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Guest Blog: Are European taxpayers funding land grabs and forest destruction?

By Mark Curtis

The central aim of European Development Financial Institutions (DFIs) is to foster growth and reduce poverty. Yet in Africa, evidence is mounting that they have funded ‘forestry’ projects which have caused deforestation, possible land grabs, and undermined communities’ livelihoods.

DFIs are specialised banks or subsidiaries which provide funds for developing world projects which would otherwise struggle to raise capital. They are funded partly with public money and provide funds - either by buying shares or providing loans or guarantees - to investors for high risk projects in developing countries. In 2015, the investment portfolio of the 15 European DFIs amounted to €36 billion, of which around €2.2 billion went to agribusiness.

A new report for a group of NGOs led by Fern documents nine controversial or questionable cases involving eight European DFIs - but these examples of DFIs apparently sabotaging their own stated goals may be just the tip of the iceberg. The report highlights the need for greater scrutiny of DFI investments, especially by national parliaments.

Three DFIs appear especially problematic.

Finland’s DFI, Finnfund has seven investments in the forestry sector, three of which involve possible land grabs – two in Uganda and one in Tanzania. Norway’s DFI, Norfund has 11 investments in agribusiness which involve four case studies highlighted in the report, all in Tanzania and Uganda. And Dutch DFI, FMO has 20 investments in African agribusiness of which three figure in the report.

One hugely controversial project in Uganda is a documented land grab by the New Forests Company, a firm incorporated in Mauritius. Analysis by Oxfam found that an estimated 22,500 people had been evicted from their homes and land in two districts to make way for the company’s wood plantations between 2006 and 2010. Yet the New Forests Company has been part-financed by FMO, Finnfund and Norfund to the tune of around €21 million. The role of another DFI, the European Investment Bank, is especially concerning: it lent the company €4.6 million in 2008 explicitly to help it expand operations into a forest which resulted in the eviction of 7,200 people, according to Oxfam’s estimate.

Both Finnfund and FMO agreed to fund the New Forests Company after Oxfam published its report and a World Bank-sponsored investigation began, yet neither mention this on their websites. FMO simply states that such forestry investments have a ‘large economic benefit’, without mentioning any displacements of people.

Five other DFIs – Germany’s DEG, Dutch FMO, Belgium’s BIO, the UK’s CDC and France’s Proparco - are supporting another heavily criticised project, this time managed by Feronia, a Canadian company registered in the Cayman Islands, which runs three oil palm plantations in the Democratic Republic of Congo.

 

NGO reports raise serious questions about Feronia’s land acquisition process and the working conditions on its plantations. Local villagers assert that Feronia is illegally occupying over 100,000 hectares of land. At one plantation, community leaders say the company prevents people from raising livestock or farming within the company's concession, even on lands that it has abandoned. There are also grievances among workers concerning low pay, company refusals to hire long-term workers on a permanent basis, and poor living conditions. In response, Feronia and the DFIs have defended the company’s operations, refuting the key allegations.

The nine cases identified in the report may be only a fraction of problematic projects. Little research has been undertaken on most DFI investments and media coverage has been scant. Neither are the DFIs themselves fully transparent: some of their websites do not even provide a full list of their investments and most give only brief favourable information on projects, containing no independent analysis.

NGOs are increasingly questioning the developmental impact of European and other DFIs. It is clear that DFIs need to be subject to proper democratic scrutiny and held to account by parliaments. European institutions, notably the Parliament, should conduct an audit of the impact of DFI investment on land grabbing and deforestation. But the DFIs themselves need to open themselves up to independent scrutiny of their investments to improve their developmental impact and ensure they fund the right projects. They should also publish the complete financial reports of companies receiving investments, including their subsidiaries.

DFIs must subject their investments to better screening: they should improve their internal guidelines to ensure their investments do not contribute to land grabs and deforestation. A culture shift is also needed. When faced with criticism by NGOs or others, the current stock DFI response is to simply defend an investment and issue a collective response with the company. This is simply not good enough. DFIs must act upon allegations and findings of adverse impacts from projects they invest in and be more open to external criticism.

European Development Finance Institutions and land grabs – The Need for further independent scrutiny is published by Fern

Mark Curtis is an independent analyst and consultant, and director of www.curtisresearch.org

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Blog: Trading in incoherence? EU trade policy needs improving to give forests, communities and the climate a fair chance

by Perrine Fournier

When it comes to global trade, it is difficult to overestimate the EU’s importance. It is the world’s second largest importer (after the US), and the second largest exporter (after China), and has an overall share of world trade larger than any other trading bloc. More than 30 million jobs in the EU rely on EU exports, and EU trade impacts the lives of many tens of millions more worldwide, not always positively.

The impact of EU trade on forests is hardly less dramatic. Fern's study Stolen Goods found that in 2012 alone, the EU imported €6 billion of soybeans, palm oil, beef and leather which were grown or reared on land illegally cleared of tropical forests, causing the equivalent to one football pitch of illegal deforestation every two minutes.  Another Fern study, “Duty Free”, highlights that the EU’s imports duties for timber products and forest risk commodities tend to be low (e.g. 3.8 per cent on palm oil for use in food, 0% for non-food application). Tariffs for timber and timber products vary from zero to 12 per cent).

EU trade policy has come under attack in recent years. The mobilization against the Transatlantic Trade Investment Partnership (TTIP) and the EU-Canada Comprehensive Economic Trade Agreement (CETA) illustrates that an increasing number of European citizens believe, with good reason, that environment and human rights are sacrificed on the altar of commerce.  It is as a direct response of the outrage around TTIP that the European Commission developed a new trade strategy, ‘Trade for All’, which is supposed to be more transparent than what came before, and to promote ‘sustainable development’ abroad.

Last month (May 2017) EU Trade Commissioner Cecilia Malmström told a conference "Trade should not mean a race-to-the-bottom on standards, or come at the cost of the environment or rights".

She’s right. The question is how to turn that sentiment in to reality.

While the EU is currently discussing the future of its groundbreaking timber trade instrument the Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan and how to tackle deforestation and illegal logging, Fern is concerned that free trade agreements (FTAs) and investment treaties currently being negotiated with forested and highly biodiverse countries such as Indonesia and Brazil will result in more tropical forests being destroyed and communities being evicted from their lands. All to satisfy our appetite for cheap agricultural commodities such as palm oil and soy.

Will future EU action on deforestation and forest degradation, the ‘new generation’ of FTAs and the Commission’s “Trade for All” result in an EU trade policy that actually contributes to improving the livelihoods and land rights of forest-dependent communities, addressing climate change and halting biodiversity loss? Fern campaigns for a more transparent EU trade policy which is coherent with European values and which protects forests and respects forest peoples’ rights and does not contravene EU’s and trade partner countries’ climate objectives.

Tackling trade policy incoherence

Currently, EU trade policy is implemented often in secret with strong corporate influence and very little public scrutiny or input. Trade agreements should no longer be considered in isolation, or given  priority over other EU instruments promoting sustainable development and human rights.

As countries take action to protect the climate, conflicts between trade rules and climate goals will escalate. The intentional separation of these two global priorities and the superiority of trade rules over social and human rights norms are becoming increasingly untenable.

The EU Action Plan on Human Rights and Democracy states that a robust and methodologically sound analysis of human rights impacts of trade and investments agreements should be developed. However, no human rights impact assessment was carried out before the conclusion of the EU-Vietnam Free Trade Agreement and this has been characterized as a failure by the European Ombudsman. This FTA, which was concluded in December 2015 after only three years of negotiations, includes forest products in its scope but the negotiation process strongly contrasted with the way FLEGT Voluntary Partnership Agreements (VPA), which aim at tackling illegal logging and associated trade, are negotiated in terms of participation and transparency. Civil society organisations have not been meaningfully informed and consulted during the negotiations of the FTA.

Similarly, the implementation in Cambodia of the (EBA) initiative, which gives least developed countries full duty-free and quota-free access to the EU for exports other than arms and armaments, is not tied to the respect of human rights or environmental protection. Increasing exports of sugar from Cambodia to the EU market have resulted in forced evictions, land seizures and destruction of thousands of hectares of community forest and environmentally protected areas.

Even if Human Rights Conventions, the Convention on Biological Diversity and other key global agreements on social and environmental protection are increasingly being referred to formally in EU trade policies and regulations, trade and investment rules tend in practice to take precedence over these Conventions, since the trade rules alone employ strict mechanisms to ensure compliance with their terms.

Opportunities to influence an improved EU trade policy

Civil society is waking up to the power of international trade deals. What are the openings to influence the policy so that EU trade and investment protect forests and respect rights?

The European Commission’s “Trade for All” strategy offers a number of levers to reform EU trade policy in a way that potentially does not drive deforestation and harm forest peoples’ rights. Let’s make this real.

More recently, the European Parliament issued a resolution on palm oil and deforestation calling on the Commission to include binding commitments in the sustainable development chapters of its trade and development cooperation agreements with a view to preventing deforestation. How this plays out could be important for future initiatives.

Finally, EU Member States, probably pushed by the pressure of public opinion, have begun to challenge Commission’s exclusive competence on Trade. In May this year the European Court of Justice made a ruling on the EU’s free trade deal with Singapore that EU Member States must consent to the rules governing dispute settlement between investors and states. At the same time, the Court stated that sustainable development is an exclusive competence of the EU. This means that only EU led initiatives make sense to protect forests and forests people and that transparency and democratic scrutiny are necessary to make this happen.

What’s next?

In the upcoming months, working together with NGOs and academics, Fern will review the current impact of EU trade in commodities on deforestation and forest dependant peoples’ access to land and forests for livelihoods in Brazil and Indonesia. We will assess how the ongoing EU-Mercosur and EU-Indonesia FTAs are likely to impact forests and peoples, with a view to issuing recommendations  for their ‘trade and sustainable development’ chapters. Trade agreements should ensure Brazil, Indonesia and the EU meet their zero deforestation commitments, their Nationally Determined Contributions to mitigating climate change, and fulfil their human rights obligations.

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BLOG: Anti-money laundering not an easy weapon to use against timber crime

by Mark Gregory

Estimates suggest that between 15% and 30% of the international trade in timber comes from illicit sources. Nobody knows how much criminal money this generates but the figure is certain to run into billions of dollars every year.

It would be reasonable to think, then, that more effective use of anti-money laundering procedures would be an ideal mechanism for cracking down on criminals responsible for destroying forests.

The World Bank has taken this view. Its 2012 report, ‘Justice for forests’, presented a strong case for action on timber-related money laundering.  Similarly, the European Union’s 2003 FLEGT Action Plan initially made anti-money laundering a pillar of Europe’s efforts to tackle illegal timber imports.  

Meanwhile, for reasons unrelated to forests, anti-money laundering has in general become more of a priority in recent years.  This has been partly driven by the US government’s concern to track down sources of terrorist funding in the wake of the 9/11 attacks. 

 

 

 

 

 

Image: TaxRebate.org.uk via Flickr

 

 

Political impetus

Prodded by Washington, authorities in most countries have adopted tougher rules on money laundering, following international guidelines laid down by the Financial Action Taskforce, an inter-governmental body. 

Meanwhile, commercial banks have recruited armies of anti-money laundering compliance staff and poured resources into sophisticated computer systems for identifying suspicious transactions.

This huge increase in political impetus and technical capability to track down even quite  small sums of criminal money has in theory created new opportunities for tackling money flows linked to illegal timber.

Against that background, Fern decided to take a closer look at the value of anti-money laundering in combatting timber crime.  

Frustratingly, we discovered some serious obstacles which, in our view, make it difficult to see how it can be an effective weapon for the good guys in this particular war.   

One issue is doubt about the level of illegality involved in the illicit timber trade.  While law breaking is obviously rampant, the offences committed may not be serious enough to generate large pools of criminal “hot money” that need to be hidden. If that is the case, there may be little money laundering to uncover.

 

Predicate offences

From a legal standpoint, money laundering means concealing, or even just handling, the financial proceeds of a “predicate offence”.  Countries vary in how they define this threshold but it always requires a significant crime to take place.

In most jurisdictions, pure timber offences – such as felling trees without a permit or breaking the terms of permit – are seen as technical infringements, not full-blown crimes.  Handling the proceeds, therefore, does not count as money laundering.  

However, while timber offences themselves may be technical in nature, a lot of other activities that commonly take place in the process of illegal logging are universally seen as substantial crimes. Bribery, corruption and fraud, for example, are endemic in the illegal timber trade and also qualify as predicate offences everywhere.  

This makes it more feasible to bring money laundering cases. But, of course, to demonstrate money laundering the predicate offence has to be proven, which can be a high hurdle, especially in developing countries with weak legal systems.  

A few timber producing nations in Africa and Asia have passed laws that specifically make illegal logging a predicate offence. But these laws have rarely resulted in cases coming to court.

 

Limited resources

Fern was keen to find out if the increased focus on tackling money laundering in the world’s major financial centres provides opportunities for curbing financial crime linked to logging.

The answer appears to be no. A key issue is the difficulty of getting anyone with power to do anything to make logging a priority. 

London, Europe’s leading financial centre, provides a good case study. British banks are required to report suspect transactions to the country’s Financial Intelligence Unit, a body set up under international anti-money laundering guidelines. 

Last year, this organisation was deluged with 350,000 such reports, far more than it could possibly investigate.

In these circumstances, it is inevitable that limited resources are devoted to investigating money laundering associated with British priorities – like curbing local drug dealing, organised crime and funding for terrorism.

Dodgy dealings relating to logging thousands of miles away simply aren’t seen as a sufficiently pressing issue for UK financial regulators to spend much time on, and similar pressures apply in other major financial hubs. It is hard to see this situation changing.

Click here to read the full report


 

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BLOG: HSBC – the bank we hate to love

by Mark Gregory

Why HSBC’s decision to keep its headquarters in the UK might be good news for forest campaigners.

Deliberations within a global mega-bank on where it should locate its headquarters aren’t the kind of topic that would normally interest forest campaigners, let alone orang-utans or Sumatran tigers. 

But HSBC’s decision to stay put in Britain has significant implications for all these groups.

Over many years the bank has been a major source of finance for large-scale tropical agriculture projects, notably oil palm plantations in South-East Asia. These projects have been among the main drivers of tropical deforestation, leading to environmental destruction, social conflict and habitat loss for endangered species, like those orang-utans and tigers.

HSBC had been considering moving its home base away from London – most likely to Hong Kong - to escape the introduction of tougher British banking regulation in the wake of the global financial crisis.

 

Relief

However, in February, after months of internal pondering, HSBC announced it would remain in the UK after all.  The decision was a big relief to the British government; losing such a big player as HSBC could have threatened London’s status as a global financial hub.  

What has apparently gone unnoticed is that the decision was also good news for European forest campaigners.  

They may not like HSBC but while its base is in Europe they can at least engage it in discussions or target it effectively with campaigns.

Relocation to Asia held out the prospect that the bank would gradually become more remote from all forms of European influence, including that of forest activists.

That would be a serious loss, given HSBC’s global importance as a funder of potentially destructive agriculture.

 

Deforestation

Soon-to-be-published research by Fern suggests that, in the five years to 2015, the bank provided $4.8bn in loans and underwriting services to around 25 companies allegedly involved in land-grabbing. 

Our sample focused on major Asian companies engaged in palm oil production and operating in areas where deforestation is a concern. 

HSBC was by some margin the largest European provider of loans and underwriting for these companies.

We made no judgement on whether the allegations of land-grabbing were accurate or not.

But while HSBC has pumped funds into companies in high-risk areas, even campaigners recognise that its record is not all bad.

On paper, the bank has adopted unusually comprehensive policies to guide lending decisions relating to forestry and sustainability risks. 

The standards demanded of customers receiving finance include no deforestation, no clearing of high carbon value forests and free, prior and informed consent to planned projects from affected communities.

HSBC is the only bank to receive five stars – indicating the best policies - in the Forest 500, a widely cited benchmark of corporate commitments on deforestation.

 

Revamped procedures

However, campaigners have accused HSBC of failing to implement its forest policies properly. 

For example, a 2012 investigation by Global Witness found evidence that HSBC had ignored its own safeguards by continuing to lend money to Malaysian logging companies responsible for illegally stripping forests in Sarawak.

In response, HSBC revamped procedures and promised to improve.

So while the bank’s record is far from perfect, at least it has the right kind of policies in place and  gets embarrassed when confronted with credible evidence that it has failed to live up to its promises.

In a rapidly changing world, where financial power and influence over issues affecting forests is shifting to China and other places where European NGOs have little influence, that is worth a lot.

Environmental controversies probably played no part in HSBC’s thinking about whether to remain in Britain or not. Even so, campaigners have reasons to be reassured by the bank’s decision to stay.  

At a time when so much else is changing, at least one traditional bogeyman seems keen to stay within in reach and play by the established rules.

 

 

Images: Hakan Dahlstrom and Shankar S. via Flickr

 

Most recent publications

Guest Blog: Are European taxpayers funding land grabs and forest destruction?

By Mark Curtis

The central aim of European Development Financial Institutions (DFIs) is to foster growth and reduce poverty. Yet in Africa, evidence is mounting that they have funded ‘forestry’ projects which have caused deforestation, possible land grabs, and undermined communities’ livelihoods.

European Development Finance Institutions and land grabs: The need for further independent scrutiny

This study highlights the role of European Development Finance Institutions (DFIs) in possible land grabs and questionable forestry projects in Africa. It documents nine such cases involving eight of the European DFIs.

DocumentSize
PDF iconDFIs&LandGrabs.pdf1.5 MB

Blog: Trading in incoherence? EU trade policy needs improving to give forests, communities and the climate a fair chance

by Perrine Fournier

When it comes to global trade, it is difficult to overestimate the EU’s importance. It is the world’s second largest importer (after the US), and the second largest exporter (after China), and has an overall share of world trade larger than any other trading bloc. More than 30 million jobs in the EU rely on EU exports, and EU trade impacts the lives of many tens of millions more worldwide, not always positively.

Company promises: How businesses are meeting commitments to end deforestation

This report follows a spate of recent work examining company commitments to reduce or end their role in deforestation. What makes this report different is that it looks at the issue from the companies’ perspective, asking them why they have made these commitments; how they monitor progress; the economic costs of these commitments and, importantly, what they perceive as the barriers to achieving their commitments. The report ends with ways forward suggested by interviewees. They conclude that action is needed from companies, producer and consumer country governments and other stakeholders.

DocumentSize
PDF iconCompany promises.pdf4.03 MB

Major companies want more government support to end deforestation

Governments should do more to help companies whose products drive tropical deforestation, a new survey of some of the world’s biggest producers and buyers of palm oil, timber, cocoa and rubber has found.

DocumentSize
PDF iconCompany Commitments FINAL.pdf361.99 KB

BLOG: Anti-money laundering not an easy weapon to use against timber crime

by Mark Gregory

Estimates suggest that between 15% and 30% of the international trade in timber comes from illicit sources. Nobody knows how much criminal money this generates but the figure is certain to run into billions of dollars every year.

Pages