Financial Transparency Coalition

When it comes to illegal, transboundary smuggling, the study of illicit financial flows generally focuses on problems

Illegally logged rosewood in Antalaha, Madagascar | Source: Erik Patel, WikiCommons

that are on a massive scale worldwide, for example the illegal drug trade, smuggling of precious metals and gems, and human trafficking.  On these subjects, there is a wealth of literature and organizations devoted to understanding and eradicating their damaging effects on development. There are other types of illicit cross-boarder movements of goods, however, which are not discussed as widely, but which may be just as harmful to development.

One example is illegal logging, a practice which strips developing countries of a valuable resource and hastens deforestation on a massive scale, with devastating environmental and economic consequences.  Like other types of smuggling, the international trade in illegally logged timber can strip developing country governments of much needed tax revenues, promote corruption and conflict, and undermine the rule of law.  Despite these issues and similarities to other types of illicit financial flows, illegal logging is a practice often discussed only by environmentalist groups, like Greenpeace International and the World Wildlife Fund.  It is not a problem that is often discussed by the development community (though certain organizations, in particular the World Bank is a notable exceptions). In particular—and more importantly for this forum—it is not a problem frequently discussed by the group of organizations concerned with illicit financial flows.  That should change.

A recent report by Global Witness and the Environmental Investigation Agency (EIA) details the illicit hardwoods trade in Madagascar, which includes extensive illegal logging, of which about 98% ends up in China.  Not only is this practice extremely destructive to Madagascar’s National Parks, but it also yields very little in economic terms—only about 1% of the wood’s final value remains in Madagascar, nothing in comparison to the resources lost.  Moreover, the practice is especially damaging as the loggers also habitually engage in the poaching of some of the country’s endangered species.

Like the smuggling of precious metals and gems, the international trade in illegal logging strips developing countries of tax revenues, fuels corruption and conflict, and undermines governance, but it also has the added economic impact of robbing these nations of a useable and necessary resource.  It is estimated that 1.2 billion people depend on forests for wood, fuel, fodder and food.  Forests also provide a vital global environmental good to the entire world as they serve as a carbon sink and absorb carbon from the air; this in turn is an important resource for the developing countries which hold them.

As Stephen O’Brien, the UK Undersecretary of State in the Department of International Development has noted:

In the world’s poorest countries, illegal logging fuels corruption and results in billions of pounds in lost revenue every year. For the hundreds of millions of people across the globe who depend on forests for their livelihood, curbing the scourge of illegal logging means vital sources of income remain protected.

The international community must ensure these resources are preserved for developing countries and the illicit financial flows community should recognize the integral and destabilizing role illegal logging plays in the context of the illicit transboundary movement of goods.