Analysis of national legislation of relevance to excluding illegal timber from EU markets – Estonia study

EU FLEGT Initiative:

Analysis of national legislation of relevance to excluding illegal timber from EU markets –

Estonia study

by

NEPCon () and Estonian Fund for Nature (ELF)

Main author: Mirjam Marastu ()

Co-authors: Kärt Vaarmari, Kaupo Kohv, Jüri-Ott Salm

QA: Nicolai A. Clausen, Jan Feil ()

For discussion at Brussels workshop, 31 January 2006

Contents

Introduction 3

1 Definition of illegal timber 4

2 Analysis of applicable legislation 5

2.1 Legislation in general 5

2.2 Penal law 5

2.2.1 In general 5

2.2.2 Offences against ownership 5

2.2.3 Offences relating to criminal organisation 6

2.2.4 Offences relating to gratuities and bribery 6

2.2.5 Procedural competence 6

2.3 Environmental law 7

2.3.1 In general 7

2.3.2 Liability and procedural competence 7

2.4 Money laundering law 8

2.5 Tax and customs law 8

2.6 CITES 10

2.7 Procedural rules 10

2.7.1 In general 10

2.7.2 The Tax and Customs Board 10

2.7.3 Estonian Plant Production Inspectorate 11

2.7.4 The Environmental Inspectorate 11

2.7.5 The police 12

2.7.6 The Prosecutor’s Office 12

2.8 Summary and recommendations 12

3. Applicability of the legislation in practice 14

3.1 Timber movement and the division of competence 14

3.2 Enforcement agencies 16

3.2.1 The Tax and Customs Board 16

3.2.2 The Plant Health Production Inspectorate 17

3.2.3 The Environmental Inspectorate 17

3.2.4 Police 18

3.2.5 The Prosecutor’s Office 19

3.2.6 Estonian Forest Industries Association 21

3.3 Conclusions and practical challenges 22

4. Summary 24

Introduction

  1. The purpose of this report is to analyse Estonian legislation in order to determine its potential for controlling the illegal import of timber into Estonia.[1]
  2. The report consists of four chapters:

·  The first chapter aims to establish what could be considered as illegal timber under Estonia legislation.

·  The second chapter gives a brief description of the relevant legislation and an analysis of its applicability in theory to timber and timber products produced illegally abroad but imported into Estonia.

·  The third chapter analyses the applicability of the legislation in practice and provides a description of the practical challenges facing enforcement agencies in seeking to apply the legislation.

·  The fourth and final chapter sets forth the conclusions that can be drawn from the present analysis.

  1. The analysis focuses on timber imported from Russia. The main reason for this is that 40% of the timber used by the Estonian timber industry is imported from Russia, and therefore imports from Russia are by far the most important and relevant to the Estonian situation.

1 Definition of illegal timber

  1. Estonian legislation does not provide a definition of illegal timber. However, illegal timber is considered by the authors of this report to be:

·  timber acquired through illegal cutting of trees;

·  timber acquired through illegal trafficking;[2]

·  timber acquired through larceny.

The violation of rules of transport, processing, sale and purchase of timber is punishable by law as an act, but it does not make the timber itself illegal.[3] However, these violations are also analysed in more detail in the present report, because the processing of illegal timber also in practice leads to the violation of the above-mentioned rules. If such violations are uncovered they may, in turn, lead to the source of the illegal timber itself.

  1. In addition to above-mentioned offences, other offences exist that could help to prosecute those responsible for importing illegal timber. These offences mainly include offences related to criminal organisation, gratuities and bribery, and money laundering. An analysis of all these offences is provided in the present report.[4]

2 Analysis of applicable legislation

2.1 Legislation in general

  1. The applicable legislation can be divided into following fields of law:

·  penal law;

·  environmental law;

·  money laundering law;

·  tax and customs law;

·  procedural law.

The sections that follow will provide a short overview of the applicable legislation.[5]

2.2 Penal law

2.2.1 In general

  1. Estonian penal law is regulated by the Penal Code (PC),[6] which establishes the territorial principle, i.e. that the penal law of Estonia applies to acts committed within the territory of Estonia.[7] Any exceptions to this principle[8] are not in practice applicable to illegal timber.[9] Therefore, for purpose of the current analysis, the Penal Code is in practice only applicable to crimes committed in Estonia.
  2. It is possible to prosecute both a legal entity and also a member of the body or a senior official of the legal entity.[10] This, in theory, means that one can tackle the illegal timber market from both directions: by prosecuting the legal entities on behalf of which the offences are committed and also by prosecuting the individuals who are actually committing the offences.

2.2.2 Offences against ownership

  1. The main offences against ownership relevant to the import of illegal timber are: larceny; embezzlement; and the acquisition, storage or marketing of property received through the commission of a criminal offence.[11]
  2. Larceny is defined as an act when a person takes away movable property of another person with the intention of illegal appropriation. Larceny may be relevant for the present analysis if timber that has been harvested illegally and imported to Estonia is stolen in Estonia.
  3. Embezzlement is the act of illegally converting to one’s own use (or the use of a third person) movable property which is owned by another person or other assets belonging to another person which have been entrusted to the person being embezzled.
  4. As regards the acquisition, storage or marketing of property received through the commission of a criminal offence, this regulation makes it possible to prosecute the entire chain of people responsible for offences related to illegal timber. The precondition for applying this regulation is that the property is received through commission of a criminal offence.

2.2.3 Offences relating to criminal organisation

  1. A criminal organisation is an organisation consisting of three or more persons who have a distribution of tasks among themselves and whose activities are directed at the commission of criminal offences in the first degree[12] or at exercising unlawful influence on public authorities.[13] However, within the scope of the current analysis, the provisions concerning criminal organisations are not relevant as they are not applicable to the import of illegal timber.[14]

2.2.4 Offences relating to gratuities and bribery[15]

  1. Offences relating to bribery and gratuities are those committed in breach of a duty to maintain integrity. The offences include the accepting of gratuities or bribes, arranging the receipt of gratuities or bribes, and the granting of gratuities or bribes.[16]
  2. These offences are of great importance to the import of illegal timber, since the consignment of timber has to go through many links (authorities) and at each stage there exists the potential for the commission of criminal offences relating to bribes or gratuities.

2.2.5 Procedural competence

  1. The authority with the legal competence to detect the abovementioned criminal offences and conduct pre-trial investigations is the police force.[17] The Prosecutor’s Office directs the pre-trial criminal procedure and undertakes that public prosecution in court.[18]

2.3 Environmental law

2.3.1 In general

  1. The key legislation in terms of this report is as follows:

·  Forestry Act;

·  Environmental Supervision Act;

·  Rules of conveyance of timber;[19]

·  Regulation of transactions with timber.[20]

  1. When the timber is transferred from one person to another for processing, storage or transportation, the person who delivers the timber is obliged to prove the legality of his possession of the timber to the person who receives the timber, and the person receiving the timber is obliged to verify the legality of that possession.[21]
  2. The law sets out a list of documents required to verify legal possession. The following documents are required for imported timber:

·  written agreement or transfer deed for the timber;

·  receipt for the timber;

·  identification documents for the person possessing the timber;

·  conveyance document.[22]

  1. In theory, the requirement to prove the legality of the timber should apply regardless of the origin of the timber. It is important that the obligation to prove the legality lies with both parties and that the burden of proof is turned and lies with the possessor of the timber. The above documentation should in theory be sufficient, although it may be problematic that the possessor only has to show the documentation for the current transaction and not the entire chain of transactions from the place of origin.

2.3.2 Liability and procedural competence

  1. Liability for environmental offences covers, among others, violations of transport requirements of timber[23] violations of an obligation to prove and verify legality upon transfer of timber, and violations of the rules for transactions of timber.[24]
  2. The authorities with the competence to detect the abovementioned misdemeanours are the Police[25] and the Environmental Inspectorate.[26] The authorities with the competence to conduct extra-judicial proceedings are the Environmental Inspectorate and the Police.[27]

2.4 Money laundering law

  1. The Money Laundering and Terrorist Financing Prevention Act defines money laundering as the ‘acquisition, possession, use, conversion or transfer of, or the performance of transactions or operations with property acquired as a result of a criminal offence or in return for participation in such an offence, the purpose or consequence of which is the concealment of the actual owner and the illicit origin of the property.’[28]
  2. The Estonian legislature has not limited the list of offences which could be considered as predicate criminal offences,[29] therefore the illegal cutting of trees may be considered as such an offence.[30] In addition, the legislation does not define the location of the predicate criminal offence – thus the offence may be committed outside the territory of Estonia.
  3. The possibility exists of imposing a penalty on a person for committing the predicate criminal offence as well as for committing a money laundering offence with the property acquired through the predicate criminal offence.[31] For example, theoretically, a person could be held responsible for the illegal cutting of trees as well as for money laundering.
  4. The authorities with competence regarding detection of the abovementioned criminal offences and conduction of pre-trial investigations are the Police[32] and the Tax and Customs Board.[33] The pre-trial criminal procedure is lead by the public prosecutor[34] who also undertakes the public prosecution in court.

2.5 Tax and customs law

  1. Tax and Customs regulations are mainly set out in the Estonian Customs Act.[35]
  2. Each consignment entering Estonia goes through customs forming (completion and submission of customs documents, declarations, etc.) and customs inspection where the timber importer has to present the following documentation:

·  Declaration:

i) for sea freight, the manifest with a sea waybill;

ii) for road consignments, an entrance declaration and road consignment note;

iii) for railroad freight, declaration forms (SMGS or CIM) are used.

·  additional documents:

i) documents for shipment (declaration form CMR, etc.);

ii) sale agreement or other document (for example deed of conveyance, etc.) verifying the legality of possession;

iii) invoice verifying the value of the consignment;

iv) documentation verifying the origin of the consignment.

The inspector has the right to ask for additional documents, in theory also concerning the origin of the timber, until the correctness of the documentation has been assured.

  1. Liability for violation of customs rules includes liability for the following acts or omissions:

·  illegal conveyance of goods into Estonia[36] and illegal trafficking;[37]

·  illegal acts with goods subject to prohibitions and restrictions upon movement thereof between Estonia and third countries;[38]

·  submission of documents containing false information concerning origin of goods;[39]

·  declaration of goods under an incorrect tariff classification;[40]

·  general fraudulent miscalculation of tax.[41]

  1. The authority with the competence to detect the above-mentioned misdemeanours and conduct extra-judicial proceedings is the Tax and Customs Board.[42] In the case of criminal offences, the pre-trial criminal procedure is directed by the public prosecutor who also undertakes the public prosecution in court,,[43] but the investigations in the course of the pre-trial criminal procedure are performed by the Board.[44]

2.6 CITES

  1. Estonia ratified CITES on 20 October 1992. There have been no detected incidents of the illegal import of timber under CITES regulations.

2.7 Procedural rules

2.7.1 In general

  1. Procedural law for misdemeanours is provided for in the Code of Misdemeanour Procedure.[45] Procedure law for criminal offences is provided for in the Code of Criminal Procedure.[46]
  2. The following overview contains a short list of competences of the authorities relating to the detection of illegal timber.[47]

2.7.2 The Tax and Customs Board

  1. The duty of the Tax and Customs Board (the Board)[48] is to protect society and the economy by preventing tax fraud and illegal trafficking, to collect taxes and to facilitate lawful trade between Estonia and third countries.[49]
  2. In order to fulfil their duties, a customs official has the right:[50]

·  to inspect and detain persons, goods and means of transport;

·  to use means for preventing, combating and detecting the violation of customs rules and tax laws and to perform surveillance activities.

  1. The procedural competence of the Board includes the right:[51]

·  to act as an extra-judicial body;[52]

·  to take part in the court proceedings, where the offence is a misdemeanour (as opposed to a criminal offence);[53]

·  to confiscate property which has been the direct object of the commission of a misdemeanour;[54]

·  to act as an investigative body in the criminal procedure.[55]

2.7.3 Estonian Plant Production Inspectorate

  1. Plants (including timber) that are brought into Estonia from a third country must undergo an obligatory plant health inspection[56] conducted by an official of the Plant Production Inspectorate.[57] For that purpose, the transport of timber from third countries into Estonia is permitted only through special border inspection posts.[58]

2.7.4 The Environmental Inspectorate

  1. The Environmental Inspectorate is responsible for environmental supervision, which includes, among other things, inspecting the import into Estonia, use of and transactions made with timber regulated by an Act or international agreement, and of products manufactured from timber, and the suspension or termination of illegal activities.[59]
  2. The inspectors have the right:

·  to require the presentation of documents relating to transportation or to transactions carried out with the timber;[60]