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Corruption in the Forestry Sector

Corruption in the Forestry Sector



Presentation by Manoj Nadkarni, ...

Presentation by Manoj Nadkarni,
Transparency International,
Corruption in the Forestry Sector: why regional initiatives are needed,
The 14th International Anti-Corruption Conference, Thursday, 11 November 2010, Queen Sirikit National Convention Center, Bangkok, Thailand



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  • Helps develop rural areas Gives jobs to indigenous people Part of the agriculture sector Provides resources for the chemical, pharmaceutical, paper, and manufacturing industries needed for country for growth
  • Things are changing's in the Asia Pacific region: much log timber export has been replaced by export of secondary processed products, but even then Asian wood exports made up just over a fifth of Asia’s total primary product export volume in 2007.
  • So, is this not just another successful example of environmental resources used for a country’s needs? No, because corruption is the rot that spoils this picture In fact, forestry is just an example forestry can be used to illustrate the pervasiveness of corruption and how damaging it can be. Corruption turns the sustainable use of forestry products into an activity based on illegal logging, one of the most environmentally damaging of human activities Corruption in the forest sector is globally pervasive and has many forms: Criminal: illegal logging, smuggling, extortion Legal but corrupt: state capture, institutional erosion, rent seizing Scale is vast – but quantitative estimates remain elusive, but according to the World Bank illegal logging may cause losses of over 10bn$ per annum Levels of deforestation over the past 20 years are unprecedented in Asia and the Pacific: Since the 1960s, total forest cover has decreased between 30%-40%. Approximately 1/3rd of the world’s remaining tropical and primary forests, hosts of rich biodiversity and homes to countless indigenous and forest communities, are in Asia Pacific. If deforestation continues at present rates, these forests will also disappear before the end of the century. The impacts of deforestation are of great consequence. Climate change is perpetuated by increased carbon emissions and decreased sequestration, leading to rises in temperatures globally. Indigenous peoples and forest communities risk displacement from their social, cultural and economic livelihoods. Biodiversity suffers irreversible losses
  • Why does corruption in forestry exist? Some possible answers… Demand exceeds sustainable Supply. Sustainable supply is relatively inelastic because trees grow slowly Profits from unsustainable logging are greater than profits from sustainable logging. Costs of unsustainable logging are public and benefits are private or regulation backfires because of economics, for example in Indonesia: milling capacity 70m cum, but legal allowable cut 15m cum
  • What’s wrong with corruption? Corruption… May be the single biggest factor impeding development Up to 30% of aid funding may be diverted by corruption Better governance, including controlling corruption (to average, not exemplary!) could result in 4x increase in per capita income Taken seriously: 12 international conventions/guidelines against corruption,
  • TI Definition: The misuse of entrusted power for private gain Types of corruption Bribery (kickbacks, baksheesh, sweeteners and payoffs) – offering someone money in order to persuade him/her to do something; or the act of demanding an extra ‘under-the-table’ payment or ‘gifts’ for a return; Embezzlement – theft of resources by officials; misappropriation of public or private funds; Fraud – an economic crime that involves trickery, swindling or deceit; Extortion – using money (or other resources) extracted by the use of coercion, violence or threats to use force; Nepotism – appointing family members to prominent positions Cronyism – granting offices or benefits to friends and relatives, regardless of merit Corruption can also be seen in various forms of state capture, subsidy capture,
  • Causes of corruption according to the World Bank’s 1997 World Development Report: Where public officials have wide discretion and little accountability Inappropriate policy environment: e.g., distorted prices Lack of checks and balances (e.g., weak “watchdog” agencies and institutions, including Parliament)‏ Weak enforcement mechanisms (e.g., lack of judicial independence; weak prosecutorial institutions) Where the benefits of corruption are greater than the consequences of being caught and disciplined (e.g., where public sector salaries are low). Demand for accountability for services is usually missing
  • TI’s global network of chapters bring together important actors from government, civil society, business and the media to promote transparency in elections, in public administration, in procurement and in business. TI develops tools that target all stakeholders Policy makers Staff of international development agencies Central and local government (both urban and rural)‏ Professional staff such as those maintaining roads or ports, Private sector NGOs, who are involved with conservation, environmental governance and concerned about accountability Regulators TI's approach: Advocate in constructively critical manner; develop expert solutions; and provide technical assistance. TI chapters also use advocacy campaigns to lobby governments to implement anti-corruption reforms.
  • The National Integrity System (NIS) concept was developed by Transparency International to describe the set of formal and informal sectors, institutions, laws, and practices (known as pillars) that generally contribute to integrity, transparency and accountability in a country. The NIS is a useful framework to assess quality and effectiveness of the systems and structures in place to prevent corruption in a given country As the names indicates, it is a system that necessitates to understand its systemic qualities: The whole is greater than the sum of the parts The behaviour of each actor and institutions is as important as the structures of these institutions themselves The interactions between institutions is as important as within institutions When the NIS functions effectively, the NIS combats and reduces opportunities for corruption to take place. As all the ‘pillars’ are interrelated, weakness in one or more pillars leads to …
  • New development from TI: an NIS Assessment Tool: Holistic assessment of a country’s ‘integrity system’ Aims to detect strengths & weaknesses and identify policy recommendations Based on the idea that corruption is best fought/avoided by institutional safe-guards & reforms, which is the conceptual foundation for much of TI’s work ‏ Wide application & strong interest by NCs Recently we have started looking at sectors Sectoral approaches in judiciary Water, health education... Can mention the GCR at this point
  • Advocacy… Advocate for (and support) timber producing countries to fight the various forms of corruption rooted at the core of this issue. Advocate for lead consuming nations to legislate and enforce legislation to stop import/sales of illegal timber on their soil. Advocate for importer and retailers to take responsibility to eliminate illegal timber and bribery from their business supply chain.
  • Programme objectvies The Programme combines research, awareness-raising, capacity development, monitoring, and cooperation-building activities to reach various target groups in each country, focusing on some basic a dn necessary areas: In more details these are: ( next few slides…..
  • Transparency is needed in how government department decisions are taken regarding land use changes such as conversions of forests to agriculture and or for plantations
  • Legality, laws, nepotism, cronyism, foreign investments Political corruption/patronage and political party financing in source countries and with corrupt activities …
  • Logs and lumber certification of origins and sustainability can be counterfeited at transit points, entire ship or container manifests can be changed on the high seas to show that the timber comes from legal sources when in fact it does not.
  • Banks, lending institutions perpetuate corruption by failing to practice due diligence in granting loans or performing large remittances for suspicious clients such as those involved in timber operations
  • This intervention area pertains to the soaring and unsustainable demand for wood and paper products, and the commitment of government and companies from industrialised countries to take appropriate measure to contain such demand level. Among the steps that need to be taken are tightening of customs regulations that allow illegal timber into a country, and the procurement polices, of government agencies, industries and wood product manufacturing companies
  • Conventions do exist to ensure the curbing of illegal logging and unsustainable timber trade, but their enforcement and implementation is often weak, and very little thought is given to how they can be very easily circumvented by bribery and other forms of corruption
  • Reduced Emissions caused by Deforestation and Degradation (REDD): Scheme whereby countries can be compensated for preserving forests Clean Development Mechanism (CDM): arrangement under the Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction commitment to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. Eligible under the CDM is establishment of new forest in areas that were not forested in 1990 in developing countries, Not eligible under the CDM is conservation and sustainable management of existing forest Both schemes (not to mention carbon trading) open new international financial transactions and assistance that will be channeled through government systems , opening new avenues for new corrupt practices.

Corruption in the Forestry Sector Corruption in the Forestry Sector Presentation Transcript

  • Corruption in the Forestry Sector: why regional initiatives are needed Manoj Nadkarni
  • Forests and forestry trade
    • Of vital importance to the Asia Pacific Region
      • Contributes about 10% to the GDP of Indonesia according to the World Bank
      • >Over 15 % to the GDP of Lao PDR ( FAO)‏
      • Developing countries, so this is vital for meeting the MDGs
  • Some forestry trade figures Tropical Primary Product Exports by Producing Regions, 2004-2007 (1000 m 3 rwe * )‏ * rwe = round wood equivalent
  • The Timber Trade in Indonesia Source: inWent, 2003
  • Is this a coincidence?
  • There is an Illegal trade ready and waiting to to deal with corrupt timber
  • Illegal trade needs corruption to survive
    • Logs are bulky and can only be sold with connivance of host of institutions (transport, customs, environmental protection agencies, police, port authorities)‏
    Source: inWent 2005
  • What is corruption? TI Definition: The misuse of entrusted power for private gain
  • Why is corruption worthwhile? Look at forestry…. Illegal Logger Indonesia………….Gets $2.2/m 3 Broker illegal log Indonesia………Gets $20/m 3 Broker legal log Malaysia………..Gets $160/m 3 Source: The World Bank, 2006
  • The costs of corruption
    • 1) Waste of resources – corruption serves to diminish the total amount of resources available for public purposes.
      • Money leaves the investment cycle and enters private domain, goes abroad or results in ‘black money’
      • Corruption results in a substantial loss in productive effort and labour force inefficiencies
      • The prospect of payoffs can lead officials to create artificial scarcity and red tape
      • Money transfers – corruption represents a rise in the price of administration and inefficient public expenditures
      • Inappropriate technology acquisition
  • The costs of corruption 2
    • Corruption distorts allocation
    • Corruption causes decisions to be weighed in terms of money, not human need. e.g.: Forests used for sustenance by the poor families, can be turned over to loggers or private industry for agriculture
    • A corrupt act is a failure to achieve public sector objectives
    • Reduced competition
  • The costs of corruption 3
    • Failure to lead by example
    • If the elite politicians and senior civil servants are widely believed to be corrupt, the public will see little reason why they, too, should not take bribes
    • Rule of law breaks down
    • Corruption in government lowers respect for constituted authority and hence leads to....
    • ...Reduced governmental legitimacy
  • How is corruption to be fought?
    • Transparency International
      • Is a global civil society organisation leading the fight against corruption
      • Brings people together in a powerful worldwide coalition
      • Transparency International is a global network of more than 90 local national chapters
    TI has put corruption on the international agenda
  • NIS and NIS pillars
  • Target Countries
  • Areas of Intervention
      • foreign bribery and political influence
      • land and forest concessions
      • timber laundering
      • financial transactions
      • unsustainable demand for forest products
  • Licensing and Concessions
    • Improved transparency, accountability and anti-corruption in…
    • Public institutions and private enterprises responsible for the issuance and ownership of forest and land licenses and concessions,
    • and the reduction of corrupt practices related to such issuance and ownership
  • Political Corruption & Foreign Bribery
    • Improved transparency & accountability in:
    • Public Foreign forest sector companies in their overseas operations and in their transactions with foreign public officials, and to the reduction of foreign bribery in supply countries
    • Institutions and political parties in the exercise of their functions in relations to the forest sector, and to the reduction of political corruption
  • Timber Laundering Improved transparency, accountability and anticorruption of… Public institutions and private enterprises that enable and hold responsibility for the transnational movement and certifications of timber and to reducing incidences of timber laundering .
  • Financial Institutions
    • Improved due diligence practices of financial institutions which service forest sector clients
    • Decreased incidences of loans to illegal or unsustainable forest enterprises and money laundering.
  • Unsustainable Demand for Wood Improved customs and procurement regulations
  • National/Regional Governance More effective development and implementation of national and regional forest governance initiatives such as East Asia FLEG, FLEGT and bilateral agreements.
  • Global Governance Increased transparency, accountability and effective implementation of global mechanisms aimed at offsetting climate change and avoiding deforestation, such as Reducing Emission from Deforestation and Degradation (REDD) and the Clean Development Mechanism (CDM).
  • Thank You