Myanmar’s tainted timber and the military coup

Podcast

Myanmar: ‘Anybody investing in the natural resource sector is, in essence, supporting the military’

EIA’s Forests team has been working on the ground in Myanmar since the country began to emerge from under the shadow of brutal military dictatorship in 2011, exposing illegal timber trade and helping to provide the tools for meaningful reform of its natural resources sector – but all that changed with the coup on 1 February.

Faith Doherty, our Forests Campaigns Leader, and Alec Dawson, Forests Campaigner, give an overview of the situation and look at the implications for those seeking to import precious teak from the country.

The forests of Myanmar

Myanmar is home to large areas of natural forests. The importance of these forests has been well publicised, including providing habitats for various mammals (such as the critically endangered Sunda pangolin [Manis javanica]), the forests are also a source of wellbeing for many forest communities, including ethnic nationalities and indigenous peoples – an estimated 17 million people.

Sadly, Myanmar’s forests face numerous threats. They are being destroyed at a phenomenal rate - an area roughly the size of Switzerland was lost during the period 2000-2020. Illegal logging of its teak-rich forests and the illicit timber trade is a key driver of the destruction.

The timber trade

Myanmar’s forests are home to some of the most valuable teak (Tectona grandis) trees on Earth. The demand for luxury products, such as decking for superyachts, is driving both illegal logging and the smuggling of teak from Myanmar to international markets, including China, India, the EU and the USA.

Forest governance in Myanmar

‘Myanmar teak’ or ‘Burma teak’ refers only to wood from Tectona grandis trees growing naturally in Myanmar. Myanmar teak is considered the best true teak available on the planet.

Since 2015, when the previous government came to power in the first democratic elections in decades, Myanmar had taken numerous steps to combat illegal logging and reduce the destruction of its forests. These included a log export ban, a ban on logging in the financial year 2016/17 and significant reductions in the annual logging limits set by the Forest Department.

The military coup has now undermined any progress made within the forestry and timber sector. A recent statement by the military-appointed minister of Natural Resources, Environment and Conservation (MONREC) Colonel. Khin Maung Yi – indicates that a return to revenue-driven production is imminent.

The military (also known as the Tatmadaw) has profited from the destruction of Myanmar’s forests in other ways, including participation in the illegal trade in timber to China, payments received from private timber companies and the shipment of timber out of military-owned ports in Yangon.

To stop the flow of funds to the military regime, a number of countries have imposed targeted sanctions on individual military personnel involved in the coup. The EU, UK and USA have also sanctioned the state-owned Myanmar Timber Enterprise (MTE). The EU has gone a step further and also sanctioned the Forest Products Joint Venture Corporation, which is majority owned by the Myanmar state.

The EU and US have imposed sanctions on the MTE in the past. However, companies trading timber were able to circumvent sanctions by indirectly trading through third countries. In order to prevent this for happening timber regulations preventing illicit timber from entering their markets must be upheld with companies sanctioned according to the country’s penalty regime.

In 2019, Myanmar exported timber products valued at nearly US$170 million with a substantial amount of that income going to the MTE and other companies linked directly and indirectly to the military. The military’s connections to the informal trade of timber provide even more illicit income.

EIA and Myanmar trade in illicit timber

EIA has released two major reports on illegal logging in Myanmar: Organised Chaos in 2015 and State of Corruption in 2019.

It has also released briefings on illegal imports of timber into the EU and the implications for the EUTR and the trade into the US: Overdue Diligence in 2016, A Tale of Two Laws in 2018 and The Croatian Connection Exposed in 2020.

EIA has continued to monitor trade across the land border into China, reporting a major seizure of timber in 2019.

Military links to the timber trade

The military coup on 1 February has implications for all areas of society in Myanmar, as well as its natural environment.

The coup gives the military increased control over the nation’s forests and access to related financial income, especially through taking over control of the State-owned MTE which oversees all forest harvesting. In addition, the military has direct and indirect ownership of companies involved in the timber supply chain, including for exports to international markets.

Another concern is how seizures of illegal timber are handled by the state and the Tatmadaw.  Recording seizures has been opaque, in addition to figures released through Chinese media, forest monitors have witnessed seizures taking place and teak logs separated and stockpiled by the military. Figures show that in 2020, the military seized a total of nearly 10,000 tonnes of illegal timber, including nearly 2,000 tonnes of teak.

Most of the timber was seized in conflict areas - Rakhine, Kachin and Shan states. Concern that the military has, and continues to profit from seized timber and its subsequent sale, seems to be justified reflecting attempted auction by MTE of seized timber. However, it appears that efforts by the military to profit from the sale of seized timber failed after the country’s National Unity Government in exile issued a statement prior to the auction warning that if anyone engaged in the auction, they and their business would be blacklisted.

Companies with direct and indirect links to military

Analysis by EIA has identified areas of the timber supply chain where the military plays direct or indirect roles. These include:

• Myanmar Timber Enterprise (MTE), a State-owned entity which is now under the control of the military junta, including use of its revenues. This is especially notable as all timber harvesting and sales is overseen by the MTE – meaning that all shipments of timber, including to international markets, passes through its hands;
• the military junta has another formal source of revenue through the State being a majority shareholder in the Forest Product Joint Venture Corporation (FPJVC) this includes MTE who is also supposed to be a regulator of the sector. The FPJVC is also a key player in the timber supply chain, including for shipments of teak to international markets.
• timber shipments, including those to the EU, involve companies with links to the military. One of the companies, Myanmar Rice Trading, is part of the IGE conglomerate. IGE has been identified as having provided financial donations to the military, with the donations used, according to the UN Human Rights Council (UNHRC), to support military operations in Rakhine (against the Rohingya). Myanmar Rice Trading, through IGE also has other connections to the military, including family links;
• many of the shipments of timber use Ahlone port, including those destined for the EU. The port is owned by Myanmar Economic Corporation (MEC), which in turn is owned and run by the Military. Each shipment will be paying a fee to the port, therefore providing income to senior military staff;
• other timber shipments use another port, Asia World Port Terminal, which is owned by the Asia World Conglomerate. The US Government has accused the Managing Director of this conglomerate, Steven Law (also known as Htun Myint Naing), of laundering money for the military. The company has also been linked by UNHRC to the clearing of land owned by Rohingya communities in Rakhine. Furthermore, it has made financial donations to the military.

EIA’s analysis of all the documents we received from the Croatian authorities cover 21 shipments of timber from Myanmar to Croatia. Of these shipments we found:

• four or more involved Myanmar Rice Trading;
• at least three passed through the military-controlled Ahlone port;
• six or more passed through the Asia World Port Terminal.

The teak shipments were imported into the EU by the Croatian company Viator Pula. The documents show the ultimate buyers were:

• Vandecastelle Houtimport (Belgium)
• HF Italy and Comilegno Srl (Italy)
• Houthandel Boogaerdt BV (Netherlands)
• ABC (Slovenia)

The EU Timber Regulation and Myanmar timber

The EU Timber Regulation is the EU’s law to prevent the trade in illegal timber within its markets. It prohibits the placement of illegal timber on the EU market and also requires timber “operators” (usually the importer) to conduct due diligence to ensure the timber is not from an illegal source.

Since 2017, the common position among EU member state enforcement authorities has been that it is not possible to conduct adequate due diligence for Myanmar timber – meaning that any imports of timber from Myanmar have been in violation of the law.

Mixed enforcement of this position has meant the trade has shifted as importers seek to circumvent the law. Although direct trade in Myanmar timber into some countries, such as Germany, Belgium and the Netherlands, has disappeared, trade into other countries has increased, including Italy, Croatia and Greece.

The coup and implications for the EU Timber Regulation (EUTR)

The military’s recent history of human rights violations, including crimes against humanity and genocide, is well documented. It is also now responsible for the deaths of protestors in Myanmar and the arbitrary arrest of many civilians.

The prospect of the military controlling the timber industry, and the revenues from the Myanmar Timber Enterprise was particularly concerning, especially as traders in Europe were still continuing to import Myanmar teak since the coup, this is despite the trade directly benefiting the Military Junta.

The Member States of the EU have a common position that it is not possible for the risks of illegality to be adequately mitigated for timber from Myanmar. This means that teak from Myanmar cannot be imported into the EU without breaching the EUTR. The June 2021 sanctions against the MTE, as well as the Forest Products Joint Venture Corporation, effectively reinforce the fact that no trader can import timber from Myanmar into the EU.

Croatian connection – attempts by companies in the EU to circumvent the EU Timber Regulation

In early 2020, EIA received documents related to 10 shipments of Myanmar teak to Rijeka, Croatia in contravention of the EUTR.

EIA’s research found that these shipments of teak, worth nearly $1 million, were destined for various companies throughout the EU, including Belgium and Germany – in other words, these buyers were attempting to circumvent the EUTR.

Evidence of tax evasion in timber exports

Building on The Croatian Connection Exposed work, EIA investigated possible tax evasion in the Myanmar teak supply chain to the EU. The investigation found that not only were EU timber companies circumventing the EUTR, but were also getting their hands on cheaper teak products through tax evasion.

EIA’s investigation led to the conclusion that tax evasion is a systemic problem covering shipments of teak beyond those covered in the Croatian work. We estimate that in 2019, companies involved in formal timber trade from Myanmar added more than $12 million to their profits through tax evasion.

Breaking customs and trade laws related to timber is an offence which renders timber illegal if it is then imported into the EU. This tax evasion would mean Viator Pula has violated the prohibition on placement of illegal timber in the EU and the companies receiving the timber have been trading illegal goods. These companies are:

• HF Italy, based in Italy
• Crown Teak and Vandecasteele Houtimport, based in Belgium
• Houthandel Boogaerdt, based in the Netherlands
• WOB Timber, based in Germany
• ABC Net, based in Slovenia

There has never been a successful prosecution for placement of illegal timber in the EU. This case provides a chance for authorities to enforce the law and demonstrate that it has teeth.

Trade to China

EIA has been documenting the illegal cross-border trade in timber from Myanmar to Yunnan, China, since 2012.

Under Myanmar law, all exports of timber must take place from the seaport of Yangon and overland trade is prohibited. This was to ensure clarity for the legal trade and prevent easy smuggling options for illegal timber.

• Organised Chaos (2015)
• Appetite for Destruction: China’s trade in illegal timber (2012)

Despite the prohibition of overland timber trade, significant amounts still cross the border. However, in the latter half of 2019 EIA received reports that it had become difficult to continue smuggling teak across to China at the Muse-Ruili checkpoint because the Chinese border police were blocking it.

The efforts by Chinese authorities included the August 2019 seizure of more than 100,000 tonnes of wood worth tens of millions of dollars and arrests of members of the “Dazu” syndicate exposed by EIA.

The crackdown on timber smuggling was also seen on the Myanmar side of the border: in May 2020, EIA was informed of a major seizure by the military in Bum Tawng, in Kachin State, involving 2,000 tonnes of timber.

Timber seized in Kachin in May 2020

Following the military coup on 1 February this year, EIA received information that operations previously run by the Dazu syndicate had resumed and expanded to now include sawmills and warehouses to process timber. Previously, EIA had mostly seen logs or rough sawn timber crossing the border, but the new information reveals that methods of processing and transporting timber have become more sophisticated.

EIA is aware of sawmill operations in four different locations along the Kachin-China border, in Yit Zang, Nba Pa (also known as Mbaba), Gai Daw and Lweje (also known as Lwejel, Lwegel, Loi Je).

We have also been informed of at least two crossing points for timber into China, including Mai Ja Yang-Zhangfeng and Lweje-Zhangfeng.

The timber being smuggled into China is from Sagaing Division, an area controlled by the State.

Reports received from January 2020 indicated collusion by the Myanmar Forest Department and military in illegal logging in Sagaing, with them taking a cut through spot-taxes, road charges and bribes.

Timber operations in the region will have been under the control of the military junta since the beginning of February. These factors, as well as previous evidence that the military profits from the border trade with China, mean the military is almost certainly profiting from the trade in this timber.

EIA’s research on the timber trade within China indicates that companies are comfortable advertising timber sourced from the land border with Myanmar, including valuable rosewood and teak.

Advertising on a Chinese timber company website. The characters read 'From primitive deep forest to raw material base in Myanmar Ruili, at the top of the colourful clouds, went from the Yunnan border to the Guangzhou factory'

China can help, as shown by its significant enforcement in 2019. In addition, it has recently introduced a new Forest Law which bans the sale of timber from illegal sources.

The Chinese authorities need to enforce the new law by cracking down on companies trading illegally obtained timber.

Recommendations

Myanmar military junta:

• Immediately release members of the elected civilian Government, civilians and journalists targeted by the military junta.

International community:

• Civil society groups in Myanmar have been calling for targeted sanctions against junta leaders since the start of the coup. There must be a collective international effort to enforce the economic sanctions issued by the EU, UK and USA, including against the MTE, to ensure that the brutal military regime’s efforts to access funds through sale of natural resources is choked off.
• Other countries with prohibitions on illegal timber, such as the Australia, Japan, South Korea, and Taiwan can investigate placements of Myanmar timber on the market and take action against any from an illegal source. While China must step up its efforts to end the imports of timber from Myanmar, including through the enforcement of its revised Forest Law which came into force in July 2020.

Timber trade private sector:

• Not to support the trade in timber and wood products originating from Myanmar. This includes from third countries circumventing current laws.