State of Corruption The top-level conspiracy behind the global trade in ’s stolen February 2019

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©EIAimage State ofcorruption Yangon, March 2013 March Yangon, Dagon, East in logyard MTE an in rotting Logs cover: Front Myanmar in Forests Above:

Recommendations Stemming the Tide Ongoing Smuggling into The ShadowPresident –King ofBurmaTeak CaseStudy: Myanmar’s Forest Governance Failures Myanmar’s Forests Introduction CONTENTS 42 30 37 14 4 8 5 3 Myanmar’s Forests GLOBALLY SIGNIFICANT UNDER THREAT Diverse and extensive, Myanmar’s forests In recent decades Myanmar has suffered a form part of the ‘Indo-Burma Hotspot’, one deforestation crisis. of the world’s most important biodiversity areas, featuring a huge range of endemic In the 1990s, the country lost 4.3 million 1 5 ©EIAimage flora and fauna. More than 200 globally hectares of forest and a further two threatened species live in Myanmar’s million hectares between 2002-14.6 The forests, including elephants, tigers, sun country reported 546,000 hectares of forest Top left: Teak log being sawn at Kui Jay bears2 and the Myanmar snub-nosed loss between 2010-15, the third highest Corporation, , September 2017 monkey.3 rate worldwide.7 Combined, since 1990 Introduction Myanmar has lost about 20 per cent of its Large forests stretch across the forests,8 reducing forest cover to around The forests of Myanmar are defined by their As the depletion of the forest continues, northern states of Sagaing, Kachin and 290,000 sq km, or 45 per cent of its land monetary value and have been part of the timber traders are pushing deeper into Shan, through the southern region of mass.9 military and economic elites’ profits and, Myanmar to secure supplies, undermining Tanintharyi. These forests range from in some cases, survival for decades. The the rule of law with high-level complicity. coastal mangroves near the Bay of Bengal Although the northern states of Sagaing, entire legal state forestry and timber trade Our attention to the international markets to subtropical hardwood forests in the Kachin and Shan have hosted Myanmar’s sectors have been systematically riddled for teak in both the European Union and mountain regions bordering China and largest forests, they have also experienced with fraud, bribery, corruption and other the United States shows that even with . the most serious forest loss, with Shan forms of illegality for at least two decades, regulations in place to prevent illegally state estimated to have lost more than undermining any governance reform. sourced timber from entering those These forests are an important source 600,000 ha from 2002-14.10 markets, traders continue to find ways to of food and fuel for Myanmar’s people, Current laws seem to seek the get Myanmar teak to multi-millionaire 70 per cent of whom live in rural areas Deforestation has been accompanied by criminalisation of local people and owners of yachts whose manufacturers where forests underpin basic livelihoods.4 widespread forest degradation, with just through all its policies on resource display an almost ideological obsession Forests remain important to the cultural a third of Myanmar’s forests remaining extraction, including timber, the with Myanmar teak. identity of Myanmar’s many ethnic intact. Government is undermining communities’ groups, whose ancestral beliefs sustain reliance on resources while at the same The Government still promotes as legal indigenous systems that have prevailed Timber extraction is considered the time introducing a centralised system MTE-authorised trade in timber which main driver of forest degradation inside of management they are unable to is part of a large stockpile that has been for centuries. the country’s forest reserve areas. implement, creating even more conflict. held prior to the logging ban, ignoring the Overharvesting has been “long term and decades of corruption and overharvesting systematic, persisting until forests are From 1989 to the present day, Myanmar’s that produced it. exhausted”.25 Nominally legal forestry past military regimes and its current operations by MTE and its subcontractors Government have presented the teak trade In light of this, and with corruption still – which prioritised revenue generation regulated by the forestry department and greasing the wheel of the illegal border – have not allowed forests to recover implemented by the state-run Myanmar trade into China, Myanmar’s people remain between cycles of harvesting.11 Illegal Timber Enterprise (MTE) as being wholly reliant on the goodwill of international logging is also a major contributor to forest legal and sustainable, conducted in trade partners in helping enforce forestry loss in Myanmar, with EIA investigations compliance with the rule of law. This is and timber trade provisions. in 2014/15 revealing how Myanmar’s simply not the case. military and ethnic armed organisations Of all the irregularities encountered both profit from the massive illegal timber A two-year undercover investigation by in Myanmar’s formal teak sector, EIA’s trade.12 the Environmental Investigation Agency findings illustrate how Myanmar teak sold (EIA) into a near-mythic ‘Burmese teak through formal channels is as corrupt and kingpin’ who conspired with and bribed illegal as any blatantly smuggled across the most senior military and Government the border into China. officials in Myanmar has revealed how Far left: Teak tree he was able to establish a secret off-the- Myanmar cannot reform this multi- books system of fraudulent trade in the layered, complex but highly organised Left: Snub-nosed monkey cream of the country’s teak logs. This was international timber trade by itself and 1. International Union for the Conservation of Nature, On the verge of extinction: A look at endangered species in the Indo-Burma Hotspot, run in parallel to, and within, the official it is crucial that the past years of gross 2015. 2. BBC, Viewpoint: Why Burma’s forests must be preserved, 2013. legal trade administered by MTE. corruption and deceit are acknowledged 3. https://www.fauna-flora.org/species/myanmar-snub-nosed-monkey and addressed. 4. Khin Htun, Myanmar Forestry Outlook Study, UNFAO Working Paper No. APFSOS II/WP/2009/07, 2009. 5. United Nations Office on Drugs and Crime, Criminal justice response to wildlife and forest crime in Myanmar: A Rapid Assessment, 2015. Our investigations also took us to the 6. Bhagwat et al, Losing a Jewel – Rapid Declines in Myanmar’s intact forests from 2002-2014, 2017. 7. Food and Agriculture Organization of the United Nations, Global Forest Resources Assessment 2015, 2016. Myanmar-China border where, other than For a natural resource so beloved and 8. Food and Agriculture Organization of the United Nations, Global Forest Resources Assessment 2010: Country Report Myanmar, 2010 and the state of Myanmar itself, China has culturally important to Myanmar and Food and Agriculture Organization of the United Nations, Global Forest Resources Assessment 2015: Country Report Myanmar, 2015. 9. Food and Agriculture Organization of the United Nations, Global Forest Resources Assessment 2015: Country Report Myanmar, 2015. played the biggest role of any nation in the its people as teak, allowing its near- 10. Bhagwat et al, Losing a Jewel – Rapid Declines in Myanmar’s intact forests from 2002-2014, 2017. illegal expropriation of Myanmar teak and extinction would be the biggest crime of 11. Thorsten Treue, Oliver Springate-Baginski and Kyaw Htun, Legally and Illegally Logged Out: Extent and Drivers of Deforestation & Forest Degradation in Myanmar, 2016. other hardwoods. all. 12. EIA, Organised Chaos, 2015.

4 Environmental Investigation Agency State of corruption 5 While Western markets import Quantifying the European Union’s imports MYANMAR TEAK – substantially less teak direct from of Myanmar teak is harder still. Trade data “KING OF WOODS” Myanmar and consume less than Asian indicates that from 2014-17, EU imports “True teak” or “genuine teak” refers to markets, many European and American of “non-coniferous tropical logs and sawn wood harvested from the species Tectona importers have relied on supplies available timber” direct from Myanmar totalled grandis,13 a large hardwood tree of the from Myanmar’s principle Asian markets, 21,270 m³, worth €80.39 million, although 18 Lamiaceae , naturally occurring in particularly , and Taiwan. not all of this can be assumed to be teak. mixed hardwood forests across its range Other estimates have been reported as of India, Sri Lanka, Indonesia, Myanmar, From June 2007 to June 2017, US imports an aggregated “Wood-Furniture-Paper north Thailand and north-west .14 of sawn teak direct from Myanmar macrosystem”, valuing EU direct imports amounted to merely 5,520 m3 worth $25.8 at €22.5 million in 2015. The biggest Teak’s combination of properties – a million. However, for most of that period importers by value were Italy (€6.86 m), range of beautiful golden-to-red hues on direct shipments from Myanmar and Germany (€5.92 m), Denmark (€2.02m), tight, straight grains, Category 1 durability MTE were prohibited under US sanctions France (€1.91m) and Belgium (€1.56 m) classification, termite, water and insect and considerably more Myanmar teak although, again, it is not clear which 19 resistance and its excellent machinability is known to have been imported from species are included. and weathering properties – have earned countries other than Myanmar. it the moniker of ‘King of Woods’. ©EIAimage Other sources suggest a 46 per cent For example, from July 2007 to July increase in EU imports of sawn hardwood 2017, just one US merchant – East Teak direct from Myanmar during the first five Its consequent popularity has led to Major Uses teak being artificially propagated in Fine Hardwoods – single-handedly months of 2018, but without indicating Teak is widely used for decorative veneers, 20 plantations worldwide – often because imported nearly 9,000 tonnes of Myanmar the volume, value or species involved. furniture, flooring, outdoor decking, teak, roughly 13,500 m3, in hundreds As with the US, EU importers have also of overharvesting of natural stands – architectural millwork and extensively including in Myanmar. of shipments from just a handful of relied on India, Malaysia, Taiwan and other in marine and boat-building applications companies in Malaysia and Taiwan alone. re-exporters of Myanmar teak for many such as marine-grade plywood, as lumber ‘Myanmar teak’ or ‘Burma teak’ refers Total imports of Myanmar teak by all years, suggesting direct trade represents for boat-building and as yacht and US companies from all companies in all a fraction of actual imports of Myanmar only to wood from Tectona grandis trees superyacht decking. growing naturally in Myanmar. Myanmar countries outside Myanmar was likely teak. ©Wood and Wood teak is considered the best true teak considerably higher than the approximate Demand for Myanmar teak in Western 3 available on the planet and has been 20,000 m of imports known to have markets is largely driven by the furniture occurred during the past decade. particularly heavily targeted, contributing and boat-building sectors, particularly Top left: Myanmar teak on a quarter of the teak logs harvested yachts at the London Boat the yacht and superyacht decking Show, January 2018 15 globally in recent years. market which seek the highest grades of Myanmar teak. Yacht makers display Above: Teak staircase and flooring in Asian project Teak logs and sawn timber imports from Myanmar into India, Teak forests originally grew across much an almost ideological obsession with the China and Thailand – 2007-17 (Source: Global Trade Atlas) of Myanmar, with the most significant questionable narrative that only Myanmar remaining stands now in the northern teak will suffice. regions of Sagaing, Kachin and Shan April 2014 Log Export Ban states. Major Markets Classified as a ‘reserved species’ in The biggest direct markets for Myanmar Myanmar (all teak is owned by the State), teak are China, India and Thailand, which specific areas within Myanmar’s teak between them imported a staggering 4.04 forests are considered to hold the best million m3 of teak logs and sawn timber natural true Myanmar teak, displaying the direct from Myanmar between 2007-17, finest qualities with the least defects. worth $2.79 billion. Malaysia, Singapore and Taiwan have also historically Teak harvesting has contributed imported large volumes of Myanmar teak. significantly to Myanmar’s forest loss and degradation; forest inventories indicate Compiling Myanmar teak-specific trade massive declines in tropical hardwoods in statistics for other world markets is Myanmar since 1996, with teak one of the challenging and only a partial picture can worst affected species.16 be discerned.17

13. http://www.wflooring.com/TechnicalInfo/SpeciesDetail.aspx?SpecieID=1008. 14. Tangmitcharoen, S. and J. N. Owens. 1996. Floral biology, pollination, pistil receptivity, and pollen tube growth of teak (Tectona grandis Linn f.). Annals of Botany, 79(3): 227-241. doi:10.1006/anbo.1996.0317, &, Minn et al, Genetic Resources and Crop Evolution, Genetic diversity and structure of teak (Tectona grandis L. f.) and dahat (Tectona hamiltoniana Wall.) based on chloroplast microsatellites and Amplified Fragment Length Polymorphism markers, 2015. 10.1007/s10722-015-0293-8. 15. Food and Agriculture Organization of the United Nation, Global Teak Trade in the Aftermath of Myanmar’s Log Export Ban, Working Paper FP/49/E. 16. Thorsten Treue, Oliver Springate-Baginski and Kyaw Htun, Legally and Illegally Logged Out: Extent and Drivers of Deforestation & Forest Degradation in Myanmar, 2016. 17. Most countries do not use teak-specific customs codes for most product types traded, and teak is generally aggregated with other 18. http://www.flegtactionplan.eu/monthlyeuimports.htm. species, making estimates of teak trade difficult or impossible. Shipments of Myanmar teak via third countries – one consequence of EU 19. http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetailDoc&id=31830&no=13. and US sanctions – are also difficult to confirm in trade statistics. 20. https://lemn.fordaq.com/news/EU_imports_Myanmar_teak_59061.html.

6 Environmental Investigation Agency State of corruption 7 Revenues for the Regime maintaining diplomatic relations with a The maladministration of Myanmar’s powerful neighbour, Thailand. The MSS was Myanmar’s Forest 1800s military rulers, from to the quasi- effectively abandoned in these areas and 1962 civilian government elected in 2011, created wholesale destruction ensued. rampant and entrenched a patronage and clientelist Governance Failures all logging and teak extraction governance culture fundamentally reliant In 1992, Senior General took under British hardwood marketing Colonial rule nationalised on rampant corruption and collusion control of SLORC and the country and in Since the mid-1800s, Myanmar has suffered which in turn structurally undermined the 1997 he abolished what was supposed to be a repeated cycles of excessive and illegal application of the rule of law in all sectors of council leading by decree and reconstituted the economy. it as the State Peace and Development harvesting and timber trade underpinned by Council (SPDC) with Than Shwe remaining corruption, cronyism and conflict. The de-facto abandonment of the MSS and in power until 2011, ushering in a new level AAC within forestry – while maintaining of destructive exploitation of Myanmar’s These cycles of criminality have MYANMAR’S LEGAL 1850s 1978 the pretence of their ongoing application teak forests. underpinned not only a massive illegal TIMBER SECTOR – was just another aspect of the wider British implement timber trade with neighbouring China (and the STB renamed the collateral damage the country suffered In 1993, Than Shwe’s SLORC expelled The Myanmar Selection System (MSS) “scientific forestry” at times India and Thailand) but have also Timber Corporation in lieu of overarchingly illegitimate and the Thai logging companies except for Under British colonial rule, forestry was to maximise teak and Myanmar Selection tainted the entire nominally legal forestry harvests for corrupt regimes. five favoured companies, some of which, initially characterised by rampant teak System (MSS) and timber trade operations administered revenue including Thai Sawat, have maintained their extraction that severely reduced forest cover formalised by the State itself. Ne Win’s military coup in 1962 and influence in Myanmar’s teak sector until and density. Myanmar’s subsequent international today (see next section). Weak governance, selective law isolation resulted in all logging and From the 1850s, however, the British enforcement and conflict allow for illegal hardwood marketing being nationalised as a The commercial concession system was began to implement “scientific forestry” logging and the associated trade to flourish source of revenue for the military regime. abandoned and MTE, contained within to maximise teak harvests for revenue in Myanmar. Poor governance systems have the Forestry Department, was once again generation while maintaining the resource 1920 been manipulated by Burmese military 1989 The use of Myanmar’s forests as a cash cow charged with all logging and timber trade in base. This resulted in the Brandis Method, Brandis Selection commanders, ethnic armed organisation 35 Thai logging for the military significantly intensified the country, nominally in line with the MSS. or the Brandis Selection System21 – a System and Annual leaders and Government departments, firms awarded 47 following the brutal suppression of the 1988 system limiting harvests to trees over Allowable Cut (AAC) allowing for an illicit trade often involving logging concessions uprising and the coup d’état of the State But the increased reliance on timber specified girths selected during detailed renamed the Burma criminal networks and organised crime. selection system Law and Restoration Council (SLORC), for foreign currency with which to prop inventories of “annual coupes” – set within headed by Senior General , who up Than Shwe’s regime resulted in the larger defined forest divisions – which Corruption is the key component enabling renamed Burma as the Union of Myanmar. imposition of revenue targets on MTE that would be harvested on a 30-year rotation. many of the crimes underpinning the illicit led to the de-facto abandonment of the MSS. Each annual coup was allocated an Annual trade of timber within and from the country. In 1989, following a December 1988 Allowable Cut (AAC), with these collated diplomatic visit by the head of Thailand’s to establish a national AAC. In 1920, this Military, General Chavalit system was renamed the Burma selection 1993 Yongchaiyudh, and a system. 1948 range of Thai business Below: MTE’s Extraction ©EIAimage all Thai logging State Timber Department Forest Agencies companies expelled interests, 35 Thai logging After independence in 1948, the State Board (STB) Hammer Marks map except for five firms were awarded 47 Timber Board (STB) was formed (renamed was formed favoured companies logging concessions – the Timber Corporation in 1978) and this the first in Myanmar’s system become formalised as the Myanmar history – strung along the Selection System (MSS). country’s sprawling border with Thailand. That same year, the Timber However, this system has never really been Corporation was restructured and renamed fully implemented nor properly maintained. Myanmar Timber Enterprise (MTE), an entity which has overseen all logging and 1997-2011 timber trade in the country to the present new level of destructive day.22 exploitation of Myanmar’s teak forests under The concessions were largely located SPDC in areas of and Karen State, which were controlled by ethnic armed groups in conflict with the military regime. The logging concessions functioned for SLORC as both a source of cash and a Far left and left: Logs at MTE’s logyard at East Dagon, means to dominate land not controlled ©EIAimage Yangon, March 2013 by the regime while at the same time ©EIAimage

21. Named after Dietrich Brandis, the Forest Superintendent from 1855. 22. http://www.myanmatimber.com.mm/index.php/en/extraction-department/operation/157-log-extraction-in-myanmar.

8 Environmental Investigation Agency State of corruption 9 Subcontracting and Timber in a clientelist pattern which earned them Modified Procedures Yet despite these realities, from 1989 to the Sharing Agreements the of “regime cronies”. However, Many logging sub-contracts authorised present day, Myanmar’s military regimes – While the Forestry Department and MTE companies from China, India, Thailand and favoured contractors to operate in conflict and its current quasi-civilian Government 2014-16 maintained a huge workforce, neither other countries also managed to secure areas not controlled by the state or military, – have presented the teak trade regulated by timber revenue targets, had the capital to invest in machinery significant stakes. particularly in Shan, Kachin and Karen the Forestry Department and implemented subcontracting and the or infrastructure and the State could not states where ethnic armed groups held by the MTE as being wholly legal and modified procedure phased out operate in areas outside of control by the Logging subcontracting was formalised territory. In such cases, companies operated sustainable, produced in compliance with military (aka ), resulting in timber under “timber sharing agreements” peculiar under a so-called “modified procedure” MSS.26 production being lower than revenue targets to Myanmar, under which the MTE issued under which the MSS administered by MTE demanded. annual logging quotas within its overall and the Forest Department was abandoned The formal channels of this supposedly targets and areas, with no long-term and subcontractors harvested anything ‘legal and sustainable’ timber are proclaimed This prompted MTE’s increased use of contract being securely in place. above a given girth, inspecting their own to include all teak sold by MTE at monthly timber harvesting subcontractors, which compliance with forestry prescriptions.23 auctions and all teak sold by companies dramatically increased revenues from Rather than pay a stumpage fee on timber under MTE subcontracting and timber- forestry. Subcontractors brought capital, harvests which companies then legally own, To enable companies to actually operate sharing agreements. Formal channels 2016/17 machinery and business efficiencies MTE in Myanmar’s timber-sharing agreements under Government authorisation in for international trade have similarly total logging ban did not possess and significantly increased companies pay for the harvesting (including contested territory, the modified procedure been characterised as including all teak implemented the volumes of merchantable timber the infrastructure development costs) but the effectively required subcontractors to exported via Yangon ports by MTE itself or for one year state could call its own. MTE retains ownership of the harvested negotiate separate side-deals with the by companies under MTE authorisation, wood. Companies then have to return or very “insurgent groups” with which the including MTE logging subcontractors, The selection of subcontractors provided relinquish – for no cost – a significant Government was in conflict.24 private traders and wood products avenues for leveraging financial, political portion of the wood to MTE but have the manufacturers. and security benefits for the regime and right to sell the remainder privately after In practice, side-deals negotiated under senior officials. paying a reduced rate for it. the auspices of the modified procedure The reality is that for decades all the talk were characterised by harvesting in of legality and sustainability has been, and The allocation of MTE logging subcontracts All of these agreements involve MTE excess of the AAC in areas not planned remains, a fundamental deceit. also provided multiple opportunities for being given all Grade A and SG1-4 teak for under a properly applied MSS or pre- 2016/17 significant kickbacks and other forms of logs free of charge – to be sold by MTE at harvest selection system, the liberal Of all the irregularities encountered 10-year ban on teak corruption for the officials involved. auction – and usually about 40-60 per cent under-declaration of teak grades and the in Myanmar’s formal teak sector, EIA’s logging in forests of of all other hardwood species harvested. laundering of completely illegal teak logs investigation into “the Shadow President” Bago-Yoma A coterie of domestic Myanmar companies Subcontractors then pay the MTE below- cut from outside of the system altogether.25 (see next section) is illustrative of how seized control of a large portion of timber market prices to retain the remainder Myanmar teak sold through formal subcontracting opportunities – often in of their SG5-9 teak logs and the other While timber revenue targets, channels is as corrupt and illegal as any the context of other business dealings in harvested hardwoods, which they can sell subcontracting and the modified procedure which is blatantly smuggled across the all parts of Myanmar’s opaque economy, themselves (see graphic on page 12). were variously phased out in 2014, 2015 and border into China. Below: MTE logyard in 2016 respectively, their legacy is damning. Yangon, 2013 The entire nominally legal State-supervised forestry and timber trade sectors have been 2017/18 systematically riddled with fraud, bribery, corruption and other forms of illegality for at quotas significantly least two decades. reduced due to the absence of viable standing stock The rampant over-harvesting that occurred under this system resulted in the decimation of the country’s teak resources, leading to the imposition of a total logging ban for one year in 2016/17 and a 10-year ban on teak logging in the forests of Bago-Yoma. Quotas for 2017/18 onwards are significantly reduced due to the absence of a viable standing stock.

23. WWF, Framework for Assessing Legality of Forestry Operations; Timber Processing and Trade Annex, Myanmar. November 2013, accessed at: http://awsassets.panda.org/ downloads/national_legality_framework_myanmar.pdf & Aung Aung Myint, =Analysis of drivers of deforestation and forest degradation in Shan State and strategic options to address those, undated, accessed from: https://www.forestdepartment.gov.mm/sites/default/files/Documents/Drivers%20of%20deforestation%20and%20forest%20degradation.pdf. 24. Global Witness, A Conflict of Interests, Part 2, Logging in Burma: The Thai-Burma Border, October 2003. 25. Springate-Baginski et al, Legally and illegally logged out; The status of Myanmar’s timber sector and options for reform, March 2016. 26. For example: Log Extraction in Myanmar, MTE, (accessed January 2019) http://www.myanmatimber.com.mm/index.php/en/extraction-department/operation/157-log-extraction- ©EIAimage in-myanmar.

10 Environmental Investigation Agency State of corruption 11 MTE’s grading system TEAK GRADING IN MYANMAR MYANMAR’S ILLEGAL In early 2006, Myanmar’s Government TIMBER TRADE publicly admitted the extent of the Myanmar teak’s array of qualities mean illicit timber and revenue flows and high grades are significantly more During the past three decades, timber that same year Chinese authorities expensive than lower grades. trade has provided foreign currency not GRADE A took action to stem the flow of stolen just for Myanmar’s military regime but (decorative veneers) wood. In March, ’s provincial Under MTE’s grading system, the highest also many of the various armed ethnic government announced a suspension quality logs – for decorative veneers – groups in conflict with the regime, of timber imports across the border and are Grade A, with sub-grades including which have issued logging rights and SPECIAL banned Chinese nationals from crossing Special (five star), First (four star), taxed timber exports to fund weapons the border to conduct logging. In May, Second (three star), Third (two star) and purchases and other costs. Yunnan issued a regulation to formalise Fourth (one star). the trade by requiring advance approval Seeking to cut off timber revenues for FIRST for timber “cooperation projects”. Teak logs used for non-veneer armed groups, Myanmar’s ruling regime applications including furniture, flooring, prohibited all timber exports over its land ©EIAimage By late 2006, some parts of the border had exterior decking and yacht decking are borders, including those with China and reopened for timber trade under a quota classified as Saw Grade (SG), with SG1 Thailand, restricting ‘legal’ exports to system for selected Chinese companies. SECOND being the best and SG9 being the lowest those authorised by MTE through ports in Chinese customs data indicates that grades.27 Yangon. the measures suppressed the trade for a few years, with only 270,000 m3 of logs MTE’s timber sharing contracts require Yet a massive illegal flow of timber across crossing the border in 2008. THIRD all logging subcontractors to give MTE the border into China persisted during all SG1-SG4 teak logs harvested free of the past 25 years, with the nexus of the But this reduction did not last. By charge, to be subsequently sold through trade being in Myanmar and 2013, trade in timber products between MTE auctions. Teak logs of SG5-SG9 can the three prefectures in China’s Yunnan Myanmar and China reached a new be retained by subcontractors, who pay province abutting the border: Nujiang, record level of 1.7 million m3 worth $621 MTE below-market rates for them and Baoshan and Dehong. FOURTH million. profit by selling at true market prices. From the late 1980s a series of bilateral EIA investigations in 2015 uncovered Despite being illegal, and impossible agreements between the governments the central role of a powerful cartel without collusion from MTE or Forest ©EIAimage of China and Myanmar and ceasefire in ensuring wood illegally logged or Department staff who grade the logs, deals with ethnic armed groups gradually purchased in Myanmar by Chinese ©EIAimage misdeclaring SG1-SG4 logs as SG5 or Top: Teak decking on luxury opened what was formerly a closed SAW GRADE interests can pass freely through the lower has been a common method yacht hinterland. In 1988, the two governments (furniture, flooring, yacht decking)) numerous checkpoints in territory for subcontractors to increase profits Above: MTE hammer marks signed a cross-border trade agreement, variously controlled by the KIO and for decades. The profits from doing so indicating grade and region of followed by a series of deals between as much as harvest on teak log Myanmar’s Government and military. $5,500 per can be considerable – SG1 logs sell at Myanmar and the Yunnan provincial Known locally as the Dazu – or “big SG1 ton auctions for as much as $5,500 per ton, government in 1989, including one group” – and referred to as “BDYA” after while SG5 or below may fetch merely on forestry. The same year, the New the of its four principle members,29 $2,000 or lower, with lower prices still Democratic Army of Kachin (NDAK) this cartel used close connections $ SG2 paid by subcontractors under MTE’s signed a ceasefire, opening up a large to senior Myanmar military officials, timber sharing arrangements. area of northern Kachin to intensive including at least two of Myanmar’s logging. Northern Commanders.30 SG3 In 2013, representatives from both the Burmese firm IGE and the Indian/ Cross-border timber smuggling then While another crackdown occurred in Singaporean firm Alkemal – both escalated rapidly from the late 1990s 2015 – following the arrest of 155 Chinese SG4 major subcontractors – admitted to EIA to 2006. A 1994 ceasefire between the $ loggers in Kachin and more appeals from investigators they mis-declared “SG4 Kachin Independence Organisation Myanmar – and illegal exports to China as much as and up” logs harvested as being SG5 or (KIO) and Myanmar military government $2,000 per significantly reduced again from late SG5 SG6 in order to increase profitability.28 opened up large swathes of forests ton that year, the trade was never entirely Such fraud was reportedly central to the to logging, a factor subsequently eliminated. business model of the so-called “Shadow exacerbated by new Chinese demand for SG6 King of Burma Teak”. Kachin timber following a logging ban ©EIAimage $ EIA investigations during 2017 and 2018 in Yunnan in 1996 and a national ban in (next section) reveal how the illegal China in 1998. In 1997, the total volume of Above: Illegal timber stocks trade into China persists due to ongoing SG7 forest products traded between Myanmar and transports in Myanmar corruption of officials in both Myanmar and China was 300,000 m3; by 2005, it and China. had reached 1.6 million m3, with over one $ SG8 million m3 of that being logs. 27. http://www.myanmatimber.com.mm/index.php/en/export- marketing-milling-department/export-department-faq. 28. EIA undercover meetings with IGE and Alkemal in Yangon, 29. Members of the BDYA Dazu in 2015 included: Brang Nu, Dung Hpaung, Lee Maw Yung ,and Alie Jie. 30. EIA, Organised Chaos: The Illicit Overland Timber Trade Between Myanmar and China, 2015. $ SG9 2013. 12 Environmental Investigation Agency State of corruption 13 Grades of Grey would at times still attend MTE auctions A-Fu explained how Cheng Pui Chee’s and buy up most of the teak logs on offer The Shadow President - success essentially hinged on a guarantee at high prices – not to access the wood of impunity for defrauding the state but rather to boost the price of teak in the King of Burma Teak through the systematic under-declaration international market, a price largely set at of the grades of teak logs harvested by his MTE auctions. A Rumoured Kingpin The “Shadow President” operations or those of other subcontractors In 2016, well-placed sources alluded to In September 2017, in Tainan in southern he purchased from. Personal accounts the existence of a teak kingpin, allegedly Taiwan, EIA investigators met with Mr Why would the Government allow this an untouchable and unknowable “ghost” Zheng Kun Fu (鄭坤富) (aka, Cheng Kun Critically, grading fraud prevented special arrangement whereby top-grade Zheng Kun Fu behind Myanmar’s State-administered teak Fu), referred to by acquaintances as “A-Fu”, the finest quality teak logs from being timber is sold by the State at rock bottom aka “A-Fu” trade, said to have captured the highest- the owner of Kui Jay Corporation, or Kay automatically drawn into MTE’s auction prices through pre-agreed grading fraud? grade logs and thus controlled much Yeu (凱越股份有限公司) in Taiwanese. system. Cheng retained the highest-grade of the international trade in nominally logs he should have given over to MTE A-Fu repeatedly reiterated the function legal timber shipped from the capital city, A wizened sawmilling master, A-Fu was for nothing (itself a business advantage), of cash payments, stating that tens of Yangon. keen to sell EIA his last 1,000 tonnes of paying artificially low prices to MTE while millions of dollars of the money Cheng Myanmar teak logs – stored in Taichung selling at top prices internationally (see advanced to the Government was for the EIA’s sources suggested his was port – for just over $4 million, the remnants Teak Grading in Myanmar). personal enrichment of top regime officials, “something like” PC Cheng, PC Chang or PC of 10,000 tonnes he had imported in paid into their personal bank accounts in Chun, but could not identify him. “three ships of logs” in 2013 alone, prior to A-Fu explained how Cheng used to buy Hong Kong and Singapore. Myanmar’s log export ban in April 2014. from MTE auctions but struck deals with Initial research identified highly relevant senior officials to bypass them while still When EIA sought clarity on whether bank albeit limited and inconclusive information Perhaps in anticipation of his retirement, accessing the best teak. transfers made by Cheng to MTE and of a person of a similar name linked to over three days of meetings with the Government for access to the wood companies in Myanmar and Thailand investigators A-Fu at times wistfully A-Fu: “Each time, they [Cheng] will bring included payments into officials’ personal called Thai Sawat. reminisced about his days in the trade and 40-50 million [dollars] and then he will bank accounts, A-Fu said: “Yes, to the about his legendary supplier. then extract the timber over time … they Prime Minister and the lot …” While Thai Sawat was formally controlled will send their people up to the mountains by a Mr Chetta Apipatana, this name was at He said he bought all his logs from a Hong to select the logs. The best logs will be EIA: “All to Myanmar Prime Minister and times referred to alongside a Mr Cheng or Kong company called Xiangxin (祥兴 / 祥 transported down from the mountains, the lot during that time” PC Cheng in relation to Thai Sawat.31 興)/ Cheung Hing), said to be headed by a containerised right away or loosely loaded major player, whom he named as “Cheng onto the vessel … without having to be A-FU: “The Prime Minister in Yangon … EIA knew Thai Sawat had been a key player Pui Chee.” moved first to the log yards.” the Chairman … the Fathers of the country in opening up Myanmar to commercial would become jealous. Of the 60 million, logging in the late 1980s-90s and it seemed A-Fu re-emphasised the status of this EIA: “Were those teak marked with 10 million would go straight into their feasible that Thai Sawat could be the individual in the teak business, saying; “In grades?” pockets. They all have five houses …” vehicle for the teak kingpin.32 this world, he’s the biggest trader, Cheng Pui Chee.” A-Fu: “Yes. Those teak were marked at EIA: “So, it goes straight into their personal However, EIA researchers could not initially Grades Five or Six but the actual quality accounts, right?” identify or confirm a full Chinese or English Initially referring to Cheng Pui Chee in were Grades One or Two … Grades One or name for any legal person for PC Cheng or deference as his “President”, (saying “my Two quality. When they buy it up in the A-FU: “Yes.” its variants, whether linked to Thai Sawat original logs are all from him, that’s why I mountains, if it’s marked as Grade Five, or otherwise. Whether hiding in plain called him president – he is my big boss”), they will pay Grade Five prices … then Huge cash payments to top officials and sight or not, the so-called teak kingpin was A-Fu thereafter referred to Cheng Pui Chee when they sell it here, they will sell it generals have been rumoured in the trade Below: 1,000 tons of Myanmar proving hard to pin down. as “the Shadow President” and proceeded as Grade One. Why did he paid so much for decades, but seldom do seasoned teak logs offered to EIA by to explain the nature of the special money (to the Government)? … it’s because traders explain how it was actually done A-Fu in September 2017, supplied by “shadow Then, in late 2017, EIA undercover arrangement with top Myanmar officials there is a huge profit margin … That was and by whom. President” Cheng Pui Chee investigators travelled to Taiwan – a centre that so enriched him. how he was making all that money.“ of world-renowned teak saw millers – and the truth began to emerge. Cheng Pui Chee sounded exactly like the This is theft. While Cheng paid MTE for the rumoured teak kingpin PC Cheng. wood, he should have paid substantially more at auction than the low prices offered under timber-sharing agreements for lower grade wood.

The net result was that Cheng illegitimately 31. A Mr. P. C. Cheng, of Thai Sawat, Thailand attended the 1995 "Teak for the future. Proceedings of the second regional seminar on teak” http://www.fao.org/3/a-ac773e/ac773e0k.htm. A "Mr. Chetta P.C. Cheng" is listed as a paid-up member of "The Siam Society" in accumulated huge volumes of the world’s 1983 http://www.siamese-heritage.org/jsspdf/1981/JSS_071_0p_AnnualReportListOfMembers.pdf. best teak at knock-down prices, giving him 32. BurmaNet News, Update on the Salween Dam project in Shan State, January 1999, accessed at: http://www.ibiblio.org/obl/docs/SW01.html See map 3 on page 11 of Environmental Research Division, Manila Observatory, A Report on the Forestry Activities of Burma (Myanmar) market dominance. and the Stability of the Moulmein watershed and Tenasserim Uplands, November 1990, accessed at: http://essc.org.ph/content/wp-content/ uploads/2014/10/A-Report-on-the-Forestry-Activities-of-Burma-Myanmar-and-the-Stability-of-the-Moulmein-Watershed-and-tenasserim- Uplands-ERD-1990.pdf. A-Fu laughed when recounting how Cheng ©EIAimage

14 Environmental Investigation Agency State of corruption 15 New Degrees of Corruption Zheng added: “Things that are sold for CONFIRMING THE SHADOW’S Corporation Ltd and Cheung Hing Timber The cash kickbacks were not the entire 3,000, he gave them 600.” IDENTITY Corporation in Hong Kong – Cheng Pui story – Cheng’s operation is a veritable Chee’s companies.35 education in corruption. Conspiracy in Kleptocracy Following the meeting with A-Fu, EIA Cheng’s corruption reportedly went to the sought to confirm “Cheng Pui Chee’s” full The cable advised economic sanctions be A-fu said Cheng Pui Chee was a “legend” very top of Myanmar’s military. identity and corroborate the story we had imposed on Cheung Hing and other Lu Lu- because of his strategy to also pay for the heard. connected companies, which were duly private education outside of Myanmar of A-Fu: “The Shadow President was put in place in the EU, in which the owner Hong Kong Roots the children of top officials, effectively connected to the top level of the of Cheung Hing is stated to be PC Cheng.36 Cheng reportedly began his career under buying long-term favour with the regime Government.” his father, importing teak into Hong Kong Tay Zar over two generations. That Tay Zar in particular had commercial from Myanmar and Indonesia through EIA: “You mean the president of Burma?” interests in Cheung Hing suggests Cheng his company Cheung Hing (Xiangxin (祥 A-Fu: “He is legend, a legend. Let’s keep had clearly positioned himself just one 兴 / 祥興) but had at some point married it between ourselves. For example, the A-Fu: “Yes.” step removed from Senior General Than a wealthy Thai woman of Chinese descent first and second secretaries of the Prime Shwe. and moved to base himself in Bangkok, Minister … he will send their children for While Myanmar did not have a President Thailand. studies in Singapore up to high school, during the period concerned,33 A-Fu can IGE after which he will send them to US and only have been referring to the de-facto Cheung Hing is also linked to the Hong Kong records for Cheung Hing for further studies … he [Cheng] leader of the country. During the period International Group of Entrepreneurs confirmed Cheng’s official Chinese will pay for everything.” this corruption allegedly occurred (from (IGE), a major player in Myanmar’s timber written name (鄭培志) and his role as the early 1990s to 2014), this can only have sector during the Than Shwe era. Between director – along with a family member – A-Fu said Cheng Pui Chee’s efforts to buy been Senior General Than Shwe, the head August 2009 and August 2012, Hong Kong in various companies incorporating the the next generation of Myanmar’s political of the State Law and Order Restoration IGE Private Ltd and Cheung Hing both name.34 These Cheung Hing companies in Than Shwe and military rulers before they even Council (SLORC) and State Peace reportedly facilitated tax avoidance by Hong Kong appear to have been the key graduated was “genius” because “When Development Council (SPDC) Commander another Hong Kong timber importer (He commercial vehicles to transact most of the kids return [to Myanmar] in future, In Chief of the Myanmar Armed Forces Biying, of Xinlin Company) by providing Cheng’s major multi-million-dollar teak they will take over the positions, that’s from 1992 to 2011. fraudulent tax receipts and contracts deals. how it is in Communist countries. How understating the value of 26,000 tonnes of could they forget the gratitude?” A-Fu’s testimony indicates that Cheng Pui teak logs they supplied.37 Publicly available sources about Cheung Chee bribed and conspired with the most Hing give tantalising hints at connections His claims were corroborated in July 2018 senior military and Government officials IGE was established by the family of Aung between Cheng and influential timber by teak traders working at Yuli Wood, in in Myanmar to establish a secret off-the- Thaung, Myanmar’s Minister of Industry cronies close to senior regime officials in mainland China, who were acquainted books system of fraudulent trade in the from 1997 to 2011.38 Aung Thaung’s son, Pyi Myanmar. with Cheng Pui Chee, including Mr Zheng cream of the country’s teak logs, run both Aung, is married to the daughter of Senior Tianren, who similarly stated Cheng had in parallel to and within the official ‘legal’ General , and IGE companies Tay Zar paid for the children of senior officials to trade administered by MTE. (including Myanmar Rice Trading and the A leaked cable from the US Embassy in study in Singapore and Thailand. Cheng, Aung Yee Phyo Company – major teak Yangon reveals how two key cronies of to whom these traders referred as “the These crimes involved the wholesale logging subcontractrors) are considered the Than Shwe regime – the infamous CEO”, reportedly calculated that “after expropriation of Myanmar’s timber to have significantly benefited from very Tay Zar, of the Htoo Group, and his they graduated and returned to Burma resources by both the individual State close relationships to both Maung Aye and Chinese speaking advisor and fixer Lu to work … out of 10 of them, three would officials concerned and by Cheng Pui Senior General Than Shwe. Lu (aka Kwan Lu Chan, Chan Kwan Lu) have to ‘listen to Yangon’” (see - Ongoing Chee and his network in what constituted both had minority stakes in Cheung Hing Smuggling to China). serious organised international crime.

34. Hong Kong Company records link Cheng Pui Chee to Cheung Hing Timber Company Limited(祥興木材有限公司), Cheung Hing The same trader also corroborated claims For Myanmar’s ruling generals and Corporation Limited, Cheung Hing Import and Export Company Limited, and Cheung Hing Resources Company Limited. of Cheng Pui Chee’s cash payments to officials – themselves operating as a 35. https://wikileaks.org/plusd/cables/09RANGOON386_a.html. 36. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32010D0232. senior officials. cartel – and for other crony logging 37. http://www.hnhxsbh.com/zousifanzui/98.html. 38. https://www.irrawaddy.com/news/burma/what-does-the-future-hold-for-aung-thaung-sons.html & https://en.wikipedia.org/wiki/ Below: Hong Kong subcontractors with whom the regime Aung_Thaung. Zheng: “He dared to gamble. Before, when conspired, Cheng Pui Chee proved to be the Burmese Government didn’t have an ideal co-conspirator, fulfilling their money, they got it from him. First, they desire to corruptly enrich themselves from Zheng Tianren received 20 [million] then 40 [million] … kickbacks from timber while generating then even when they wanted to buy an Air just enough revenue to prop up the regime. Force One they also asked him for money.” Through these completely illegal Zheng: “After he gave, then they said to arrangements, Cheng became perhaps him, the timber from here and here and the world’s largest teak trader working here … the mountains … that’s all for you!” within the official ‘legal’ system of trade administered by MTE.

33. Between 1962 and 1974 and between 1988 and 2011 Myanmar was run by military regimes and did not have a President. The Office of the President was re-established in 2011. https://en.wikipedia.org/wiki/President_of_Myanmar.

16 Environmental Investigation Agency 17 The Koh Connection of the alleged teak kingpin (see Gary The documents confirm that A-Fu’s A-Fu had also talked repeatedly about Koh’s corroboration). Company records “Shadow President” Cheng Pui Chee had a “Mr Xu”, reportedly a well-connected confirmed the connection. changed his name in Thailand to Chetta Singaporean of Hong Kong origin Apipatana in the early 1960s and he and his operating out of Malaysia and said to be Thai Sawat & Chetta Apipatana father Soothie Apipatana (also spelt Suthee) Cheng Pui Chee’s principle, albeit junior, On the suspicion that Cheng’s partner Mr and brother Marut Apipatana began working business partner and long-term co- Xu was actually Mr Koh of the Timberlux as directors in Thai Sawat; by 1975, they had collaborator. network, EIA sought confirmation in the taken control of the company. official records of numerous companies Xu reportedly helped Cheng Pui Chee including Northwood, Thai Sawat, Wood EIA also managed to acquire details from Chetta Apipatana market his teak beyond China and & Wood and Deesawat in Singapore; the formal Thai ID card for Cheng’s adopted aka “Cheng Pui Chee” Thailand, particularly in Malaysian, Northwood, SCK Wooden Industries and name Chetta Apipatana,40 which included a Singaporean and Western markets. A Timberlux in Malaysia; Northwood, Thai photograph of Chetta that matches the only range of Western buyers were said to Sawat and Pacific Timber in Yangon; other image of Cheng Pui Chee identified by Gary Koh have accessed both A-Fu and Cheng Pui and Thai Sawat, Deesawat and other EIA.41 Chee through Mr Xu (see Cheng’s Western companies in Thailand. markets). Thai Sawat was one of 35 Thai logging None of the records for these companies firms awarded 47 logging concessions in While not naming Mr Xu’s companies, in Malaysia or Singapore named Cheng Myanmar following a diplomatic visit to A-Fu mentioned an historical connection Pui Chee, referring instead to Chetta Myanmar in December 1988 by General to a Malaysian entity he called “Thai Pong”. Apipatana or other Apipatana family Chavalit Yongchaiyudh, then Commander EIA knew that a Malaysian teak sawmill members, along with the Koh (Xu) family in Chief of the Thai armed forces (later previously called Thaipong Industries had members EIA had anticipated. Prime Minster of Thailand) – the first senior become SCK Wooden Industries – part foreign dignitary to have visited the country of the Timberlux, Northwood and Wood However, when EIA acquired records for since the brutal suppression of the 1988 & Wood network of companies linked to Thai Sawat Import Export Ltd in Thailand, Uprising.42 Gary Koh, whom EIA had met in Singapore the pieces of the puzzle finally fell into Above and left: Map of logging in 2013. place.39 Then, in December 1993, Thai Sawat concessions allocated in Myanmar in 1988, with concession No.2 being was one of only five Thai firms which allocated to Thai Sawat Import-Export Because of this, and the fact that “Koh” is Thai Sawat Import Export Ltd was maintained logging rights in Myanmar after the Chinese Minnan dialect’s version of incorporated in Thailand as early as 25 the then-SLORC Government expelled all “Xu”, it became obvious that “Mr Xu” was September 1963 by six founders of Chinese Thai logging companies earlier that year.43 likely to actually be “Mr Koh” – “Koh Seow nationality and one Thai national, but Thai Sawat was awarded a 30,000 tonne Bean” – the father of Gary Koh. a certificate dated 16 November 1963 quota at Mong Pungpahkyen 2 in Shan State included Chetta Apipatana and his brother in the early 1990s and, in lieu of that, Thai Gary Koh had told EIA of his Timberlux Marut Apipatana as directors. authorities granted it a timber transit point Below: website of SCK Wooden Industries reveals network’s connection to Thai Sawat, a firm at Ban Arunothai in Chiang Dao District, affiliations with Timberlux EIA always suspected as being one vehicle Importantly, a shareholder registration Chiang Mai Province – a combination and Wood & Wood document from 25 April 1975 adds Chinese thought to have earned the firm up to $15 44

citizen “Cheng Pui Chee” (written in million at the time. ©Kramer, T (1994) “Thai Foreign Policy towards Burma 1987-1993” English, but also in Thai – transliterated “Seng Phu Si”) as a voting shareholder During the same period, Thai Sawat won of Thai Sawat Import Export Company contracts for logging and road construction Ltd. On the second page of the same from the politically well-connected Thai document, the name Mr Seng Bhui company MDX, which held an agreement Chi (typed in Thai) is crossed out and with the Myanmar Government to develop handwritten below in Thai is “นายเชษฐา อภิ the Tasang Dam in Shan State.45 พัฒนา” – “Chetta Apipatana”.

A further document submitted by Thai Sawat Import Export Company Ltd to 40. National ID No. 8-1004-00001-47-5. 41. A photograph of Cheng Pui Chee is included in images of his detail changes in the registration of the funeral in Bangkok, which were posted to FaceBook by attendees company on 26 October 1994 also notes in April 2018. The man in this photograph is the same man as that depicted in Chetta Apipatana’s Thai ID Card. “Seng Phu Si” had changed his name to 42. Global Witness, A Conflict of Interests, Part 2, Logging in Burma: The Thai-Burma Border, October 2003. ©SCK Wooden Industries’ website “Chetta Apipatana”. 43. Burma Issues (Vol.3, No.12), Thai Logging Companies, December 1993, available at: http://www.burmalibrary.org/KN/BI1993-12-(V03- 12)-red.pdf. Above and left: Revised 44. Siam Rat Sapta Wichan, Major Thai Business Activities (p. 8-14, company registration Translated from Thai), 27 October 1991, reproduced in: Foreign documents for Thai Sawat Broadcast Information Service, JPRS Report, South East Asia, Import Export Company (JPRS-SEA-92-001), 14 January 1992, available at: https://apps.dtic. mil/dtic/tr/fulltext/u2/a334124.pdf. Limited, on 26 October 1994 45. https://epdf.tips/environment-and-citizenship-integrating- indicated Cheng Pui Chee changed his name to Chetta 39. Records from the Department of Business Development, Ministry of Commerce, Kingdom of Thailand, accessed in June 2018. justice-responsibility-and-civic-engagem.html. ©Department of Business Development, Ministry of Commerce, Kingdom of Thailand Apipatana

18 Environmental Investigation Agency State of corruption 19 -

for accommodation, when they go to the GARY KOH’S CORROBORATION doctors we have been paying for their Cheng’s Web of Interests and Alliances and retails furniture largely made with With the confirmation that Cheng Pui Myanmar teak. In 2013, investigators had met Gary Koh, bills, so a lot of entertainment, a lot of Chee is Chetta Apipatana, company a Singaporean running Wood & Wood, a side-line incentives that you have to give teak flooring and interiors firm he grew them as well.” [smiles] documents clarify how, using his Thai Thai Sawat Wood Industries Corporation out of his family’s Myanmar teak business name or the Thai names of his children Co Ltd in Thailand, owned by Chetta centred around SCK Wooden Industries EIA: “You mean like the military people?” and brother, Cheng Pui Chee registered Apipatana, is or has been directed by Sdn Bhd and Timberlux Sdn Bhd. shareholdings and/or directorships Tangkijngamwong family members. GK: “Yeah, yeah, yeah.” in a network of multiple Thai Sawat, In light of the links between Cheng Pui Northwood and Timberlux companies Vanida, Jirawat and Jirachai Chee and the Koh family, A-Fu’s testimony EIA: “Oh, you still have to do that do you?” Gary Koh to enable his teak empire to function Tangkijngamwong are all directors of Dee about Cheng Pui Chee’s bribery appears across Malaysia, Myanmar, Singapore Sawat Industries Company Ltd (Deesawat), to significantly expand on Gary Koh’s GK: “But I think its gonna change. And I and Thailand. Cheng retained his Chinese while Ekachai Tangkijngamwong is also testimony in 2013 of similar inducements, hope it will change, because right now it is name in his Cheung Hing operations in a member of the board of Wood Decorate which in turn corroborates A-Fu’s a bit iffy as well”. [shakes hand] Hong Kong. Holding Co Ltd, another big Thai timber testimony about Cheng Pui Chee’s “special outfit. Gary Koh also said Northwood had gifted arrangements”. Multiple connections between the the Ministry of Forestry two giraffes, four Apipatanas and the Koh family are The Thai Timber Association reflects the zebras and several penguins for the zoo at Gary Koh said the network included evident, cementing the business status of the two in Thailand. in Myanmar and worked Naypyidaw, Myanmar’s new capital city. Northwood partnership of Cheng Pui Chee and Koh Jirawat Tangkijngamwong (of Dee Sawat in partnership with Thai companies, Seow Bean, and bestowing assets in the Industries Company Ltd) is the Head of the including Thai Sawat and Deesawat. EIA GK: “Never in my life did I think I would names of their sons, Thanit Apipatana Thai Timber Association, while Ekchai is a had met representatives of Deesawat in get to buy four zebras and two giraffes.” (also spelt Thanet) and Gary Koh (Koh Tek Vice President. Marut Apipatana (Cheng’s 2010, who acknowledged historical links [laughs] to Thai Sawat. Gary Koh also mentioned Kwan Gary). brother, also of Thai Sawat Import Export 49 that they had worked with a firm called Corroborating this story, Myanmar Co Ltd) is also a Vice President, while Mr. “Kai Yeu” in Taiwan to process their teak, a newspapers reported in December In Singapore, Koh Seow Bean and Chetta Suthee Apipatana (Chetta’s father) is listed reference to A-Fu’s Kui Jay Corporation. 2009 that a “Mr Cheng” of Thai Sawat ©Myanmar Times Apipatana are both directors in Northwood among the Honorary Presidents of the Import Export had donated penguins Co Pte Ltd, although only Chetta is a Association.50 Above: Giraffe donated to the He said the companies had excellent to Myanmar’s Forestry Department for Ministry of Forestry by Cheng shareholder. Similarly, Gary Koh is a access to teak in Myanmar as a result the Naypyidaw zoo. The Thai military Pui Chee (Chetta Apipatana) of director with Chetta and Thanit Apipatana EIA research indicates that the two Thai Sawat, pictured in 2013 of bribes and inducements. He said: “We attaché stood by in a photo of the symbolic of Thai Sawat Development Co Pte Ltd and families are actually extended family, 46 are close to MTE. We are very, very close presentation. Giraffes were similarly Thai Sawat Investment Co Pte Ltd., while likely cousins.51 Facebook posts also to the Ministry of Forestry as well. So reportedly donated by the same “Mr only Chetta and Thanit are shareholders. evidence how Cheng Pui Chee’s (Chetta 47 it has been a working relationship that Cheng” of Thai Sawat in 2011. Apipatana’s) brother Marut, his son Thanit … Northwood has built up for the last 30 A critical link cementing the relationship and his wife meet up with Jirachai and Asked if he felt the payments made years.” between the Koh and Apipatana families other Tangkijngamwong family members for the network’s teak went into the is Timberlux Sdn Bhd in Malaysia, in for Chinese New Year in Bangkok GK: “Say there are officials from Burma, personal pockets of generals running the Government and MTE, Gary Koh smiled which Koh Seow Bean’s son Gary Koh is a annually. from the Ministry of Forestry, they are director and which he also co-owns with sick, they are not well, they come to and then laughed, saying: “Ah, you could Chetta’s son Thanit Apipatana. Diversification Singapore. What we have been doing say its, aaah, yes actually. A good portion, Company records also indicate Chetta had is that we have been arranging for a good portion.” While only the Koh family appears to own diversified some of his corruptly earned accommodation, we have been paying and direct Wood & Wood Pte Ltd and Wood teak profits into real estate, including the Solorest hiliaep taquidi & Wood Flooring Co Pte Ltd in Singapore luxury Summit Park View Hotel, in central onemper isquam, sequi (Gary Koh’s companies) and SCK Wooden Yangon.52 omnist, aut excessi miliqui nobis molor ant occus dis Industries in Malaysia (Koh Seow Bean’s ne quatur am nonecus firm), in meetings with the Kohs and voloreriatem et, ulloribquam, sequi omnist, aut excessi online both companies are described as miliqui nobis molor ant occus “affiliates” of Timberlux in Malaysia.48 dis ne quatur am nonecus voloreriatem et, ullorib Connections are also evident between the Apipatana family and that of the Tangkijngamwong family in Bangkok, which controls Deesawat – a major Thai brand that designs, manufactures Left: Thai officials present penguins gifted by Cheng Pui Chee (Chetta Apipatana) of Thai Sawat to Myanmar’s Forestry 48. http://sck.com.my/index.html. ©New Light of Myanmar Department in December 2009 49. Retrieved from http://www.thaitimber.org/board/board_thaitimber_01.html. 50. Retrieved from http://www.thaitimber.org/board/board_thaitimber_02.html. 51. In October 2018 staff at Deesawat told EIA researchers that the Apipatana and Tangkijngamwong families were "ญาติ", indicating an 46. New Light of Myanmar, “ZPO Presents two pairs of Penguins to Zoological Garden (Nay Pyi Taw)”, December 6, 2009, available at: http:// extended family relationship such as cousins. www.burmalibrary.org/docs08/NLM2009-12-06.pdf. 52. Singapore company records show that as of early 2018 Chetta Apipatana was listed a director and shareholder of Regional Properties Pte. 47. https://myanmar.mmtimes.com/national-news/nay-pyi-taw/7615-2013-10-23-04-50-39.html & 7 Daily News, “Safari Nay Pyi Taw Zoo Ltd., a Singaporean firm acting as the sole shareholder of Regional Hotel Pte Ltd., which owns 100% of System Bilt (Myanmar) Ltd, a company Garden A Baby Giraffe was born”, Nov 11 2015, reproduced at http://www.shwemyanmar.info/news_detail_m.php?id=3254&type=3. in which Chetta is a director, and which in turn owns the Summit Park View Hotel in Yangon.

20 Environmental Investigation Agency State of corruption 21 Tangkijngamwong family Likely cousins Brother Cheng’s web of connections Marut Apipatana AKA Marit Apipatana Mr Jirachai Tangkijngamwong Supplier of teak Son Brothers Relatives Relatives European links Supplied timber Father Testified stating Son Suthee Apipatana นาย สุธี อภิพัฒนา corruption CEO AKA Seng/Cheng Chun Nan Supplier of Chiranon Vanida Jirawat Teak * Presumed deceased teak Peter Eick Tangkijngamwong Tangkijngamwong Tangkijngamwong Former supplier to member Alfred Neumann GmbH Former Director Honorary President Cheng Pui Chee (鄭培志) Germany Former Director Vice Chetta Apipatana นายเชษฐา อภิพัฒนา Cheng Kun Fu / Zheng Ken Fu Director President AKA Cheng/Apipatana, PC Cheng, Mr Cheng, AKA A’Fu “Shadow President” and “Burma’s 2nd Forest *Retired Owner Imported Teak into EU for Minister” Thai Sawat Companies Deesawat Thai Timber Association *Deceased Thailand Supplier of teak Director / Son Thailand Affiliate company Manager Owner Luca Rossi Kui Jay Corporation Hong Kong Principle AKA Kai Yue Antonini Legnami Manager in No longer trading Manager Srl Myanmar for Supplied teak Brothers Timber supply from Affiliate Burma Manager and Cheung Hing companies Shareholder (Xiangxin) (祥兴 / 祥興)) Timberlux SRL Matteo Rossi Hong Kong Thanit Apipatana Provides teak Italy processing capabilities Principle Director Myanmar / Burma Manager in Myanmar Shareholder Associate Thai Sawat Industry Ltd Managing Associate (Myanmar) Director Shareholder Burma Han zaw Lin Employers Business Director and Koh Family links Cheung Hing & Co aka CHC Affiliates shareholder Logging Multimillion $ Burma rights bribes to

Logging rights Pacific Timber Enterprise Co, Ltd Shareholder “Gary Koh” Father obtained Affiliates (Koh Tek Kwan Gary) ပစိဖိတ် သစ်လုပ်ငန်း ကုမ္ပဏီလီမိတက် Agent / Trustee Utilised by Burma Director and Conducted Director shareholder Myanmar Timber Enterprise (MTE) business with Shareholder Burma Director and Logging Northwood shareholder Chairman Resource Burma Koh Seow Bean Owned Director Malaysia AKA Mr Xu by Logging Corrupt officials International Group of Entrepreneurs Singapore Resource Affiliates (IGE Group) SCK Wooden Industries Burma Family ties to Director Malaysia Timberlux SDN owners Thai Sawat Development BHD Malaysia Affiliates Four x Timber Mills Co, Pte, Ltd Malaysia in Yangon Wood and Wood Associate Senior General Link Singapore Owner/Director Htoo Timber Shareholder Than Shwe Thai Sawat Investment Employee Burma links Northwood Co, Pte, Ltd Tay Za Co, Pte, Ltd

Supplied teak YANGON INVESTIGATION The “Second Forest Minister” “CHC” – Cheng’s Myanmar Operations and 1,000 tonnes of sawn teak in stock in In seeking meetings with Cheng Pui Chee’s On 31 October 2018, EIA finally secured Myanmar and a further 4,000 tonnes of sawn Research confirmed that Cheng Pui Chee, aka people in Yangon, investigators were introduced a meeting with Han Zaw Lin, Cheng Pui teak in Malaysia. Chetta Apipatana, appeared to be the “ghost to various industry operators who confirmed Chee’s key lieutenant in Myanmar, at the kingpin” behind Myanmar’s teak trade, running Cheng had been a major player. offices of his CHC group near Yangon’s While Han Zaw Lin at no point bragged his empire through a network of companies Wittoria hospital. A sign above the entrance about Cheng Pui Chee’s bribery and teak centred on Northwood and Thai Sawat in One seasoned trader corroborated the status announced Thai Sawat Imp-Exp Co., Ltd and grading fraud or the tens of millions of Myanmar, Thai Sawat in Thailand and Cheung bestowed by A-Fu, of Kui Jay in Taiwan, saying Cheung Hing & Company – Yangon Office. dollars in payments to offshore accounts Hing in Hong Kong, and in partnership with the Cheng Pui Chee “operated at a really big scale” of Government officials, he did confirm key Koh family through Timberlux/SCK Wooden and that “everyone referred to him as Burma’s Han Zaw Lin – who had been a pallbearer aspects of the story EIA had learnt from A-Fu Industries and Northwood in Malaysia and Forest Minister … the secondary Forest Minister at Cheng’s funeral in April – gave EIA his and information pertaining to Cheng Pui ©EIAimage Singapore. or the Second Forest Minister …”. Cheng was said business card bearing the name Timberlux Chee’s role in supplying the EU market. to hoard teak, as A-Fu had said. Sdn Bhd and described Timberlux as the EIA then sought to meet the Shadow President Malaysian arm of the Burmese operations of Above: CHC’s office in Yangon, himself and began planning a trip to Yangon. Investigators were also introduced to an MTE CHC, which was itself owned by a Hong Kong October 2018 official claiming to be a manager of timber “boss” whom he confirmed to be Cheng Pui Left: Pacific Timber Enterprise A Dead End? export documentation, who referred to Cheng’s Chee. Mill sign, Yangon, October 2018 However, in May 2018 EIA learnt that the Shadow operation in Myanmar as “CHC” (short for Below: Teak sawn wood and President had died suddenly the previous month. “Cheung Hing & Company”) which he said had He said that following Cheng Pui Chee’s flooring materials at Pacific Timber Enterprise, Yangon, been “the biggest company in Myanmar” in death, the company was being run by himself October 2018 While Cheng’s death could have ended the terms of teak log exports. as General Manager and by Koh Seow Bean investigation, EIA heard a huge stockpile of in Malaysia and Singapore. He also confirmed 100,000-200,000 tonnes of his corruptly acquired The official also confirmed that since the log Cheng’s network had known A-Fu, of Kui Jay teak logs were being processed for export in export ban, CHC had been renting four mills from in Taiwan, well for years. several Yangon sawmills rented from MTE. MTE, including MTE mills number three and ©EIAimage six (in Yangon’s Watayar wood-based industrial Han Zaw Lin confirmed CHC operated five EIA wanted a meeting with Koh Seow Bean – area) and MTE mill 10 (in Thanlyin). factories in Yangon, one of them flooring Cheng Pui Chee’s principle business partner manufacturer MTE mill 10, run by Pacific through SCK/Timberlux and Northwood – and Documents posted by MTE in March 2018 Timber Enterprise Ltd, which investigators hoped to meet Cheng Pui Chee’s son Thanit confirmed at least two companies controlled were later taken to visit. He suggested the Apipatana, said to be managing his father’s teak by Cheng Pui Chee are “MTE cooperating mills”, CHC/Timberlux network currently held 14,000 business after his death. including Thai Sawat Import Export Co Ltd (MTE tonnes of teak, including 9,000 tonnes of logs mill eight) and Pacific Timber Enterprise Ltd EIA also hoped to meet (MTE mill 10).53 a Myanmar citizen named Han Zaw Lin, suspected to be Cheng Pui Chee’s right-hand man in Myanmar at Northwood, Thai Sawat and Pacific Timber Enterprise Ltd – the latter a firm identified Han Zaw Lin by EIA research to be part of Cheng’s teak operations in Myanmar.

Experienced sources in the teak trade advised that it was almost impossible to meet these discreet high-level people without introductions from long-term collaborators. However, in October 2018 EIA investigators flew into Yangon to try to meet the inheritors of the so-called king of teak.

Right: Teak flooring stored in the sawmill of Pacific Timber Enterprise Ltd, a company controlled by Cheng Pui Chee’s CHC group of companies in Yangon, October 2018 53. http://monrec.gov.mm/?q=know/51. ©EIAimage

24 25

©EIAimage Special Sources: Koh Seow Bean CHENG’S WESTERN MARKETS THE US On enquiring about the source of teak, Han The following day, investigators finally Large volumes of Cheng Pui Chee’s corrupt East Teak Fine Hardwoods (ETFH) is the Zaw Lin hinted at special sources from met Koh Seow Bean (aka Mr Xu) of teak enters EU and US supply chains, US’s biggest Myanmar teak importer and “G-G contracts” only available to them SCK/Timberlux/Northwood, Cheng Pui principally for yachts. buys from multiple companies in the through Cheng Pui Chee’s contacts. Chee’s principle business partner for Shadow President’s network. international sales to Western markets In Taiwan, A-Fu revealed he had serviced EIA: “Government to government, you and Gary Koh’s father. many European and American teak buyers A-Fu said ETFH had been a long-term must have good contact right?” with Cheng’s wood for years, following client. Trade records confirm at least Koh added to the introductions from Koh (Mr Xu). 151 shipments from Kui Jay Corporation HZL: “Sure!” (nods and laughs) multiple similar during the past decade, including four in assertions Koh Seow Bean claimed their operation 2018, making A-Fu ETFH’s second biggest EIA: “So Mr Cheng …” regarding had dominated not just in China but also supplier worldwide, providing 13 per cent Cheng’s status, in Western countries, saying “for over 10 of the weight of ETFH’s global imports. HZL: “Yeah, yeah, yeah.” stating: “In teak years, even up to today, we are the biggest business in the exporter to the US and European market.” Timberlux Snd Bhd is ETFH’s next EIA understands G-G contracts referred world, he is the Lucrative luxury yacht manufacturers biggest supplier, sending 143 shipments to the lucrative logging rights secured biggest”, saying made up most of their Western customers, constituting 9.3 per cent of ETFH imports in Myanmar by Chetta Apipatana’s Thai he and Cheng Pui Koh Seow Bean with Koh boasting: “As for the yacht over the same period. ETFH has also Sawat Import Export Ltd in the late Chee had used industry, we’re the biggest exporter to the imported 17 shipments (one per cent of 1980s and early 1990s in deals reportedly Timberlux and Cheng’s other companies yacht companies in the world.” its supply) from Pacific Timber Enterprise brokered between senior Thai and as a means to be the largest teak suppliers Ltd in Myanmar, a “CHC group” sawmill Burmese generals. in the world. Han Zaw Lin claimed their operation visited by EIA. ETFH imported a further had shipped as many as 2,000 individual two shipments from Northwood Industries Subcontracted logging rights held by He said the operation had sold over 40ft containers in the past year alone, Ltd in Myanmar, also part of Cheng’s CHC CHC-linked firms Thai Sawat, Northwood 400,000 tonnes of logs to China, regularly amounting to up to 80,000 m3, mostly to grouping. “In teak Industries Ltd and Pacific Timber sending shipments of 3,000-5,000 tonnes customers in Europe. He also indicated the (understood to have continued even valued between $3-5 million, making business in bulk of it was for yachts. Combined, these four purveyors of Cheng until the last logging season open to Cheng’s company Cheung Hing the biggest Pui Chee’s teak – three directly controlled the world, subcontractors in 201554) provided the importer in Hong Kong. Koh explained how the strategic by Cheng himself – have provided nearly basis for Cheng Pui Chee to operate the he is the positioning of their Malaysian Timberlux/ a quarter of the total imports of the US’s teak log mis-grading fraud that made him He also confirmed the relationship with SCK operation helped. By hoarding high biggest Myanmar teak importer during the biggest” the “king of teak”. A-Fu in Taiwan, claiming “from 2005 grade teak outside of Myanmar, Western past decade. to 2015, we were the biggest player in customers avoided long lead-in times for Taiwan. You can ask anyone in the teak processing and shipping out of Myanmar. US trade records for Timberlux Sdn Bhd business in Taiwan, they will know our From 1996 to 2014, shipping from Malaysia also detail 17 shipments to J Gibson name”, adding that “each teak log you saw Above: Screen grabs of also automatically avoided US and EU McIlvain (the second biggest US importer in Taichung port was from us.” the websites of East Teak sanctions against timber shipments direct of Myanmar teak, which has also been Fine Hardwoods (top), Gibson McIlvain (middle) from Myanmar.55 supplied by Cheng’s Pacific Timber Despite being the dominant players in and TeakDecking Systems Enterprise Ltd) and 13 to TeakDecking (bottom) Myanmar’s teak trade, Koh indicated The actors involved are some of the Systems (TDS), the biggest pre-fabricated Cheng and he preferred to operate behind biggest suppliers of Myanmar teak to yacht decking manufacturer in the world.56 the scenes, stating: “Mr Cheng and I are Western markets. very low profile here, even among the The US yacht market is clearly full of locals, and very, very few people know Cheng Pui Chee’s corrupt teak, all of which who we are.” is understood to be imported into and sold within the US in violation of the US Lacey Act.

Thai firm Deesawat, owned by Cheng Pui Chee’s extended family the Left: Teak logs stored at Timberlux Sdn Bhd Tangkijngamwongs, has also sent 236 in Simpang Renggam, shipments of teak furniture to the US over Peninsular Malaysia, October 2014 the past decade, much of which is thought to have been supplied by Cheng Pui Chee.

55. EU Targeted Sanctions on Myanmar included sanctions on direct imports of timber from Myanmar Timber Enterprise (MTE) from 1996- 54. Pacific Timber is reported to have had logging quotas in the 2013, and US sanctions on MTE were similarly in place from 2003-14. 2015/16 season in unpublished industry reports seen by EIA. 56. All US trade records for East Teak, Gibson McIlvain and TDS acquired from Panjiva. https://panjiva.com.

26 Environmental Investigation Agency State of corruption 27

©Google Earth EUROPE

©EIAimage Alfred Neumann GmbH is a major German as their “trustee”. Rossi was in Yangon Also in October 2018, EIA heard from being applied in Italy: “We can’t do Italy for supplier of Myanmar teak to the EU yacht selecting teak for clients at the time. another exporter in Yangon – Concord now as the new rule requires us to send industry and recently supplied the wood to Industries, a subsidiary of the Olam Group more documents for import to Italy and the flagship German Navy training vessel Ironically, the use of Rossi’s Timberlux Srl – that, following EUTR enforcement our original logs stocks were mostly sent the Gorch Fock.57 in Italy has increased in recent months elsewhere in Europe, they too had begun out (of Burma) from 2010 to 2015.” and years, following enforcement of the shipping all teak for EU customers via A-Fu produced the business card of Alfred EUTR. Italy, where they said “that guy can do Koh and Han Zaw Lin said they had Neumann’s principle teak buyer, Peter it”, likely referring to Luca Rossi. Olam’s already dispatched Luca Rossi back to Eick, but when asked if he was still a Both Koh and Han Zaw Lin said Timberlux Singapore HQ has reportedly issued Milan to try to resolve the situation. Koh customer said: “He knows the Shadow and CHC’s Myanmar and Malaysia instructions to hide Olam’s name in all bemoaned that “the new rule of October President. Peter was introduced by Mr operations used to ship directly to clients paperwork for such shipments. 20th has stopped our routine route and it Xu .” in Belgium, Denmark and Germany but came out only 11 days ago.” strengthened enforcement of the EUTR Despite restrictions on trade information He said Peter Eick had purchased “a few increasingly meant the only countries in Europe hampering a full understanding, What neither Koh nor Han Zaw Lin thousand tonnes” of teak logs directly they could use to get their teak into Europe it is clear Cheng Pui Chee’s illegal timber knew was that only 17 days previously, from Cheng Pui Chee in 2013, making a lot were Italy, or perhaps Greece and Spain. also floods into Europe through Luca on 15 October, EIA had alerted the EUTR of money in the process. Rossi’s Timberlux Srl and via companies enforcement community – including Since mid-2018, they said, these EU such as Alfred Neumann GmbH. relevant officials in Italy – to a large In July 2018, EIA investigators saw a customers had asked them to ship shipment of teak for Timberlux Srl through consignment of teak smuggled from everything to Timberlux Srl in the Rossi All of it violates the EUTR (See “Stemming Trieste port, which EIA understood would Myanmar to China at Yuli Wood, which family’s home town of Trieste, from the tide”). be transported onwards on order to buyers Yuli’s staff said would be sent from China where Luca Rossi trucks them to the in the UK market. Peter Eick to Koh’s firm in Malaysia (SCK Wooden actual customers in Belgium, Germany or These companies in turn sell the wood on Industries, affiliated with Timberlux Snd elsewhere in Europe. to decking manufacturers supplying some In a surreal moment, despite receiving no Bhd) before Koh sent it on to Peter Eick in of the biggest and most prestigious yacht feedback from the official Italian EUTR Germany. Luca Rossi and his brother Matteo are manufacturers in the world. enforcement agency, investigators learnt apparently able to persuade the Italian from the very targets of EIA’s alert that Luca Rossi and Timberlux Srl EUTR competent authority that their teak The Italian Job action was being taken against their complies with the EUTR, despite officials consignments in Italy. A-Fu also mentioned Koh had introduced in other European countries determining Despite initially stating he could “easily” an Italian buyer called Luca, whom EIA otherwise. get teak into Italy, not long into the It remains to be seen whether Cheng’s understood to be Luca Rossi, of the Rossi meeting Koh Seow Bean told EIA: “I have corrupt wood, or similarly questionable family, in Trieste, Italy. EIA is unaware how this occurs because bad news for you. We export a lot of teak supplies from other companies operating all EUTR enforcement officials, including to Europe and it’s sensitive for us. On within the same governance parameters, Luca Rossi and family members have run Italy’s, have repeatedly stated on the October 20th there came a new law.” will continue entering EU and US markets various companies, including Antonini record that they have never seen a in violation of the EUTR or US Lacey Act. Legnami, Adriatic Timber and, since 2015, shipment of Myanmar teak that has He explained that the previous night they Timberlux Srl, importing Myanmar teak complied with due diligence provisions of had learnt of more stringent EU Timber into Europe from Cheng-linked operators the EUTR58 (see Stemming the tide). Regulation due diligence requirements for many years. Top: A-Fu – aka Zheng Kun Fu It is clear Timberlux make its EUTR presenting the business card In 2016, Luca Rossi supplied EIA avoidance capabilities in Italy available to of client Peter Eick of Alfred Neumann GmbH, September investigators with documents detailing other operators in Myanmar and Europe. 2017 Pacific Timber Enterprise Ltd as Antonini

Above: Alfred Neumann’s Legnami’s teak source and in 2016 and In October 2018, EIA alerted EUTR website features teak decking 2017 EIA filed information with EU enforcement officials to a shipment of being selected by Felix Leong, aka “A-Liang” – an employee member state enforcement officials about five containers sent to Timberlux of Timberlux and SCK Wooden detailing violations of the EU Timber Srl in Trieste on behalf of one of Europe’s Industries in Malaysia – controlled by Cheng Pui Chee Regulation (EUTR) by both Antonini biggest importers, in turn on order for UK and Koh Seow Bean and their and . clients (see “The Italian job”, below). The children Legnami Timberlux Srl demand for such EUTR circumvention In October 2018, Han Zaw Lin and Koh services is obvious. Seow Bean confirmed that the Rossi family’s Timberlux Srl functioned as CHC’s ‘agent’ in Italy and referred to Luca Rossi

57. http://dipbt.bundestag.de/doc/btd/19/056/1905681.pdf. 58. Minutes of the Commission Expert Group on EU Timber Regulation and the Forest Law Enforcement, Governance and Trade (FLEGT) Regulation (E03282), including those of 27 September 2018, available at: http://ec.europa.eu/transparency/regexpert/index. Right: Port of Trieste, cfm?do=groupDetail.groupMeetingDoc&docid=21685 all meeting minutes available at: http://ec.europa.eu/transparency/regexpert/index. Italy, November 2018 ©EIAimage cfm?do=groupDetail.groupDetail&groupID=3282.

28 Environmental Investigation Agency State of corruption 29 the 10 largest importers by volume, eight were based in Yunnan and collectively Ongoing Smuggling imported 72,000 tonnes over the land border.62 This figure only includes trade into China through official border posts and not that smuggled via unofficial crossings.

For many years, the focus on Myanmar illegal EIA undercover investigators visited key logging and the associated illicit trade in locations where the smuggled timber was stored and traded to buyers from southern timber has largely been on the role of ethnic and eastern China, including the rural armed organisations and their relationship to town of Nongdao favoured for its status as a free trade zone where import taxes are traders in China, Thailand and India. Although only paid once the wood is sold for onward actual crossings are situated in remote areas transport. The overwhelming majority of recently arrived logs and flitches (square along the border, the whole supply chain logs) were Burmese teak. from forest to factory extends deep into both Traders explained how a few years earlier

Myanmar and China. there was a surge in smuggling lucrative rosewood species, notably tamalan While there is ethnic armed group Army (KIA), the New Democratic Army – and padauk from Myanmar, as part of a involvement and huge profits have Kachin (NDAK) and the Myanmar military wider national escalation in demand for been made by them during the past two to smuggle valuable timber through a traditional rosewood furniture. In 2012, a

decades, the participation of the State and series of crossing points, with fees being ©EIAimage nationwide anti-corruption drive led by Myanmar military is an alarming indicator levied at multiple checkpoints along the Chinese President Xi Jinping effectively of how deep corruption enables everyone route. as Mongmit, an area in northern Shan wiped out consumer demand for rosewood to take a piece of the pie. State under the control of the Myanmar furniture and led to an over-supply, which Under Myanmar Government regulations, Government.61 in turn caused a fall in price leading to As valuable timber has been largely logged all exports of logs and sawn timber must substantial unsold stockpiles, especially in out in Kachin State, logs and rough sawn take place through Yangon sea ports, In mid-2015, EIA conducted a major field Nongdao. timber have been increasingly sourced rendering the overland trade illegal. Yet investigation into the burgeoning cross- from locations in neighbouring Shan State by 2005, more than one million m3 of border wood trade, focusing on Dehong Conversely, demand for teak logs and Sagaing Division, including from logs flowed across the border in a single Prefecture in southern Yunnan, the main remained high; a single trader in the forests in areas controlled by Myanmar’s year, a consequence of strict logging gateway for valuable teak and Burmese town received several thousand cubic Government. controls introduced in China in the rosewood (also known as tamalan) metres of fresh teak logs during EIA’s late 1990s triggering a rapid increase in 59 smuggled via border crossings in Kachin. trip. Conversations with traders revealed Once in Yunnan, the timber, some of imports. After adverse publicity, the ©EIAimage that imports of teak logs through formal which is part-processed near the border, Myanmar authorities realised there was EIA investigators uncovered a complex crossings controlled by the Myanmar is transported to manufacturing hubs in a substantial loss of revenue from the web of actors, including members of Army were taxed by Chinese Customs at a China’s southern province of Guangdong illegal overland trade and called on China the Myanmar military, ethnic armed rate of RMB800 per tonne. and even as far away as Zhejiang Province to curb imports, leading to a steep decline. groups, corrupt officials and a powerful on the country’s eastern seaboard. Yet trade was booming again by 2013, with crime syndicate, conspiring to smuggle Although most of the illegal timber is Chinese customs data recording trade large quantities of teak logs and slabs of consumed in China, some of it enters of 938,000 m3 of logs worth half-a-billion tamalan wood via a number of crossings, international supply chains. dollars from Myanmar, with 94 per cent including the main international border transported overland.60 gate at Muse-Ruili. As the depletion of forests continues, timber traders are pushing even deeper The scale and extent of the illicit trade This trade not only contravened the into Myanmar to secure supplies was confirmed during an undercover Myanmar regulation limiting wood undermining the rule of law with high- meeting between EIA investigators and ©EIAimage exports to Yangon port, it was also a level complicity. representatives of the Guangzhou Munian flagrant violation of the country’s log Wood Company in 2012. The owner of Top and middle: Log trucks export ban which came into effect in April The nexus of the trade is the frontier the company, Wen Shuinian, claimed to line up in Myanmar’s Kachin 2014. The dominance of Yunnan-based between Kachin State in Myanmar be the biggest manufacturer of Burmese State to smuggle logs to China’s Yunnan Province, companies in importing Burmese teak and Yunnan Province in neighbouring teak flooring in China and had sewn up April 2018 into China is illustrated by official customs China. Here an intricate web of criminal 30 per cent of the raw material stock. All Bottom: Logs being loaded for data. In 2014, China imported 133,000 syndicates conspire with ethnic armed his teak was imported illegally across the transport to China, Kachin tonnes of teak logs from Myanmar. Of groups such as the Kachin Independence border, with the main source mentioned State, Myanmar, May 2018

59. Global Witness, A Choice for China, 2005. 61. EIA, Appetite for Destruction, 2012. 60. Environmental Investigation Agency Organised Chaos, 2015. 62. China Trade Information (CTI) data for 2014.

30 Environmental Investigation Agency State of corruption 31 Lwegel laying crossing Mong Wai

EIA also uncovered the role of Ruili as a of Dehong, a major international incident Nbapa-Ban Ling crossing hub for the rudimentary processing of occurred when the Burmese army raided teak logs into semi-finished products an active logging site in neighbouring Ruili such as flooring blanks. On a subsequent Kachin, arresting over 150 Chinese loggers investigation later in 2015, undercover and truck drivers. Initially sentenced to Yitzang investigators met with three major teak life in prison by the Burmese court, they Muse flooring suppliers based in Guangdong were subsequently granted a presidential Province. All were selling to the domestic pardon and allowed to return home across Nongdao market and admitted that their teak had the border. This incident shone a spotlight come overland and been supplied by on the murky illegal logging and wood Namhkam factories in Ruili. smuggling business in the region and led to a crackdown on the trade, with While in the border area, EIA learnt of the Chinese authorities barring their nationals existence of a major cartel which had from entering Kachin for logging and a created a monopoly over important log suspension of the wood trade across its

smuggling routes and a secretive border border with Myanmar. By March 2016, ©EIAimage crossing point at Nbapa-Ban Ling, north the trade of stolen wood had declined of Ruili. The group was called “BDYA” after dramatically. Above: Log transport, Kachin the names of the four members – Brang State, Myanmar, April 2018 Nu, Dung Hpaung Gun, Lee Maw Yung Persistent Offenders Bottom left: Log collection and Ali Jie. Between them, the syndicate Predictably, the hiatus in cross-border site, Kachin State, Myanmar, members had high-level contacts on both smuggling did not last long. During the May 2018 sides in the ongoing conflict in Kachin, the first three months of 2016, monitoring of Mabein Below: Log collection site, Burmese military and KIA. Through these key crossings revealed a dramatic fall in Kachin State, May 2018 the number of trucks ferrying wood across connections the group were able to ensure Molo that transportation of wood along key the border and previously busy routes routes continued impeded, even during such as Nbapa-Ban Ling crossing were times of conflict, and charged taxes to quiet. Instead motorbikes and cars were timber traders and transporters using the being used to carry short teak flitches via Manton routes. rough backroads, but the overall volume was a fraction compared with previous Meanwhile, during 2015, in the Chinese years. prefecture of Baoshan, immediately north By mid-2016, trucks were once again being Mongmit used to transport illegal teak flitches and sawn timber at several crossings and smuggling continued to rise throughout ©EIAimage MAP SHOWING THE KEY the rest of year. Teak was by far the MAJOR LOGGING main species being trafficked into China, ROUTES USED TO with a noticeable switch to rough sawn SMUGGLE TIMBER OUT teak rather than round logs as the trade OF MYANMAR. became more clandestine, with the cargo hidden by tarpaulins or under other goods Conflict points are directly such as fruit and vegetables. sourced from the Myanmar Peace Monitor, spanning the The high demand for teak was also period between 1 January driving the creation of new and longer 2015 until 16 January 2019 and supply routes linking border crossings available at around Ruili to the teak forests of Shan http://www.mmpeacemonitor. State, located to the south of Kachin. org/mpm/. Unsurprisingly, members of the BDYA All other information was syndicate were heavily involved in creating compiled through EIA and taxing new smuggling routes. EIA investigations and the media investigators uncovered a new route of unpaved dirt roads running further south than previously believed and linking Inggyi in Shan State, to Nongdao in Yunnan, via the Namhkam crossing point on the Myanmar side of the border. ©EIAimage

32 Environmental Investigation Agency State of corruption 33 EIA discovered that each truck carrying that year. Another group of traders from the teak along the route had to pay the same family claimed to have brought over equivalent of $4,600 in Chinese and 1,000 tonnes of teak logs and sawn wood Myanmar currencies in bribes at so far that year, with another 1,000 tonnes checkpoints and “taxes” to the BDYA group. stored on the Myanmar side of the border. Of this total, $190 was levied by the KIA, $2,325 by Myanmar authorities (including The traders had become more cautious the military) and the remainder went to following the crackdown in late 2015 and BDYA. complained about the levels of bribes they had to pay to several different Chinese Local media sources reported that the enforcement agencies, reducing their profit border checkpoint for timber crossing from margins to about RMB1,000 per tonne. It Namhkam to Nongdao was controlled by was confirmed that once teak had safely the Regiment 483 and arrived in Nongdao it was easy to sell Battalion 2163. In November 2016, about to buyers from factories in Guangdong, 100 timber traders from China and local especially from the city of Dongguan. The Burmese agents were observed arriving traders admitted using old paperwork at Namhkam to arrange purchase of teak showing the wood to be from stockpiles wood. rather than recently brought across the border to ensure onward transport without A second new timber transport route ©EIAimage intervention from the authorities. was opened, connecting Manton in Shan State to Nongdao. The expansion of new imported across the border in the final to ensure the wood continued to flow and EIA investigators also spent several days trafficking routes deep into Shan State three months of 2016.64 The data shows make a fortune through taxing the traders with Yi Fuxiang, owner of Yingjiang reflects the dominance of teak as the major that China’s clampdown on the illicit wood using their routes, in September 2018 Neisheng Timber, who specialised in species smuggled into China following trade in the wake of the 2015 arrest of 155 EIA learnt that both Lee and Dung were trading and processing Burmese teak. the 2014 crash in rosewood prices. The loggers in Kachin was only a temporary reportedly arrested by central Government During a visit to his factory in Yangjiang, main illegal teak logging sites identified measure. authorities in China for financial crimes. north of Ruili, EIA witnessed a pile of by EIA include Mabein, Molo and Mongmit, teak logs and short flitches of the type territories controlled by the Myanmar Apart from breaks when bad weather and CHINA’S APPETITE FOR transported by motorbike from the Government and military. In late 2016, the sporadic local clampdowns and conflicts ILLEGAL BURMESE TEAK Burmese side of the border. Yi’s main local price for teak logs in these areas was rendered the trafficking routes impassable, business was supplying material for approximately $500 (MMK700,000) per the teak smuggling business continued In mid-2018, an EIA investigative team teak flooring sold on the Chinese market tonne. in 2017 and 2018. During this period, travelled to China to identify the main and exported to Taiwan; he said he had

rudimentary sawmills sprang up in areas of ©Li Xixiang players involved in the ongoing teak 600 tonnes of teak logs and flitches in The fact that teak illegally cut in Shan Kachin near the border to cut the logs into smuggling racket in Yunnan and to track stock and a similar amount stored over State was being transported ever-longer planks or flitches for onward transport into the illicit timber to processing hubs in the border. He said he had been involved Top: Illegal teak logs at distances along rough roads through China, reflecting the switch in demand for Yingjiang Neisheng Timber, southern China’s Guangdong Province. in the cross-border teak business for 20 multiple checkpoints and into Kachin sawn timber and the need to conceal the owned by Yi Fuxiang, in years, explaining that the raw material Yangjiang, north of Ruili, demonstrates the importance that contraband during transport. Yunnan Province, China, June The team initially visited the town was coming from deeper inside Myanmar syndicates such as BDYA attach to their 2018 of Nongdao, near Ruili, where timber as supplies dwindled, estimating that connections on both sides of the conflict. The BDYA syndicate remained active as a smuggled across the border is stored prior Burmese teak will be commercially Above: Trucks organised by This is to ensure the wood can pass and to vital force in the illicit business, although Li Xixiang smuggle teak from to sale. On a previous visit in 2015, the depleted within 10 years. control of key crossings around Ruili and Ali Jie (the “A” in “BDYA”) reportedly left Kachin to China’s Yunnan town’s key role as a wood trading hub was Province, to supply his father- Nongdao on the China side of the border. in late 2016 after her bank accounts in in-law Yi Fuxiang of Yingjian evident, with large amounts of freshly cut The following day, Yi was joined by his High demand in China for teak logged in China were temporarily frozen for financial Neisheng Timber, June 2018 teak logs and stockpiled rosewood flitches son-in-law Li Xixiang and a Burmese- Shan State is also a contributing factor in offences. Lee Maw Yung was still involved in roadside storage areas. This time the Chinese fixer called Li Fang, also known by outbreaks of conflict between Shan ethnic in constructing the new smuggling routes business was more secretive, with high her “Du Sa”, who oversaw armed groups and the Myanmar military, from Shan State, as was Dung Hpaung walls topped with barbed wire and closed- sourcing operations inside Kachin. They as both sides seek to profit from the teak tr Gun. In 2017, he set up a new route and circuit television surrounding the timber revealed they operated a rudimentary ade. log storage area in Yitzang, Kachin, after storage areas. Nevertheless, trade in teak sawmill and wood storage site in an fighting between Myanmar and KIA continued, with the timber hidden in area of Kachin controlled by the KIA Official Chinese customs data shows that blocked the previous route. In June 2018, locked warehouses on the outskirts of town and ran a team of 300 motorbike drivers in 2016 the country imported 45,000 tonnes EIA investigators witnessed more than 200 and in nearby villages. One trader took EIA each capable of transporting up to two of teak logs from Myanmar, valued at trucks in this area, laden with timber and investigators to a padlocked warehouse tonnes of short teak flitches a day. They $30 million, with 95 per cent of the wood waiting to cross into Nongdao. containing about 400 tonnes of long teak added that the main teak source was a entering over the land border. The figures flitches and rough sawn planks, all of mountainous region near the Shan State also confirm the switch to increased trade Yet despite the ability of the syndicate which had been brought across the border capital of Taunggyi, an area controlled by in sawn teak wood, with 35,000 tonnes members to pay off both sides in Kachin

63. http://panglongburmese.blogspot.co.uk. 64. China Trade Information 2016.

34 Environmental Investigation Agency State of corruption 35 Yi’s employees who then arranged a trip to the border to prove their capabilities and connections. After a 90-minute journey, the vehicle arrived at the small town of Hong Beng He, overlooking a river which forms the border between China and Myanmar. Li said this unofficial crossing was used to bring sawn teak across in trucks and that the route on the Kachin side was safe due to close connections with the KIA and the payment of “taxes” for crossing through Kachin territory. The Chinese side of the route was managed by Yi, who arranges bribes to different Government agencies. ©EIAimage At the time of EIA’s visit, Yi was expecting a truckload of teak to cross the border in the evening, having made the usual payments. He claimed to have brought at least 200 trucks laden with teak across the border every year and imported about 30,000 tonnes annually.

After gaining first-hand insights into the criminality and corruption embedded in the cross-border teak trade, EIA’s ©EIAimage investigators transferred to Guangdong to follow the supply chain into the processing Above: Logs at sector and end markets. MTE logyard, 2013

©EIAimage ©EIAimage In the city of Dongguan, EIA investigators Stemming the Tide met with representatives of Yuli Wood processing and despatch. At the time of Top: Sawmill at Yuli Industry, which deals exclusively in EIA’s visit, the company had two batches of Wood Industry, Dongguan, The theft of Myanmar’s teak stocks – whether Burmese teak. At the time of the visit, the Guangdong, China, June 2018 semi-processed yacht decking for buyers company’s factory had substantial stocks by Myanmar’s military rulers and henchmen in Germany and the US. The German Bottom left and right: of Burmese teak logs, all of which had been buyer was referred to as “Peter” and EIA Illegal teak logs at Yuli such as Cheng Pui Chee or by armed ethnic smuggled across the land border apart from Wood Industry, Dongguan, confirmed his identity as Peter Eick, of Guangdong, China, June 2018 one batch which had been shipped from groups and predatory cross-border timber Alfred Neumann. Peng also sent a redacted Yangon port prior to Myanmar’s log export Bill of Lading for one of her exports, smugglers such as Yi Fuxiang and Yuli Wood ban. Peng Yan, general manager of the revealing the middleman in Malaysia to company and wife of the owner, explained has been conducted with impunity for too long. be the company SCK Wooden Industries, a how Yuli previously obtained all its teak central player in the notorious PC Cheng INSUFFICIENT DOMESTIC under the pre-2016 reforms – during the logs through the MTE system but had network (see The Shadow President - King PROTECTIONS height of corrupt overharvesting – or switched to the illegal overland route after of Burma Teak). This confirmed that a acquired illegally since. the log export ban. Myanmar’s domestic forestry and timber portion of the illegal teak smuggled across trade protections have been unable to stem the Myanmar-China border ends up on the And while some seizures of teak and other She explained that logs obtained by this the tide of crime and corruption in the teak international market, including in the high- hardwoods have occurred in Yangon ports, means were about RMB2,000 per cubic sector; indeed, elements of the State at the end yacht sector. the Government still promotes MTE- metre cheaper than those purchased highest levels have been complicit in their authorised trade in timber stockpiled prior through the MTE system, with the wood normalisation. However, conversations with a range to the logging ban as legal, ignoring the coming from forests in Shan State close of Chinese traders and manufacturers decades of corruption and overharvesting to the border with Thailand, and that her Some important reforms have occurred confirmed that the vast majority of teak that produced it. husband often travelled there to select logs. since 2013, including a 2014 log export ban, smuggled into the country is destined for significant reductions in harvest volumes, the domestic market, principally solid teak In light of this, and with corruption still Peng said the company’s main market a year-long nationwide logging ban in 2016- flooring, decking, doors and stairs. The greasing the wheel of illegal border trade was solid teak flooring in China, but it also 17 (extended to 10 years on teak harvests market has grown rapidly in recent years, into China, Myanmar’s people remain exported high-end teak as strips for use in Bago-Yoma) and the phasing out of especially in prosperous cities in southern reliant on the goodwill of international in luxury yachts in Europe and the US. subcontracting. and eastern China, due to a growing trade partners in helping the country Conversations with Taiwanese employees fashion for lighter-coloured woods and the enforce its forestry and timber trade revealed that Yuli does not supply these However, while teak trade has prestige associated with Burmese teak – provisions – goodwill of variable markets directly but first sends the correspondingly reduced, most Myanmar the “king of woods”. reliability. materials to a Malaysian company for final teak in international trade was produced

36 Environmental Investigation Agency State of corruption 37 CHINA’S COMPLICITY EUROPE AND FLEGT that no due diligence system to date the market. In the Netherlands, companies assessed for the placement of Myanmar reported by EIA face fines of up to €20,000 China’s Yunnan Province has for years Europe’s flagship international forest teak has met the requirements of the per cubic metre if they place further non- been a conduit for millions of cubic meters policy, the Forest Law Enforcement EUTR. compliant Myanmar teak. EIA is aware of blatantly illegal Myanmar timber, Governance & Trade (FLEGT) Action that German authorities have required including considerable volumes of illegal Plan, and its key planks of the EU A clear consensus exists within the EUTR teak to be returned to source countries in Burmese teak. China has no centralised Timber Regulation (EUTR) and Voluntary enforcement community that EUTR recent months. prohibition on the import of illegal wood Partnership Agreements (VPAs) is well compliance is currently not possible for and, despite years of international appeals placed to assist in stemming the tide of Myanmar teak. EUTR Weaknesses to act, has shown limited will or intent to illegal Myanmar teak. address its role in driving illegal logging The minutes of a recent meeting of the Weaknesses in the EUTR include the worldwide. The absence of a national The EU Timber Regulation (EUTR): FLEGT expert group, on 27 September lack of seizure powers for due diligence policy or legal base is reflected in Yunnan. The EUTR, which came into force in March 2018, sum up consensus reached within offences, limits on the product types 2013, prohibits the first placement of Europe since 2017: “The Export Group covered and restrictions of the core While the tide of illegal Myanmar wood illegally logged or illegally traded timber upheld its opinion regarding teak imports provisions to entities that first place the flowing into China has been temporarily and wood products on the EU market. It from Myanmar harvested before 2017: it timber on the market (“operators” in EUTR stemmed following interventions in also obliges EU operators to conduct due is not possible for operators to mitigate to parlance). Combined, these have resulted 2006 and again in 2015, these have diligence on supply chains to identify and negligible the risk of illegal harvest. None in Myanmar teak being placed on the been temporary and seemingly ad-hoc mitigate any risks of illegality. of the assurances that the Member State market in violation of the due diligence measures and traders have repeatedly Competent Authorities have received provisions sold onward to traders found ways around them, often involving Where risk cannot be mitigated to a can be relied upon as sufficient for downstream of the regulated operators the issuance of new types of permits, negligible level, the timber cannot legally demonstration of compliance with the and limited demand for EUTR-compliant usually in lieu of local corruption. be placed on the market and, when it is EUTR due diligence operations”.67 wood from those downstream traders who placed, a due diligence violation occurs.65 are not regulated by it. Other than the State of Myanmar itself, The same position was maintained at the China has played the biggest role of any The application of the EUTR for Myanmar most recent meeting of the group on 7 A January 2018 EIA report, A Tale of Two nation in the illegal expropriation of teak began poorly, with many member December 2018.68 Laws, detailed how this resulted in the EU Myanmar teak and other hardwoods and state Competent Authorities (CAs) market acting as a de-facto hub for timber its responsibility to take legislative action mistakenly accepting Myanmar teak Officially, therefore, no Myanmar teak trade conducted in structural violation is both clear and long overdue. as EUTR-compliant, despite EIA’s 2013 placed on the EU market since March of the US Lacey Act and how this meant warnings that it was not.66 2013 could have or is thought to have EU-manufactured luxury yachts and complied with the EUTR, yet high-risk superyachts built using Myanmar teak are However, since October 2016, EIA has and illegal Myanmar teak continues to legally contraband under US law (see US submitted Substantiated Concerns enter the EU market as operators (and Lacey Act). (complaints) regarding 15 companies traders downstream of them in the supply placing Myanmar teak on the EU market chain) refuse to accept this reality and across seven member states, including continually test the will and resources Below: Myanmar teak decking in Belgium, Denmark, Germany, Italy, the of EUTR enforcement bodies with more on Sunseeker yacht at London Netherlands, Spain and the UK. Boatshow, January 2018 shipments. EIA’s interventions successfully prompted While the trade records available make a significant improvement in enforcement it impossible to accurately state the of EUTR due diligence provisions for precise volume or value of Myanmar Myanmar teak in most member states. teak imported into the EU, imports are Every one of EIA’s Myanmar teak cases understood to have risen every year credibly concluded thus far has found since the EUTR came into force – a clear those operators identified to have violated contradiction. EUTR due diligence provisions, including in Belgium, Denmark, the Netherlands, EU Member States competent authorities Spain and the UK. At least 22 companies are responding to this ongoing assault are understood to have been issued with by errant traders in a variety of ways, warnings or injunctions since 2016. including through the imposition of injunctions prohibiting future non- The EUTR/FLEGT Group of Experts, a compliant shipments and, in some cases, body comprising every EUTR Competent by forcing importers to return shipments Authority and the European Commission, ©EIAimage to source countries prior to placement on has repeatedly concluded in its meetings

67. Commission Expert Group on EU Timber Regulation and the Forest Law Enforcement, Governance and Trade (FLEGT) 65. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32010R0995. Regulation (main group) meeting minutes are available here: http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail. 66. EIA, EIA ALERT: European Union Timber Regulation - Non-compliant Myanmar/Burma timber shipments, December 2013, available at: groupDetail&groupID=3282. https://eia-international.org/eia-alert-timber-shipments-from-burma-to-the-eu/. 68. http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupMeetingDoc&docid=26505.

38 Environmental Investigation Agency State of corruption 39 Italy – EUTR Weak Link However, in October 2018 EIA submitted THE US LACEY ACT superyachts built in the UK and using One key problem in using the EUTR for an Alert on Timberlux Srl teak shipments Myanmar teak traded in violation of the Myanmar teak over the past two years which finally appears to have prompted Amendments in 2008 to the US Lacey EUTR. of improved action has been variable some action against imports through Act make it an offence to import into the enforcement across different member Trieste port (See The Italian Job). US or sell in inter-state trade any timber EIA argued that the EUTR constitutes states, with Italy – the biggest importer of and wood products harvested or traded a “foreign law that protects plants” as Myanmar teak – regularly cited as a weak In early February 2019, Italy’s Carabienieri in violation of any domestic US or foreign required under the Lacey Act and that link in the EUTR chain, a factor confirmed overseeing CITES, Trieste Customs and the laws protecting plants. weaknesses in enforcement have created by EIA’s research. Trieste Public Prosecutor found Timberlux a de-facto illegal timber flow between the Srl had imported between 10 and 20 per EIA research shows that up to 25 per cent EU and the US. These legal arguments EIA is unaware of the outcome of any of cent more than the 360 tonnes of teak of the imports of the US’s biggest teak were further explored in EIA’s January the four EUTR Substantiated Concerns (worth €4-6 million) declared on Myanmar importer – East Teak Fine Hardwoods – is 2018 report A Tale of Two Laws, which submitted to Italian authorities regarding export documents for the containers wood traded by Cheng Pui Chee, a focus of revealed that the companies concerned Myanmar teak since October 2016. concerned, in violation of the prohibition this report. included Princess Yachts and Sunseeker The results of an investigation into a element of the EUTR – a first case for Yachts – two of the world’s biggest luxury complaint EIA filed against Italy under the Italy. However, only the undeclared wood While the Lacey Act applies to all products yacht firms.70 Treaty of the Functioning of the European appears to have been seized, with the at all stages in trade and has been brought Union remains unknown to EIA. remainder being returned to be traded to bear in high-profile cases in other The US Department of Justice has since on despite it reportedly being illegally species and countries, it has to date not confirmed that EIA’s legal analysis is During investigations in Taiwan in imported in violation of the EUTR due been applied to shipments of Myanmar correct, stating in October 2018 that 2017, teak traders described how EUTR diligence provisions.69 teak. “Violations of the EUTR can be the enforcement in Italy and other southern underlying law violation for a Lacey Act European member states was weaker than Voluntary Partnership Agreements (VPAs) Part of the reason for this is that the charge”.71 in northern Europe, with Italy said to be a While Myanmar and the EU have been Lacey Act does not include a proscriptive route in. In Yangon in October 2008, Olam’s exploring a possible VPA negotiation due diligence provision and the burden EIA looks forward to increased action timber company in Myanmar claimed since 2015, to date no formal negotiations of proof for its prohibition on violations under the US Lacey Act against teak it now routed all teak shipments to its have begun and the EU is understood of “a foreign law” can be difficult to meet imported directly from Myanmar – EU buyers via Italy to get around EUTR to still be awaiting developments in – if 90 per cent of a harvest is deemed regardless of whether additional EUTR enforcement. Further, the network trading Myanmar that might demonstrate the illegal, one has to prove that the US violations can be evidenced – and the corruptly acquired teak of Cheng Pui country’s preparedness for entry into VPA importer’s shipment is from that 90 per particularly for teak purveyed by corrupt Chee explained to EIA how it uses Italy as negotiations. Even if VPA negotiations cent. In Myanmar’s case, for example, actors such as Cheng Pui Chee/Chetta a gateway to Europe and how customers in were to begin, or if a VPA were to be signed the detailed evidence of forestry crimes Apipatana. Denmark, Germany and The Netherlands and implemented, it could not provide for such as systemic overharvesting and the had, since mid-2008, asked it to route all the legalisation of teak harvested prior to corruption underwriting it are often in the Below: Italian Carabienieri shipments via its agent in Italy, Luca Rossi the 2016/17 logging ban. Forestal unload illegal Myanmar Government’s hands alone. and Timberlux Srl. teak held at Trieste port by Below: Princess yachts with Myanmar teak on Timberlux Srl, November display at London Boatshow, January 2018 2018 EIA is, however,

69. Teak birmano illegale a Trieste, sequestrate 380 tonnellate hopeful of increased http://www.carabinieri.it/cittadino/informazioni/news/2019/02/01/new0-20190201074100-918684. scrutiny on Myanmar teak imports into the US in the coming months and years as a result of this and other recent reports.

In 2017, EIA submitted information to the US Government regarding proven violations of the Lacey Act by US importers and distributors of hundreds of luxury yachts and ©EIAimage

70. EIA, A Tale of Two Laws, January 2018. 71. Elinor Colbourn, Environmental Crimes Section, U.S. Department of Justice, in a presentation at the “Timber trade and the conservation of forests” event hosted by Germany’s Thünen Centre of Competence on the Origin of Timber, October 8 – 9 2018. Available at: https://www. thuenen.de/media/ti/Infrastruktur/Thuenen-Kompetenzzentrum_Holzherkuenfte/fuenf_Jahre_EUTR/Vortragsfolien/09_08_03_Colbourn_ USDJ.pdf.

40 State of corruption 41

©Carabienieri forestal Recommendations THE GOVERNMENT THE INTERNATIONAL OF MYANMAR SHOULD: COMMUNITY SHOULD: • Investigate and prosecute high- • Support mechanisms in Myanmar level corruption in the timber providing for inclusive dialogue on trade in Myanmar, including by natural resources in conflict areas military and Government officials as well as private sector actors • Support the improvement of forest and natural resource governance • Reduce logging operations within ethnic administrations countrywide pending a full and ethnic civil society’s ability to assessment of current forest manage and protect forests conditions that include indigenous communities and • Encourage laws prohibiting people reliant on Myanmar’s imports of illegal timber where forests currently absent (e.g. China, India and Thailand) and make resources • Develop a mechanism for available to implement and inclusive dialogue in conflict areas enforce existing laws on illegal that includes natural resources timber trade (e.g. Australia, the EU and US). • In the absence of real reform, abolish the role of the CHINA SHOULD: Myanmar Timber Enterprise in • Support and respect Myanmar’s implementing logging and timber log export ban by putting in place trade and establish a new multi- reciprocal measures in China stakeholder management body that delivers greater transparency • Institute a clear legal prohibition and accountability for all on all imports of illegally sourced stakeholders timber • Build on the current multi- • Eliminate the role of State-owned stakeholder process, including enterprises in procuring imports representatives from forest- of illegal timber in China based communities, to continue preparing Myanmar for possible • Place responsibility for eradicating Forest Law Enforcement China’s illegal timber trade in the Governance and Trade (FLEGT) hands of a formal coordinating discussions with the European body headed by senior officials Union from the Commerce and Foreign Ministries • Ensure that all existing and future bilateral agreements with foreign • Ensure that any bilateral governments on illegal logging, agreements on illegal logging, illegal timber trade and forestry such as MOUs, are made public. investment such as Memoranda of Understanding (MOU) are made public

• Establish a task force that includes inter-agency cooperation to address cross-border smuggling and illicit timber trade through Yangon port.

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