Lawson added, Indusparquet ought to have been classified as “high risk” in the legal compliance system imposed on LL Flooring by the US Justice Department, Lawson continued.

“In which case LL Flooring should have been re-assessing Indusparquet every year. It is also hard to see how any such re-assessment could have ‘missed’ news of the seizures or concluded that they didn’t constitute reason enough to halt shipments,” Lawson said.

He added that Earthsight has notified the US authorities of its findings, although, “due to confidentiality constraints they are not able to tell us what action – if any – they might take in response.”

As of publication, the US Justice Department’s Environment and Natural Resources Department had not responded to a request for comment.

A ‘shameful’ flip-flop on fines

Shortly after coming to power on January 1, 2019, the Bolsonaro government began replacing many of the 26 superintendents that lead Ibama’s activities at a state level.

Elisabeth Uema, executive secretary of the Brazilian National Association of Environmental Careers (Ascema), told Earthsight that 21 of the 26 are now political appointees with little or no environmental experience.

The arrival of these new state superintendents at Ibama appears to have heralded a favorable shift in attitude towards Indusparquet.

In June 2019, Sao Paolo’s superintendent Davi de Sousa Silva, installed in the position just months earlier, cancelled a $123,147 fine Indusparquet had been hit with under the previous administration and returned the $2.5 million of wood that had been seized in the warehouse raid. In his written ruling, Silva justified his decision by claiming the original investigation had been flawed. However, Earthsight claims the ruling provided no evidence of any such flaws.

Contacted for comment by email, an Ibama spokesperson told Mongabay that further investigation of the alleged infractions by Indusparquet revealed them to be the product of administrative error, and that on closer inspection the seized timber had been “regular”.

“Thus, an infraction notice was prepared for the conduct of failing to submit reports or environmental information within the deadlines required by law or, when applicable, the one determined by the environmental authority,” the spokesperson concluded.

Such explanations did not wash with Suely Araújo, who headed Ibama during its 2018 raid of Indusparquet’s warehouse and until Bolsonaro came to power.
“The law enforcement operation carried out in 2018 at Indusparquet found inconsistencies in the origin of the timber registered in [Ibama’s electronic] control system and in the volumes found at the company’s yards,” Araújo told Earthsight.

Araújo’s sentiments were echoed by Elisabeth Uema of Ascema, the environmental civil servants association.

“It is shameful that this fine has been cancelled in light of the many signs of irregularities,” Uema told Earthsight.

‘A risky bet’

Over the last five years, Indusparquet has shipped more than 55,000 tonnes of hardwood flooring, with 90 percent of that total ending up in the United States. The bad press from the company’s brushes with the law does not seem to have hurt Indusparquet’s sales, either. In fact, its exports to the United States increased by several thousand tonnes following the 2018 raid, fines and seizure, according to Earthsight’s analysis of trade data.

However, American firms buying from Indusparquet are engaging in a “risky bet”, the Earthsight report warns. US companies are forbidden to import timber illegally sourced in another country under the Lacey Act, the same law LL Flooring was convicted under in 2016. Penalties for companies found to be violating the act vary according to the amount of due diligence and caution they exercised in order to minimize the risk of falling foul of the law.

Earthsight director Sam Lawson told Mongabay that the case of Indusparquet and LL Flooring should be a wake-up call for US and European authorities that either the regulations governing timber imports need improving or their implementation does.

“If these laws are not able to prevent imports continuing from a company selling such wood which is subject to such a seizure, even temporarily, then one is forced to question their real value,” he said.

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Banner image: Seized timber illegally logged on an indigenous reserve by Brazil’s environmental agency IBAMA, before the election of Jair Bolsonaro. Under Bolsonaro, IBAMA has been largely defunded. Image courtesy of IBAMA.