Illegal logging costs governments some US $15 billion a year in lost assets, lost revenues and unpaid taxes. Tens of thousands of people are involved in felling and transporting illegal timber, but most of the profits end up in the hands of a few big players, who launder their ill-gotten gains through the banking system. Research by CIFOR financial analyst Bambang Setiono has raised awareness about the close links between money laundering and forest crime.

It has been clear for many years that the forestry laws in Indonesia, though adequate on paper, have failed to have a significant impact on the hugely profitable trade in illegal timber. Setiono recognised that a new approach was needed. Illegal loggers, like drug traffickers, need to convert the profits they make into assets that have a veneer of respectability, such as real estate, stocks and shares, or oil palm plantations. Working closely with Yunus Husein, head of the Indonesian government’s Reporting and Financial Transaction Analysis Centre (PPATK), Setiono proposed that banks should be required by law to inform the government of any suspicious transactions. In 2003, the government introduced a new law, classifying forestry and environmental crimes as ‘predicate offences’ for money laundering charges.

‘Effective anti-money-laundering legislation and preventive measures provide strong tools to detect the profits and investigate and prosecute the persons behind illegal logging and prevent financial markets from abuse.’

Bambang Setiono
CIFOR scientist

1. An Indonesian police officer stands guard as others check containers loaded with illegal wood at Tanjung Priok port. Indonesian police had confiscated 62 containers.
   Photo by Mast Irham/EPA/Corbis

In 2004, Setiono and Husein managed to get illegal logging onto the agenda of the Asia/Pacific Group on Money Laundering (APG).

‘Before this, the APG had focused its attention on traditional money laundering offences, such as drug dealing, currency smuggling and people trafficking,’ says Setiono. ‘But at an APG workshop in Brunei, we highlighted the significant role money laundering plays in illegal logging.’

Following the workshop, the APG asked PPATK to organise a special working group on illegal logging. The aim was to help member countries in the region to introduce and enforce anti-money laundering laws.

The latest APG Typologies Report, published in 2008, includes a section on anti-money laundering and illegal logging for the first time. The message is clear: ‘Effective money laundering legislation and preventive measures provide strong tools to detect the profits and investigate and prosecute the persons behind illegal logging and prevent financial markets from abuse’, says the report.

Besides influencing the APG, Setiono’s research has had a significant effect on other organisations. For example, the World Bank is now taking the issue more seriously and the Indonesian Working Group on Forest Finance is helping to raise awareness about the significance of Indonesia’s money laundering law. The law has been used by the Indonesian police and PPATK to investigate several cases of illegal deforestation, and in 2008 it led to the conviction of one of Indonesia’s leading timber barons.