Papering Over Illegalities: EIA assessment of new Holzindustrie Schweighofer report

On April 13th, 2016, the Austrian wood processor Holzindustrie Schweighofer (Schweighofer), released an evaluation of their due diligence system in Romania which the company had commissioned the forest consulting firm Indufor to undertake. Indufor’s report was the result of an evaluation visit to Romania in January 2016 during which the consulting firm assessed the supply chain control systems at Schweighofer’s Romanian operations in place at the time of the visit. The report appears focused entirely on systems and paper documentation. It ignored the wealth of evidence showing that illegal timber has reached Schweighofer’s supply chains over the past decade, including reports by the Romanian government itself, national and international media, and civil society investigative reports. It also fails to mention an ongoing investigations by the Forest Stewardship Council into Schweighofer’s involvement in illegal activities. Schweighofer is again asking its customers and the public to trust that it is providing them with legal timber, after betraying the public’s trust through its extensive sourcing of illegal timber over the past decade. EIA calls on Schweighofer to make their sourcing system transparent and verifiable by publicly releasing the harvest information, in the form of the Act de Punere in Valoare (APV) numbers, for all logs it receives in its factories. Only by providing real transparency can the company hope to regain the trust of the public and of its customers.

Indufor’s report describes systems as they function on paper – not in practice. The consultancy “visited and interviewed wood suppliers, state and private forest owners and observed supply chain operations;” their scope did not include stakeholders or government officials outside of Schweighofer’s immediate supply chain, nor did it involve an assessment of the recent history or potential for violations of the systems.

No guarantee against illegal timber

Despite the limited scope of Indufor’s evaluation, the consultancy notes a number of areas of concern within Schweighofer’s supply chain. Whereas Schweighofer’s press release claims that, “Indufor established that this strict regime virtually precludes the possibility of illegal wood making its way into legal deliveries,” the consultancy’s report is more sanguine in its assessment:

“When the supply chain contains two or more actors, tracing logs back to the logging site becomes more complicated. In practice, HS becomes highly dependent on the quality and reliability of the suppliers, in particular on their systems to manage information on the wood flows. This exposes HS to challenges while assessing legality risks and conducting verification audits.

The consultants thus acknowledge that, once the wood has gone through a depot or if it comes from an auction, it is no longer possible for Schweighofer to verify legality as they rely on their more than 1,000 individual suppliers across the country to respect the law. This despite investigative media reports highlighting corruption and illegal dealings with many of Schweighofer’s largest suppliers, and Romanian government reports speaking about organized criminal networks including Schweighofer suppliers and even company sourcing officials. In one example, the Romanian Ministry of the Environment’s control report on Schweighofer’s Sebeş mill found that 27 Schweighofer suppliers from a single county had provided the company with over 100,000 cubic meters of illegal logs.

Indufor’s report continues:

“There are still points where illegal wood may be able to be mixed with legal wood, if the internal and government (Forest guards) controls are weak. It is therefore important that special attention is paid to log yards and other sites collecting and processing timber from various forest sources.”

Given the wealth of evidence indicating weaknesses in both the internal and government controls, Indufor’s warning in this instance is particularly relevant.

Government controls not yet

Nevertheless, the consultant’s report praises not only Schweighofer’s internal systems, but also Romanian government control systems, in particular the SUMAL electronic tracking system, the transportation documents (aviz, pl. avize), and the new Forest Guard. While all of these elements are indeed important components of a strong government monitoring system, all three face numerous shortcomings. The Romanian government has recognized this and is currently actively working to fix a number of loopholes in the SUMAL system.

The consultant’s report states that Romania’s Forest Guards randomly inspect logging sites without pre-notice, providing a further check on the legal operations of suppliers. The report fails to note that the Forest Guard is quite new and its structure and operations are still under development. The reason the Forest Guards were created was the ineffective operation of the previous forest police system. While there is great hope that the new institution will be more effective, this has yet to be proven in practice.

The consultant’s report further states that SUMAL cannot include more timber than stated in the APV, the Romanian logging permit that establishes the annual allowable cut based on standing wood volumes. However, the Romanian Ministry of the Environment’s control report on Schweighofer’s Sebeş mill found that suppliers sold the company the full gross volume indicated in the APV as round logs, despite the fact that a part of the gross volume of any timber harvested from a single APV will inevitably include low-quality firewood. The Ministry report concluded that Schweighofer was using the APV volume to launder logs that were not legally cut with the APV permit. Although this government report has not been published, the information was released by Romanian journalists in the summer of 2015 based on a leaked copy of the report.

Indufor’s report also states that Romania’s aviz system gives a limited time window for trucks to transit from forest or log yard to Schweighofer’s mills, “making the reuse of AVIZs difficult.” Evidence from the field proves otherwise. EIA’s report documented that this violation – trucks making two or three trips within the timeframe allotted under a single aviz – is quite common in Romania. The allotted time is determined based on the time needed for a fully-laden logging truck to traverse muddy forest roads – but a truck traveling national highways between a log depot and the Sebeş mill will be able to cover much more distance in much less time – making multiple trips possible.

In fact, transport of timber even without a registered aviz is quite common in Romania. Since beginning operations in October, 2014, Romania’s 112 system, which is intended to provide stakeholders with information about basic levels of legality in timber transport across Romania, has recorded 21,500 calls from citizens asking if a particular logging truck seen on Romania’s roads has been legally registered in the SUMAL system. According to Government records, 22 percent of these trucks were illegal.

The Romanian Ministry of the Environment’s report highlights how Schweighofer’s suppliers provided extra avize to account for deliveries of illegal timber. Government investigators found a large number of suspicious avize in Schweighofer’s Sebeş mill, transportation documents supposedly covering a single shipment (for trucks with a capacity of 20-35 m3), but which list shipments of either very small volumes of 2 or 9 cubic meters, or large ones of up to 188 cubic meters. The authors of the report concluded that Schweighofer’s suppliers created additional avize to cover “quantities of timber that are difficult to justify legally.”

Schweighofer’s due diligence system is not EUTR compliant

The report concludes that “Schweighofer’s internal Due Diligence System (DDS) … addresses the requirements of the EU Timber Regulation (EUTR).” However, upon further examination, it becomes clear that it is not EUTR compliant.

The EU Timber Regulation (EUTR) specifies that risk assessment must consider the “prevalence of illegal harvesting.” Factors to be taken into account include evidence of illegal logging from “field research and investigative work,” as well as “claims to ownership of or rights to forest land and resources by local communities.” EIA’s 2015 report highlighted numerous violations connected to Schweighofer that are relevant to these factors. Instead, risk assessment under Schweighofer’s DDS is based on private FSC certification: “organizations compliant with FSC forest management or controlled wood certification are considered low risk suppliers.” The FSC itself states very clearly that FSC certification alone is not accepted as proof of compliance, noting that “several national competent authorities appear not to accept FSC certification as sufficient evidence of negligible risk.” Schweighofer’s lack of consideration of the extensive evidence of high levels of illegal logging in Romania indicate that its DDS is unlikely to stand up to proper scrutiny from enforcement authorities.

Schweighofer continues to falsely state that its FSC controlled wood system ensures that all suppliers are closely examined. In effect, Schweighofer’s new controlled wood certification is a step backwards from FSC’s strict 100 percent certification, which previously covered only a limited number of Schweighofer’s production, to a weaker “mixed sources” category. The new “CoC Controlled Wood standard” allows Schweighofer to label any of its products with the FSC logo, even if it contains large amounts of uncertified wood. As Indufor notes in its report, only a small fraction of suppliers would actually be required to be audited. According to FSC’s Controlled Wood standard, out of Schweighofer’s over 1,000 suppliers; only about 25 would require an audit each year.
Regarding Schweighofer’s supplier assessment criteria, the consultant’s report highlights that any suppliers with FSC controlled wood certification are considered low risk and require no further evaluation. Other suppliers must provide paper documentation showing legality – in a country with widely-recognized problems of forged documentation, this is clearly insufficient. CEO Gerald Schweighofer himself acknowledged as much in an interview with Austrian press, responding to a question about the legality of its suppliers’ documentation: “if they are fake or not, cannot be verified.” More recently, a November 2015 Romanian TV investigative program broadcast an interview with a truck driver who had delivered logs to Schweighofer for five years. He estimated that, over that time, around 80 percent of the timber he transported was illegal – transported with fake paperwork bought by his managers. Once this paperwork was presented at Schweighofer’s Sebeş gate, his truck was let inside to unload.

Transparency needed – Schweighofer must make harvest information (APVs) public for all log purchases

Once again, Schweighofer is seeking to convince the public that paper-based documentation systems constitute sufficient due diligence even in countries like Romania where the risk of illegal logging is particularly high. The company asks its customers to trust it – and further, to trust its over 1,000 suppliers – despite a litany of growing evidence from media, civil society, and the Romanian government itself that the company has long sourced illegal Romanian timber. Indeed, Indufor makes it clear that its analysis was based on a single point in time. Regardless of potential improvements that Schweighofer may have made over the past year in response to public criticism, which remain insufficient to exclude illegal timber from their supply chain, or any future more robust improvements, the company must still answer for the consequences of a decade of sourcing illegal Romanian timber.

EIA calls on Schweighofer to take concrete actions to provide real transparency into its sourcing operations. To restore the faith of its customers and the public, the company must at a minimum publicly release the APV numbers and harvest information associated with them (location, volume, harvesting type) for all logs that it brings through its gates. Where log purchases lack APV numbers (i.e., in cases where they are bought from depots) Schweighofer needs to make public more detailed information about these purchases. Given the company’s professed confidence in its sourcing practices, such a simple request should not be difficult for it to comply with. Then the Romanian public can judge for itself whether Schweighofer has in fact stopped sourcing illegal timber.

For more on this story, read EIA’s post TV program reveals Holzindustrie Schweighofer’s involvement in illegal timber trade.