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Illicit Activity in Chile’s Timber Sector


Despite the government’s efforts, illegal logging has been a significant problem in Chile for several decades, causing a range of environmental, social, and economic issues. According to the World Bank, illegal logging in Chile’s native forests destroyed 11,368 hectares of land between 2013 and 2019 and generated 1.2 million m3 of illegally harvested timber – causing deforestation, loss of biodiversity, environmental degradation, and increasing violence. The southern regions of the country, such as La Araucanía and Biobío, are among those most affected by illegal logging activities. In May 2022, the government declared a state of emergency in the region of La Araucanía and in the provinces of Arauco and Biobío within the Biobío region.

Chile is a major exporter of wood products, with forestry products accounting for 6.3 percent of the country’s total exports in 2021. According to a recent report by Instituto Forestal, forestry exports have increased over time, reaching a peak of 9.1 percent of total exports in 2018 then decreasing. An estimated 99 percent of forestry products are sourced from forest plantations of radiata pine and eucalyptus, as restrictions are in place on the use of timber from native forests. In 2020, the forest industry represented 2.1% of the national Gross Domestic Product (GDP) and 1.5 percent of the country’s workforce, according to the World Bank. 

This article will address illicit activities in Chile’s timber sector and identify associated financial risks. Ultimately, the article will discuss the current regulatory measures to combat illicit financial flows (IFF) stemming from environmental crimes.

Trends in Illicit Activity in the Timber Sector and Facilitators of Financial Crimes

Illicit activities associated with the Chilean timber industry have been exponentially increasing. These include illegal logging and deforestation, as discussed above, but also issues such as timber theft by criminal mafias. In fact, wood theft is becoming a major criminal activity in Chile. The value increased from an estimated US$20 million in 2018 to US$45.2 million in 2019 and US$67.8 million in 2020, according to La Tercera media outlet.

The ongoing conflict between the Mapuche Indigenous community and the government has been exacerbated by issues in the timber sector. Starting in the 1990s when the forestry industry grew both legally and illegally into the ancestral lands of Mapuche, logging caused environmental problems and social inequality. In protest, armed community members have resorted to attacking legitimate businesses, blocking roads, stealing and destroying machinery, and even burning forests.

There are several reasons behind the emergence of complex criminal structures in the timber sector. AthenaLab, a Chilean think tank, points to the main drivers of illegal logging as institutional weakness, state absence, conflict, social vulnerability, infrastructure, and a financial system that facilitates the laundering of illicit profits.

In a setting characterized by conflict and state absence, timber mafias trespass on private property, steal legal wood from licensed sawmills, fabricate documentation to move their illicit product, and sometimes resort to violence and attack timber trucks. The most common modus operandi of criminal groups includes creating fake invoices to launder illegal timber within legitimate financial structures early in the supply chain. Of course, this can also give rise to crimes later on in the supply chain, including trade misinvoicing, which involves the deliberate falsification of the quantity, price quality, or origin of a product.

A recent investigation by the Internal Revenue Service of Chile (Servicio de Impuestos Internos, SII)  revealed that stolen wood from two timber companies was laundered through false invoices and re-entered the formal market through companies with FSC (Forest Stewardship Council) chain of custody certifications. The investigation found that the documentation was falsified, and the traceability of the wood was invalid. A Japanese company was identified as a beneficiary of the chains of purchase and sale of wood of adulterated origin, but their FSC certifications were not affected.

The existing institutional framework in Chile has permitted the growth of an organized criminal economy based on the theft of timber. In addition, inadequate supervision from state institutions such as the SII and the National Forestry Corporation (Corporación Nacional Forestal, CONAF) in overseeing timber companies, particularly regarding the proper use of shipping documents and invoices and the sustainable use of forest lands, has been a significant factor.

Recommendations for Combating Crimes in the Timber Sector

Addressing illegal activity in the timber sector needs a comprehensive approach that involves efforts between government agencies such as CONAF, SII, Chilean customs, and the private sector. Illicit activities start in the early stages of the supply chain in the context of Chile; co-mingling illegally produced or stolen timber into legitimate sawmills or intermediates is identified as the most common way for crimes to occur. Considering this, this section discusses strategies to combat illicit activity in the timber supply chain drawing from international best practices.

Recent guidance from the Financial Action Task Force (FATF) sheds light on how to combat money laundering from environmental crimes such as illegal logging. It highlights the need for more effective coordination between law enforcement and environmental protection authorities in addition to greater transparency of beneficial ownership requirements. Chilean authorities and financial institutions should ensure that they are utilizing the FATF’s risk indicators for environmental crimes. These include unusual transactions in logging areas, anomalous bank activities of companies operating in the supply chain, suspicious activities of intermediaries, such as timber processing facilities and sawmills, and false or questionable statements in customs and shipping documents.

The World Bank emphasizes enhancing the efficiency of criminal justice in combating illegal logging and mentions enforcing AML and due diligence requirements, ensuring robust know-your-customer (KYC) policies in transactions related to logging. International stakeholders should follow the ‘’Timber Legality Guidance Template’’ by Asia-Pacific Economic Cooperation (APEC) to conduct more secure and transparent operations in Chile. 

Other initiatives for timber legality come from the sector itself. In 2021, “Buena Madera, confiable desde su origen, (Good wood, from a reliable origin) was formed by Chile’s largest logging unions to share information about the origins of timber and establish a system to track illegal timber. 

In similar line with the international standards, AthenaLab’s report suggests combating illegal timber with financial strategies such as strengthening the State and its institutions, providing each agency with the necessary training and resources, increasing coordination, creating financial analysis that is able to track illicit flows, and lastly, establishing a traceability system for origins of timber.

In conclusion, illegal logging and other timber crimes have significantly increased in Chile due to various factors. A comprehensive, multifaceted strategy involving both public and private sectors is necessary to tackle the issue effectively. Theoretically, the local frameworks and efforts in Chile are consistent with the available international frameworks. However, in practice, there are still significant gaps that need to be addressed. Chile should enhance the capabilities of its institutions and show stronger political will in enforcing existing regulations.

*Buse Egin is a Spring 2023 Latin America and the Caribbean Program Intern with Global Financial Integrity. She is a recent graduate with a master’s degree in social sciences and has experience working in NGOs and think tanks. Passionate about Latin American affairs, criminology and anthropology.