Protect Forests from Industrial Logging

As part of its Climate Corruption Campaign, NWC is assisting whistleblowers in the industrial logging, one of the sectors responsible for the vast majority of the world’s carbon pollution.

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.

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.

We are pleased to share that the campaign’s first year has validated our assumptions and affirmed the importance of the first sustained effort to educate potential whistleblowers in the fossil fuel and industrial logging industries about their rights under whistleblower laws, including to keep their identities confidential.

As part of the campaign, NWC has a particular focus on assisting company insiders with evidence of potential fraudulent concealment of industry pollution risks, including risks to financial assets. Helping whistleblowers navigate is NWC’s Chief Counsel Sharon Eubanks, a corruption expert who served as lead counsel in the largest-ever civil RICO enforcement case, U.S. v. Philip Morris USA. Eubanks recently testified before Congress on the linkages between the organized deception campaigns of the tobacco and fossil fuel industries.

“Individuals working in the fossil fuel and logging industries with evidence of fraud and other law-breaking in their companies should know that there are safe ways to report crime without losing their jobs. Our campaign will help secure for whistleblowers protections from retaliation and, where feasible, rewards for helping prosecutors win large-scale penalties.” – John Kostyack, Executive Director

The Problem 

The disruption of the earth’s climate is one of the greatest challenges facing our society. Greenhouse gas emissions are continuing to increase, as evidenced by a recent Global Carbon Project report finding that in 2019, despite impressive progress with clean energy, global fossil fuel emissions had increased for the third straight year.

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.

Those impacts will worsen substantially unless we transition away from fossil fuel use and maintain intact forests for carbon storage. 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.

Fossil fuel use and deforestation are the primary drivers of this crisis. Despite recent successes in scaling back investment in oil and coal, natural gas is on the rise. And in developing countries, coal is still on the rise. As for deforestation, 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, and illegal timber accounts for over 70% of timber exports in several countries with tropical forests that are key to regulating the earth’s climate (e.g., Peru, Bolivia and Democratic Republic of Congo).

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.

However, these cases have been limited in scope and have not yet had industry changing effects. Meanwhile, 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.

“Law enforcement officials have long known that if you want to learn about crime, you need whistleblowers. Now is the time to incentivize whistleblowers who know about crimes in the fossil fuel and industrial logging industries to step forward so that law enforcement agencies can do their jobs and rein in corruption.” – NWC Board Chairman Stephen Kohn

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 2017, the US government recovered over $3.7 billion through its civil fraud program. Whistleblowers were directly responsible for reporting over $3.4 billion of these recoveries, making them the source of 92% of all 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 rewardhas 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. However, as a general matter, whistleblowers have not played a major role in convictions of corrupt fossil fuel or industrial logging companies and, when they have played a role, they have not been rewarded adequately.

Now is the time to harness the powerful whistleblower laws to rein in corruption in the industrial logging industry. Only company insiders would know the extent to which the impact of climate change-related risks on financial assets have been illegally concealed from shareholders, the IRS and the public. The Climate Corruption Campaign helps these insiders secure confidential whistleblower status so that the facts can safely be delivered to law enforcement authorities.

Learn the Laws

Climate change and corruption are global problems, and as such they need global solutions. 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.

One of the most important whistleblower reward laws is the False Claims Act (FCA), which has collected a staggering $43 billion since 1986 for the benefit of taxpayers with $6 billion going to whistleblowers. There are two key features of the FCA that make it uniquely suitable for pursuing environmental crimes: its qui tam provision and the concept of “reverse false claims.”

Qui tam goes a step beyond most reward laws – it gives the whistleblower the opportunity to bring forward a case on behalf of the government if the government declines to intervene for whatever reason.

Meanwhile, reverse false claims hinges on the concept that in providing the government with incorrect information on customs forms, lease applications, and the like, the wrongdoer has prevented the government from collecting what it is owed. Covered customs violations include false statements such as the undervaluation and/or misclassification of goods entering the U.S.

Critically, under the FCA, violators are liable for treble damages – or three times the dollar amount that the government is defrauded – along with civil penalties for each false claim. Whistleblowers are can receive between 15% and 30% of sanctions obtained. The returns for a successful illegal logging prosecution under the False Claims Act are potentially huge – especially when you consider that the United States is one of the biggest importers of illegal timber worldwide.

In addition to the False Claims Act, there is a large framework of U.S. laws that address other common types of fraud including tax fraud (IRS Whistleblower Law), securities and commodities fraud (Dodd-Frank Act), and bribery (Foreign Corrupt Practices Act). Each has powerful whistleblower reward provisions and offers the opportunity to hold industrial logging companies accountable for their far-ranging illicit activities.

Furthermore, there are an array of environmental laws, including the Lacey Act and Endangered Species Act, that authorize rewards for whistleblowers who provide information that leads to successful prosecutions. Crucially, a 2008 amendment to the Lacey Act banned the importing, exporting, buying, and selling of illegally sourced plants, and requires companies trading in most wood products to submit formal declarations of the species and origin of harvest. Cargo without accurate declaration can be seized, and companies found to have provided false information in their paperwork can be prosecuted and fined.

A recent case involving a whistleblower and illegal logging highlights how the Lacey Act can be used to drive reform in the industrial logging industry. In 2015, U.S.-based Lumber Liquidators 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. An NGO whistleblower, Environmental Investigations Agency, was key to building the case against the company. The case marked the first time that a U.S. company had been convicted of a felony related to timber under the Lacey Act.

Also in 2017, the DOJ reached an agreement with Popp Forest Products under the Lacey Act to destroy 24 pallets of timber that had been harvested in violation of Peruvian law. The agreement ensured that illegal timber would not enter the U.S. stream of commerce. As part of the agreement, the company also agreed to bear all costs associated with the transportation, destruction, and disposal of the seized timber.

In an earlier case from 2012, famed Gibson Guitar Corp. entered into a criminal enforcement agreement with the United States 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. The company was required to pay $300,000 in fines, as well as pay a $50,000 community service payment to the National Fish & Wildlife Foundation and implement an internal compliance program.

As evidenced here, there are a host of laws that could be employed in the fight against the climate crisis – with corporate whistleblowers at the center. And as an October 2020 poll from the Whistleblower News Network shows, corporate whistleblowers enjoy broad support from the American public. When asked if passing stronger laws that protect employees who report corporate fraud should be a priority for Congress, 82 percent of those surveyed agreed, with 29 percent stating that it should be an immediate priority.

This poll should provide Congress with all the encouragement it needs to act on pending whistleblower bills addressing private sector corruption, like H.R.864, which is aimed at the trade in endangered wildlife, illegal timber and seafood. If passed, this bill could prove a powerful tool for greater accountability in the industrial logging industry and have a powerful impact on curbing the illegal timber trade that fuels deforestation and the climate crisis.

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