ROGUE TRADERS:The Murky Business of Merbau Timber Smuggling in Indonesia

ACKNOWLEDGEMENTSThis document was produced with the financialassistance of the European Union. The contents are the sole responsibility of EIA/Telapak and canunder no circumstances be regarded as reflectingthe position of the European Union.

EIA/Telapak thank the UK Department forInternational Development’s Forest Governance and Trade programme for its support of our work.

This report involved the use of specialist software from the i2 Group. www.i2group.com

Report design by:www.designsolutions.me.uk

August 2010

ISBN: 0-9540768-9-3

INTRODUCTION

INDONESIA’S STRUGGLE AGAINST ILLEGAL LOGGING

THE MAKASSAR CASE

SURABAYA SYNDICATE

MERBAU MARKETS

RECOMMENDATIONS

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CONTENTS

ENVIRONMENTAL INVESTIGATION AGENCY (EIA)

62/63 Upper Street, London N1 0NY, UKTel: +44 (0) 20 7354 7960 Fax: +44 (0) 20 7354 7961email: ukinfo@eia-international.org

www.eia-international.org

FRONT COVER:Designed by www.designsolutions.me.uk

TELAPAK

Gedung Alumni IPB,Jl. Pajajaran No. 54, Bogor 16143, INDONESIATel: +62 251 8393 245Fax: +62 251 8393 246

www.telapak.org

TERMINOLOGY

In this report the term Papua applies to the Indonesianpart of the island of New Guinea. Papua Province andWest Papua Province refer to the two provinces whichmake up Papua.

SurabayaJakarta

I N D O N E S I A

M A L A Y S I A

BRUNEI

KALIMANTAN

SUMATRA

PAPUA

JAVA

Makassar

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 China’s wood processingindustry. In response the Indonesian government of President Susilo BambangYudhoyono launched an unprecedentedcrackdown on illegal logging.

This decisive action marked a turningpoint in Indonesia’s struggle against illegal logging. Since then the country’sappalling 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 agreementwith the European Union. The internationalcommunity 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-loggedtimber, while in June 2010 the EU agreeda new timber regulation prohibitingimports of stolen wood.

Despite this substantial progress illegallogging continues to threaten Indonesia’sprecious forests. In April 2010 PresidentYudhoyono expressed frustration with thelack of progress in prosecuting illegal logging cases and instructed the government’s task force on eradication of judicial corruption to investigate.

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

investigations into merbau smuggling contained in this report show the involvement of a well-connected cabal ofcriminals able to evade detection with thesupport of corrupt officials.

During 2009 and 2010 EIA/Telapak carried out undercover investigations into the illicit merbau trade in China andSingapore, 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 bound for 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 serial smuggler based in Surabaya.

EIA/Telapak recognises the progress madein Indonesia against illegal logging, yetbelieves stronger action is needed to tacklethe timber criminals. Until 2005 theIndonesian government estimates that illegal 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 Indonesian government to investigate the casesdetailed in this report, and to staunch theillicit trade in merbau by placing it underthe UN Convention on International Tradein Endangered Species. It also needs toensure that the new timber legality system is robust enough to guarantee surveillance is effective. It is time to stepup the campaign against illegal logging.

EIA/Telapak, August 2010

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akINTRODUCTIONABOVE:Merbau logs being shippedfrom Raja Ampat, West Papuaprovince, April 2003.

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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”, oneofficer’s suspicions were aroused by thesheer weight of one of the containers.Closer inspection revealed its contents tobe 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 evadeIndonesia’s 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 rulespersist, with corruption a key factor.

The merbau timber was logged in Papuain eastern Indonesia and shipped toMakassar; permits for transportation are supposed to allow all timber to betracked from forest to factory. Onceloaded into containers the “truck flooring” should have been physicallychecked by an independent surveyorappointed by the government, afterwhich a wood export permit is issued.The 23 containers of illegal merbau logs received the necessary timberexport paperwork in Makassar and if not for a sharp-eyed customs officer inJakarta would have been shipped out of the country. Clearly a serious failurein the system for countering wood smuggling 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 smugglingof merbau in Papua promptedIndonesian President Susilo BambangYudhoyono to launch an unprecedentedoperation against illegal logging. InFebruary 2005 EIA/Telapak releasedThe 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 was dispatched 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 suspectswere identified by the police.(2)

The operation marked a decisive turningpoint in Indonesia’s struggle againstillegal logging. In the first half of theprevious decade the country’s forestshad been ransacked by illegal loggers,with Indonesia experiencing an illegallogging 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:Logs seized near Jayapura in 2005,guarded by troops prior to shipmentto Surabaya, June 2007.

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INDONESIA’S STRUGGLE AGAINST ILLEGAL LOGGING

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controlling the criminal syndicatesbehind the logging.(3)

By 2009 the rate of illegal logging inIndonesia was estimated to have halvedto 40 per cent.(4) EIA/Telapak fieldinvestigations found a significant declinein the volumes of illicit Indonesian timberreaching China and Malaysia, withtraders 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 inthe final stages of negotiations with theEuropean Union over a VoluntaryPartnership Agreement (VPA), underwhich 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 NationsCommission on Crime Prevention andCriminal Justice promoting internationalcooperation to tackle trafficking of forest products. In 2010 Indonesia andNorway signed a one billion dollar cooperation agreement on reducinggreenhouse gas emissions from deforestation 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 main lawbreakers, 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 2005-8 shows that 137 suspectswere released by the court, with only tencases resulting in a jail sentence of twoyears or more. The figures also illustratethe failure of the Indonesian authoritiesto apprehend the high-level perpetrators.Of the 205 cases just 49 were bosses,financiers or corrupt officials, with therest targeting people lower down the logging 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 wishto 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 poor performance of the judicial system indealing with illegal logging cases andordered the government’s Taskforce forthe Eradication of Judicial Mafia, set upin early 2010, to examine suspiciousverdicts in illegal logging cases. Heannounced: “I believe a mafia is behindthe illegal logging activities. I call onthe judicial mafia eradication task forceto tackle this problem, reduce and putan end to these activities.” (8)

BELOW:Illegal loggers collect fresh merbauflitches for delivery to a sawmill,near Jayapura, Papua province,September 2009.

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It remains to be seen how effective thescrutiny of the judicial system will be.There remains systemic corruption in thepolice, the attorney general’s office andthe 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 towork together to combat forest crimes.(9)

PRESSURE ON PAPUA’S FORESTS

The challenge of combating illegal logging in Indonesia is epitomised by thesituation in West Papua and Papua, thecountry’s two easternmost provinces.Papua’s 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 inthe world, after the Amazon and CongoBasin. As such Papua’s forests are ofglobal significance.

Papua’s forests harbour an incrediblearray of unique biodiversity, approximately60 per cent of that found anywhere inIndonesia; in recent years they havebeen described as a “garden of Eden”after international teams of explorersdiscovered a host of species new to science and the world.(10)

These forests are also home to morethan 250 distinct tribal groups, some ofthe most culturally and linguisticallydiverse peoples in the world. These communities have managed the forestsfor generations, precisely because theirdaily livelihoods are inextricably linked

to the forest resources. Papua’s forestsalso contain literally hundreds of millions of tonnes of carbon.

The fact that Papua contains virtuallyall of Indonesia’s merbau trees makes ita main target for illegal logging operations.Forestry Minister Zulkilfi Hasan recentlyconfirmed that large-scale illegal loggingin Indonesia is now concentrated onPapua.(11) A senior official at the Ministryof Forestry has admitted the severedamage already done to Papua’s forestsby illegal logging and forest exploitationfor plantations, stating that a quarter of Papua’s forests have been lost sincethe late 1990s, with the forest areafalling from 32 million hectares to 23million hectares.(12)

Management of Papua’s forests is chaoticand non-transparent. In the aftermath ofOHL II many of the forest concessionswere reported to be inactive. Yet withina few years there were indications thatlogging was again on the rise, with aprocess of consolidation by some of thebiggest 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 forest concession in the remote Mimikaregency on the southern coast of Papuaprovince. The sum paid was equivalentto just $320 per hectare, with timberstocks on the land worth approximately$148 million.(13)

Another investor is Robert JoppyKardinal, a member of the Indonesianparliament. He reportedly owns a stake

ABOVE:Illegal forest conversion, West Papua, April 2009. 25 per cent of Papua’s forests have been lost since the late 1990’s.

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in 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 local communities were accusing Wana Irian 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 as “verified legal” by Swiss auditors SGS.In November 2009 Yorris Raweyai, amember of Indonesia’s parliament,called for an investigation into accusationsof illegal logging and log smugglinginvolving the Mamberamo Alasmandiriconcession.(16) Local communities havealso alleged that widespread illegal logging by the company Sinar WijayaPlywood Industry (SWPI) had beenoccurring, including harvesting beyondthe concession boundary.(17) SWPI, aplywood manufacturer, owns 10 percent of Mamberamo Alasmandiri andobtains its raw timber from the concession. 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 been carrying out illegal logging in theMamberamo region for a long time.(18)

Further evidence of widespread illegalities in Papua’s 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 concession company Hasrat Wira Mandiri. In June2010 more than 5,000 cubic metres oflogs were seized by police in the Bintuni area of West Papua, including2,000 cubic metres of merbau logs. Inboth cases the logs did not have therequired permits.(19)

Forest management and enforcementagainst illegal logging in Papua is complicated by an uncertain legal framework. In September 2007 the governors 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 thewood processing sector. The instructionstated that from the start of 2008 notransportation of logs from PapuaProvince would be allowed, while aphased control would be put in place inWest Papua Province, with 50 per centof 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 from

Papua 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 being implemented, since the wood industry in other parts of Indonesia relies heavilyon Papua’s forests for raw materials,especially merbau. This is demonstratedby 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 materialswill be sourced. In 2008 sawmills outside 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 merbau accounted 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 Indonesia’s exports (excluding panel, veneers, pulp and paper). Between 2003-07 recorded merbau export volumes trebled.(22)

In 2005 the Indonesian Ministry of Forestry began preparations tolist merbau on Appendix III of the Convention on InternationalTrade in Endangered Species (CITES). Such a move would havecompelled other countries to seize shipments of illegal Indonesianmerbau, 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:Illegal merbau logs in Seremuk,South Sorong, West Papua, 2003.

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The port city of Makassar is a majorcentre for trade and processing of merbau. Historically much of the houseconstruction in Makassar used merbau,which was to be found in Sulawesi’sforests. Nowadays there is hardly anymerbau left in Sulawesi, but a significantexport-oriented merbau processingindustry has grown, reliant on suppliesfrom Papua.

Makassar’s 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 customs officers for contravening Indonesia’s log export ban. The illegal shipment comprised 10 containers of 40 foot inlength and 13 of 20 foot in length.Inside were found 120 merbau logstotalling 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 inthree different countries; Jiangsu SkyrunInternational Group in China, Sri BalajiLogs Products in India and Vary Timberin South Korea. The shipment was routedvia Jakarta in order to connect withinternational shipping routes. The contentsof the containers were described as“truck flooring tongue and groove”.Under Indonesia’s sawn timber exportban such part-processed wood productscan be exported, but must undergo physical inspection by an independentsurveyor appointed by the Ministry ofTrade(23). The company Sucofindo, whichis 95 per cent owned by the Indonesiangovernment, has the exclusive contractto carry out this work.

Furthermore the exporting companymust be registered by the Ministry ofTrade under the ETPIK scheme(Eksportir Terdaftar Produk IndustriKehutanan) and have an endorsementletter for each consignment issued bythe 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 endorsements had already been obtained. Yet the intervention of alert customs officers inJakarta foiled the plot and triggered asix-month investigation into the attempted 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 beenbought by exporter Menara Mas fromthe company Rajawali MakmurSejahtera, a large merbau processorbased in Makassar. Staff from MenaraMas bribed a Sucofindo employee to falsify the surveyor’s report and to givethem the seals for the 23 containers,instead of carrying out an inspectionhimself. BRIK issued the export document for truck flooring.

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

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ABOVE:Merbau logs at Rajawali MakmurSejahtera, Makassar, Sulawesi, May 2010.

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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. Duringthe hearing it was alleged that Arsyadpaid Hakim a bribe of just $20 to falsifythe inspection, with the promise of morepayments later.(25) It was reported inJune that Kusuma had been sentenced totwo years in jail.(26)

Yet investigations in Makassar byEIA/Telapak show a much wider conspiracy, with the leading role playedby Hengky Gosal.

In May 2010 EIA/Telapak investigators,posing as timber traders, visited the factory of Rajawali Makmur Sejahtera(RMS) and met with Alex Tungadi, thecompany’s 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 investigatorsthat 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) percubic metre for the logs. He also saidRMS was in the process of obtainingchain of custody certification.

Tungadi further explained how he sometimes 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 duringtransport. As well as logs Tungadi buysrough sawn merbau from “local sources”in Papua and processes this timber intoflooring blanks for the China market. Inaddition 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 atour of the company’s 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 Alasmandiriin August 2009. Tungadi said it wasstandard practice in Makassar to pay“lubrication 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. Tungadi’s claimsabout the origin of logs used by RMS arecontradicted by the company’s RPPBIdocument, which states that in 2009logs were to be supplied by the concession 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 its name to Nessa Golden Wood, addingthat 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 factorywas being refurbished, adding that hewas currently storing his supply of merbaulogs at the RMS factory. He alsorevealed that Tungadi was his youngerbrother. Gosal contradicted his youngerbrother, claiming that the logsEIA/Telapak investigators had seen atRMS were actually his and had beenbrought from a supplier in the Biakregion of Papua two months before. Hesaid he also obtains merbau logs from anumber of concessions in Sorong, aswell as Mamberamo Alasmandiri, andtravels to Papua every three months tobuy merbau logs, paying local militarypersonnel to act as bodyguards duringhis trips. Gosal told how he used towork 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 (including shipping). He also revealed how he usedto ship large quantities of illegal merbau

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BELOW:Hengky Gosal, Director of UD MenaraMas, admitted shipping 40 - 50 containers of merbau flitches to China per month.

BOTTOM:Sucofindo’s office in Makassar,Sulawesi. A Sucofindo auditor did notinspect containers containing illegaltimber following a bribe from employees of Hengky Gosal.

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 23 containers 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 thebusiness then. According to Gosal trade contacts had told him it was stillpossible to ship merbau flitches out of 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 person coming, 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 GoldenWood, but could find no trace of either company.

EIA/Telapak investigations in Makassar

reveal how Hengky Gosal is implicatedin large scale smuggling of illegal merbau flitches to China, and was certainly behind the attempt to exportthe 23 containers of merbau logs. It alsouncovers connections between Gosal and RMS, run by his brother Tungadi.This relationship is demonstrated in theRPBBI document for RMS; sale of logsby the company to another wood processor involved payment being madeto the account of Nessa Golden Wood. A third brother, Fendy Gosal, is listed asthe contact at Menara Mas in the firm’sETPIK licence.

The 23 containers case demonstrates a number of enforcement weaknesses. A bribe ensured that the physical checks by the surveyor Sucofindo andthe BRIK requirements for an ETPIKlicence could be easily circumvented.Lack of cooperation between differentagencies persists. In November 2009 theMinistry of Forestry wrote to customs inJakarta asking to join the investigationinto the 23 containers case. A reply wasnot received until May 2010, meaningthat the customs law aspects of the caseand the forestry law infringements havenot been combined. Finally, the true culprit, Hengky Gosal, has not beencharged while more junior staff atMenara Mas and Sucofindo serve as convenient scapegoats.

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BELOW:Tanjung Priok port CustomsOfficers display merbau logs tothe media following seizure of23 containers belonging toHengky Gosal’s UD Menara Mas,19th October 2009.

The city of Surabaya in East Java is amajor centre for timber processing inIndonesia, including merbau. It is alsothe location of the country’s busiestport, Tanjung Perak. Due to these factorsSurabaya has emerged as a major hubfor merbau trade and smuggling.

Most of the wood processing factories in Surabaya are located in the Gresikindustrial area of the city. Here merbauround logs from Papua are processedinto a range of finished and semi-processed products for export, principallyflooring and decking. While most ofthese operations are legitimate and conform to Indonesia’s log and sawntimber 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, including merbau, bound for export. In the firstcase 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 othertimber species.(28)

EIA/Telapak investigations have uncovered the on-going criminal activitiesof Surabaya-based businessman RickyGunawan, one of the most active merbau smugglers in the city. Evidence gatheredin Surabaya, Singapore, and Guangzhouand Xiamen in China since 2006 pointsto Gunawan’s prominent role in the illicittrade in merbau. EIA/Telapak have submitted several reports on Gunawanto the Indonesian authorities, but he has yet to be investigated. As recently as December 2009 he was still

shipping illegal merbau flitches to southern China.

EIA/Telapak investigators first encountered Gunawan in November2006. Posing as timber buyers, the team met with Riki Sumandi, director of the company Lido in Surabaya, whohad been advertising merbau flitches for sale to overseas markets.

Sumandi took the investigators toGresik, where they were introduced to Ricky Gunawan, director of Surabaya Trading and Sumandi’s business partner.

Gunawan soon boasted of his ability tobreak the law and to supply illegal merbau at low risk due to his connections.He claimed to ship up to 3,000 cubicmetres of air-dried rough sawn merbauto China every month. After sawing thelogs in Gresik, he explained how thewood was loaded into containers at fivedifferent warehouses in the area andshipped to the Chinese ports ofShanghai, Huangpu, Shenzhen,Guangzhou and Shantou. About 50 containers a month were being delivered, with Gunawan dealing withtwo main buyers – one Singaporean and one from Hong Kong.

During the meeting Gunawan said: “Thisexport is non-legal. Today, no problem.Next week, I don’t know. When thecargo arrives in China, don’t just open itat the port”, adding that occasionally hehad to stop the shipments when customscontacts in Tanjung Perak tipped him offabout impending clampdowns.

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

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sSURABAYA SYNDICATE

TOP:Surabaya customs officer inspectingmerbau in nine containers owned by Surabaya Trading following its seizure in April 2009.

ABOVE:Ricky Gunawan, a major Surabaya-based merbau smuggler, in 2006.

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Gunawan’s 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 export“housing components” of merbau timberto China. The three firms – SurabayaTrading, Grafity Merindo and Trias HasilAlam Lestari – are all connected toGunawan and were granted permissionto export 70,000 cubic metres of merbautimber on the grounds that the “housingcomponents” were destined for a construction project in Mongolia. It wasalso claimed that the components werepart of a reconstruction efforts after theSichuan earthquake.

Sources in Surabaya state that the shipments of “housing components” sentby Gunawan were in reality rough sawnmerbau posts, similar to the ones hewas smuggling in 2006. Informationobtained by EIA/Telapak in China showsthe shipments were not destined for ahousing project in Mongolia, but insteadwere 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-ChineseTrading, located in Fujian Province,southern China. During May 2008Gunawan sent 40 containers of “merbau 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 Chinese factories producing merbau flooring,doors and stairs.

Gunawan surfaced again in April 2009,when customs officers in Tanjung Perakport detained nine containers of merbautimber destined for export to China. Theowner of the consignment wasGunawan’s Surabaya Trading and theshipment had been cleared for export bythe 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 inspection customs agents discovered discrepanciesbetween 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 investigatorsmet with Zheng Jianyang, the managerof a company called Xiamen SanstarTrading, at his office in Xiamen city,Fujian, China. Shipping documents showthat 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 several government officials and some membersof the local parliament on Gunawan’sbehalf the customs department had torelease the seized containers for onwardshipment. Once again Gunawan escapedofficial investigation.(30)

The scale of Gunawan’s activities arewell-known to fellow smugglers. Onesuch smuggler is Singapore-based Ng Yit Fooi, boss of Soh Timber Binders.EIA/Telapak first encountered Ng in2003 while investigating the lucrativetrade in ramin timber. During a meetingwith EIA/Telapak investigators Ng toldhow he was shipping protected ramintimber from Sumatra to China using fakepaperwork. He also claimed his mainbusiness was trading merbau fromPapua to China.

EIA/Telapak came across Ng’s nameagain while looking into merbau tradingin Makassar in 2010, where it wasrevealed Soh Timber Binders was a customer 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/Telapak investigators an invoice for a consignmentof illegal merbau flitches he had boughtfrom Surabaya Trading in December2009 at a price of $1,150 per cubicmetre for shipment to Guangzhou inChina. When asked about SurabayaTrading, Ng immediately mentionedGunawan, a “friend” whom he describedas “a smuggler”. He said the reason hebuys from Gunawan is because “he hasthat channel to get through customs”. At Ng’s warehouse EIA/Telapak observedsome of the flitches sent by Gunawan.

For five years Gunawan has been successfully smuggling merbau flitchesout of Surabaya to China, using a varietyof deceptions. Even when one of hisshipments is seized it ends up beingreleased, testament to his influentialallies and explaining why he has yet tobe prosecuted.©

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BELOW:Flitches at Soh Timber Binders’warehouse, Singapore, May 2010.

BOTTOM:Ng Yit Fooi, of Singapore-based Soh Timber Binders, May 2010. Mr Ng imports illegal merbau flitches from Ricky Gunawan.

The international market for merbau haschanged in recent years due to factorssuch as the economic recession, consumer trends, China taxation laws,Indonesian wood export regulations and the availability of timber supplies.Despite these changes, EIA/Telapakinvestigations in 2009 and 2010 revealthat 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 LaceyAct came into force in 2008, while theEU 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, China’s main timber tradingcentre. Even though there was a declinein the overall availability of Indonesiantimber (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 of containers of Indonesian merbau beingunloaded at the warehouses. The majorityseen was part-processed flooring materials, which can be legally exportedunder Indonesian law, but there werealso substantial amounts of merbausawn timber and flitches, smuggled outof Indonesia. One trader estimated morethan 80 per cent of Indonesian merbauarriving at Furen is in the form of sawntimber and flitches, and less than 20 percent 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 exporttax on solid wood flooring exports introduced in 2006.

Although flooring materials observed atfactories EIA/Telapak visited in 2009generally adhered to Indonesian exportrequirements, there were companieswhich clearly sourced illegal materials.One such company was CheersonFlooring in Nanxun. The firm’s exportmanager stated that it regularly importsrough sawn air-dried merbau and kempas directly from Indonesia. At itswarehouse, EIA was shown stacks ofrough sawn timber waiting to beprocessed. Such exports are illegalunder Indonesian law.

During a visit to Haoweifu Wood, a factory producing mainly merbau andkempas flooring, the owner revealed toEIA/Telapak investigators that hesources merbau through a Chinese agent in Papua, who in turns buys itfrom “illegitimate” sources. He said:“They chop it down and sell it toChinese people. Then they’ll find a way to get it to China. Once it reachesChina, then it becomes legal. Everythingbefore that is all illegal”. He alsorevealed that the timber legality documents he obtains “are bought withmoney from corrupt Indonesian government 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

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© E

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TOP:Indonesian merbau flitches such as these in Furen Timber Market,Shanghai, in May 2009, are a common sight, and evidence of continued smuggling from Indonesia.

ABOVE:Furen Market, near Shanghai, China’s biggest timber market.

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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 flitcheswere openly on display. The owner saidhe 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, including merbau and kempas. The manager saidhe sources merbau from a supplier inEast Malaysia. He said that the timber“is of Indonesia origin… but becauseIndonesia can’t 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 Chinese state-owned conglomerate JiangsuSkyrun International Group.

INDIA

Another growing market for Indonesianmerbau is India. In 2006, EIA met withPrince Elavarasan of Singapore-basedSPB Cons Marine Import-Export whoexports large volumes of Indonesianmerbau and bengkirai flitches and logsto 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 fortruck 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. Sincethe economic recession hit in 2007 factories have seen sharp declines inexports to these markets.

In 2009, EIA/Telapak met with a majorSingapore-based merbau supplier whohas a factory in Surabaya producingmerbau 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 and distributors in Europe and the US. Such firms include Shanghai LinggeFlooring, shipping to the US, andHaoweifu Wood, which produces about10,000 square metres of merbau flooring per month and exports primarilyto the US and France.

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BELOW LEFT:Workers at Cheerson Flooring,Nanxun, May 2010.

BELOW RIGHT:Most illegal Indonesian flitches on sale in Furen are used to make stairs and doors.

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1. EIA/Telapak, The Last Frontier, 20052. EIA/Telapak, The Thousand-Headed Snake, 20073. Human Rights Watch, Wild Money, 20094. Lawson et al, Illegal Logging and Related Trade,

Chatham House 20105. Letter of Intent between Norway and Indonesia,

Cooperation on Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation, May 2010

6. Indonesia Corruption Watch, Corruption within illegal logging eradication, 2009

7. Antara, President Calls for Continued Fight Against Illegal Logging, 5 April 2010

8. Antara, President: Mafia Behind Illegal Logging Cases, 7 April 2005

9. Republic of Indonesia Presidential Instruction no. 4 2005

10. EIA/Telapak, Up for Grabs, 200911. Jakarta Globe, SBY Calls for Developed

Countries to Help Indonesia in Battle Against Global Warming

12. Suara Pembaruan, 25% of Papua’s Forests Felled, 29 April 2010

13. EIA/Telapak, Up for Grabs, 200914. Kompas, Military Police Personnel Suspected

Involved in Illegal Logging, 18 March 2005

15. Telapak, Bencana dan harapan, March 201016. Suara Pembaruan, Stop Log Exports from

Mamberamo, 16 November 200917. Tabloid Jubi, Ribuan Log Ilegal Ditemukan di

Mamberamo, 8 June 201018. Tempo, Pengiriman Ribuan Kubik Kayu Ilegal Dari

Papua ke Jawa Digagalkan, 21 June 201019. Tempo, 9 June 201020. Peraturan Bersama Gubernor Propinsi Papua dan

Gubernor Propinsi Papua Barat, 18 September 200721. www.bpphp17.web.id/database22. www.dephut.go.id/files/datarelease_bpk08_0.pdf23. Ministry of Trade decree number 20

M-DAG/PER/5/200824. Agro Indonesia, Laporan Surveyor sang Penentu,

27 October 200925. Tempo, Kasus Penyelundupan Kayu 23 Kontainer

Mulai Disidangkan, 8 February 201026. Berita Kota Makassar, Jual 23 Kontainer Kayu,

Divonis Dua Tahun, 25 June27. Tanjung Perak customs office press release,

11 June 201028. Surabaya Post, 21 June 201029. EIA/Telapak, A Backwards Step, 200930. Surabaya Pagi, Dua Pejabat Bea Cukai Perak

Berseberangan, 23 February 2010

REFERENCES

RECOMMENDATIONSThe Indonesian government has madesignificant progress in tackling illegallogging since 2005. But while the hugequantities of illegal timber flowing out of the country during the first half of the decade has declined, effective lawenforcement against those responsible – the financiers, company bosses and corrupt officials – has been woefullyinadequate. It is no wonder theIndonesian President has ordered thecountry’s judicial mafia eradication taskforce to scrutinise illegal loggingcases. The taskforce should certainlyfocus its attention on two merbau smugglers named in this report – Ricky Gunawan and Hengky Gosal.

The illegal logging and trade of merbauin Indonesia is symptomatic of widergovernance and enforcement failures inthe forest sector as a whole. From thechaotic way in which Papua’s preciousforests are managed to the failure ofagencies such as government-ownedinspection agency Sucofindo and officialtimber agency BRIK to prevent violations of the log and sawn timberban, the need for more effective controlsystems is clear if the battle against illegal 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 Ministry of Forestry regulation has the potential– if fully implemented – to bring propertransparency and regulation to the country’s notoriously opaque and corruptforestry sector.

THE GOVERNMENT OF INDONESIA SHOULD:

� List merbau on Appendix III of the Convention on International Trade in Endangered Species (CITES) with a sustainable quota for trade

� Launch formal investigations into the illegal activities of Ricky Gunawan and Hengky Gosal

� Clarify the legal status and implementation of Papua’s log transport controls

� Ensure that the SVLK is fully implemented, including penalties for verification bodies which fail to perform effectively

� Ensure that the SVLK system requiresfull timber traceability back to a legal forest source

� Review Sucofindo’s position as the only official wood export inspection agency

� Review the effectiveness of Presidential Instruction 4 of 2005 in light of evidence that enforcement agencies are still failing to collaborateeffectively against illegal logging

� Empower a task force (satgas) reporting directly to the President on actions against illegal logging

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