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

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).