Published on July 18, 2018
An investigation released today reveals how European consumers are contributing to an epidemic of corruption in Ukraine’s forests, in a trade worth over a billion Euros each year.
The findings are revealed in Complicit in Corruption, a report from the UK-based non-profit Earthsight, and are the culmination of two years of work, including field and undercover investigations. The report points the finger at EU governments and some of the world’s largest multinational wood processing companies.
Ukraine is home to some of the largest tracts of forest left on the continent, home to rare animals such as bears, wolves, lynx and bison. As well as threatening these forests, the report shows, the EU’s imports are undermining the efforts of Ukraine to establish the rule of law. Former President Viktor Yanukovych is reckoned to have stolen more than $100 billion from the state during 2010-14, and the country continues to battle some of the highest levels of corruption in the world.
The wood imported from Ukraine is used in a vast array of products in Europe. “Your roof, your floor, your table, the newspaper you are holding, all might well be made from Ukrainian wood” said Sam Lawson, Earthsight’s Director. “And if it is, there is a good chance it was cut or traded illegally, abetted by high-level corruption”.
Complicit in Corruption reveals how illegality permeates the timber supply chain in Ukraine from harvest to export. Field investigations indicate that 40 per cent of the timber being produced by the country’s state-owned enterprises is illegally cut through the abuse of a loophole allowing trees to be harvested to prevent the spread of disease.
Court records unearthed by Earthsight also show that top forestry officials in Ukraine’s largest timber-producing provinces are the subject of major criminal investigations, involving systematic illegal logging and timber exports. A former national forest chief, Viktor Sivets, is on the run, accused of having received over €30 million in illegal kickbacks into Swiss bank accounts from overseas log buyers in exchange for access to cheap wood. The payments were routed through UK letterbox firms with owners registered in secrecy jurisdictions such as Panama. Earthsight uncovered evidence that such high-level corruption has continued under his successors.
The EU is by far the largest destination for Ukrainian wood exports, representing 70 per cent of the total. EU purchases have been rising rapidly, breaking €1 billion in 2017. Earthsight estimate that at least 40 per cent of this wood was harvested or traded illegally.
The EU buyers of this wood include a number of billion-dollar firms, whose owners are among Europe’s wealthiest individuals. Though they are not themselves formally accused of wrongdoing, Earthsight found some of these giant companies are actually mentioned in ongoing criminal investigations of officials in Ukraine. One – Austrian firm Schweighofer, Europe’s second largest sawmiller – has even been specifically implicated in the corrupt scheme allegedly masterminded by the former forest chief. All of them continue to import large volumes of wood from state logging enterprises which are the subject of such investigations.
These companies supply products sold in the largest retail chains in Europe, including Homebase in the UK and Obi in Germany, HP copy paper on sale in branches of Staples and furniture sold by Ikea.
Recognising the need to address its role in driving illegal logging overseas, the EU has a law requiring importers to conduct due diligence to ensure that the wood they buy is legal. The report reveals how this law is not being meaningfully enforced, and points the finger of blame at the governments of the EU countries bordering Ukraine, including Romania and Poland.
“Some of the ‘due diligence’ measures these companies are using are laughable” said Mr Lawson. “Yet the authorities are signing off on them. As far as Ukraine is concerned, right now the EU’s law might as well not exist.”
Also in the firing line is the Forest Stewardship Council (FSC), which claims to be able to guarantee the legality and sustainability of wood through independent audits. Many big retailers rely on its systems, yet Earthsight’s report shows how dodgy Ukrainian wood has repeatedly received the FSC stamp, and quotes one former head of a state logging firm who says circumventing its systems is easy.