The first successful criminal prosecutions under the EU Timber Regulation may be a turning point in meaningful enforcement of the law created to keep stolen and illicit timber out of the bloc’s markets.
Details of the convictions of one company and two individuals at the District Court of Amsterdam on 12 December 2022 have only recently been released in public court documents, with their names redacted, which confirm criminal convictions for importing teak from Myanmar into the Netherlands via the Czech Republic in breach of the EU Timber Regulation (EUTR) Article 4 and 6 due diligence provisions.
It was the success of EIA’s work in bringing the illicit teak imports of Dutch firm Royal Boogaerdt Timber to the attention of the Dutch competent authority for enforcing the EUTR (the Nederlandse Voedsel en Warenautoriteit, or NVWA) that first put the issue of illicit Myanmar teak trade on its radar.
While these rulings are encouraging, more must be done to stop the illicit trade of Myanmar teak from entering the EU.
The convicted parties were responsible for importing seven shipments totalling more than 178m3 of teak from Myanmar (enough to fill about 10 shipping containers), worth in excess of €2.5 million, into the Netherlands via the Czech Republic between 1 January 2018 and 3 December 2019.
The EUTR places a clear obligation on all economic operators – those importing timber to be cleared by customs and then placed on the EU internal market for the first time –to carry out due diligence to prevent illegally harvested timber from entering the EU.
The EUTR’s due diligence system requires economic operators to undertake a three-step process:
- obtain information shows their timber has been sourced legally
- determine if the harvesting of the timber has complied with the laws of the source country and if there are any potential supply chain risks
- if any non-negligible risks have been identified, take measures to mitigate the risks that the timber was harvested illegally.
The EUTR does not place this obligation on traders – those individuals or companies buying or selling timber that has already been placed on the market.
In 2018, the NVWA issued a warning to one of the Dutch companies involved which had been importing Myanmar teak into the Netherlands. The NVWA determined that, as the economic operator, its due diligence system for its imports of Myanmar teak failed to meet the due diligence obligations of the EUTR.
In response, according to an investigation carried out by the Dutch Prosecution service, the now-convicted directors set up a company, Fairwind Trading sro, in the Czech Republic and then transferred orders of Myanmar teak to this entity to avoid the detection of NVWA – while implemented the rejected due diligence system.
DMPT BV, a Dutch company selling timber for yacht-building, travelled to Myanmar to select the teak, which was then transported to the EU via a company named Mercura Trade & Services Europe BV.
In doing so, the directors made the Czech company the economic operator in the supply chain, wrongly believing they had transferred the due diligence obligations of the EUTR onto it and thus freeing them of liability.
The court rejected this approach, deeming the two Dutch individuals and Dutch company to have jointly committed the offence of marketing teak from Myanmar in the Netherlands which failed to meet the due diligence requirements of the EUTR; because they had directed the prohibited conduct of the Czech company, liability could not be limited to it alone.
The court ruled that the convicted parties had failed to mitigate the risks that the teak had been illegally harvested in Myanmar, a position aligned with the 2020 conclusions of the EUTR Experts Group which stated it is virtually impossible to mitigate the risk of illegally harvested timber from Myanmar under the EUTR.
This is the first time an EU member state has handed down criminal convictions for EUTR breaches since the law came into effect in 2013.
This is a crucial decision by the Dutch court and makes it clear that although the EUTR places a burden on economic operators to carry out due diligence requirements for timber entering the EU for the first time, if traders are found to be orchestrating illicit trade in timber behind the veil of a front company functioning as the economic operator, they can be deemed to be co-perpetrators and are liable under the EUTR.
It remains to be seen whether the ruling of the court effectively closes the loophole identified by EIA in our 2020 report The Croatian Connection Exposed, whereby traders based in member states with perceived stronger enforcement would slyly import teak via economic operators based in those EU countries perceived to have weaker enforcement standards.
This judgment therefore acts as an unequivocal warning to traders seeking to circumvent the reach of the EUTR.
Of those convicted, the main actor who was responsible for giving the orders to set up the front company in the Czech Republic was sentenced to 240 hours of community service while the other received a sentence of 90 hours of community service. Neither received financial penalties.
One of the companies involved was ordered to pay a suspended fine of €50,000, which is operational for two years, meaning that the convicted company does not have to pay the fine if it does not commit another criminal offence before the end of the period.
In all, nearly 66 tonnes of valuable teak were seized and removed from circulation on the EU internal market, except for 12 bundles which could not be linked to any criminal offence.
These penalties are without a doubt disproportionate to the crimes committed, effectively a mere slap on the wrist to those who facilitated the illicit trade. They are not sufficient deterrents to help prevent the same crimes being committed in future, given that the potential value gained from committing these crimes vastly outweighs the penalties issued by authorities.
The value of timber in both monetary and cultural terms need to be recognised by the judiciary as a serious environmental criminal crime. It is cheaper to break the law than to face robust penalties. It is our view that greater awareness within the courts of the seriousness of trading in stolen timber would add to a strong deterrence.
However, these convictions could – and should – be the impetus needed to remedy the lack of enforcement actions to date against those illegally importing teak. Leveraging criminal prosecutions against those fuelling the illegal trade by the authorities and institutions across all EU member states is absolutely necessary, since pitifully small administrative penalties have to date not worked to stop the trade.
The same must be said for the implementation and enforcement of the EU financial sanctions regime against the Myanmar military junta, which seized power more than a year ago. Since 21 June 2021, the day on which the State-owned Myanmar Timber Enterprise (MTE) was sanctioned by the EU, any imports of Myanmar teak likely constitute a breach of EU financial sanctions.
The MTE was sanctioned by the EU in an effort to prevent hard currency enriching the military regime and its cronies involved within the sector. When teak is sold by the MTE for export, the revenue generated is directly supporting the military regime, extending its ability to commit atrocities against the people of Myanmar with impunity. Sanctions must also be fully implemented and enforced to stop this trade.
The EUTR and EU sanctions are clear that there should be absolutely no imports of Myanmar teak entering the EU – now traders need to get on the same page too or face criminal convictions for dealing in this conflict timber in pursuit of their blood money.