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                                                     CIFOR Occasional Paper No. 44
                     Fighting forest crime and 
                     promoting prudent banking for 
                     sustainable forest management
The Center for International Forestry Research (CIFOR) is a leading international forestry The anti money laundering approach
research organization established in 1993 in response to global concerns about the social, 
environmental, and economic consequences of forest loss and degradation.  CIFOR is 
dedicated to developing policies and technologies for sustainable use and management 
of forests, and for enhancing the well-being of people in developing countries who 
rely on tropical forests for their livelihoods.  CIFOR is one of the 15 Future Harvest 
centres of the Consultative Group on International Agricultural Research (CGIAR). With 
headquarters in Bogor, Indonesia, CIFOR has regional offices in Brazil, Burkina Faso, 
Cameroon and Zimbabwe, and it works in over 30 other countries around the world.Bambang Setiono and Yunus Husein
CIFOR CIFOR is one of the 15 Future Harvest centres 
of the Consultative Group on International Agricultural Research (CGIAR)
                   Donors                                                                                                                                                                        CIFOR Occasional Paper Series
                   The Center for International Forestry Research (CIFOR) receives its major 
                   funding from governments, international development organizations, private                                                                                                    1.     Forestry Research within the Consultative Group on International             23.   Les Approches Participatives dans la Gestion des Ecosystemes Forestiers 
                   foundations and regional organizations. In 2004, CIFOR received fi nancial                                                                                                            Agricultural Research                                                              d’Afrique Centrale: Revue des Initiatives Existantes
                                                                                                                                                                                                        Jeffrey A. Sayer                                                                   Jean-Claude Nguinguiri
                   support from Australia, African Wildlife Foundation (AWF), Asian Development                                                                                                  2.     Social and Economical Aspects of Miombo Woodland Management in               24.   Capacity for Forestry Research in Selected Countries of West and Central 
                   Bank (ADB), Belgium, Brazil, Canada, Carrefour, China, CIRAD, Conservation                                                                                                           Southern Africa: Options and Opportunities for Research                            Africa
                   International Foundation (CIF), European Commission, Finland, Food and                                                                                                               Peter A. Dewees                                                                    Michael J. Spilsbury, Godwin S. Kowero and F. Tchala-Abina
                   Agriculture Organization of the United Nations (FAO), Ford Foundation, France,                                                                                                3.     Environment, development and poverty: A Report of the International          25.   L’Ímpact de la Crise Economique sur les Populations, les Migration et le Couvert 
                                                                                                                                                                                                        Workshop on India’s Forest Management and Ecological Revival                       Forestier du Sud-Cameroun
                   German Agency for Technical Cooperation (GTZ), German Federal Ministry                                                                                                               Uma Lele, Kinsuk Mitra and O.N. Kaul                                               Jacques Pokam Wadja Kemajou and William D.Sunderlin
                   for Economic Cooperation and Development (BMZ), Indonesia, International                                                                                                      4.     Science and International Nature Conservation                                26.   • The Impact of Sectoral Development on Natural Forest Conservation and 
                   Development Research Centre (IDRC), International Fund for Agricultural                                                                                                              Jeffrey A.Sayer                                                                    Degradation: The Case of Timber and Tree Crop Plantations in Indonesia
                                                                                                                                                                                                 5.     Report on the Workshop on Barriers to the Application of Forestry                  • (Indonesian edition) Dampak Pembangunan Sektoral terhadap Konversi dan 
                   Development (IFAD), Innovative Resource Management (IRM), International                                                                                                              Research Results                                                                   Degradasi Hutan Alam: Kasus Pembangunan HTI dan Perkebunan di Indonesia
                   Tropical Timber Organization (ITTO), Italy, Japan, Korea, Netherlands, Norway,                                                                                                       C.T.S. Nair, Thomas Enters and B. Payne                                            Hariadi Kartodihardjo and Agus Supriono
                   Organisation Africaine du Bois (OAB), Overseas Development Institute (ODI),                                                                                                   6.     Production and Standards for Chemical Non-Wood Forest Products in            27.   L’Impact de la Crise Économique sur les Systèmes Agricoles et le Changement 
                                                                                                                                                                                                        China                                                                              du Couvert Forestier dans la Zone Forestière Humide du Cameroun
                   Peruvian Institute for Natural Renewable Resources (INRENA), Philippines,                                                                                                            Shen Zhaobang                                                                      Henriette Bikié, Ousseynou Ndoye and William D.Sunderlin
                   Sweden, Swedish University of Agricultural Sciences (SLU), Switzerland,                                                                                                       7.     • Cattle, Broadleaf Forests and the Agricultural Modernization Law of        28.   • The Effect of Indonesia’s Economic Crisis on Small Farmers and Natural 
                                                                                                                                                                                                        Honduras: The Case of Olancho                                                      Forest Coverin the Outer Islands
                   The Overbrook Foundation, The Nature Conservancy (TNC), Tropical Forest                                                                                                              • (Spanish edition) Ganadería, bosques latifoliaods y Ley de                       • (Indonesian Edition) Dampak Krisis Ekonomi Indonesia terhadap Petani Kecil 
                   Foundation, United States, United Kingdom, United Nations Environment                                                                                                                Modernizatción en Honduras: El caso de Olancho                                     dan Tutupan Hutan Alam di Luar Jawa 
                                                                                                                                                                                                        William D.Sunderlin and Juan A.Rodriguez                                           William D. Sunderlin, Ida Aju Pradnja Resosudarmo, Edy  Rianto, 
                   Programme (UNEP), Waseda University, World Bank, World Resources Institute                                                                                                                                                                                              Arild Angelsen
                   (WRI) and World Wide Fund for Nature (WWF).                                                                                                                                   8.     High quality printing stock - has research made a difference?                29.   The Hesitant Boom: Indonesia’s Oil Palm Sub-Sector in an Era of Economic Crisis 
                                                                                                                                                                                                        Francis S.P. Ng                                                                    and Political Change  
                                                                                                                                                                                                 9.     • Rates Causes of Deforestation in Indonesia: Towards a Resolution of          Anne Casson
                                                                                                                                                                                                        the Ambiguities                                                              30.   The Underlying Causes of Forest Decline
                                                                                                                                                                                                        • (Indonesian edition) Laju dan Penyebab Deforestasi di Indonesia:                  Arnoldo Contreras-Hermosilla
                                                                                                                                                                                                        Penelaahan Kerancuan dan Penyelesaiannya
                                                                                                                                                                                                        William D. Sunderlin and Ida Aju Pradnja Resosudarmo                         31.   ‘Wild logging’: The rise and fall of logging networks and biodiversity 
                                                                                                                                                                                                 10.   Report on Discussion Forum on Irformation Services in the Asia-                     conservation projects on Sumatra’s rainforest frontier 
                                                                                                                                                                                                        Pacific and AGRIS/CARIS in the 21st Century and Asia-Pacific Regional              John F. McCarthy
                                                                                                                                                                                                        Consultation                                                                 32.   Situating Zimbabwe’s Natural Resource Governance Systems in History
                                                                                                                                                                                                        Michael O. Ibach and Yvonne Byron                                                   Alois Mandondo
                                                                                                                                                                                                 11.   Capacity for Forestry Research in the Southern African Development            33.   Forestry, Poverty and Aid
                                                                                                                                                                                                        Community                                                                          J.E. Michael Arnold
                                                                                                                                                                                                        Godwin S. Kowero and Michael J. Spilsbury                                    34.   The Invisible Wand: Adaptive Co-management as an Emergent Strategy in 
                                                                                                                                                                                                 12.    Technologies for sustainable forest management: Challenges for the 21st            Complex Bio-economic systems.
                                                                                                                                                                                                        century                                                                            Jack Ruitenbeek and Cynthia Cartier
                                                                                                                                                                                                        Jeffrey A. Sayer, Jerome K. Vanclay and R. Neil Byron                        35.   Modelling Methods for Policy Analysis in Miombo Woodlands
                                                                                                                                                                                                 13.  Bosques secundarios como recurso para el desarrollo rural y la                       A. A Goal Programming Model for Planning Management of Miombo Woodlands
                                                                                                                                                                                                        conservación ambiental en los trópicos de América Latina                       I. Nhantumbo and Godwin S. Kowero
                                                                                                                                                                                                        Joyotee Smith, César Sabogal, Wil de Jong and David Kaimowitz                      B. A System Dynamics Model for Management of Miombo Woodlands
                                                                                                                                                                                                 14.   Cameroon’s Logging Industry: Structure, Economic Importance and                 Ussif Rashid Sumaila, Arild Angelsen and Godwin S. Kowero
                                                                                                                                                                                                        Effects of Devaluation                                                       36.   How to Know More about Forests? Supply and Use of Information for Forest 
                   ISSN 0854-9818                                                                                                                                                                       Richard Eba’a Atyi                                                                 Policy
                                                                                                                                                                                                 15.    • Reduced-Impact Logging Guidelines for Lowland and Hill Dipterocarp               K. Janz and R. Persson 
                                                                                                                                                                                                        Forests in Indonesia                                                         37.   Forest Carbon and Local Livelihoods: Assessment of Opportunities and Policy 
                                                                                                                                                                                                        • (Indonesian edition) Pedoman Pembalakan Berdampak Rendah untuk                   Recommendations
                   © 2005 by Center for International Forestry Research                                                                                                                                 Hutan Dipterocarpa Lahan Rendah dan Bukit di Indonesia                             Joyotee Smith and Sara J. Scherr
                   All rights reserved.                                                                                                                                                                 Plinio Sist, Dennis P. Dykstra and Robert Fimbel
                                                                                                                                                                                                 16.    Site Management and Productivity in Tropical Forest Plantations              38.   • Fires in Indonesia: Causes, Costs and Policy Implications
                   Cover photos by Carol Colfer, Romain Pirard, Petrus Gunarso,                                                                                                                         A. Tiarks, E.K.S. Nambiar and Christian Cossalter                                  • (Indonesian edition) Kebakaran Hutan di Indonesia:  Penyebab, Biaya dan 
                   Hari Priyadi, Carmen Garcia, Rona Dennis, Gideon Suharyanto, Catur Wahyu                                                                                                                                                                                                Implikasi Kebijakan
                                                                                                                                                                                                 17.    Rational Exploitations: Economic Criteria and Indicators for Sustainable           Luca Tacconi
                                                                                                                                                                                                        Management of Tropical Forests                                               39. Fuelwood Revisited: What Has Changed in the Last Decade?
                   Published by                                                                                                                                                                         Jack Ruitenbeek and Cynthia Cartier                                                Michael Arnold, Gunnar Köhlin,  Reidar Persson and
                   Center for International Forestry Research                                                                                                                                    18.    Tree Planting in Indonesia: Trends, Impacts and Directions                         Gillian Shepherd 
                   Mailing address: P.O. Box 6596 JKPWB, Jakarta 10065, Indonesia                                                                                                                       Lesley Potter and Justin Lee                                                 40.   Exploring the Forest—Poverty Link: Key concepts, issues and                
                   Offi ce address: Jl. CIFOR, Situ Gede, Sindang Barang, Bogor Barat 16680, Indonesia                                                                                            19.   Le Marche des Produits Forestiers Non Ligneux de l’Afrique Centrale                 research implications 
                   Tel.: +62 (251) 622622; Fax: +62 (251) 622100                                                                                                                                        en France et en Belgique: Produits, Acteurs, Circuits de Distribution et           Arild Angelsen and Sven Wunder
                   E-mail: cifor@cgiar.org                                                                                                                                                              Debouches Actuels                                                            41.   • Bridging the Gap: Communities, Forests and International Networks
                                                                                                                                                                                                        Honoré
                   Web site: http://www.cifor.cgiar.org                                                                                                                                                         Tabuna                                                                     • (French Edition) Communautés, forêts et réseauxinternationaux : des liai-
                                                                                                                                                                                                 20.    Self-Governance and Forest Resources                                               sons à renforcer
                                                                                                                                                                                                        Elinor Ostrom                                                                      • (Spanish Edition) Cerrando la Brecha: Comunidades,Bosques y Redes 
                                                                                                                                                                                                                                                                                           Internacionales 
                                                                                                                                                                                                 21.    Promoting Forest Conservation through Ecotourism Income? A case study              Marcus Colchester, Tejaswini Apte, Michel Laforge, Alois Mandondo          
                                                                                                                                                                                                        from the Ecuadorian Amazon region                                                  and Neema Pathak
                                                                                                                                                                                                        Sven Wunder                                                                  42.   Payments for environmental services: Some nuts and bolts
                                                                                                                                                                                                 22.    Una de Gato: Fate and Future of a Peruvian Forest Resource                         Sven Wunder
                                                                                                                                                                                                        Wil de Jong, Mary Melnyk, Luis Alfaro Lozano, Marina Rosales and             43.   Recent Experience in Collaborative Forest Management: A Review Paper 
                                                                                                                                                                                                        Myriam García                                                                      Jane Carter with Jane Gronow
                                                                                            Recycled paper
                                                                                                                                                                                                                                                                            Recycled paper
         Fighting forest crime and 
         promoting prudent banking for 
         sustainable forest management
         The anti money laundering approach
         Bambang Setiono
         Policy and Financial Analyst
         Center for International Forestry Research (CIFOR)
         Yunus Husein
         Head 
         Indonesian Financial Transaction Report and Analysis Center (INTRAC)
                             Contents
                             Abbreviations and acronyms                                           iii
                             Acknowledgements                                                      v
                             Abstract                                                              1
                             1.   Introduction                                                     1
                             2.   Banks, forests and industries                                    2
                                 2.1. Banks and forests                                            2
                                 2.2. Unsustainable forest-based industry                          3
                             3.   Financial risk related to the forestry sector                    4
                                 3.1. Illegal logging, illegal trade and log smuggling             4
                                 3.2. Competing government policy                                  6
                                 3.3. Politically exposed timber industries                        6
                                 3.4. Expansion of timber industries                               7
                                 3.5. Transfer pricing                                             7
                                 3.6. Creative accounting losses versus cash flows                  7
                                 3.7. Implications for banks                                       8
                             4.   Typologies of money laundering in the forestry sector            8
                                 4.1. Money laundering crime                                       8
                                 4.2. Typology of illegal logging                                  9
                                 4.3. Typology of transfer pricing                                10
                                 4.4. Typology of corruption                                      11
                             5.   The new approach for fighting forestry crimes                    12
                                 5.1. Forestry law enforcement challenges                         12
                                 5.2. The anti money laundering approach                          14
                                 5.3. Another challenge for Indonesia                             19
                                 5.4. Clamping down on the international syndicate                19
                             6.   Conclusions and policy recommendations                          21
                                 6.1. Conclusions                                                 21
                                 6.2. Policy recommendations                                      22
                             Endnotes                                                             23
                             References                                                           24