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Research Report

Fighting forest crime and promoting prudent banking for sustainable forest management: The anti money laundering approach

Bambang Setiono
Yunus Husein
Copyright Date: Jan. 1, 2005
Pages: 34
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Table of Contents

  1. (pp. 1-2)

    Both local and international banks have financed forest-based industries in Indonesia. Before the Indonesian financial crisis of 1997, Indonesian local banks provided more than US$4 billion in loans to the Indonesian timber industries. The timber industries also received more than US$7 billion in short-term loans and long-term financing from international financial institutions (Setiono in press). All of the top ten local banks in Indonesia financed the timber industries. These banks included the former state banks that are now merged into Bank Mandiri, Bank Danamon, Bank Umum National (now closed by the government) and Bank International Indonesia. International institutions, Credit Suissee...

  2. (pp. 2-4)

    Banks and other financial institutions are major forces in facilitating the use of forest resources. They are important players in both the forestry sector and the broader economy. They help to finance trade and investment in sectors dependent on forest resources. These sectors include the timber and agricultural (i.e. oil palm and soya bean) industries, as well as the oil, gas and mining industries. The timber industries cut the timber from natural forests and timber plantations to produce wood-based products such as plywood and pulp. The non-timber industries sometimes clear forests to gain access to the land, in order to...

  3. (pp. 4-8)

    When they invest in the forestry sector, banks and other financial service providers (FSPs) face financial risks from the following sources, broadly defined as default, legal and reputation risks.

    One element of financial risk related to the forestry sector deals with bank customers that are involved in forestry crimes, especially illegal logging. Banks face legal and reputation risks when their customers are known or suspected to be involved in illegal logging activities. Banks could also face default risk when their forestry customers cannot continue their business using legal business operations. The forestry customers of banks range from forest-based industries to...

  4. (pp. 8-12)

    Before discussing how anti money laundering regimes can be used to curtail forestry crimes, we should first discuss the typology of money laundering, as it pertains to forestry crimes. These typologies will help us to see the roles that banks, forestry supervisors and law enforcement officers can play in curtailing forestry crimes.

    Money laundering is a new crime in Indonesia. It officially became an offence in April 2002. Money laundering is a crime that involves concealing or disguising the proceeds of predicate or original crimes. The criminals conceal or disguise the proceeds of original crimes, in the form of cash...

  5. (pp. 12-21)

    Logs, unlike drugs, are visible and to bring logs from remote forest areas to big cities where the logs are consumed they have to pass multiple government checkpoints. Government and law enforcement officers responsible for the checkpoints should stop illegal logs and bring to justice the one who carries the logs. According to the definition of the forestry regulation, illegal loggers are those who cut, move, carry and keep logs without permits, with improper permits, or by abusing the permits. Therefore, it is impossible for someone without a permit to get access to timber. However, the reality is different and...

  6. (pp. 21-22)

    This paper discusses the opportunities and challenges in using the new Indonesian anti money laundering law to simultaneously build prudent banks and sustainable forest-based industries. Despite providing a significant contribution to the Indonesian balance of payment, forest industries pose serious threats to Indonesian natural forests and local livelihoods. Recently, they have also come to pose a threat to the government budget—as was the case when the Indonesian Government spent more than US$3 billion to bail the forestry conglomerates out of bankruptcy.

    The threat of the timber industry to the banking sector is persistent and growing. Banks are incurring financial...