Fighting Illegal Logging and Forestrelated Financial Crimes: The AntiMoney Laundering Approach

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Fighting Illegal Logging and Forest-related
Financial Crimes The Anti-Money Laundering
Approach
Bambang Setiono Center for International
Forestry Research (CIFOR) Presented at A
Workshop on Transnational Environmental Crime and
Illegal Resource Activity in the Asia Pacific The
Australian National University, Canberra,
Australia, 22-23 March, 2007
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Outline

• Forest, Industries, and banks
• Typology of Illegal Logging
• Limitations of forestry and other economic laws
• AML Measures
• Current International Initiatives
• Further Collaboration

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Forests, Industries and banks

• Out of 13 billion hectares global total land
  area, 3.8 billion hectares are forests.
• Protected Area 852 million ha of which 479
  million ha is forest
• Every year 10 million hectares forests are
  destroyed and causing the most significant
  environmental changes affecting the Earth today
• Only 80 million ha of certified management (2)
• Illegal logging accounts for perhaps 25 of
  removals worldwide
• Industrial timber exports around US 150 billion
  per year

(World Bank 2004)
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Forests, and banks (cont..) THE ROLE OF BANKS

• 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

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Typology Illegal logging in Papua
Illegal loggers
Bank of non-timber buyers
Bank of timber buyers
Rp
Community leaders
US
Financial Backers
US
The Bank of the financial backer
Forestry regulators
Rp
US
Police Custom Officers
Banks of Key Decision Makers
Banks
In Malaysia, Singapore, Hong Kong, China
In Papua Jakarta Indonesia
(EIA Telapak 2004)
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Typology (cont..) the Challenges

• The criminals (the financial backers) are
  residing in foreign countries
• Most of the proceeds from illegal logging are
  placed in international financial institutions
• Political risk for reporting and investigating
  corrupt government, police, and military officers

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Limitations of Forestry and other Economic Laws
For reducing poverty Laws are designed to
promote large forestry businesses that often
limits poor forest-dependent people access to the
forests

• For reducing illegal logging
• Following illegal wood found only the field
  operators
• Different types of logging permits (States,
  provinces, districts)
• Depend on the effectiveness of the national law
  enforcement system

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Limitations of Forestry and other Economic Laws
(Cont)
For managing large sustainable forest-based
industries Undermined by other economic goals
(states, provinces, districts, as well as
international financial development agencies
) Ignored by banking and financial policies
(hands-off due diligence and no assessment on
forest management performances)
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AML Measures
FOLLOW THE MONEY
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AML Measures (cont)
FOLLOW THE MONEY
Suspected Customer

Reporting Parties
Law Enforcement Agencies
FIU
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AML Measures Predicate Offences
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AML Measures KYC Principles
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AML Measures Suspicious Transactions
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AML Measures Internal and Regional Cooperation
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International Initiatives on fighting illegal
logging

• Bali Ministerial Declaration on Forest Law
  Enforcement and Governance (Indonesia, China,
  Cambodia, Lao PDR, Papua New Guinea, Thailand,
  Philippines)

MINISTERIAL DECLARATION immediate action to
intensify national efforts, and to strengthen
bilateral, regional and multilateral
collaboration to address violations of forest law
and forest crime, in particular illegal logging,
associated illegal trade and corruption, and
their negative effects on the rule of law
Bali, Indonesia September 13, 2001
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International Initiatives (Cont..)

• US Presidents Initiative on Illegal Logging
  (February 2002)
• USA-Indonesia MoU on illegal logging (Nov 2006)
• Norway-Indonesia Letter of intent  - (August
  2002)
• China-Indonesia MOU (December 2002)
• China-UK Letter of Intent (May 2004)
• EU Action Plan for Forest Law Enforcement
  Governance and Trade (May 2003)
• Africa FLEG Ministerial Declaration (16/10/2003)
• Japan-Indonesia MOU (June 2003)

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International Initiatives (Cont..)

• Main EU FLEGT Action Plan components
• development cooperation capacity building
• trade measures, FLEGT Partnership Agreements,
  other options
• Private sector measures, chain of custody, Codes
  of Conduct etc.
• Investigate use of existing legislation (e.g.
  money laundering)
• APG Typology Workshop 2004 in Brunei
• Indonesia to develop the typology of illegal
  logging
• Indonesia proposal to the UN to include illegal
  logging and trade its related products under the
  UN protocol on transnational crimes (April 2006)
• APG Ad Hoc Meeting on illegal logging and money
  laundering (Nov 2006)

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Further Collaboration

• Establish Working Group on Illegal Logging or
  Environmental Crimes at the APG or FATF with link
  to international forestry/environment
  initiatives.
• The Basel Committee on Banking Supervision should
  encourage banking supervisors to audit the
  implementation of the KYC principles and the AML
  law of banks that are significantly involved in
  plywood, sawn timber, pulp and paper, oil palm,
  and mining industries.

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We can stop destruction of our environment ONLY
by working together