The illegal timber trade is the harvesting, processing, transporting, buying or selling of timber in violation of national and international laws. As much as 23% to 30% of globally traded hardwood lumber and plywood may be sourced from the illegal timber trade, and illegal timber accounts for over 70% of timber exports from several countries with tropical forests critical to regulating the Earth’s climate. INTERPOL estimates that between $51 to $152 million USD worth of timber is illegally harvested annually. According to the World Bank, nearly $5 billion USD in tax revenue for governments is lost each year due to the illegal timber trade.
Some common fraudulent activity related to the illegal timber trade includes: • Directly bribing foreign officials to avoid local lumber regulations, either through a subsidiary or the main agribusiness; • Funding a commodity producer knowing that it will offer bribes to officials to ignore illegal timber clearing; • Operating under an improper license to engage in the harvesting, processing, transporting, buying or selling of timber; • Neglecting to perform environmental impact reports and site inspections; • Violating other environmental and safety regulations; • Continuing to operate after a stop notice from the local or national government; • Falsely labeling the type of timber, the milling, or source in customs statements about goods being imported or exported; • Knowingly importing wood through a trans-shipment point to obscure the origins of illegally trafficked timber; • Making knowingly incorrect statements about the source of timber to potential purchasers.
There exists a robust framework of federal laws that can be used by whistleblowers to report instances of fraudulent activities within the illegal timber trade supply chain. Many of the whistleblower provisions within these laws allow for whistleblowers to receive rewards if the provided information results in a successful prosecution or enforcement action. Further, these provisions protect whistleblower confidentiality and establish safe reporting channels. These federal laws include: the False Claims Act (FCA) , Dodd-Frank Act, Foreign Corrupt Practices Act (FCPA), among others. To combat attempts to defraud the U.S. government, the FCA provides that any knowledgeable submission of false claims by an individual or organization may make a company or individual liable to the government’s damages. With the FCA, whistleblowers may bring lawsuits on behalf of the U.S. government, known as a qui tam action. Additionally, the FCA can be used to prosecute companies who knowingly submit false information in order to obtain a government lease or contract thus preventing the government from collecting what it is owed, known as “reverse false claims.” Such provisions may be applied if an organization provides false information about the environmental impact of their project in order to gain approval to begin logging operations. Companies that knowingly make incorrect statements about the source of timber to potential buyers may be prosecuted under the Dodd-Frank Act. Dodd-Frank was established after the 2008 housing crisis to combat securities fraud and applies to fraud committed against private investors and companies, differing from the FCA which deals with attempts to defraud the government. Its whistleblower provisions provide anonymity protections and authorize rewards for information filed with an appropriate agency like the U.S. Securities and Exchange Commission, or in the case of commodities fraud, wherein a company may misrepresent their cargo haul, information is submitted to the Commodity Futures Trading Commission. In order to combat bribes and the illegal exchange of funds in order to potentially avoid detection by law enforcement, the FCPA permits rewards to whistleblowers who provide original information about bribes paid to foreign government officials by publicly traded companies. This type of fraud may occur if a company pays off local officials in an area marked for logging to turn a blind eye to potential misconduct. Additionally, whistleblowers may rely on various environmental laws with whistleblower provisions such as the Lacey Act or Endangered Species Act. These environmental laws were put in place to protect fish, wildlife, and plants from illegal trafficking and harvesting, authorizing rewards for those bringing forth actionable information. If an endangered tree species is harvested during a logging operation, whistleblowers with such knowledge may furnish the information for a potential reward under the Endangered Species Act.
The Lacey Act is a federal conservation law that prohibits the importation, exportation, sale, acquisition or purchase of fish, wildlife, or plants that are taken, possessed, transported, or sold in violation of U.S law, Indian law, or in interstate or foreign commerce in violation of state or foreign law. Under the Lacey Act, whistleblowers with information that leads to an arrest, criminal conviction, civil penalty or forfeiture of property may receive a reward. The amount of such a reward is designated by the Secretary of the Interior, Agriculture, Commerce, or Treasury, as appropriate. In 2008, to increase the scope of protected products under the Lacey Act, a landmark amendment banned the importing, exporting, buying, and selling of illegally sourced, plants, requiring companies trading in most timber products to submit formal declarations of the species and origins of harvested timber. Cargo without accurate declaration can be seized, and companies that provide false information can be prosecuted and fined. The Lacey Act has been foundational in combating the illegal timber trade, setting crucial precedent to prosecute lumber trade fraud and bring forward large criminal and civil penalties on rule-breaking companies.
There is an array of laws at a whistleblower’s disposal, including the Lacey Act, Endangered Species Act, and False Claims Act that authorize rewards for whistleblowers who provide information that leads to successful prosecutions. If successful, whistleblower may receive a portion of the collected damages; the portion varying dependent on the law used to report the fraudulent activity. Under the False Claims Act, for example, whistleblowers may be eligible for a mandatory reward between 15% to 30% of the collected proceeds.
Yes, the Lacey Act, False Claims Act, and others all allow for non-U.S. whistleblowers to make disclosures and receive awards, so long as the fraud in question has a U.S. nexus. Additionally, many federal agencies that implement laws for which violations can originate overseas actively support foreign whistleblowers and their disclosures. The U.S. Securities and Exchange Commission (SEC)’s Office of the Whistleblower has noted that “allowing foreign nationals to receive awards under the program best effectuates the clear Congressional purpose underlying the award program.” Additionally, the SEC reported receiving 1,557 international whistleblower tips between Fiscal Year 2011 and Fiscal Year 2015.
Yes, the Lacey Act has been successful in bringing forth fines on companies illegally sourcing timber. In 2015, U.S.-based Lumber Liquidators was fined over $13 million in the largest Lacey Act fine to date for buying illegally logged woodfrom eastern Russian forests. A whistleblower disclosure from the NGO, Environmental Investigations Agency, was key to building the case against Lumber Liquidators. This case marked the first instance in which a U.S. company has been convicted of a felony related to illegally sourced timber under the Lacey Act. In 2017, the DOJ reached an agreement with Popp Forest Products under the Lacey Act to destroy 24 pallets of illegally sourced timber in violation of Peruvian law. The agreement ensures that timber that was harvested in violation of Peruvian law will not enter the U.S. stream of commerce. In 2012, guitar manufacturer Gibson Guitar Corp. entered into a criminal enforcement agreement with the U.S. to resolve allegations that Gibson violated the Lacey Act by illegally purchasing and importing ebony wood from Madagascar and rosewood and ebony wood from India. The company was required to pay $300,000 in fines, as well as a $50,000 community service fine to the National Fish & Wildlife Foundation and implement an internal compliance program.
If you have information related to potentially actionable fraud related to illegal timber logging, submit a report using this secure, confidential intake form, and a qualified whistleblower attorney will review your case for free. The National Whistleblower Center’s Legal Assistance Program helps connect whistleblowers with legal whistleblower attorneys. You can get the help you need submitting the information you have to appropriate law enforcement officials and learn about your eligibility for monetary rewards under the law.
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