EU sawmill firms accused of colluding in destruction of Ukraine’s forest

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The European Union’s biggest timber firms are colluding in the destruction of Ukraine’s virgin forests, allegedly by making corrupt payments to local officials and by exporting illegally felled timber in spite of a moratorium on log exports, a new report claims.

London-based environmental watchdog Earthsight spent two years investigating illegal logging in Ukraine and the billion-dollar EU firms that benefit from it.

“Pervasive corruption in this industry is robbing Ukraine of revenues and is undermining efforts to prevent damage to the forests,” Earthsight Director Sam Lawson told the Kyiv Post in a telephone interview.

Around 70 percent of Ukrainian timber exports go to the EU. The investigation found that at least 40 percent of those exports were felled or traded illegally.

Ukraine banned the export of logs in 2015, in part as a bid to cut down on illegal logging and to stimulate the country’s domestic sawmill industry.

But the same European firms that have profited from illegal logging across Ukraine lobbied the EU to press Ukraine to end the ban, with Brussels threatening to withhold a 600-million-euro loan in exchange for the lifting of the moratorium.

The Kyiv Post covered the involvement of Austrian firms in illegal logging in 2016, and how those same firms lobbied the European Union to pressure Ukraine to end its moratorium.

Big name European firms like Egger, Schweighofer, and Swiss-Krono are named in the report. Schweighofer, which was accused of illegal logging in Romania in 2015, said that it was taking Earthsight’s findings seriously and that it complies with all local laws and regulations.

Cash rules

Logging in Ukraine falls under a sprawling network of local and international regulators, almost none of which appear to be working correctly. At $1.7 billion in annual exports, the industry flies under the radar as Ukraine’s fourth-most profitable natural resource.

Ukraine’s forests are mostly logged by a network of State Forestry Enterprises, publicly owned firms that fall under the State Forestry Agency.

Many European companies will conclude deals to buy wood through the SFEs, either directly or through intermediaries.

But after a wave of global scandals over illegal logging, requirements have gotten tougher. Under EU regulations, since March 2013 timber companies have been obliged to carry out due diligence to ensure that the wood has been legally harvested and exported.

Many companies use certification from the Forest Stewardship Council, an international non-profit that verifies whether logging is sustainable and/or legal, as a stand-in for due diligence on Ukrainian forests.

More than 90 percent of State Forestry Agency woods are FSC-certified, yet Earthsight claims to have found numerous violations across supposedly legal and sustainable forests.

SFEs also frequently label wood cutting sites as so-called “sanitary felling” areas, for example, claiming that a given area of trees are diseased in a bid to get around Ukrainian logging regulations. A survey by Earthsight suggested that as much as 44 percent of Ukraine’s lumber production is illegally produced this way.

In Rivne oblast, gangs roam and pillage the ground for hundreds of millions of dollars worth of amber. Much of the illegal amber trade centers around the Klesivske SFE, which lost its FSC certification in August 2017 amid allegations of rampant corruption.

But according to data obtained by Earthsight, this did not prevent European wood processing firms like Egger, Kronospan, and International Paper from staying on with Klesivkse as the SFE’s top customers.

Yanukovych structures

Much of the massive illegal logging that is destroying Ukraine’s forests began under the term of exiled former President Viktor Yanukovych, who fled the country after being toppled in the 2014 EuroMaidan Revolution.

Yanukovych installed his tennis partner Viktor Sivets as chief of the State Forestry Agency.

Sivets now stands accused of taking more than 30 million euros from a scheme whereby he personally directed the sale of Ukrainian logs to large foreign buyers in exchange for kickbacks funneled through shell firms linked to his wife.

A Slovakian subsidiary of Schweighofer called Uniles, an Austrian wood processing company with a massive sawmill in Romania near the border with Chernivtsi, surfaces in the investigation as being one of four firms that channeled 13.6 million euros to Sivets.

Earthsight found that Uniles was responsible for shipping more than half of the Ukrainian logs to the Schweighofer mill in northern Romania from 2011 to 2013, an amount of wood worth more than 50 million euros.

“We follow the principle of local laws and regulations, and we reject any allegation that we have done the contrary,” said Schweighofer Spokesman Thomas Huemer, who declined to comment specifically on the Sivets allegations.

Earthsight suggested that schemes that began under Sivets have continued since his ouster.

Stung

Ukraine banned the export of logs in certain lengths in 2015.

The ban was criticized as contravening the free trade agreement with the EU, but Ukrainian supporters of the moratorium argue that it protects the country’s forests by slowing down exports to rapacious European sawmills.

Earthsight went undercover in the report to try and ferret out which firms were willing to buy banned wood from Ukraine.

An agent approached various European timber companies, offering log sizes in contravention of the ban.

The procurement director of a Hungarian subsidiary of Austrian firm Swiss-Kronos, which did not reply to repeated requests for comment, expressed willingness to buy the wood. That was even after an Earthsight investigator claimed that “customs is very co-operative with us” as an explanation for how the company could export banned wood.

When asked about issues with individual SFEs, Earthsight quotes Swiss-Kronos spokesman Frank Roth as asking rhetorically “does one rotten apple spoil the whole box?”

Two other firms – the Slovak company Bukoza and Hungary’s largest timber firm Erdert – fell for the scheme.

Bukoza did not reply to requests for comment, while Erdert told Earthsight that its internal procurement policy requires compliance with all laws and regulations.

Egger, which shares the Romania sawmill with Schweighofer, didn’t reply to the undercover agent.

And yet the company managed to import 25,000 tons of such logs each month in 2017, Earthsight claims, relying on Romanian customs records.

On departure from Ukraine, the logs are characterized to customs as “fuelwood,” making use of a loophole in the ban, while EU customs officials accurately label them as “technical and industrial wood” on arrival.

As the Zakarpattia regional government phrased it in a press release, the wood is “upon arrival overseas… miraculously transformed into technical and industrial wood prohibited from export by Ukrainian legislation.”

EU pressure

Many of the European firms allegedly involved in purchasing illegal lumber and in skirting Ukraine’s ban have lobbied the EU to pressure Ukraine to lift the moratorium.

A 2016 Kyiv Post investigation found that timber industry lobbyists were present at a meeting with President Petro Poroshenko in Brussels, at the same time that a 600-million-euro loan was being withheld in exchange for the ban’s cancellation.

Earthsight found that the European Commission promised wood industry representatives that efforts to have the ban repealed would continue “at all levels,” after being told that wood prices were “skyrocketing since the introduction of the ban.”

The Association Agreement between Ukraine and the EU allows any party to the agreement to take protective measures to “protect the environment and support sustainable development.”

EU Delegation Spokesman David Stulik sent the Kyiv Post a statement refuting “wrong” claims that the EU was pursuing an “egoistic” agenda.

“The reason the EU opposes the current wood ban is because it is a restriction on free trade,” the statement reads.