Banks can stop illegal logging if they want (Part 2 of 2)

Sukowaluyo Mintorahardjo and Bambang Setiono

Last year, the Ministry of Forestry set timber production from natural forests at 6.8 million cubic meters. But the requirements of the timber industry were approximately 60 million to 70 million cubic meters. Estimates suggest between 60 percent to 80 percent of the timber industry's supplies are obtained illegally.

What is more frightening is that the industry's reliance on illegal timber will keep increasing unless the capacity of the industry is significantly reduced. This is because the Ministry of Forestry has set the allowable timber-cut from natural forests for 2004 at only 5.7 million cubic meters.

But it seems the easy ride for the timber industry's high- rollers may soon be over -- or at least has been made bumpier by a considerable degree. Under the proposed changes to existing money laundering regulations, the banks will have no choice but to become more accountable if and when forest and environmental crimes are officially designated as "predicate offenses".

Listing forestry and environment crimes as predicate offenses under the revised Money Laundering Law has some wide-ranging implications for law enforcement and governance in both the forestry and financial sectors.

First, banks will have to enact greater due diligence when providing loans to the forestry sector. A "know your customer" rule will require banks to determine whether their customers are involved in illegal activities. In the forestry sector specifically, banks will be bound to take action against customers known to use illegally logged timber.

Second, banks will be obliged to monitor and report any suspicious transactions. The fact that an estimated 70 percent of timber in Indonesia is obtained from illegal sources raises the crucial question as to what constitutes a "suspicious transaction" in the forestry sector.

Given the 70 percent figure of illegal timber, banks may well be obliged to treat every transaction involving forestry activities as suspicious -- at least until forestry companies can provide evidence to the contrary. This in turn will force companies in the forestry sector to be more transparent and accountable.

Third, the law for illegal logging offenses will not only be enforced upon the timber bosses' henchmen in the field, but also upon the bosses' masters and the brains behind illegal logging activities. Up until now, the Wanalaga and Wanabahari operations have only succeeded in netting small fry caught red-handed in the act of illegal logging.

Enforcement operations to prevent banks from laundering illegal logging money would be better able to identify the "godfathers" who finance and benefit most from illegal logging activities.

Fourth, the government will possess a new tool to enforce forestry and financial laws. Listing forestry crimes as a predicate offense will broaden law enforcers' options to cut off sources of funding for illegal logging activities. Apart from prosecuting actors directly involved in illegal logging, the government will also be able to press charges against institutions that finance these activities.

Fifth, new legal provisions will be available for law enforcement and prosecution. With illegal logging activities, the money made from tree felling is often sent overseas. Proposed changes to the Money Laundering Law will enable the government to press charges against Indonesian nationals involved in money laundering activities, whether in Indonesia or overseas.

This will be strengthened further through the government's cooperation with the Financial Action Task Force, an international organization monitoring money laundering laws globally.

Considering the above benefits to both the forestry and financial sectors in strengthening and expanding existing money laundering laws, it is only fitting that the legislature should ratify the proposed changes as proof of its commitment to eradicating forestry offenses, protecting forests, wiping out corruption and eliminating financial crimes in general.

Perhaps then, crimes against forests and the environment will be considered just as evil as trafficking in women and drugs.

Sukowaluyo Mintorahardjo, a legislator with the Indonesian Democratic Party of Struggle, is a member of Commission III of the House of Representatives (DPR), which oversees issues related to agriculture and forestry, among others. Bambang Setiono is a financial analyst at the Center for International Forestry Research (CIFOR).