IN THE MATTER OF ILLEGAL LOGGING AND
THE PROCEEDS OF CRIME ACT 2002
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NOTE
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1. We are asked to advise the Royal Institute of International Affairs on the circumstances in which action could successfully be taken under the Proceeds of Crime Act 2002 (the “Act”) against the proceeds of timber illegally produced in foreign countries and imported into the UK.
2. We have been provided with four papers which give background information into the import of illegal logging products into the UK:
(1) Controlling Imports of Illegal Timber: Options for Europe (RIIA and FERN, December 2002) (Doc 1)
(2) Controlling the International Trade in Illegally Logged Timber and Wood Products (RIIA, February 2002) (Doc 2)
(3) Forest Law Enforcement, Governance and Trade: Proposal for an EU Action Plan (European Commission, May 2003) (Doc 3)
(4) Holding the Purse Strings to Illegal Forestry Activities: Engagement with Financial Institutions and Investigation of Financial Crimes (CIFOR, June 2003) (Doc 4).
Background
3. Illegal logging takes place when timber is harvested, transported, bought or sold in violation of national laws (Doc 2 para 2.10). Examples of illegalities in relation to the timber trade fall under the following broad categories: illegal logging; timber smuggling; misclassification; transfer pricing; illegal processing; grand corruption; and petty corruption (Doc 2 Appendix 2 p.53).
4. Illegal logging includes:
(1) corrupt means to gain access to forests,
(2) extraction without permission or from a protected area,
(3) cutting of protected species or extraction of timber in excess of agreed limits, and
(4) logging in breach of contractual obligations (e.g. without an environmental impact assessment). (Doc 2 Appendix 2 p.53)
5. Timber smuggling includes the import and export of logs in defiance of trade restrictions and/or national control measures, unauthorised or unreported movements across state boundaries and avoidance of CITES restrictions. Misclassification includes under-grading and misreporting the harvest, undervaluing exports and the misclassification of species to avoid trade restrictions (e.g. mahogany) or higher taxes. (Doc 2 Appendix 2 p.53)
6. Despite these examples above, Docs 1 and 2 both identify difficulties in defining and identifying illegal logging (Doc 1 pp. 55-6; Doc 2 pp 13-14). These difficulties arise because in many countries forestry legislation is inadequate. Doc 2 explains at para 2.14-5:
“For example, a 1998 review of Cambodian forest legislation by the legal firm White & Case found it was “difficult to obtain, difficult to analyse, provides few objective standards for forest protection and provides no integrated guidelines or standards for forest management.” An overview of Indonesian forest governance in 2001 revealed inconsistencies and contradictions between laws and between government department decrees. In countries such as Brazil, different levels of government- federal, state, and local- possess overlapping legal and regulatory systems that may not always be consistent with each other.
In some countries there may simply be no clear definition of what is and is not illegal. The definition of what is legal and what is not may depend on administrative fiat, or may be easily changed by local or national governments seeking to maximise revenue. Many undesirable (and environmentally unsustainable) practices in the forestry sector- such as excessive allocation of quotas or processing capacity – may in fact be legal, under existing laws.”
7. At paragraph 2.17 Doc 2 considers possible law reforms to create clear definitions of illegal activities, but states at paragraph 2.18:
“In implementing these reforms, it will be important to avoid creating marked imbalances between countries. If a country has very strong, well-defined forest legislation, then a relatively high quality of forest management might be illegal, whereas in a geographically comparable country with very weak legislation, the same quality of forest management might comply with the law. Purely national-level definitions of ‘legality’ therefore have the potential to create disparities between countries when controls are applied at an international level.”
8. In the June 2003 paper “Holding the Purse Strings to Illegal Forestry Activities: Engagement with Financial Institutions and Investigation of Financial Crimes” (Doc 4) Jason Patlis suggests that one solution to the problem of unclear and non-stringent laws and inadequate enforcement in the country of origin is to look beyond the forestry laws themselves to other laws that might be violated in the course of illegal timber activities (p.11), and in particular to focus on financial and banking crimes as opposed to environmental crimes (p.12). He identifies money laundering legislation as a key tool in this battle in the EU[1] (p41-43) and points to the Proceeds of Crime Act 2002 in the UK.
Legal Background
CITES and the EC Wildlife Regulation
9. The Convention on International Trade in Endangered Species (CITES) provides for an international system of controls on trade in endangered species, including a number of tree species. This systems of controls operates by imposing requirements for permits and certificates for the import and export, or commercial use of species listed in CITES’ Appendices. CITES also requires contracting parties to take appropriate measures to enforce its provisions including measures to penalise trade in or possession of CITES species (see Article 8). Appendix I to CITES includes all species that are threatened with extinction. Appendix II includes species that are not necessarily threatened with extinction now but may become so unless trade in the species is subject to strict regulation. Appendix III includes species that a party identifies as being subject to regulation for the purposes of preventing or restricting exploitation, and where it needs the co-operation of other parties in controlling trade. (see Doc 1 p 21)
10. CITES is implemented in UK law via EC Regulations. The principal regulation is EC Regulation 338/97 (the “Wildlife Regulation”) amended by Regulation 1497/2003. It is complemented by Commission Regulation 1808/2001 and Commission Regulation 349/2003. Regulation 349/2003, meanwhile, suspends the introduction into the Community of specimens of certain species of wild fauna and flora. The EC Regulations are stricter than CITES, requiring import and export permits for all species listed in the four annexes to the Wildlife Regulation. The annexes to the Wildlife Regulation also cover more species than CITES. Article 16 of the Wildlife Regulation provides that Member States shall provide for sanctions for a number of infringements of the Regulation including falsifying permits or certificates, failure to comply with the stipulations on permits or certificates, import, export or shipment of specimens without permits and purchase or sale of specimens prohibited by Article 8 of the Wildlife Regulation.
11. Infringements of the import and export requirements of the Wildlife Regulation are criminal offences at UK law under the Customs and Excise Management Act 1979 (CEMA). The Control of Trade in Endangered Species (Enforcement) Regulations 1997 (CITES Regulations) makes the other infringements of the Wildlife Regulation specified in Article 16 criminal offences.
OECD Convention on Bribery
12. The OECD Convention on Bribery of Foreign Public Officials in International Business Transactions (“Convention on Bribery”) entered into force in February 1999. It has been ratified by 34 countries including the UK. It requires Parties to the Convention to take such measures as may be necessary to establish that it is a criminal offence under their law for any person to bribe a foreign public official, and to make the bribery of a foreign public official punishable by effective, proportionate and dissuasive criminal penalties which are comparable to that applicable to the bribery of the Party's own public officials. It also requires Parties to take such measures as may be necessary to establish their jurisdiction over the bribery of a foreign public official when the offence is committed in their territory, and where that Party has jurisdiction to prosecute its nationals for offences committed abroad, to take such measures as may be necessary to establish its jurisdiction to do so in respect of the bribery of a foreign public official, according to the same principles.
13. Part 12 of the Anti-terrorism, Crime and Security Act 2001 makes it clear that the common law offence of bribery applies to foreign officials, amends section 1 of the Prevention of Corruption Act 1906 to apply to corrupt transactions with agents outside the UK, and permits prosecution for offences of bribery committed outside the UK by nationals of the UK or bodies incorporated under the law of the UK.
Proceeds of Crime Act 2002
14. There are three main routes by which the Act seeks to target those who benefit from and/or deal in the proceedings of crime: criminal confiscation (Part 2)[2], civil recovery (Part 5) and money laundering (Part 7). Below we summarise the key aspects of each of these regimes.
Criminal confiscation (Part 2)
15. Section 6 of the Act provides that if a defendant is convicted of an offence in proceedings before the Crown Court, or is committed to the Crown Court for sentencing, or is committed by the magistrates court in order that a confiscation order be considered, and either the Prosecutor or the Director of the Assets Recovery Agency (ARA) asks the court to proceed under section 6 or the court itself considers it appropriate to do so, then the court must decide whether the defendant has a criminal lifestyle (section 6(4)(a)). If the court decides that the defendant has a criminal lifestyle then it must go on to consider whether the defendant has benefited from his general criminal conduct (section 6(4)(b)). If the court decides that the defendant does not have a criminal lifestyle then it must consider whether the defendant has benefited from his particular criminal conduct (section 6(4)(c)).
16. If the court decides that a defendant has a criminal lifestyle it must make a number of assumptions when deciding whether he has benefited from his general criminal conduct (section 10 of the Act). These assumptions amount in effect to the central assumption that the defendant is a career criminal who has no legitimate source of income so that everything he has acquired and spent over the preceding six years represents the proceeds of his criminal activity[3]. The burden of proof in disproving these assumptions is on the defendant, who must show that they are incorrect (section 10(6)(a)). The court must not apply the assumptions if there is a ‘serious risk of injustice’ if the assumption were to be made and applied (section 10(6)(b)).
17. Section 75(1) of the Act provides that a defendant has a criminal lifestyle if any of the following is true of the offence for which he has been convicted:
(a) it is specified in Schedule 2 to the Act;
(b) it constitutes conduct forming part of a course of criminal activity;
(c) if it is an offence committed over a period of at least six months and the defendant has benefited from the conduct which constitutes the offence. (section 75(2) of the Act).
18. Conduct forms part of a course of criminal activity if the defendant has benefited from the conduct and in the proceedings in which he was convicted of three or more other offences, three of more of which he has benefited from, or in the period of six years ending with the day when those proceedings started he was convicted on at least two separate occasions of an offence constituting conduct from which he has benefited. In order for the defendant to have been found to have benefited for the purposes of section 75(2)(b) and (c) above, he must have obtained benefit of not less than £5000[4] (sections 75(4)-(7)).
19. Criminal conduct is defined by section 76(1) as conduct which constitutes an offence in England and Wales, or conduct which would constitute an offence if it occurred in England or Wales. General criminal conduct is all the defendant’s criminal conduct whenever it occurred (section 76(2)).
20. The offences set out at Schedule 2 to the Act include the money laundering offences under sections 327 and 328 of the Act.
Civil recovery (Part 5)
21. The distinctive, radical feature of the civil recovery regime established by Part 5 of the Act is that it enables the recovery of the proceeds of criminal activity in civil proceedings even where no criminal convictions have been either sought or obtained. Section 240 provides that the enforcement authority (the Director of the ARA (section 316(1))) can recover in civil proceedings property which has been obtained through unlawful conduct. Those proceedings do not need to be brought against the perpetrator of the unlawful conduct, and may be brought against the person holding the property at that time whether they themselves have acted unlawfully or not.
22. Under section 241 unlawful conduct is defined as
(1) conduct occurring in any part of the UK if it is unlawful under UK criminal law, or
(2) conduct which occurs in a country outside the UK and which is unlawful both under the criminal law of that country and would be unlawful under UK criminal law if it occurred in the UK.
23. The court has to decide on a balance of probabilities whether any matters which are alleged to constitute unlawful conduct have occurred (section 241(3)).