The disruption of the earth’s climate is one of the greatest challenges facing our society. Greenhouse gas emissions are continuing to increase, and these emissions are already having dramatic impacts.
Sea levels are rising. Animal and plant species are rapidly going extinct. Natural phenomena like hurricanes and forest fires are becoming increasingly more violent. And the impacts of greenhouse gas emissions are not spread evenly. Those who have contributed the least to the problem – the poorest communities around the world and the generations to come – will experience the greatest impacts.
Climate change poses an enormous threat to our economy and quality of life, and readily available solutions are not being implemented fast enough to head off the worst damage. That’s why the National Whistleblower Center (NWC) launched our Climate Corruption Campaign in January 2020, with a focus on the fossil fuel and timber industries as well as their professional enablers, including the securities and banking industries.
The Climate Corruption Campaign’s timber work is centered around one central concept: with investors and consumers demanding that timber be sustainably harvested, the logging companies and their supply chains need to conceal their environmental and climate destruction to maintain profitability.
The industry’s business model and past practices suggest that the continued profitability of these companies, and ability to attract investment and policy support, is achieved in significant part through fraud, bribery and other corruption.
Further strengthening whistleblower laws and enacting mandatory climate disclosure requirements are necessary to protect the environment and the economy, but whistleblowers don’t have to wait. If companies attempt to mislead regulators, investors, or others about their activities, whistleblowers can use powerful U.S. whistleblower laws to report this. NWC is educating and assisting whistleblowers in the timber industry with evidence of climate-related risks and other potentially fraudulent information. Learn more about how we help whistleblowers find an attorney here.
Widespread Fraud in the Timber Industry
While sustainable forestry is increasing, industrial logging of forests is still the primary source of timber and timber-based products. In the tropical forests with high carbon stocks, much of this logging is unsustainable and illegal. Unsustainable logging in the tropics reduces the financial viability of holding the land as managed forest and thus leaves it more vulnerable to land-clearing for mining and agriculture. It also threatens endangered species like Indonesian orangutans and Siberian tigers – as well as the trees themselves. Rosewood has been called “the ivory of the forest” due to how widely it is trafficked, leaving many of the trees that produce it threatened.
Furthermore, illegal logging distorts global markets, since illegal timber is often cheaper than legal timber. According to INTERPOL, illegally harvested timber is estimated to be worth between $51 and $152 billion USD, annually. As much as 23% to 30% of hardwood lumber and plywood traded globally could be from illegal logging activities.
This wide-scale sale of illegally-sourced timber costs governments significant revenue. A Human Rights Watch report estimated that the Indonesian government lost US$7 billion between 2007 and 2011 due to illegal logging. And an Environmental Investigation Agency (EIA) report estimated that Mozambique lost US$30 million in 2012 alone from unpaid taxes on exports to China. According to the World Bank, as much as US$5 billion in tax revenue for governments is lost each year due to the illegal timber trade.
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 like China that don’t ban it, where the timber is then processed and exported – obscuring its origins.
In the past decade, there have been several high-profile cases concerning illegal timber. The most notable is the case of U.S.-based Lumber Liquidators, which was fined over $13 million in the largest Lacey Act fine to date for buying wood that had been illegally logged in eastern Russian forests. Another case concerned a 2012 criminal enforcement agreement with Gibson Guitar Corp. to resolve a criminal investigation into allegations that the company violated the Lacey Act by illegally purchasing and importing ebony wood from Madagascar and rosewood and ebony from India.
More recently, the U.S. Immigrations and Custom Enforcement (ICE) is investigating following a 2019 EIA report on the “toxic trade” in Gabon and Republic of the Congo in a type of wood called okoumé. The report was based on a four year undercover investigation that revealed illegal behaviors like bribery, over-harvesting, and tax evasion by Chinese-owned Dejia Group (DG) in the two African countries. DG sold the timber to other companies who processed it and imported the plywood into the U.S. without properly researching the origin of the wood, as is required under the Lacey Act. The products were then sold at multiple big box stores in the U.S. – and marketed as being environmentally friendly.
These recent cases provide examples of potentially prosecutable activities occurring. Other potential illegal activities happening in industry include bribery, money laundering, and misleading investors about deforestation risks.
The timber trade has continued to steadily grow over the past decades. The urgent need for action is clear. We must not only bear down on proven strategies like rapidly deploying wind and solar energy. We also must finally come to grips with what is happening inside the companies that rely on industrial logging. This is where whistleblowers come in.
How Whistleblowers Can Help
Whistleblowers have a proven track record in battling corruption in other arenas. Many high-impact prosecutions have taken place only because whistleblowers delivered otherwise-unavailable evidence to law enforcement officials and have produced billions and penalties. In FY 2020 alone, the US government recovered over USD 2.2 billion through its civil fraud program. Whistleblowers were directly responsible for reporting over USD 1.6 billion recovered, making them the source of 75% of civil fraud recovered that year.
And whistleblowers can have industry-changing impact. One of the best-known examples is Bradley Birkenfeld, who was the first international banker to blow the whistle on secret Swiss bank accounts. His disclosures resulted in unprecedented recoveries for U.S. taxpayers, with over $780 million dollars in civil fines and penalties paid by UBS and over $5 billion dollars in collections from U.S. taxpayers who had illegally held “undeclared” offshore accounts in Switzerland and other countries. As a result of his whistleblowing, these secret accounts are no longer available for corrupt US taxpayers to hide their earnings, and the Swiss government was ultimately forced to change its treaty with the United States in order to turn over the names of nearly five thousand Americans who held illegal offshore accounts.
He received a reward of $104 million under the IRS Whistleblower Program for his invaluable assistance with the case, the largest whistleblower reward ever given. His reward has helped to drive massive growth in prosecutions of securities, commodities and tax fraud by demonstrating to both whistleblowers and prosecutors the critical role of this economic incentive to motivate high-level executives to take the substantial risk of exposing crime.
There are similar stories across industries and sectors – whistleblowers who gave disclosures that changed corporate behavior for the better. You can learn more about those here.
Now is the time to harness the powerful whistleblower laws to rein in corruption in the fossil fuel industry. U.S. laws are uniquely well-suited for enlisting citizens to help fight global environmental crime. There have been a host of laws enacted by the U.S. Congress and the states in the past few decades to encourage whistleblowers to report corporate fraud to authorities. The best of these laws, such as state and federal False Claims Acts and the federal laws on tax, securities and commodities fraud, allow whistleblowers to report crimes without revealing their identities.
They also provide financial rewards to whistleblowers for contributing to successful prosecutions, with the size of the reward linked to the size of the monetary sanctions recovered and the importance of the whistleblower’s evidence to the case. These rewards are available to whistleblowers regardless of U.S. citizenship and apply to prosecutions against U.S. companies as well as foreign companies doing business in the U.S. Leveraging this powerful system of laws could provide a revolutionary new approach to combating the climate crisis. Learn more about the laws that can be used by climate change whistleblowers here.
NWC is also working to strengthen laws for climate change whistleblowers around the world. In March 2021, a coalition of anti-corruption advocates, including NWC, also wrote letters to each European Union member country urging the parliaments to explicitly recognize and protect climate whistleblowers in their transposition of the 2019 Whistleblowing Directive. The letters note that as climate change issues impact a wide spectrum of laws, rules, and regulations, which are constantly evolving, these parliaments must enact provisions that are flexible enough to cover this developing area.
Only company insiders know the extent to which the impact of climate change-related risks on financial assets and other deceptions have been illegally concealed from shareholders, regulators, and the public – it is critical that they are empowered to step forward through robust whistleblower protections and awards.