Conning the Congo

Feature story - July 30, 2008
Just as the need to save the world’s forests for climate protection is becoming widely recognised, we have discovered that major logging companies - operating in the Congo basin - are increasingly destroying one of the most ecologically important forest areas on the planet while dodging taxes and robbing impoverished Congolese people of revenue.

Tax revenue is disappearing out of Africa and into offshore bank accounts as the Congo rainforest is destroyed.

The Congo basin contains the world's second largest tropical forest and is of incalculable importance not only in terms of biodiversity and resources for local people but also as a giant carbon store that is essential for climate protection. Yet over 25 percent of this precious ecosystem is controlled by the logging industry with the majority in the Democratic Republic of Congo (DRC) and the Republic of the Congo - two countries suffering from endemic corruption.

In a new report " Conning the Congo", published today, we expose how companies like the German-Swiss Danzer group are cheating the people in this region out of vast amounts in tax revenue every year.

How are they getting away with it?

Danzer have set up an elaborate profit laundering system whereby their Swiss subsidiary company (Interholco AG) buys timber from its African sister companies (Siforco and IFO) at way below the market price and then makes up the shortfall by depositing money in offshore bank accounts. In doing so the Danzer Group evades paying a wad of corporate tax and export duties.

This unscrupulous behaviour appears to be indicative of the entire logging industry operating in the area - exacerbating the problem of illegal logging and cheating one of the poorest regions of the world out of millions of euros each year. We have calculated that the loss to these governments from the Danzer Group alone could be nearly eight million Euros. This is equivalent to the cost of vaccinating over 700,000 Congolese children under the age of five or 50 times the DRC Ministry of Environment's annual operating budget.

Children peer through panels of wood in the DRC.

 

Just one in a list of violations.

Last year we released a report " Carving up the Congo", which uncovered the social chaos and environmental destruction brought about by the logging sector and exposed Danzer's involvement in illegal timber trading, bribery and dealing with traders blacklisted by the UN Security Council for illegal arms trafficking.

This ongoing corruption and scandalous accounting processes pose a serious obstacle to genuine development and undermine the effort made by the global community to alleviate poverty in the region. Ironically, while many governments continue to pour billions into the war-torn DRC to help it re-build, they are standing by as their own corporations con the country out of substantial wealth while plundering the natural resources of the region - contributing to climate change and depriving local communities of sustainable employment.

The World Bank is currently failing in its stated objectives of controlling the expansion of industrial logging and improving governance of the sector. In fact some international donors are even considering providing financial incentives to boost the logging industry.

Illegal logging is even taking place inside the Salonga national park - the DRC's largest rainforest reserve.

 

Solutions

The sector clearly needs tighter legislation and enforcement. In May 2002 the DRC Government announced a moratorium on new concessions and the extension or renewal of old ones. The government has now committed to a legal review of the logging industry and we are calling on them to maintain and enforce the moratorium - withdrawing any illegal concessions. Currently the review is characterised by secrecy and sloppiness so we're demanding the international community and the DRC Government ensure this review process is completely transparent, the moratorium is maintained and enforced and that a participatory land use plan is put in place.

International donors must not subsidise the logging industry and scarce public funds should be used to finance measures that effectively control logging while empowering local communities. International aid should benefit the Congolese people rather than the bulging bank accounts of greedy European companies.

A child from a forest dependent community in the DRC.

The value of the DRC's forests as a carbon store could be far greater than the income generated for the country by industrial logging. Deforestation accounts for about one fifth of global greenhouse gas emissions and replacing industrial logging in the DRC by an internationally-backed forest protection system would not only be financially beneficial to the people of the DRC it would make the country a key climate protector.

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