The Forest Mafia: How Scammers Steal Millions Through Carbon Markets

Even if an auditor manages to visit the trees, it becomes a complex and monumental undertaking, according to Stewart. The results often involve calculations with a set of assumptions that vary based on the particular methodology the ecologist employs. “It can be relatively easy for a bribe to be paid … to the auditor to choose one methodology over another,” Stewart said. “If you didn’t know about the bribe, and you were just looking at the end result, it would be very difficult to just to notice that.”

In 2010, a British company’s overestimation of the amount of carbon stored in the forests of Liberia would have exposed the country to $2.2 billion of financial risk, an amount higher than its annual GDP.

***

Many of the conmen of the voluntary carbon market can expect to run free without oversight on the ground or law enforcement follow-ups. “Because it’s not a mandatory market, there often isn’t the same regulator oversight, and so some of these carbon cowboys aren’t necessarily being pursued by the law in the way they necessarily should be,” Stewart said. And coming up with a case is difficult because it’s hard to prove much beyond a simple breach of contract, even though the ultimate damage can devastate the environment and financially ruin communities.

“It’s a cesspool, but it’s a beautiful place.”

The isolation and lack of infrastructure on the ground in most of these far-flung REDD forest areas make them extremely vulnerable to audacious operators, who can then market the projects to unknowing investors abroad. In fact, the weak rule of law seems to be something that the cowboys depend upon. “If you’re a burglar and you’re wandering around the streets, and you’ve got every window with [a] neighborhood watch [sign],” Perryman said, “and then you go three blocks away and it doesn’t exist, that’s where you break in.”

Iquitos provided the perfect setting for Nilsson’s con. One of Nilsson’s translators there, an American who wished to remain anonymous, told The Atlantic he wasn’t going to defend his former employer, and that, given the undercover video from 60 minutes, his behavior seemed “pretty bad.” But all the lawlessness, corruption, and counter-narratives made it difficult to decipher the truth in a city where there was an “extremely fine line between a savvy businessman and a conman,” he said. In other words, it was somewhere where someone like Nilsson could thrive. “It’s the frontier,” the translator said. “A lot of [foreigners] go there because they ran out of roads somewhere else. It’s a cesspool, but it’s a beautiful place.”

According to a report from Global Witness in 2011, in Cameroon one guard "must police hundreds of thousands of hectares of forest and several well-financed European logging companies, yet he has no vehicle, no radio, and his shoes are several sizes too small." As Martin and Walters note, the typical location of a REDD project does not have the economic resources, regulations, or government to defend against scammers.

There is something especially insidious about these fake forest carbon credits. Investors and corporations who buy voluntary credits believe they are buying into something grander than, say, the efficiency improvements of a single factory in China. They believe they’re funding not only the preservation of trees, but also the wellbeing of local forest communities. Unwittingly, they might be financing the destruction of both.“Forests are not just a reservoir of carbon,” Stewart said. “They’re also ecosystems. They provide biodiversity. They provide habitat. They provide livelihoods for local people.”

Few investors would expect money designated for forest preservation to be funneled to an illegal logging operation, but in an unregulated system with fraudsters like Nilsson, it’s entirely possible.  When you retrofit out a factory or you change the smokestacks and you change the machinery and you double-glaze the windows, you know that there’s going to be long-lasting benefits,” Stewart said. “Whereas with forests, they’re constantly under pressure for being cleared and for being logged. So the level of oversight is currently inadequate, I think, and not only does it need to be improved, it needs to be … sustainable and long-term.”

The voluntary market has provided a preview of what could happen if forest carbon credits ever hit the higher-stakes compliance carbon market. Though the EU-ETS has officially put off that possibility until at least 2020, California’s fledgling cap-and-trade system could approve foreign forest credits sooner. Carbon credits sourced to forest management projects located within the lower 48 states can already be used to meet compliance emissions standards there. Village communities in the forest of Chiapas, Mexico, wrote a letter to California Governor Jerry Brown and other officials opposing a recent project that California was considering for inclusion under the program, asking that forest offsets not be approved for use on the market. They criticized the technical expert that helped set up the plan, writing that she “was more focused on approving the REDD+ scheme to assure business interests than guaranteeing the protection of biodiversity, forests, and indigenous and peasant farmers’ territories and rights.”

Both Interpol and Europol said they expect that if forest credits do become eligible for trading on the compliance market, the same swindlers who profited off tax schemes and other loopholes will find ways to manipulate the forest projects as well.

“It’s a bit of a murky world really,” Europol’s Perryman said. “It’s a shame because obviously the whole idea from the politicians and legislators was to promote a cleaner world, and that has just been completely sunk. The good ideas and good intentions have been scuppered by the activities of fraudsters.” 


*This article originally referred to the "Voluntary Carbon Standard." This name was re-branded in March 2011 to the "Verified Carbon Standard."

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Ryan Jacobs is a former producer for TheAtlantic.com.

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