Illegal logging in Eastern Russia andimplications for wood products sourcing inChinaFebruary 29, 2016
Kyoto, JapanDavid Gehl

Eurasia Programs Coordinator
Environmental Investigation Agency (U.S.)

EMAIL: davidgehl@eia-global.org
TEL: +1 202 483 6621

Overview• Illegal logging in the Russian Far East andEastern Siberia• Significance for Japan• Relevance of Russia to Chinese Supply Chains• EIA investigative case studies• Recommendations for Japanese importers
about ensuring the legality of wood sourcing

The Environmental
Investigation Agency• U.S.-based NGO committed to addressing thedrivers of environmental crime• Campaigns: Illegal wildlife trade; illegallogging; atmospheric chemicals• Worked together with U.S. industry andlawmakers to pass key legislation that
combats illegal logging

Illegal Logging• What is it?
– Timber harvested in contravention of applicable laws and regulations.
• How bad is it?
– INTERPOL estimates that an estimated 20-50% of timber on themarket is illegal.
• Why does it matter?
– Leads to degradation of forests, contributing to global climate change,
biodiversity loss, and destruction of livelihoods for forest-dependentcommunities.
– Undermines economic development by depriving responsible
companies of profits and robbing governments of more than 10 billion
USD in revenue.
• Why is it relevant to Japan?
– At least 12% of Japan’s timber product imports are of possible illegal
source, one of the highest rates among advanced countries.

Illegal logging: forest
management crisis• Large scale theft of commercially valuablespecies (valuable hardwoods, pine)• Depletion of timber stocks in accessibleforests• Degradation and destruction of key habitats
for rare species (i.e. Amur tiger)• Damaging traditional livelihood of forest
villagers (hunting, trapping, pine nut
gathering, forest beekeeping)• Undermining competitiveness of law-abiding
forest companies

WWF study – Mongolian Oak in the Russian Far East
Comparison of volume permitted for logging and volume actuallylogged for export

officially permitted harvest volume

EIA’s Investigation in Russia and China• EIA tracked high-risk timber from Russia,
through China, to manufacturers exporting tothe US and Japanese markets• Investigation uncovered widespread illegalities
in Russian forest sector, including amongsuppliers to Chinese manufacturers• U.S. and Japanese buyers are fuelling illegal
logging in eastern Russia (and Chinese andEuropeans)Violations Identified
1. Logging outside of permitted cutting areas,
widespread abuse of sanitary harvesting permits
for cutting old-growth timber in protected areas
2. Sourcing from small logging brigades andmultiple trading companies• Very difficult, if not impossible, to know the origins of thetimber• High risk of illegality

3. Laundering illegally-logged timber throughofficial permitsDirect Involvement of ChineseCompanies• By some accounts, a majority of the companies
and mills operating in the forest sector in Eastern
Russia are owned and managed by Chinese
individuals• Many Chinese importers have invested in forest
concessions and sawmills in the Russian forest
sector• Manufacturers in Northeastern China showed ahigh level of understanding of illegalities present
in Russian forest sector

Why should Japanese companies care?
• Direct export of Russian timber to Japan is relatively minor• But flow of Russian wood through China to Japan as finished products is huge.
Japan is #3 importer of Chinese wood products after US and EU• Value of 2011 Chinese exports of solid wood flooring and furniture to US, EU andJapan: $9.4 billion

Suifenhe, China: largest import point for RFE hardwoods

China log imports(left)

China sawn wood
imports (right)

CHINA EXPORTS TO JAPAN OF WOOD FURNITURE AND WOODPRODUCTS$800,000,000$700,000,000

Flooring$600,000,000

Other wood
products$500,000,000

VALUE (USD)

Chopsticks$400,000,000

Logs and Sawn

$300,000,000

Doors and Frames$200,000,000

Edge GluedLumberPanels$100,000,000

Furniture$01232013

4123

2014
YEAR AND QUARTER

4123
2015

4

Case #1: San Xia: Illegally Harvested
Russian Pine in Japanese Houses• Largest Chinese importer of Russian timber• Pine sourced primarily through independent logging
brigades• Intimate knowledge of extensive illegal cutting• Chinese manufactures: ~90% for Japan– Shuang Hua - edge-glued pine lumber for house construction– Long Hua – ash-veneer bed frames

Map of San Xia Supply Chain

International Action and Current
TrendsEmerging global norms prohibiting trade in illegaltimber
Existing laws delivering significant market
transformation and reduced illegal logging rates…
…however…
…Key markets still in need of reform
Enforcement needed to solidify positive changes

• Franky Chua“The problem is that somebody
asks me to smuggle…
…no buyer, no smuggling.”
Franky Chua, Singapore-based timber broker to EIA/Telapak
undercover investigators, 2003

U.S. Lacey Act, EUTR, Australian ILPA
• Illegal to import illegally-sourced timber• Importing companies are responsible for due diligence tounderstand their supply chains• Penalties including fines or prison depending on severity
and knowledge• Due diligence: “that degree of care which a reasonably
prudent person would exercise under the same or similarcircumstances”
Rationale for Lacey Act:• Seneca Creek study: $1 billion losses annually to U.S.
industry from illegal logging before Lacey Act• USFS study: 40% price increase and 80% quantity decreasein imports from high-risk countries because of Lacey Act

Case Study #2: Lumber Liquidators inthe Russian Far East (RFE) and China
Lumber Liquidators – largest specialty
retailer of flooring in US
Their largest Chinese supplier of solid oakflooring, Xingjia, directly sourced large
amounts of illegal oak in RFE•SOLID WOOD FLOORING SEQUOIA
PO:23315-XIN/LUMB ER PO:4500013182
VMCM5 3/4"X4-3/4" VIRGINIAMILLWORKS CAMBRIDGE 10011755 NAMEACCOUNT :LUMBER
LIQUTDATORS,SERVICES LLC CY TO CY
MSCU5654274 SOLID WOOD FLOORINGSEQUOIA PO:23316-XIN/LUMB ER
PO:4500013183 VMCM5 3/4"X4-3/4"
VIRGINIA M ILLWORKS CAMBRIDGE10011755 NAME ACCOUNT:LUMB ER
LIQUTDATORS,SERVICES LLC CY TO CYSCZU3257740

US import records confirm large
numbers of shipments fromXingjia to Lumber Liquidators• (Right) Lumber
Liquidators oakflooring at Dalian
Xingjia warehouse(Left) Oak flooring samples
collected in Chinese
warehouses sent for stable
isotope testingLumber Liquidators’ Case – largest
ever Lacey Act penalty for woodproducts• October 2015 – U.S. government signed plea
agreement with Lumber Liquidators• Company admitted violations of the Lacey Act• $13 million in fines and penalties• U.S. industry taking note of new enforcement
actions

•Risk assessment
–––

•

–

Chief Compliance Officer (CCO) authorizes every new supplier, following an extensive review
process, including risk assessment, sample purchase-order evaluation, and in-person audit.
Self-reported information provided by vendors is not sufficient - additional procedures are required
to independently verify and augment such data.

Purchase Order Review––•

Each supplier classed as low, medium or high risk.
Medium and high risk suppliers require in-depth evaluations prior to purchasing and quarterly
assessment visits.
Lumber Liquidators must document this decision-making process clearly.

Vendor Validation–•

Lumber Liquidators’Compliance Plan

Unbroken and verified chain of custody from itself back to the product’s source using documentation
down to the forest level.
Every shipment of a medium or high-risk product or from a medium or high risk supplier must
undergo a thorough review and sign-off by the CCO before it can be imported into the US.

Auditing and Monitoring––

CCO ensures appropriate monitoring of the compliance program, including field and desk audits andany necessary correction action.
The compliance program will also be audited by a third party for at least three of the first four yearsof probation.

Chinese supply chains are complex• High risk: China largest timber importer – including
illegal timber• China is a black box for illegal timber– complex internal market of thousands of timber importers,sawmills and veneer mills, panel makers, and furnituremakers– the complexity of the supply chain increases the morefinished the product is• No restrictions on imports of illegal timber• 3,800 FSC CoC certificate holders in China – doesn’tmean that everything (or anything) they sell is acertified productKey elements of Due Diligence• Information Collection––––

Gather information and documentation
CoC: Collect documents that allow for tracking of a product throughout the supply chain
Corruption: Countries with a high risk of corruption are rife with false documentation
Internet searches, consult experts - independent third parties, local and international civil society
organizations• Risk Identification––

Look for “red flags” – indicators of risk such as a high level of corruption; suspiciously low timber
prices; inconsistent paperwork; confirmed past violations or reports of suspicious activities by asupplier
Risk at each level: 1) forest management; 2) trade and transport; 3) CoC risks• Risk Mitigation––

If any risk exists, it must be dealt with
Depending on degree of risk, you may choose a new supplier, work to improve supplier conduct in atime-bound framework, consider sourcing certified timber, conduct audits to ensure compliance

Russian government actions
Enforcement
Roundwood Act – electronic database for tracking
concession-level information
CITES• Mongolian oak (Quercus mongolica) andManchurian ash (Fraxinus mandshurica) now inAppendix III of CITES• CITES permits now needed for all logs and sawnboards for these species• If your suppliers do not have proper logging
authorizing documents, wood can be stopped at
the borderTechnologies• DNA / Stable Isotopes– Identify species /
geographical origin oftimber• Origin App– Empower consumers toknow what they’rebuying

Stable Isotope ratios acrossthe China/Russia borderregionO16 / O18 ratios

Key Messages and Recommendations• U.S. Lacey Act has been successful in decreasing
high-risk timber coming into U.S. and increasing
prices, benefitting U.S. domestic industry• Large amounts of high-risk timber being exported
from eastern Russia to China• Japanese companies sourcing from China need tobe highly attentive• Need for Japanese government to prohibit
imports of illegally-sourced timber into Japan