Last year, Forest Trends argued that the European Commission’s (EC) EU Deforestation Regulation (EUDR) country benchmarking system was missing the point. By relying almost entirely on deforestation rates with little, if any, consideration for governance failures, illegality, corruption, and circumvention risks, the EC’s system produced country risk classifications disconnected from realities on the ground.
Papua New Guinea’s (PNG) designation as “low risk” by the EC may now be one of the clearest examples of this disconnect. Evidence of high levels of corruption and illicit activities does not come from environmental groups or foreign critics but from PNG’s own government.
Two recent government reports paint a picture of a forestry sector plagued by systemic corruption risks, illegal financial flows, and weak enforcement: the Money Laundering and Terrorist Financing Sectoral Risk Assessment – Forestry Sector (published in 2025 under PNG’s Anti-Money Laundering and Counter-Terrorist Financing framework) and the Report of Inquiry into Log Export Monitoring released by the Special Parliamentary Committee on Public Sector Reform and Service Delivery in March 2026. Despite these findings, the EC still classifies Papua New Guinea as “low risk” under its EUDR benchmarking system.
That raises a serious question: what exactly is the benchmarking system measuring?
A closer look at the magnitude of this big miss:
1. PNG’s own government assessments identify major corruption and illegality risks
The 2025 Money Laundering and Terrorist Financing Sectoral Risk Assessment – Forestry Sector was issued pursuant to PNG’s Anti-Money Laundering and Counter-Terrorist Financing Act. It identified five “high risk” money laundering factors in the forestry sector, including:
- Corruption involving politically exposed persons (PEPs);
- Tax evasion involving illegally accrued proceeds;
- Misuse of transfer pricing;
- Investment of corruption-derived funds into the forestry sector; and
- Logs harvested outside concession boundaries, or without valid permits (e.g., permits declared void by courts, expired, or fraudulently obtained).
The report explicitly states that corruption is “a major driver enabling illegal practices in the forest industry,” and identifies the PNG Forest Authority, Customs Service, and Royal Papua New Guinea Constabulary as among the agencies most vulnerable to corruption. The findings on transfer pricing and offshore laundering are especially striking.
According to the report, data comparisons involving SGS (Société Générale de Surveillance) export monitoring reports, Chinese customs statistics, commercial banks, and PNG officials revealed that between 2014 and 2019 Papua New Guinea may have lost between US$2 billion and US$2.1 billion in taxes and foreign exchange remittances linked to the forestry sector. The report further states that proceeds from forestry exports were likely laundered through Singapore, Hong Kong, Malaysia, and domestic channels.
One case study cited by the report involved a company exporting 1.5 million cubic meters of timber over 18 years while declaring export prices of roughly US$110/m³ in PNG, despite overseas selling prices reportedly closer to US$500/m³, suggesting approximately US$585 million in unaccounted revenue. These are allegations of large-scale illicit financial flows tied directly to the forest sector, not minor technical irregularities.
2. The 2026 Parliamentary Inquiry paints an equally alarming picture
The March 2026 Report of Inquiry into Log Export Monitoring by PNG’s Special Parliamentary Committee on Public Sector Reform and Service Delivery is even more blunt. The inquiry concluded that PNG’s forestry sector suffers from:
- “Systemic corruption”;
- “Possible economic fraud”;
- Endemic under-declaration and transfer pricing;
- “Pervasive abuse of land rights”;
- Weak enforcement; and
- A “zero-prosecution record,” despite decades of documented discrepancies.
The report describes forestry revenues as effectively becoming “an illicit revenue stream for foreign interests.” It also warns that the collapse of independent log export monitoring creates explicit risks to both “national revenue and forest stock integrity.” The Inquiry traces many of the problems back decades, noting that independent monitoring systems were originally established because internal PNG government controls were deemed incapable of preventing “massive revenue evasion.”
The Parliamentary Committee further warned that Forest Clearing Authorities (FCAs) may be used to disguise illegal logging under the guise of agricultural development, potentially disenfranchising customary landowners and undermining forest governance. That matters for the EUDR, because commodities associated with forest conversion and land-use change — including timber, palm oil, cocoa, and rubber — are all covered by the regulation. PNG exports several EUDR-covered commodities, particularly timber and palm oil, and agricultural expansion linked to forest clearing has long been controversial.
3. A “low risk” label despite acknowledged governance failures
The EC still labeled PNG “low risk,” despite its own government institutions documenting high levels of serious crimes in the forest and land-use sectors. Deforestation rate is not equivalent to legality risk. A shipment of timber can be illegal even where national forest cover appears relatively stable. As such, legality, governance, financial crime, and circumvention risks are all critical considerations to EUDR’s zero deforestation after 2020 goal.
Deforestation rate is not equivalent to legality risk. A shipment of timber can be illegal even where national forest cover appears relatively stable. Corruption, fraudulent permits, abusive land acquisitions, document laundering, offshore financial structures, and weak enforcement systems all directly affect the credibility of supply chains. Governance failures are often precisely what enable illegal deforestation and illegal trade to occur undetected.
4. The danger of false reassurance for European markets
The concern about PNG’s “low risk” label is not merely academic; a “low risk” designation sends a market signal and guides EUDR Competent Authorities. It encourages operators to apply reduced scrutiny, leads traders to perceive sourcing as safer than it really is, reduces the number of EUDR enforcement actions, and reduces pressure for reform. That is particularly problematic when the producing country’s own institutions are warning of major unresolved governance failures.
How to adjust course
The EC has already indicated they will review their benchmarks in the future. The case study of Papua New Guinea’s “low risk” classification gives a strong indication of how the EC’s current benchmarking methodology should be retrofit for purpose.
If the EUDR is truly intended to reduce illegal deforestation and illegal commodity trade, then country benchmarking must incorporate credible indicators of governance quality, corruption exposure, enforcement effectiveness, illicit financial flows, and legality assurance systems — not simply forest-cover statistics. Without meaningfully incorporating these factors, the systems emerging in response to the EUDR risk rewarding appearances rather than realities, leaving forests and their stewards no better off.
Read more about the state of Papua New Guinea’s forest governance here.
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