How did the EUTR and Lacey Act help instigate investigations into potential corruption in the Brazilian forest sector?

Forests May 24, 2021
Kerstin Canby and Marigold Norman

Last week, news broke that Ricardo Salles, Brazil’s Minister of Environment, Eduardo Bim, the Director of the Brazilian Institute of the Environment and Renewable Natural Resources (Ibama – the Ministry of Environment’s administrative arm), and at least eight other officials, are the target of a Brazilian police operation investigating potential corruption, related to the Brazilian timber industry and the exports of timber to the US and EU.

Search and seizure operations were authorized by the Brazilian Supreme Court and then conducted in numerous cities across Brazil, from Brasília to Belém, including at Minister Salles’ home and offices, and into his financial transactions. Forest Trends has learned that several timber exporters were searched as well.

While we don’t know where the evidence will lead as the Federal Police conducts their investigation, we are pleased that the issue of corruption is being taken seriously by the Brazilian Supreme Court. We are also interested in the role that foreign entities may have played in instigating the operation.

Early reporting highlighted that actions taken by the Supreme Court in Brazil followed requests from foreign authorities. Reports indicate that there has been extensive cooperation between the Brazilian police and US authorities. In fact, the recent operation and investigations demonstrate how trade regulations like the US Lacey Act and the European Union Timber Regulation (EUTR) can be used as a basis for bilateral collaboration in the fight against illegal deforestation and potential corruption.

The investigation also demonstrates that import regulations passed by consumer countries including for timber and other commodities (referred to here as “demand-side regulations”) can trigger scrutiny when producer country laws and regulations are potentially being weakened.

So what do we know?

What are the reasons behind this operation and what led to the Supreme Court taking action to investigate and suspend high-level environment officials as well as reverse an earlier controversial order issued by Ibama?

Bim’s reign as Director of Ibama saw a significant watering down of important monitoring and authorization mandates at the agency, creating confusion and impacting timber flowing into the US and Europe in the last two years. Buyers and authorities charged with enforcing the US Lacey Act and the EUTR, designed to prevent illegal timber entering the US and European markets, became concerned that laws were being weakened, making it hard to discern if exported timber from Brazil was legally sourced.

Much of the information publicly available suggests that the police raids, suspensions, and ongoing investigations relate to the way Ibama abruptly eliminated the requirement, in place since 2011, that all forest products needed Ibama authorization before export licenses were issued.  This limited the ability for Ibama staff to check paperwork and conduct physical inspections on some shipments, which may have allowed agents to catch cargoes that contained prohibited wood species, or shipments that did not match the information on the manifest, a common practice for hiding illegal timber shipments in Brazil. Reuters reported that, in 2019, Brazil exported “thousands of cargoes of wood (from Pará State)…without authorization from the federal environment agency [Ibama], increasing the risk that they originated from illegally deforested land.” Many of the companies involved that had exported without the licenses had reportedly applied for the Ibama authorizations but never received them.

When the timber reached international ports, authorities in the US, Belgium and Denmark held up containers of timber that did not have the Ibama authorization to export that authorities believed remained a legal requirement.

Information is rarely shared about ongoing enforcement work, but the Belgian and Danish authorities reported at a quarterly EUTR Expert Group meeting in June 2020 that they had been contacted by US colleagues regarding eight containers that had been exported from Brazil, six bound for the US and two to the EU.

The summary record of that meeting shows that INTERPOL had informed Danish authorities that the containers were illegally exported, which led to Denmark, along with Belgium and the US, deciding to seize the containers. Danish authorities reported that they then received information from the local Ibama office in Parà state that the containers should be considered legal and could be released. Denmark reportedly forwarded this communication to Ibama head office, but got the opposite guidance.

Following inconsistent official responses regarding the legal process for exporting timber, and therefore the extent to which the timber sitting in ports in the US and the EU was legal, the Ibama head office, issued a notice. It was signed by Eduardo Bim and notified foreign enforcement authorities that Brazil’s regulation had been revised, and that export authorizations were not required. This meant that the containers were now legal under Brazilian law. Danish and Belgian authorities released the containers after conducting checks on the importers.

It now appears that even though the cargoes were released by authorities, further investigations have since focused on the extent to which corruption may have been involved in the process by which Bim and Salles’ (and other Ibama official) made the decisions that led to the export authorization requirement being revoked.

While Salles and Bim have denied any wrongdoing in press conferences and the Amazon Forest Productive Chain Association (UNIFLORESTA) has claimed that the industry in Brazil is the “victim of Ibama employees’ not doing their job properly, this case clearly highlights how efforts to effectively enforce timber import regulations can trigger additional scrutiny in producer countries where laws are changed or reportedly weakened.

We will continue to monitor this story as it develops. To learn more about Forest Trends’ work analyzing and advising on forest trade policy, click here.


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