Fraudulent Use of Trans-Shipment Points to Conceal Timber Origins

A recent NGO report alleges that protected timber illegally harvested by Chinese company dodged U.S. conservation laws via numerous middlemen.

While sustainable forestry is increasing, industrial logging of forests is still the primary source of timber and timber-based products, and the global trade in timber from protected forests and wildlife habitats is incredibly difficult to police. As much as 23% to 30% of hardwood lumber and plywood traded globally could be from illegal logging activities. While there are international conventions governing lists of endangered animal and plant species, enforcement relies largely on signatory countries.

Currently, many of the rules and laws designed to curb the illegal timber trade are either not strict enough or poorly enforced. Some nations like Gabon, one of the largest timber exporters in Africa, have recently taken steps to tighten regulations, but there is still a long way to go. Worsening the problem, countries with limited regulations can act as trans-shipment points. Many traffickers will send illegal timber to nations that don’t ban it, where the timber is then processed and exported – obscuring its origins.

The U.S. has multiple whistleblowers laws with transnational applications to address these complicated international networks and prevent the importation and sale of illegally harvested timber in the U.S. The Lacey Act is the United States’ flagship legislation for controlling the illegal trafficking of fish, wildlife and plants. It was amended in 2008 to expand its protections to trees and timber products. The new legislation required importers to declare, among other things, the country where the wood was harvested.  The Act also contains a whistleblower provision for rewards to anyone who provides information leading to a successful prosecution, to be determined at the discretion of the agency.

However, traffickers often obscure timber country of origin by falsifying documentation and/or shipping the wood through one or more intermediary countries. Without inside information, it can be difficult to determine the accuracy of customs documents. A 2019 report by the nonprofit Environmental Investigation Agency (EIA) demonstrates this difficulty: it found that a corporation’s trafficking of wood through China is allowing timber illegally harvested from Africa’s Congo Basin to end up in furniture and flooring stores throughout America and Europe.

In doing so, the corporation could potentially violate the False Claims Act. The False Claims Act is a critically important whistleblower law which regulates fraud in connection with those receiving compensation or other benefits from the government. Created in 1863 by Abraham Lincoln, the law was originally applied to cases in which a contractor defrauded the government by submitting bills to the government for poorly performed or nonexistent work. However, the False Claims Act also applies to instances in which entities prevent the government from collecting what taxes or fees that is owed, a concept referred to as reverse false claims.

In recent years, customs violations have increasingly been prosecuted under reverse false claims, demonstrating the potential to apply the extremely successful False Claims Act to the issue of the illegal timber trade. The False Claims Act also contains a powerful whistleblower provision, known as qui tam. Whistleblowers who provide original information that results in a successful prosecution are awarded a mandatory reward of between 15% and 30% of the collected proceeds.

EIA Report on Toxic Timber Trade

The Congo Basin—a region in central Africa 2.3 million square miles large–is the biggest tropical rainforest in the world after the Amazon. It’s a major carbon sink and the habitat for endangered species including African Forest Elephants and Great Apes. It’s also the source of Okoume, a hardwood commonly used as plywood in construction or furniture, often after being pounded into veneer. Okoume was designated a “vulnerable” species in 1998 because its environment is home to so much endangered wildlife.

China is the biggest market for wood from the Congo Basin: EIA found that 46 percent of wood exported from Congo and Gabon went to China. Companies from Asia, including China, Hong Kong and Malaysia, have invested heavily in the Congo Basin, buying up forest “concessions” they can harvest for wood. The EIA investigation focused on a particular company called the Dejia Group which owns 1.5 million hectares of Congo Basin forest. The group alleged that the company used political ties and bribes to take timber out of the country without paying taxes or processing the wood with local labor per Congolese law.

EIA estimates 82 percent of timber harvested by the Dejia Group is sold in the Chinese market, where laws prohibiting importation of protected timber species don’t exist. Deija then sells the wood to U.S. importers via a network of offshore subsidiaries in nations like Hong Kong. The report named two importers—Washington-based Evergreen Hardwoods and Oregon-based Cornerstone Forest Products—as particular culprits.

The importers dodge Lacey Act disclosure requirements by submitting false or incomplete paperwork, the report says. The wood is then sold to companies like Roseburg Forest Products, an Oregon mill operator that produces plywood, particleboard and wood chips. Roseburg used the wood in a veneer plywood sold in national chains like Home Depot under a national certification for environmental sustainability.

The supply chain can be so long and twisted that even third-party inspectors can’t determine the timbers’ origin: Roseberg said they hired a company called Double Helix Tracking Technologies to verify the woods’ origins, and that the company found no Lacey Act violations.

The report has prompted an ongoing investigation by the U.S. Immigration and Customs Enforcement Agency (ICE) into American companies that purchased the timber from middleman companies and used it in products often marketed as environmentally friendly.

Key Takeaways

As the EIA case alleges, there is significant potential for companies to evade disclosure requirements under the Lacey Act through a complex importation system that obscures the origin of wood products. However, any misrepresentations on U.S. customs forms regarding the type of timber, the milling, or the source constitute making a false claim to the government.

In recent years, customs violations have increasingly been prosecuted under reverse false claims, demonstrating the potential to apply the extremely successful False Claims Act to the issue of the illegal timber trade, as well as the Lacey Act.

Using the False Claims Act and its extremely successful whistleblower program, industry whistleblowers could play an influential role in curbing the illegal timber trade by confidentially reporting companies who are misrepresenting the timber products that they import and export.

Confidentially Report Corruption

If you have information related to potentially actionable fraud related to the illegal timber trade, 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 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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