V-Legal Trading Practices Allegation

V-Legal Trading Practices Allegation

Why do we do monitoring?

In general, in the mid of the COVID-19 Pandemic in 2020, the valuation of exports of products and commodities from Indonesia decreased compared to 2019. Surprisingly, this is not happened to exports of furniture and other wood products. Based on data from the Indonesian Central Statistics Agency (BPS), in the JanuaryOctober 2020 period, the export valuation of furniture and other wood products reached USD 1.9 billion, or up 13.3% from the previous year. Nevertheless, the facts on the ground shows that the increase in Indonesian wood export products has not been accompanied by legal and sustainable practices, especially at the level of export business actors. For example, there is still the practice of trading “flags” or names and company legality, to obtain V-Legal documents that occurred in several Non-Producer Exporter permit holders spread across Semarang City, Central Java.

According to the initial information we received, this practice was caused by the reluctance of producer exporters to administer the Timber Legality Verification System (SVLK) because it was deemed expensive. So they buy V-Legal from non-producer exporters. From January to April, the Independent Forestry Monitoring Network (JPIK) received information on the practice of buying and selling V-Legal documents from more than 25 permit holders in Semarang City. The practice of buying and selling V-Legal is often referred to as UNDERNAME. The mode is that non-producer exporters apply for permits which then offer services to obtain V-legal documents to MSME (UMKM) actors or by collaborating with Marine Freight Forwarding (EMKL).

For further investigation of this practice, the Center of Environmental Education (PPLH) of Mangkubumi with funding support from the FAO-EU FLEGT Program collaborated with Forestry Independent Monitoring Network (JPIK) then carried out monitoring activities to ensure several legal aspects in accordance with Ministerial regulation of Environmental and Forestry (LHK) No 21 of

2020 and Kepdirjen No 62 of 2020. And of course also legal aspects other related to administrative offenses and other environmental crimes.

When and how do we carry out monitoring?

The stages of this monitoring are receiving complaints from the public, conducting desk research, conducting field monitoring, and writing reports. There are three important things that were reported to us about UNDERNAME exporters in Semarang, namely: (1). The misuse of V-Legal documents; (2). In practice, the V-Legal seller receives an order for the manufacture of V-Legal documents from Forwarding/EMKL (Sea Ship Loading Expedition) in which the Forwarding/EMKL receives an order from its client; (3) There are certain wayward individuals who take advantage of the business of trading V-Legal documents. Then, based on this initial information, we conducted a desk research and found 14 companies that are suspected of being the perpetrators of buying and selling V-Legal documents in Semarang, namely: PT Satria Mulia Agrotama, PT Satria Luhur Perkasa, CV Permata Berkah, CV Mekar Jaya, PT Hanita Maju Persada, CV Geulis Art, PT Ramadhika Jaya Mandiri, PT Saudara Mustika Makmur, CV Arliadifa Jaya Woodexindo, CV Mandala Setya Putra, CV TVP Prime Wood, CV Drojogan Berkah Karya, CV Lautan Berkah, and CV Indo Trading Mandiri.

In order to ensure the practice of buying and selling V-Legal documents by these companies, then from April 26 to May 5, 2021, we conducted field monitoring in Semarang, Central Java. The monitoring strategy we use is to disguise ourselves as company owners looking for non-producer exporters who sell V-Legal documents. We act as company owners, company owner staff, and drivers. After they were convinced of this disguise, we sought information about the export flow, the required documents, the payment process, the stuffing process and the risk of inspection from the security forces if it happened.

What did we get?

From the results of research and field investigations, the monitoring team tried to analyze the practice of buying and selling V-Legal documents carried out by non-producer exporters. Some of the analyses are the followings: • Misuse of V-Legal documents by Non-Producer Exporters

In practice, the owner of the goods (seller) in this case is an industry or SME, buys V-Legal document at a price of around 3 million rupiahs to 8 million rupiahs for each container to the forwarder/EMKL they appoint to take care of export activities. Then the non-producer exporter or UNDERNAME receives payment from the forwarder/EMKL as the owner of the order for the export license rental broker activity and the purchase of this V-Legal document in the amount of 800 thousand – 1.5 million/container.

Picture 34. Flow of the sale and purchase of V-Legal documents

From the information obtained from Independent Forestry Monitoring Network (JPIK) informants in Semarang, UNDERNAME never knew their service users who ordered V-Legal manufacturing services, because UNDERNAME knows that only orders are received from forwarders, and forwarders hide their identities from sellers/SMEs. Then, UNDERNAME in the process of making V-Legal documents is very quickly, by compiling all the supporting documents in the form of transportation notes, buying and selling notes, and Supplier Declaration of Conformity (DKP) from suppliers. In making the V-Legal document, it is only adjusted to the packing list and invoice they receive from the forwarder.

Because they never know who the seller is that ordered V-Legal documents from UNDERNAME, problems often occur with V-Legal documents in the destination country. Such as an error in the number, type of goods, type of wood, and so on. It’s all because the undername made up all the supporting documents and if then Timber Legality Verification Agency (LVLK) as the issuer of the V-Legal document confirms this to the license holder (undername/ non-producer exporter), they replied that they made a typo or wrong input when submitting a V-Legal document. • Inconsistency with Surveillance Results

Based on interview information and findings obtained in the field, non-producer exporters or often referred to as UNDERNAME in the process of making V-Legal/FLEGT documents compose all supporting documents starting from transportation notes, buying and selling notes, and Supplier Declaration of Conformity (DKP) suppliers. If you look at the summary of the results of surveillance carried out by Timber Legality Verification Agency (LVLK), indicator 2.1.1 shows that products received from suppliers should already have Timber Legality Certificate (S-LK) or Supplier Declaration of Conformity (DKP), but in its implementation UNDERNAME does not know in detail about the suppliers, clients from UNDERNAME are only asked to prepare packing lists and invoices, even in the process of making V-Legal supporting documents such as DKP is manipulated. However, the results of the written summary meets.

In addition, there were also discrepancies in the audit of certification issuance for non-producer exporters of CV Arliadifa Jaya Woodexindo. Where in indicator 1.1.1 point C on the Company Registration Certificate (TDP) and Warehouse Registration Certificate (TDG) are only TDP assessed and TDG is not assessed. The TDG should also be included in the assessment, but in the surveillance summary the TDG was not assessed and the surveillance results were declared to be satisfactory. Another discrepancy is that CV Arliadifa Jaya Woodexindo received a supply of goods from SMEs which is indicated that they did not have Timber Legality Certificate (S-LK), where the name of the supplier was UD Cipelle Furniture.

• Weak supervision by the Timber Legality Verification Agency (LVLK)

In the audit process for the issuance of certification, LVLK should be able to identify and ensure that the supplied goods come from legal or legal sources. However, in reality, there are still discrepancies with the findings in the field, as happened in the issuance of CV Arliadifa Jaya Woodexindo certification.

• Inappropriate Address of Non-Producer Exporter

Of the 14 Non-Producer Exporter license holders monitored by the monitoring team, many addresses did not match, such as not finding the office location, even though the monitoring team had headed to the appropriate location. Then, it was found that there were several offices of non-producer exporters that were located in the same location or in the same building but had slightly different addresses, then the office address was for living, while the activities of non-producer exporters used a different office address. In addition, there are several non-producer Exporters whose office locations are in one with the forwarder/EMKL..

What are our conclusions and recommendations?

• Conclusion – The results of monitoring and field investigations show that there has been a V-Legal abuse practice involving 14 nonproducer exporting companies. – Non-producer exporters plays a role as V-legal document service providers, forwarders/EMKL act as intermediaries/brokers/ negotiators, while SMEs are the buyers of V-legal documents. – V-Legal document sales and purchase rate are 2 million rupiahs up to 8 million rupiahs for each container, the difference in V-legal prices based on the type of HS Code. – Weak supervision by the Timber Legality Verification Agency (LVLK) against non-producing exporters in Semarang City has an impact on the proliferation of buying and selling of V-legal documents, the lack of LVLK monitoring on product conformity with documents, the ease of non-producer exporters in registering export products based on online, so that this becomes a gap for non-producer exporters to deceive LVLK

– The address of the Non-Producer Exporter is not the same as stated in the results of the LVLK assessment. Of the 14 owners of Non-Producer Exporter permits monitored by the monitoring team, many addresses did not match, such as not finding the office location, even though the monitoring team had already headed to the appropriate location.

• Recommendations – The Ministry of Environment and Forestry (KLHK) will immediately improve the Timber Legality Verification System (SVLK) assessment methodology for LVLK and establish standard reporting standards for SVLK assessment so that it can close the loophole for violations, especially for non-producer exporters. – The Timber Legality Verification Agency immediately conducts special audits on non-producer exporters in the city of Semarang and conducts chain of custody of suppliers to ensure that the timber products circulated can be legally accounted for. – Forestry Businesses encourage KLHK/Government to provide rewards for companies that consistently implement SVLK. – The Ministry of Environment and Forestry (KLHK) needs to facilitate SMEs who want to commit to implement SVLK through mentoring and capacity building. – There is no limited collaboration with industry/partners with DKP. Only partners who are in the craftsman category should be allowed to apply for DKP and suppliers/partners with Industrial Business License (IUI) status are required to apply for S-LK. – V-Legal documents are document-based only. There is no regulation regarding the obligation of physical photos when stuffing. The physical photo when staffing should be attached to the V-Legal document submission – V-Legal documents can be issued before stuffing goods, V-legal documents should be issued after stuffing to prevent manipulation – On the findings of massive misuse of V-Legal documents in Semarang City, JPIK will immediately file a complaint to

LVLK in the hope that a special audit will soon be carried out – Independent Forestry Monitoring Network (JPIK) will report on the widespread practice of buying and selling V-legal documents to the Ministry of Environment and Forestry in the hope that the Ministry of Environment and Forestry can supervise non-producer exporters and immediately revise the Timber Legality Verification (VLK) assessment standards and guidelines, especially for non-producer exporters.

Picture 35. Photo of CV Mekar Jaya’s Office with Nameplates of 3 Other Companies

Picture 36. Location of CV Geulis Art and PT Minako Marine Logistik

Picture 37. PT Satria Mulia Agrotama’s Offer to Clients Prospective V-Legal Buyers