Corruption and financial fraud of reforestation fund amounts to 5.2 billion in losses; Casts doubt on REDD+ efficacy

Photo: Courtesy of Greenpeace Southeast Asia

Conservation biologists have looked to REDD+ (Reducing Emissions from Deforestation and Forest Degradation) as a potential realistic alternative to increasing biodiversity in threatened areas. The objective is to reduce greenhouse gases by providing financial incentives to encourage companies to abstain from cutting down forests. A case study on the Sino-Forest demonstrates that loose government control has facilitated in the loss of biodiversity by making it feasible for companies to engage in fraudulent schemes to exaggerate profits and misdirect funds.

In theory, the REDD+ design mechanism would not only increase biodiversity but provide forest-based activities, jobs, and opportunities for small-holders to establish long-term ownership of salvaged land. Other benefits are rural economic development, soil conservation, watershed protection and land management. All this potential has been undermined by insufficient governance and accountability by third parties, and has conversely resulted in hurried deforestation and corruption.

Indonesia’s reforestation funds have been fraudulently diverted to support other projects for over a decade, with losses amounting to 5.2 billion. Since its establishment in 1989, $500 million has been dispersed annually to forest companies, which use high discretion to channel money to undisclosed subsidiaries. During the 1990s alone over $600 million were used to finance political projects, $190 million went towards state-owned aircraft projects, and many other funds were directly linked to the president’s family. Most of the money was dispersed to companies that exaggerated investment costs in planting trees, and overstated areas they had planted. With over a decade of discretionary corruption, it wasn’t until recently that these fraudulent acts have been brought to light.

A Muddy Waters film released in 2011 revealed such fowl play of the Sino-Forest corporation, which has expanded rapidly in the past 17 years. The film accused the Sino Forest of exaggerating purchases from a Yunnan agent by 800 million in order to transfer money via middlemen to 20 affiliates in the British Virgin Islands, among other fraudulent accusations. In response, Sino Forest denied all the claims and insisted on hiring their own private committee to investigate the issues. Their results: inconclusive due to lack of records. We agree, big surprise right? After all, the forestry ministries are highly suspected of frequently accepting monetary bribes in exchange for timber licenses to independent foresting companies, which are assumed to be off the record. The problems appear to be buried behind a layer of discretionary disclosure of funds backed by ministries who have inadequate financial governance of money.

In order to improve the efficacy of REDD+ in areas like Indonesia, Malaysia, Laos, Vietnam, India, and China, a system of “checks and balances” ought to be established that encompasses the executive and judicial branches of government in order to execute internal financial controls and audits by external organizations. Only with true transparency and policy reform can these acts of corruption and fraudulence be stopped in its tracks. This can be accomplished via anti-corruption agencies and financial crimes units that guarantee program funds meet international standards. In order to move forward in conservation of forests in third-world countries, considerable steps must be taken back to reconstruct a system of regulation and transparency. Until then, conservation efforts that rely on financial incentives to prevent deforestation are highly skeptical at best.


This entry was posted in Conservation Biology Posts, Conservation Blogs 2012-2013. Bookmark the permalink.

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