Rogue Trades Report English Version

8/9/2019 Rogue Trades Report English Version

1/16

ROGUE TRADERS:T Mu Busiss f

Mbu Timb Smuggigi Isi


2/16

ACknOwlEDGEMEnTSTis umt ws pu wit t fiissist f t eup Ui. T tts t s spsibiit f eIa/Tp u iumsts b g s ftig

t psiti f t eup Ui.

eIa/Tp t t Uk dptmt fItti dpmts Fst G T pgmm f its suppt f u w.

Tis pt i t us f spiist sftwfm t i2 Gup. www.i2gup.m

rpt sig b:www.sigsutis.m.u

august 2010

ISBn: 0-9540768-9-3

InTrodUcTIon

IndoneSIaS STrUGGle aGaInST IlleGal loGGInG

The MakaSSar caSe

SUraBaya SyndIcaTe

MerBaU MarkeTS

recoMMendaTIonS

1

2

6

9

11

13

COnTEnTS

EnViROnMEnTAl inVESTiGATiOn AGEnCy (EiA)

62/63 Upp Stt, l n1 0ny, UkT: +44 (0) 20 7354 7960Fx: +44 (0) 20 7354 7961mi: [email protected]

.ea-teratoa.org

FROnT COVER:

dsig b www.sigsutis.m.u

TElApAk

Gug aumi IPB,j. P n. 54, Bg 16143,IndoneSIaT: +62 251 8393 245Fx: +62 251 8393 246

.teaa.org

TERMinOlOGy

In this report the term Papua applies to the Indonesian

part of the island of New Guinea. Papua Province andWest Papua Province refer to the two provinces whichmake up Papua.

SurabaaJaarta

I n d o n e S I aM a l a y S I a

BrUneI

kalIManTan

SUMaTra

PaPUa

java

Maassar


3/16

Five years ago EIA/Telapak released TheLast Frontier report, exposing massivesmuggling of merbau logs from Papua inIndonesia to China. The scale was

breathtaking, with cargo ships carryingabout 300,000 cubic metres of merbau logsa month to feed Chinas wood processingindustry. In response the Indonesiangovernment of President Susilo Bambang

Yudhoyono launched an unprecedentedcrackdown on illegal logging.

This decisive action marked a turningpoint in Indonesias struggle againstillegal logging. Since then the countrysappalling illegal logging rate has fallenand the flow of illegal timber smuggled outof the country has declined. As well asimproving enforcement, the Indonesiangovernment has also been active at thepolicy level; it has mandated a new timberlegality verification system and has beennegotiating a legal timber trade agreement

with the European Union. The international

community has also moved to curb trade instolen timber, estimated to cost developingcountries $15 billion a year. In 2008 theUS amended its Lacey Act, making it anoffence to import or trade illegally-logged

timber, while in June 2010 the EU agreeda new timber regulation prohibitingimports of stolen wood.

Despite this substantial progress illegallogging continues to threaten Indonesiasprecious forests. In April 2010 President

Yudhoyono expressed frustration with thelack of progress in prosecuting illegallogging cases and instructed the

governments task force on eradicationof judicial corruption to investigate.

The President is right to call for renewedaction against illegal logging. EIA/Telapak

investigations into merbau smugglingcontained in this report show theinvolvement of a well-connected cabal ofcriminals able to evade detection with thesupport of corrupt officials.

During 2009 and 2010 EIA/Telapakcarried out undercover investigationsinto the illicit merbau trade in China and

Singapore, as well as Surabaya, Makassarand Papua in Indonesia. These investigationsreveal how significant amounts of illegalmerbau, in the form of square logs andrough sawn timber, continue to be smuggledout of Indonesia, with the bulk boundfor China. They also uncover the illegalactivities of two rogue timber traders;Hengky Gosal, the man behind a foiledattempt to ship 23 containers of merbaulogs, and Ricky Gunawan, a serialsmuggler based in Surabaya.

EIA/Telapak recognises the progress madein Indonesia against illegal logging, yet

believes stronger action is needed to tacklethe timber criminals. Until 2005 theIndonesian government estimates thatillegal logging cost the country two billiondollars a year a huge environmentalcrime. Yet the prosecution of illegal loggingcases has been woefully inadequate.

EIA/Telapak call on the Indonesiangovernment to investigate the casesdetailed in this report, and to staunch theillicit trade in merbau by placing it under

the UN Convention on International Tradein Endangered Species. It also needs toensure that the new timber legality

system is robust enough to guaranteesurveillance is effective. It is time to stepup the campaign against illegal logging.

EIA/Telapak, August 2010

1

e

Ia/Tlpk

inTRODUCTiOn

ABOVE:Mbu gs big sipp

fm r ampt, Wst Ppu

pi, api 2003.


4/16

2

In mid-October 2009 customs officers atthe sprawling port of Tanjung Priok, northof the Indonesian capital Jakarta, made astartling discovery. While carrying out aroutine inspection of a consignment ofcontainers described as truck flooring, oneofficers suspicions were aroused by thesheer weight of one of the containers.Closer inspection revealed its contents to

be raw logs of merbau, a valuable hardwood.

The discovery prompted an x-ray scan ofall 23 containers which had arrived in asingle batch from the Indonesian port ofMakassar, South Sulawesi, bound forexport to China, India and South Korea.Inside a total of 120 merbau logs,

weighing 400 tonnes, were found.

This audacious attempt to evadeIndonesias log export ban indicates

that the fight against illegal logging andtimber smuggling in the country has stillto be won. It also shows that seriousflaws in the implementation of forestryregulations and timber licensing rules

persist, with corruption a key factor.

The merbau timber was logged in Papuain eastern Indonesia and shipped toMakassar; permits for transportationare supposed to allow all timber to be

tracked from forest to factory. Onceloaded into containers the truckflooring should have been physicallychecked by an independent surveyorappointed by the government, after

which a wood export permit is issued.The 23 containers of illegal merbaulogs received the necessary timberexport paperwork in Makassar and if

not for a sharp-eyed customs officer inJakarta would have been shipped outof the country. Clearly a serious failurein the system for countering woodsmuggling occurred.

Investigations by EIA/Telapak into theMakassar case and other seizures ofmerbau timber during the past few yearshighlight the activities of a resourcefulgroup of serial timber smugglers deployinga range of methods to avoid detection,often aided by corrupt officials.

It has been five years since revelationsof massive illegal logging and smuggling

of merbau in Papua promptedIndonesian President Susilo BambangYudhoyono to launch an unprecedentedoperation against illegal logging. InFebruary 2005 EIA/Telapak released

The Last Frontier report, showing howapproximately 300,000 cubic metres ofmerbau logs were being smuggled out ofPapua every month, bound for China(1).

A month later a task force of more than1,500 enforcement personnel wasdispatched to Papua under OperationHutan Lestari II (OHL II), and the flowof illicit merbau was stemmed.

By the end of the operation in May 2005over 400,000 cubic metres of timber hadbeen seized, and ships, barges and loggingvehicles impounded. The effects weresoon felt in the global timber trade, withprices for merbau logs doubling in theShanghai market. In total 186 suspects

were identified by the police.(2)

The operation marked a decisive turningpoint in Indonesias struggle againstillegal logging. In the first half of theprevious decade the countrys forestshad been ransacked by illegal loggers,

with Indonesia experiencing an illegal

logging rate of 80 per cent, one of theworst in the world. At this time illegallogging was costing the country $2 billiona year in lost resources and making afortune for the powerful timber bosses

ABOVE:lgs siz jpu i 2005,

gu b tps pi t sipmt

t Sub, ju 2007.

e

Ia/Tlp

k

inDOnESiAS STRUGGlE

AGAinST illEGAl lOGGinG


5/16

3

controlling the criminal syndicatesbehind the logging.(3)

By 2009 the rate of illegal logging inIndonesia was estimated to have halved

to 40 per cent.(4) EIA/Telapak fieldinvestigations found a significant declinein the volumes of illicit Indonesian timberreaching China and Malaysia, with

traders in those counties bemoaning theimproved enforcement in Indonesia.

The firm action by the government alsoprompted some illegal logging bosses tomove into other less risky enterprises.

Abdul Rasyid, behind the illegal loggingof Tanjung Puting National Park inCentral Kalimantan shifted into the oilpalm business, while Heng Ijat Hong,involved in merbau smuggling in Papua,switched to coal mining in Kalimantan.

Indonesia has also been actively buildingsupport at the international level foractions against illegal logging. It is in

the final stages of negotiations with theEuropean Union over a VoluntaryPartnership Agreement (VPA), under

which only Indonesian wood verified aslegal will be allowed to enter the EUmarketplace. A key element of a VPA isa timber legality assurance system, andin 2009 the Ministry of Forestry issued aregulation establishing such a mechanismcalled Sistem Verifikasi Legalitas Kayu(SVLK). The regulation has yet to befully implemented. In 2007 theIndonesian government was behind aresolution at the United Nations

Commission on Crime Prevention andCriminal Justice promoting internationalcooperation to tackle trafficking offorest products. In 2010 Indonesia andNorway signed a one billion dollarcooperation agreement on reducinggreenhouse gas emissions fromdeforestation and forest degradation.Under the agreement Indonesia will setup a special unit to tackle illegal logging.(5)

Yet illegal logging is far from eradicatedin the country, with more effective fieldenforcement failing to translate intoeffective action against the mainlawbreakers, particularly the bosses,financiers and corrupt officials. Of the186 suspects identified by OHL II, onlyeight cases resulted in a conviction.

Analysis of 205 illegal logging casesbetween 2005-2008 shows that 137 sus-pects were released by the court, withonly ten cases resulting in a jail sen-

tence of two years or more. The figuresalso illustrate the failure of theIndonesian authorities to apprehend thehigh-level perpetrators. Of the 205 cases

just 49 were bosses, financiers or cor-rupt officials, with the rest targetingpeople lower down thelogging chain, such as chainsaw operatorsand truck drivers.(6)

Failure to break up the powerful illegallogging syndicates has drawn criticismfrom President Yudhoyono. In April2010 he called for greater effortsagainst illegal logging, stating: I wish

to remind everybody that the fightagainst illegal logging must not ease.

The police, military, law enforcers,governors, district heads and mayorsmust all immediately go back into thefield and seriously continue the fightagainst illegal logging. (7)

He also drew attention to the poorperformance of the judicial system in

dealing with illegal logging cases andordered the governments Taskforce for

the Eradication of Judicial Mafia, set upin early 2010, to examine suspicious

verdicts in illegal logging cases. Heannounced: I believe a mafia is behind

the illegal logging activities. I call onthe judicial mafia eradication task forceto tackle this problem, reduce and put

BElOw:Ig ggs t fs mbu

fits f i t swmi,

jpu, Ppu pi,

Sptmb 2009.

e

Ia/Tlpk


6/16

4

an end to these activities. (8)

It remains to be seen how effective thescrutiny of the judicial system will be.

There remains systemic corruption in thepolice, the attorney generals office and

the courts. Effective action against illegallogging is also hindered by a lack ofcooperation between different enforcementagencies, despite a PresidentialInstruction issued in 2005 compelling18 separate government agencies to

work together to combat forest crimes.(9)

pRESSURE On pApUAS FORESTS

The challenge of combating illegallogging in Indonesia is epitomised by thesituation in West Papua and Papua, thecountrys two easternmost provinces.Papuas unique forests form part of thelast substantial tracts of intact tropicalforest in the whole of the Asia-Pacificregion, and constitute the third largestremaining tropical forest wilderness in

the world, after the Amazon and CongoBasin. As such Papuas forests are ofglobal significance.

Papuas forests harbour an incrediblearray of unique biodiversity, approximately60 per cent of that found anywhere inIndonesia; in recent years they have

been described as a garden of Edenafter international teams of explorersdiscovered a host of species new toscience and the world.(10)

These forests are also home to more

than 250 distinct tribal groups, some ofthe most culturally and linguisticallydiverse peoples in the world. Thesecommunities have managed the forestsfor generations, precisely because their

daily livelihoods are inextricably linkedto the forest resources. Papuas forestsalso contain literally hundreds ofmillions of tonnes of carbon.

The fact that Papua contains virtuallyall of Indonesias merbau trees makes ita main target for illegal logging operations.Forestry Minister Zulkilfi Hasan recentlyconfirmed that large-scale illegal logging

in Indonesia is now concentrated onPapua.(11)A senior official at the Ministryof Forestry has admitted the severedamage already done to Papuas forests

by illegal logging and forest exploitationfor plantations, stating that a quarterof Papuas forests have been lost since

the late 1990s, with the forest areafalling from 32 million hectares to 23million hectares.(12)

Management of Papuas forests is chaoticand non-transparent. In the aftermath ofOHL II many of the forest concessions

were reported to be inactive. Yet within

a few years there were indications thatlogging was again on the rise, with aprocess of consolidation by some of the

biggest concession-holders and newinvestors arriving.

For instance in August 2008 CCTResources Holdings Limited (CCT), acompany registered in the CaymanIslands but operating out of Hong Kong,purchased a 313,500 hectare forestconcession in the remote Mimikaregency on the southern coast of Papuaprovince. The sum paid was equivalent

to just $320 per hectare, with timber

stocks on the land worth approximately$148 million.(13)

Another investor is Robert JoppyKardinal, a member of the Indonesian

ABOVE:Ig fst si,

Wst Ppu, api 2009.

25 p t f Ppus fsts

b st si t

t 1990s.

e

Ia/Tlp

k


7/16

5

parliament. He reportedly owns a stakein the forest concession company WanaIrian Perkasa in West Papua province.In 2005 Kardinal was named in thepress as being linked to illegal logging,

but was never investigated.(14)A recentfield investigation found that localcommunities were accusing WanaIrian Perkasa of ignoring their landrights and operating without therequired authorisation.(15)

The biggest single forest concession inPapua, covering 670,000 hectares isoperated by Mamberamo Alasmandiriand its operations are certified asverified legal by Swiss auditors SGS.In November 2009 Yorris Raweyai, amember of Indonesias parliament,called for an investigation into accusationsof illegal logging and log smugglinginvolving the Mamberamo Alasmandiriconcession.(16) Local communities havealso alleged that widespread illegallogging by the company Sinar WijayaPlywood Industry (SWPI) had beenoccurring, including harvesting beyond

the concession boundary.(17) SWPI, aplywood manufacturer, owns 10 percent of Mamberamo Alasmandiri andobtains its raw timber from theconcession. In June 2010 police inPapua seized 4,500 cubic metres of logsat a site owned by SWPI. Police officialssaid the logs did not have the requiredpermits, adding that SWPI had beencarrying out illegal logging in theMamberamo region for a long time.(18)

Further evidence of widespreadillegalities in Papuas logging sector isprovided by a series of recent logseizures. In May 2010 police in Sorong,

West Papua seized 4,200 cubic metresof merbau logs from the concessioncompany Hasrat Wira Mandiri. In June2010 more than 5,000 cubic metres oflogs were seized by police in theBintuni area of West Papua, including2,000 cubic metres of merbau logs. In

both cases the logs did not have therequired permits.(19)

Forest management and enforcementagainst illegal logging in Papua iscomplicated by an uncertain legalframework. In September 2007 thegovernors of West Papua and Papuaprovinces issued instructions controllinglog shipments from the region to otherareas of Indonesia in a bid to curb illegallogging and bring investment into the

wood processing sector. The instructionstated that from the start of 2008 no

transportation of logs from PapuaProvince would be allowed, while aphased control would be put in place in

West Papua Province, with 50 per cent

of logs allowed for shipment in 2009 anda total ban by 2012.(20)

Yet research by EIA/Telapak indicatesthese controls are being routinely flouted,

with significant movement of logs fromPapua into neighbouring West Papuaprovince and then onto processing hubsin Java and Sulawesi. Official documentsshow that between June 2009 and June2010 permits were issued by forestryofficers for the transport of 164,500cubic metres of logs from Papua to WestPapua, of which 101,000 cubic metrescomprised merbau logs.(21)

It comes as no surprise that the logshipment controls are not beingimplemented, since the wood industryin other parts of Indonesia relies heavilyon Papuas forests for raw materials,especially merbau. This is demonstrated

by analysis of RPPBI (RencanaPemenuhan Bahan Baku Industri)documents, which all sawmills with acapacity in excess of 6,000 cubic metresa year must provide to the Ministry ofForestry showing where raw materials

will be sourced. In 2008 sawmillsoutside Papua planned to obtain311,000 cubic metres of logs from WestPapua and Papua provinces, despite thelog shipment controls coming into force.

MERBAU

Merbau is a valuable dark hardwood used to make flooring, decking,outdoor furniture, doors and window frames. Merbau logs in Papuaare sold for between $250 and $300 per cubic metre. Merbau isheavily targeted by illegal loggers and timber smugglers due toheavy demand for raw timber in China and India, and for merbauproducts in Australia, the European Union and the US.

This demand is also driving over-exploitation of merbau in Papua.Analysis of official export data shows that in 2008 merbauaccounted for 192,000 cubic metres out of a total export of 725,000cubic metre of wood products. Overall merbau comprised more

than 30 per cent of Indonesias exports (excluding panel, veneers,pulp and paper). Between 2003-2007 recorded merbau export

volumes trebled.(22)

In 2005 the Indonesian Ministry of Forestry began preparations tolist merbau on Appendix III of the Convention on International

Trade in Endangered Species (CITES). Such a move would havecompelled other countries to seize shipments of illegal Indonesian

merbau, yet the ministry failed to carry out the listing.

Outside of Papua the main processing hubs for merbau areSurabaya, East Java and Makassar, South Sulawesi

BElOw:Ig mbu gs i Smu,

Sut Sg, Wst Ppu, 2003.

e

Ia/Tlpk


8/16

The port city of Makassar is a majorcentre for trade and processing ofmerbau. Historically much of the houseconstruction in Makassar used merbau,

which was to be found in Sulawesisforests. Nowadays there is hardly anymerbau left in Sulawesi, but a significantexport-oriented merbau processingindustry has grown, reliant on suppliesfrom Papua.

Makassars role in the illicit trade ofmerbau came to light with the seizure of23 containers of merbau logs in TanjungPriok port, Jakarta in October 2009.

The consignment was seized by customsofficers for contravening Indonesiaslog export ban. The illegal shipmentcomprised 10 containers of 40 foot inlength and 13 of 20 foot in length.Inside were found 120 merbau logs

totalling 350 cubic metres. The value ofthe contraband was $100,000 based onmerbau prices in Papua, but more thandouble that on the international market.

Shipping documents show the containerswere sent from Makassar on September29, destined for three companies in

three different countries; Jiangsu SkyrunInternational Group in China, Sri BalajiLogs Products in India and Vary Timberin South Korea. The shipment was routed

via Jakarta in order to connect withinternational shipping routes. The contentsof the containers were described astruck flooring tongue and groove.Under Indonesias sawn timber export

ban such part-processed wood productscan be exported, but must undergophysical inspection by an independent

surveyor appointed by the Ministry ofTrade(23). The company Sucofindo, whichis 95 per cent owned by the Indonesiangovernment, has the exclusive contract

to carry out this work.

Furthermore the exporting companymust be registered by the Ministry of

Trade under the ETPIK scheme(Eksportir Terdaftar Produk IndustriKehutanan) and have an endorsementletter for each consignment issued by

the wood industry organisation BadanRevitalisasi Industri Kayu (BRIK).In this case the exporter, Makassar-

based Menara Mas had been given thenecessary permits.(24)

After receiving all the necessary papersthe containers left Makassar bound forJakarta, with the smugglers confidentthe transit to the final destinationswould be straightforward since theSucofindo and BRIK endorsementshad already been obtained. Yet theintervention of alert customs officers in

Jakarta foiled the plot and triggered asix-month investigation into theattempted fraud.

The initial investigation focused solelyon infringement of the customs laws,

and was conducted by customs officersfrom both Jakarta and Makassar. Itrevealed the merbau logs had been

bought by exporter Menara Mas fromthe company Rajawali MakmurSejahtera, a large merbau processor

based in Makassar. Staff from MenaraMas bribed a Sucofindo employee tofalsify the surveyors report and to give

them the seals for the 23 containers,instead of carrying out an inspectionhimself. BRIK issued the exportdocument for truck flooring.

The investigation discovered that

Menara Mas had customers in China,India, South Korea, Australia andSingapore, with the latter companynamed as Soh Timber Binders. Threesuspects were identified; Abdul Hakim,

6

ABOVE:Mbu gs t rwi Mmu

St, Mss, Suwsi,

M 2010.

e

Ia/T

lpk

ThE MAkASSAR CASE


9/16

a surveyor at Sucofindo in Makassar,and Halim Perdana Kusuma and M.

Arsyad, both staff in the export departmentof Menara Mas. The director of MenaraMas, Hengky Gosal, claimed to have hadno knowledge of the shipment becausehe was in Singapore at the time.

In February local press reported that thetrial of the three defendants had begunat the Makassar District Court. During

the hearing it was alleged that Arsyadpaid Hakim a bribe of just $20 to falsify

the inspection, with the promise of morepayments later.(25) It was reported in

June that Kusuma had been sentenced totwo years in jail.(26)

Yet investigations in Makassar byEIA/Telapak show a much widerconspiracy, with the leading role played

by Hengky Gosal.

In May 2010 EIA/Telapak investigators,posing as timber traders, visited thefactory of Rajawali Makmur Sejahtera(RMS) and met with Alex Tungadi, thecompanys General Manager. The largeintegrated sawmill and wood processingfacility lies in an industrial area on theoutskirts of Makassar and deals mostlyin merbau. During the course of an hour-long meeting Tungadi told investigators

that his company obtains most of itslogs from the Mamberamo Alasmandiriconcession in Papua, described by himas the only certified concession inPapua. He pays Rp3 million ($300) per

cubic metre for the logs. He also saidRMS was in the process of obtainingchain of custody certification.

Tungadi further explained how hesometimes buys seized merbau logs fromauctions in Papua. In 2007 he won anauction in Manokwari, West Papua, andpaid local armed police Rp 3 million($300) a day to guard the logs from arival Surabaya-based timber dealer during

transport. As well as logs Tungadi buysrough sawn merbau from local sourcesin Papua and processes this timber intoflooring blanks for the China market. In

addition to exporting to China, RMS alsosupplies merbau decking to Australiaand Europe.

During the conversation Tungadirevealed that he used to send illegalsquare logs of merbau to China but hadstopped last year due to his plan toobtain certification for RMS. During a

tour of the companys log yardEIA/Telapak witnessed around 3,000cubic metres of merbau logs. Tungadiexplained these logs were the remainderof a shipment of 8,000 cubic metresobtained from Mamberamo Alasmandiri

in August 2009. Tungadi said it wasstandard practice in Makassar to paylubrication money of approximately$15,000 to local officials from thepolice, forestry department and customs

for each barge load of logs brought fromPapua, even if the shipment has all thecorrect paperwork. Tungadis claimsabout the origin of logs used by RMS arecontradicted by the companys RPPBIdocument, which states that in 2009logs were to be supplied by theconcession Wanakayu Hasilindo inKaimana, West Papua.

Following the visit to RMS EIA/Telapakinvestigators attempted to meet withHengky Gosal, director of Menara Mas.

After a series of phone calls a secretarysaid Menara Mas had changed itsname to Nessa Golden Wood, adding

that Gosal often changed his mobilephone and was difficult to contact. Ameeting was finally arranged at a citycentre hotel.

At the hotel Gosal presented a businesscard in the name of Nessa Golden Woodand told investigators that his factory

was being refurbished, adding that hewas currently storing his supply of merbaulogs at the RMS factory. He alsorevealed that Tungadi was his younger

brother. Gosal contradicted his youngerbrother, claiming that the logsEIA/Telapak investigators had seen atRMS were actually his and had been

brought from a supplier in the Biakregion of Papua two months before. Hesaid he also obtains merbau logs from anumber of concessions in Sorong, as

well as Mamberamo Alasmandiri, andtravels to Papua every three months to

buy merbau logs, paying local militarypersonnel to act as bodyguards duringhis trips. Gosal told how he used to

work as a log trader in Papua.

Gosal said his main business is shippingmerbau flooring blanks to China, about25 containers a month, at a price of$1,250 per cubic metre (includingshipping). He also revealed how he used

to ship large quantities of illegal merbau

7

e

Ia/Tlpk

e

Ia/Tlpk,

My2010

BElOw:hg Gs, dit f Ud M

Ms, mitt sippig 40 - 50

tis f mbu fits

t ci p mt.

BOTTOM:Sufis ffi i Mss,

Suwsi. a Sufi uit i t

ispt tis tiig ig

timb fwig bib fm

mps f hg Gs.


10/16

flitches to China. About 50 containerswere sent to Shanghai every month at aprice of $850 per cubic metre. Gosal saidhe had stopped the flitches business sixmonths ago (around the time the 23containers were seized in Jakarta)

because a new head of customs hadbeen appointed in Makassar and it wasno longer possible to smuggle the illegalmerbau to China. He added the customschief would change in another sixmonths, and he hoped to resume the

business then. According to Gosaltrade contacts had told him it was stillpossible to ship merbau flitches outof Surabaya.

Gosal said: Big size merbau to China,have before, like six months ago. Butnow, everything stopped. Because redline from the customs. Cannot get out.Before we can give some money, youcan. When the leader of Customschange, then come the new personcoming, then new regulation comingagain. Before have sent so many toChina, 40-50 containers a month.

EIA/Telapak also visited an industrialarea to check out the official addressesfor both Menara Mas and Nessa Golden

Wood, but could find no trace ofeither company.

EIA/Telapak investigations in Makassar

reveal how Hengky Gosal is implicatedin large scale smuggling of illegalmerbau flitches to China, and wascertainly behind the attempt to export

the 23 containers of merbau logs. It alsouncovers connections between Gosaland RMS, run by his brother Tungadi.

This relationship is demonstrated in theRPBBI document for RMS; sale of logs

by the company to another woodprocessor involved payment being made

to the account of Nessa Golden Wood.A third brother, Fendy Gosal, is listed asthe contact at Menara Mas in the firmsETPIK licence.

The 23 containers case demonstratesa number of enforcement weaknesses.

A bribe ensured that the physicalchecks by the surveyor Sucofindo and

the BRIK requirements for an ETPIKlicence could be easily circumvented.Lack of cooperation between differentagencies persists. In November 2009 theMinistry of Forestry wrote to customs in

Jakarta asking to join the investigationinto the 23 containers case. A reply wasnot received until May 2010, meaning

that the customs law aspects of the caseand the forestry law infringements havenot been combined. Finally, the trueculprit, Hengky Gosal, has not beencharged while more junior staff atMenara Mas and Sucofindo serve asconvenient scapegoats.

8

anonymous

BElOw:Tug Pi pt custms

offis isp mbu gs t

t mi fwig sizu f

23 tis bgig t

hg Gss Ud M Ms,

19t otb 2009.


11/16

The city of Surabaya in East Java is amajor centre for timber processing inIndonesia, including merbau. It is also

the location of the countrys busiestport, Tanjung Perak. Due to these factorsSurabaya has emerged as a major hubfor merbau trade and smuggling.

Most of the wood processing factoriesin Surabaya are located in the Gresikindustrial area of the city. Here merbau

round logs from Papua are processedinto a range of finished and semi-processed products for export, principallyflooring and decking. While most of

these operations are legitimate andconform to Indonesias log and sawn

timber export controls, there is also anactive trade involved in diverting illegalmerbau onto international markets,especially China.

In June 2010 alone authorities atTanjung Perak intercepted two illicitconsignments of timber, includingmerbau, bound for export. In the first

case eight containers of merbau, ebonyand meranti wood were seized en routeto Singapore, Taiwan and China. (27)

The second case involved the detentionof seven containers of merbau and other

timber species.(28)

EIA/Telapak investigations haveuncovered the on-going criminal activitiesof Surabaya-based businessman RickyGunawan, one of the most active merbausmugglers in the city. Evidence gatheredin Surabaya, Singapore, and Guangzhouand Xiamen in China since 2006 points

to Gunawans prominent role in the illicit

trade in merbau. EIA/Telapak havesubmitted several reports on Gunawanto the Indonesian authorities, buthe has yet to be investigated. Asrecently as December 2009 he was still

shipping illegal merbau flitches tosouthern China.

EIA/Telapak investigators firstencountered Gunawan in November2006. Posing as timber buyers, the

team met with Riki Sumandi, directorof the company Lido in Surabaya, whohad been advertising merbau flitchesfor sale to overseas markets.

Sumandi took the investigators toGresik, where they were introducedto Ricky Gunawan, director ofSurabaya Trading and Sumandis

business partner.

Gunawan soon boasted of his ability tobreak the law and to supply illegalmerbau at low risk due to his connections.He claimed to ship up to 3,000 cubicmetres of air-dried rough sawn merbau

to China every month. After sawing thelogs in Gresik, he explained how the

wood was loaded into containers at fivedifferent warehouses in the area and

shipped to the Chinese ports ofShanghai, Huangpu, Shenzhen,Guangzhou and Shantou. About 50containers a month were beingdelivered, with Gunawan dealing with

two main buyers one Singaporeanand one from Hong Kong.

During the meeting Gunawan said: Thisexport is non-legal. Today, no problem.Next week, I dont know. When thecargo arrives in China, dont just open itat the port, adding that occasionally hehad to stop the shipments when customscontacts in Tanjung Perak tipped him off

about impending clampdowns.

Details of the investigation were providedto the Ministry of Forestry but no actionwas taken.

9

anonym

ous

SURABAyA SynDiCATE

TOp:Sub ustms ffi isptig

mbu i i tis w

b Sub Tig fwig its

sizu i api 2009.

ABOVE:ri Guw, m Sub-

bs mbu smugg, i 2006.

e

Ia/Tlpk


12/16

10

Gunawans name cropped up again in2008. In April of that year theIndonesian Ministry of Trade granted aspecial dispensation to the sawn timberexport ban to three companies based inSurabaya, allowing them to exporthousing components of merbau timber

to China. The three firms SurabayaTrading, Grafity Merindo and Trias HasilAlam Lestari are all connected toGunawan and were granted permission

to export 70,000 cubic metres of merbautimber on the grounds that the housingcomponents were destined for aconstruction project in Mongolia. It wasalso claimed that the components werepart of a reconstruction efforts after theSichuan earthquake.

Sources in Surabaya state that theshipments of housing components sent

by Gunawan were in reality rough sawnmerbau posts, similar to the ones he

was smuggling in 2006. Informationobtained by EIA/Telapak in China shows

the shipments were not destined for ahousing project in Mongolia, but instead

were sold on to flooring and furniturefactories in China.(29)

One of the main recipients of merbaushipments sent by Surabaya Trading in2008 is the company Fujian Pan-Chinese

Trading, located in Fujian Province,southern China. During May 2008Gunawan sent 40 containers ofmerbau housing components to FujianPan-Chinese Trading. In July 2008EIA/Telapak investigators posing as

timber buyers called the company andwere told it receives about 200 containersof sawn merbau a month from Surabaya,at a cost of $1,100 per cubic metre,

with the wood sold on to Chinesefactories producing merbau flooring,doors and stairs.

Gunawan surfaced again in April 2009,when customs officers in Tanjung Perakport detained nine containers of merbau

timber destined for export to China. Theowner of the consignment wasGunawans Surabaya Trading and theshipment had been cleared for export by

the third-party inspection firm Sucofindoon the grounds that as the timber wasdestined to be used for bridge construction,it was exempt from the sawn timberexport ban. Yet during inspectioncustoms agents discovered discrepancies

between the shipping documents and thetimber inside the container, indicatingthat the wood did not conform to thedescription of bridge components.

EIA/Telapak investigations reveal themerbau timber was never intended foruse in bridge construction. In May 2009EIA/Telapak undercover investigators

met with Zheng Jianyang, the managerof a company called Xiamen SanstarTrading, at his office in Xiamen city,Fujian, China. Shipping documents show

that Xiamen Sanstar Trading was the

intended recipient of the nine containersseized in Tanjung Perak.

During the course of an hour-long meeting,Zheng claimed to be one of the biggestimporters of Indonesian merbau wood inChina, including flitches banned forexport under Indonesian law. Zhengstated that he sources his supplies fromSurabaya and Sulawesi, selling the merbauonto factories across China manufacturingdoors, stairs, windows and flooring. Atno time did he mention any involvementin bridge projects, although he did tellhow false blueprints for constructionprojects are used to get export clearance.

After interventions from severalgovernment officials and some membersof the local parliament on Gunawans

behalf the customs department had torelease the seized containers for onwardshipment. Once again Gunawan escapedofficial investigation.(30)

The scale of Gunawans activities arewell-known to fellow smugglers. Onesuch smuggler is Singapore-basedNg Yit Fooi, boss of Soh Timber Binders.EIA/Telapak first encountered Ng in2003 while investigating the lucrative

trade in ramin timber. During a meetingwith EIA/Telapak investigators Ng toldhow he was shipping protected ramin

timber from Sumatra to China using fakepaperwork. He also claimed his main

business was trading merbau fromPapua to China.

EIA/Telapak came across Ngs nameagain while looking into merbau tradingin Makassar in 2010, where it wasrevealed Soh Timber Binders was acustomer of Menara Mas. In May 2010EIA/Telapak investigators met with Ngagain at his factory in Singapore. Ngdescribed how his main business wasnow ironwood (belian) from Malaysia,

but that he still traded merbau fromMakassar and Surabaya via a networkof agents. He showed EIA/Telapakinvestigators an invoice for a consignmentof illegal merbau flitches he had bought

from Surabaya Trading in December2009 at a price of $1,150 per cubicmetre for shipment to Guangzhou inChina. When asked about Surabaya

Trading, Ng immediately mentionedGunawan, a friend whom he describedas a smuggler. He said the reason he

buys from Gunawan is because he hasthat channel to get through customs.At Ngs warehouse EIA/Telapak observedsome of the flitches sent by Gunawan.

For five years Gunawan has beensuccessfully smuggling merbau flitchesout of Surabaya to China, using a variety

of deceptions. Even when one of hisshipments is seized it ends up beingreleased, testament to his influentialallies and explaining why he has yet to

be prosecuted.Tlpk/eIa,

May

2010

e

Ia/Tlp

k

BElOw:Fits t S Timb Bis

wus, Sigp, M 2010.

BOTTOM:ng yit Fi, f Sigp-bs

S Timb Bis, M 2010.

M ng impts ig mbu

fits fm ri Guw.


13/16

The international market for merbau haschanged in recent years due to factorssuch as the economic recession,consumer trends, China taxation laws,Indonesian wood export regulationsand the availability of timber supplies.Despite these changes, EIA/Telapakinvestigations in 2009 and 2010 reveal

that in key markets such as China,India, the US and Europe, the trade stillflourishes. Both the US and EU havepolicies prohibiting imports of illegallylogged timber; the amended US Lacey

Act came into force in 2008, while the

EU timber regulation will be effectivefrom 2012. China continues to importlarge amounts of stolen timber.

ChinA

In May and June 2009, EIA/Telapakinvestigators visited Furen timber marketin Shanghai, Chinas main timber tradingcentre. Even though there was a declinein the overall availability of Indonesian

timber (due to rising raw materialprices, diminishing supplies andimproved enforcement in Indonesia),

merbau remained the key Indonesianspecies traded at the market.

EIA/Telapak observed a stream ofcontainers of Indonesian merbau beingunloaded at the warehouses. The majorityseen was part-processed flooringmaterials, which can be legally exportedunder Indonesian law, but there werealso substantial amounts of merbausawn timber and flitches, smuggled outof Indonesia. One trader estimated more

than 80 per cent of Indonesian merbauarriving at Furen is in the form of sawn

timber and flitches, and less than 20 per

cent is flooring blanks. Most of thesematerials are supplied to factoriesaround Shanghai and Nanxun, the maincentre for flooring manufacture locatedin neighbouring Zhejiang province.

Previously in 2005 the bulk of merbauflooring made in China was exported toEurope and the US. By 2009 merbauflooring was sold mainly to the domesticmarket, due to the growing affluence ofChinese consumers and the economicrecession in Europe and US. It is also aconsequence of the 10 per cent export

tax on solid wood flooring exportsintroduced in 2006.

Although flooring materials observed atfactories EIA/Telapak visited in 2009generally adhered to Indonesian export

requirements, there were companieswhich clearly sourced illegal materials.One such company was CheersonFlooring in Nanxun. The firms exportmanager stated that it regularly importsrough sawn air-dried merbau andkempas directly from Indonesia. At its

warehouse, EIA was shown stacks ofrough sawn timber waiting to beprocessed. Such exports are illegalunder Indonesian law.

During a visit to Haoweifu Wood, afactory producing mainly merbau andkempas flooring, the owner revealed to

EIA/Telapak investigators that hesources merbau through a Chineseagent in Papua, who in turns buys itfrom illegitimate sources. He said:They chop it down and sell it toChinese people. Then theyll find a

way to get it to China. Once it reachesChina, then it becomes legal. Everything

before that is all illegal. He alsorevealed that the timber legalitydocuments he obtains are bought withmoney from corrupt Indonesiangovernment officials. He stressed thathaving the right contacts is crucial tosecuring the timber and documents.

As well as flooring, a big market existsin China for merbau sawn timber andflitches. It is used mainly for doors,

jambs, window frames, stairs and

11

e

Ia/Tlpk

MERBAU MARkETS

TOp:Isi mbu fits su

s ts i Fu Timb Mt,

Sgi, i M 2009,

mm sigt, i f

tiu smuggig fm Isi.

ABOVE:Fu Mt, Sgi,

cis biggst timb mt.

e

Ia/

Tlpk


14/16

furniture components. The majority ofthe products are sold domestically.Most of the Indonesian sawn timber andflitches observed at Furen market werein violation of Indonesian export laws.

When EIA/Telapak investigators visitedSenao Timber, large merbau flitches

were openly on display. The owner said

he buys from a Singapore-based traderbut acknowledged that the timber issawn and containerised in Surabaya,Indonesia, before being exported toChina. Shanghai Fenghua Wood isanother company importing Indonesiansawn timber and flitches, includingmerbau and kempas. The manager saidhe sources merbau from a supplier inEast Malaysia. He said that the timberis of Indonesia origin but becauseIndonesia cant export flitches, it goesfrom Indonesia to Malaysia the logsare sawn in Malaysia, after which theyare exported to China.

Privately owned wood processing andtrading companies are not the only onesimporting illegal merbau from Indonesia one of the intended recipients of

the merbau logs seized in Jakarta inOctober 2009 was the Chinesestate-owned conglomerate JiangsuSkyrun International Group.

inDiA

Another growing market for Indonesianmerbau is India. In 2006, EIA met with

Prince Elavarasan of Singapore-basedSPB Cons Marine Import-Export whoexports large volumes of Indonesianmerbau and bengkirai flitches and logs

to India. He revealed that merbau logsare systematically smuggled on bargesfrom Papua to Kuantan in Malaysia viaKalimantan. In India, merbau is usedmainly to produce door and windowframes, whilst bangkirai is used for

truck flooring.

Part of the consignment of 23 containersof merbau logs seized in 2009 wasintended for Kolkata-based Sri BalajiLogs Products. Anecdotal informationfrom other traders suggests that Indiaonly sources raw materials in the formof logs and flitches, but not semi-finishedor finished products.

EUROpE AnD ThE US

The EU and US have traditionally beenmajor buyers of merbau products,particularly for flooring and decking,produced in Indonesia and China. Since

the economic recession hit in 2007factories have seen sharp declines inexports to these markets.

In 2009, EIA/Telapak met with a majorSingapore-based merbau supplier whohas a factory in Surabaya producing

merbau and bengkirai decking products.The trader said that exports to Europeancountries such as Belgium, Netherlandsand Germany have fallen by about 70per cent due to the recession.

Similar situation have been observed inChina where factories have seen reducedorders from Europe and the US. Manycompanies have consequently eitherdiverted their attention to domesticsales or abandoned merbau as a rawmaterial altogether.

Yet despite the economic downturnsome Chinese manufacturers continue

to export merbau flooring made fromIndonesian timber to retailers anddistributors in Europe and the US.Such firms include Shanghai LinggeFlooring, shipping to the US, andHaoweifu Wood, which produces about10,000 square metres of merbauflooring per month and exports primarily

to the US and France.

12

BElOw lEFT:Ws t cs Fig,

nxu, M 2010.

BElOw RiGhT:Mst ig Isi fits

s i Fu us t

m stis s.

e

Ia/Tlpk

e

Ia/Tlpk


15/16

e

Ia/Tlpk

1. eIa/Tp, T lst Fti, 20052. eIa/Tp, T Tus-h S, 20073. hum rigts Wt, Wi M, 20094. lws t , Ig lggig rt T,

ctm hus 20105. ltt f Itt btw nw Isi,

cpti ruig Gus Gsemissis fm dfstti Fstdgti, M 2010

6. Isi cupti Wt, cupti witiig ggig iti, 2009

7. at, Psit cs f ctiu Figtagist Ig lggig, 5 api 2010

8. at, Psit: Mfi Bi Ig lggigcss, 7 api 2010

9. rpubi f Isi Psiti Istutin. 4 2005

10. eIa/Tp, Up f Gbs, 200911. jt Gb, SBy cs f dp

cutis t hp Isi i Btt agistGb Wmig

12. Su Pmbu, 25% f Ppus FstsF, 29 api 2010

13. eIa/Tp, Up f Gbs, 200914. kmps, Miit Pi Ps Suspt

I i Ig lggig, 18 M 2005

15. Tp, B p, M 201016. Su Pmbu, Stp lg expts fmMmbm, 16 nmb 2009

17. Tbi jubi, ribu lg Ig ditmu iMmbm, 8 ju 2010

18. Tmp, Pgiim ribu kubi ku Ig diPpu jw digg, 21 ju 2010

19. Tmp, 9 ju 201020. Ptu Bsm Gub Ppisi Ppu

Gub Ppisi Ppu Bt, 18 Sptmb 200721. www.bppp17.wb.i/tbs22. www.put.g.i/fis/ts_bp08_0.pf23. Miist f T umb 20

M-daG/Per/5/200824. ag Isi, lp Su sg Ptu,

27 otb 200925. Tmp, ksus Puup ku 23 kti

Mui disig, 8 Fbu 201026. Bit kt Mss, ju 23 kti ku,

diis du Tu, 25 ju27. Tug P ustms ffi pss s,

11 ju 201028. Sub Pst, 21 ju 201029. eIa/Tp, a Bws Stp, 200930. Sub Pgi, du Pbt B cui P

Bsbg, 23 Fbu 2010

REFEREnCES

RECOMMEnDATiOnSThe Indonesian government has madesignificant progress in tackling illegallogging since 2005. But while the hugequantities of illegal timber flowing outof the country during the first half of

the decade has declined, effective lawenforcement against those responsible the financiers, company bosses andcorrupt officials has been woefullyinadequate. It is no wonder theIndonesian President has ordered thecountrys judicial mafia eradication

taskforce to scrutinise illegal loggingcases. The taskforce should certainlyfocus its attention on two merbausmugglers named in this report Ricky Gunawan and Hengky Gosal.

The illegal logging and trade of merbauin Indonesia is symptomatic of widergovernance and enforcement failures in

the forest sector as a whole. From thechaotic way in which Papuas preciousforests are managed to the failure ofagencies such as government-ownedinspection agency Sucofindo and official

timber agency BRIK to preventviolations of the log and sawn timberban, the need for more effective controlsystems is clear if the battle againstillegal logging is to progress.Fortunately an opportunity to make thesystem fit for purpose is available in

the form of the new Sistem VerifikasiLegalitas Kayu (SVLK). This Ministryof Forestry regulation has the potential if fully implemented to bring proper

transparency and regulation to thecountrys notoriously opaque and corruptforestry sector.

ThE GOVERnMEnT OF inDOnESiA ShOUlD:

l List merbau on Appendix III of the

Convention on International Trade inEndangered Species (CITES) with asustainable quota for trade

l Launch formal investigations into theillegal activities of Ricky Gunawanand Hengky Gosal

l Clarify the legal status andimplementation of Papuas log

transport controls

l Ensure that the SVLK is fullyimplemented, including penalties

for verification bodies which fail toperform effectively

l Ensure that the SVLK system requiresfull timber traceability back to a legalforest source

l Review Sucofindos position asthe only official wood exportinspection agency

l Review the effectiveness ofPresidential Instruction 4 of 2005 inlight of evidence that enforcement

agencies are still failing to collaborateeffectively against illegal logging

l Empower a task force (satgas)reporting directly to the President onactions against illegal logging

13


16/16

EnViROnMEnTAl inVESTiGATiOn AGEnCy (EiA)

62/63 Uer Street

lodo n1 0ny, Uk

Te: +44 (0) 20 7354 7960

Fax: +44 (0) 20 7354 7961

ema: [email protected]

.ea-teratoa.org

EiA US

p.O.Box 53343

wasgto DC 20009 USA

Te: +1 202 483 6621

Fax: +202 986 8626

ema: [email protected]

TElApAk

Gedug Aum ipB,

J. pajajara no. 54, Bogor 16143,

inDOnESiA

Te: +62 251 8393 245

Fax: +62 251 8393 246

.teaa.org

Documents

Rogue Trades Report English Version