The pitch

In a corporate presentation dated 2013, BM Group claimed some 700 workers would cut, dry, sort and store wood at the planned Asia Les complex, on a sprawling site 38 football pitches in size.³⁶

Sat next door to its existing logging and sawmill operation, Amur Forest, the finished facility would turn the boggy grounds lain with logs into a wood-eating machine capable of churning out 200,000 cubic metres of dry sawn lumber and 100,000 cubic metres of planed, profiled planks each year – enough to fill a dozen shipping containers every day³⁷ – plus 84,000 tonnes of fuel pellets.³⁸ From a rail depot connected to the Baikal-Amur Mainline spanning far eastern Russia, a steady stream of goods would flow to major ports and, thence, to customers worldwide.³⁹

It was a bold pitch, especially since, when Asia Les was proposed, BM Group's two existing priority projects – Amur Forest and a joint venture called DalEuroLes – were beset with debts and delays, respectively (see 'BM Group's other blunders')

BM Group's other blunders

While Asia Les was the largest investment project BM Group used to gain access to Russian forests, it wasn’t the only one – there were four others.

And while there is no evidence of the same kinds of bribery and abuses underpinning them, they also ran afoul of the authorities for failing to deliver on their promises.

Click here to read more

Pudovkin's prestige trumped any doubts. In April 2011, one year after the Russian president awarded him the title of "Honoured Worker of the Forest Industry" for his services to the industry⁴⁸, the Khabarovsk regional government approved plans for the sawmill.⁴⁹

The following year, after a request by local politicians, the federal Ministry of Industry and Trade added Asia Les to the priority projects list.⁵⁰ Forests, funds, political clout – now Asia Les had them all, plus the right to chop down nearly one million cubic metres of wood each year.

PowerPoint slides from 2013 lay out BM Group's vision for Asia Les.⁵¹ They include a detailed plan of the site, complete with a new electric substation, log sorting line, debarking section, pellet plant, administrative complex and three warehouses for drying wood.

Expectations for the venture only grew and, by 2015, BM Group felt free to flex its muscles. The loggers published a promotional video on YouTube showcasing their expensive hardware.⁵² Amid drone footage of the site set to swelling strings, it featured hulking machines hauling logs and piling finished goods high. "We work 24 hours a day," an unseen narrator declares in the English-language version, "seven days a week." He went on to trumpet Asia Les's priority status.

Watching shots of planks glide along a conveyor belt, you'd be forgiven for thinking that the sawmill was up and running ahead of its deadline. Foreign firms seemed to, as customs records show Asia Les supplied them with nearly 3,600 shipments of wood that year.

By 2016, when Asia Les was scheduled to complete the project, trucks and trains laden with wood were rolling in and out of Beryozovy. But, at the sawmill site, construction had barely begun.⁵³

Money, money, money

BM Group shrugged off mounting delays. The sawmill, it said, would be ready in 2018, then 2019. Then 2020.⁵⁴ Under the latest deadline, the company forecast that the project's proceeds would be more than €1 billion within its first five years, an archived web page shows.⁵⁵

By law, a delay of one year or more was reason enough to remove the project's priority status, and with it, its forest leases and subsidies.⁵⁶ But the years ticked by with business as usual. Khabarovsk territory's regional government and the federal industry and trade ministry, which is in charge of priority projects, had not agreed or approved additional time, yet public money continued to foot some of BM Group's bills.⁵⁷ Railway tracks were laid to support the project, as were 63 kilometres of roads and a metal bridge across the Nimelen river.⁵⁸

The small village of Vladimirovka, the unofficial capital of the Negidal indigenous group and containing around half of their estimated 600 members worldwide⁵⁹, quickly made use of the crossing.⁶⁰ Reliant on boats for transport, villagers had hitherto waited out winters surrounded by frozen waters. Now the seven-span, 246-metre bridge and forest road offered a lifeline to the outside world.⁶¹

Back at the sawmill site, the loggers brought in a log sorting line with an x-ray scanner for detecting internal defects in wood, Russia's first, and expensive equipment from world-leading European manufacturers.⁶²

Dmitry Medvedev, Russia's prime minister at the time, officially launched the sorting line and wood pellet production plant via videolink in December 2017.⁶³ Khabarovsk governor Vyacheslav Shport joined him on screen to praise Asia Les as "the most modern timber processing enterprise in the region" and the "500 new jobs" it brought.

Between 2014 and 2018, the venture received nearly €15 million in federal budget subsidies.⁶⁴ And while the sawmill stalled, the logging originally meant to fuel it went ahead apace. Satellite images show necklaces of cleared woodlands connected to logging roads extending across the forest plots leased to the company.⁶⁵ Thanks to the generous lease terms, BM was paying the state just €0.34 for each felled tree⁶⁶, one hundredth what the same tree could be sold for unprocessed to China.⁶⁷

All this time, Russia's industry and trade ministry did not visit the site. Instead, officials relied on documents submitted by the company to inform them of the project's progress and costs incurred.⁶⁸

Showered with vast sums amid little scrutiny, Pudovkin could carve his name deeper into the annals of Russian forestry. Forests flattened at his command and money sprouted from the stumps, and that was it. Life can be good at the top.

I, spy

Towards the end of 2017, as subsidies continued to pour into deepest Khabarovsk, the sawmill caught the attention of Russia's domestic spy agency – the Federal Security Service, or FSB.

From the corridors of the Lubyanka, the spooks' imposing stone headquarters in Moscow, a request reached the country's federal accounts chamber to look into the project. Over six months, from June to November 2018, auditors combed figures and receipts.⁶⁹ Their finished report, published in December 2018, revealed rampant wrongdoing.⁷⁰

Asia Les was moving thousands of tonnes of goods out of Russia. But the report found that the sprawling site was far from finished, having created fewer than a third – 171 – of the jobs promised.⁷¹ Handed vast forests and funds to make planks and pellets, the company had simply chopped down the trees and sold most of the wood as raw logs to China, a breach of the deal with no expensive new facilities needed.

Strangely, for a sawmill, there was no sawmill. The report revealed how, with no place to cut logs into lumber despite the whole project hinging on one, Asia Les was also passing off planks made elsewhere as its own.⁷² The accounts chamber said this was done on equipment leased from another firm, an accomplice later confirmed as the firm's next-door neighbour and BM Group stablemate Amur Forest, liquidated in 2017.⁷³

Essentially, the audit report found that this was a scam. And because it depended on the cheap rights to the forests, it extended to the logs and timber. According to the report, the loggers claimed compensation for €7.6 million to transport goods with nothing to do with the project for export.⁷⁴ The industry and trade ministry reimbursed another €2.6 million in transport costs, against the rules, after the venture overran its original deadline.⁷⁵

With its log sorting line and rail depot, the fabled complex was little more than a glorified loading bay. Wood pellet production was in place, true, but this was nowhere near its promised capacity and ran on chips from another business.

Asia Les, the report concluded, broke the rules and its promises, and received public money to which it was not entitled – with no punishment from regulators.⁷⁶ The ministry of industry and trade, it said with the cautious understatement typical of bureaucrats, had carried out "insufficient monitoring".

In a likely attempt to pre-empt the accounts chamber's findings, the provincial government ordered Asia Les to have everything up and running by a new deadline: 10 April 2019.⁷⁷ But by this stage Pudovkin had quietly stepped down as the company's director. Company filings show he left Asia Les at the end of November 2018, shortly before the damning audit was made public.⁷⁸ However, he remained in charge of BM Group LLC and an Asia Les shareholder.⁷⁹

Inside the Lubyanka, FSB agents pored over the report, trying to connect names to the figures. One suspect stood out: Vasily Shikhalev, Khabarovsk's former forestry chief.

Stumped

Big things awaited Vasily Shikhalev, a politician and playmaker with a trademark slug moustache. Qualifications from the Omsk Institute of Railway Engineers and the St Petersburg Institute of Management and Economics, experience in local politics, three years leading a logging firm – his resumé proved it.⁸⁰

His rise in the regional legislature began in 2002, when he became minister of the territory's forestry industry, then, in 2009, deputy chairman and minister of natural resources. May 2015 saw him appointed first deputy chairman of the provincial government, a role he held until September 2018, stepping aside after the landslide electoral defeat of his ally, governor Vyacheslav Shport, to Sergei Furgal.⁸¹

Retirement proved short-lived, for six months later, on 18 March 2019⁸², balaclava-clad FSB officers detained Shikhalev in the resort town of Belokurikha⁸³, flew him back to Khabarovsk and escorted him, handcuffed, down the aircraft boarding stairs into a waiting minivan.⁸⁴

In the same sweep, masked men marched into the headquarters of BM Group, taking his friend Alexander Pudovkin into custody and seizing files, computer servers and hard drives.⁸⁵ Footage posted online shows two men in camouflage carting a confiscated safe down a corridor. In another clip, a stone-faced Pudovkin dressed in a striped rugby shirt and patterned shorts listens to an officer read his arrest warrant.

The so-called siloviki (strongmen) also searched the offices of four vice-governors in the provincial government's headquarters building, Amurpress reported.⁸⁶ All four have since left their posts.⁸⁷

One room belonged to the deputy chair for social affairs in Furgal's government, Natalia Pudovkina, the BM Group boss's partner and ex-wife, who swiftly went on holiday and resigned shortly thereafter.⁸⁸ Around that time, a detained Alexander Pudovkin told a court that he and Natalia divorced on an unspecified date, though media reports suggest the couple still lived together.⁸⁹

The timber tycoon and Shikhalev, 59⁹⁰, were later released from pretrial detention and placed under house arrest.⁹¹ As the authorities circled closer to the sawmill, both men knew it was time to cut a deal. Pudovkin agreed to cooperate with the investigation and name names, reportedly in exchange for having some criminal charges, such as fraud, dropped.⁹² A veteran lawmaker, Shikhalev was also no stranger to behind-the-scenes bargaining. Favours, guile, luck. He would need them all.

Fightback

After the FSB raids and arrests, few thought the sawmill would be ready in time for the provincial government's deadline of 10 April 2019.

The date should have marked the final nail in the company's coffin. Instead, with its dying breath, the business hit back.

On deadline day, Khabarovsk governor Sergey Furgal announced Asia Les would be stripped of its prized priority status.⁹³ No more forests fresh for the chop, generous rents and swimming in subsidies: he was turning off the money tap – and making the company repay about €746,000 to the federal budget. In another blow, Furgal added that sister sawmill Logistic Les would be struck from the list too, for unspecified breaches.

The following month, BM Group employees staged a protest to beg the governor for help.⁹⁴ Demonstrators warned that the company teetered on the brink of bankruptcy. Their warning proved well-founded as arbitration court filings show a Chinese firm called Suifenhe Que Mei Timber LLC submitted an insolvency petition against Asia Les around the same time.⁹⁵

No luck. On the federal industry and trade ministry's orders, Asia Les fell from the priority list on 22 May 2019.⁹⁶ As in the rise, so in the fall, Logistic Les followed shortly after.⁹⁷

Yet when the regional government ripped up its lease agreement with Asia Les, staff stood firm. They refused to hand back the forests over which they had allegedly obtained rights fraudulently. In its opening salvo, the authorities filed a motion for an interim ban on logging during proceedings. It mimicked a successful motion by claimants in another Russian region, Irkutsk Oblast, in a nearly identical arbitration case held around the same time.⁹⁸

The court, however, refused, and the company, with the writing nevertheless clearly on the wall, scrambled to cut down trees.⁹⁹

Forest monitoring data analysed by Earthsight (see 'Chop, chop') shows a sharp rise in logging in forests under BM Group control that year. The company's legal shenanigans allowed its loggers to invade and degrade a further 150 square kilometres of virgin forest.

Chop, chop

Using official data, Earthsight tracked changes to “intact forest landscapes” (IFLs) – undisturbed woodlands each at least 500 square kilometres (or 70,000 football pitches) in size – in BM Group concessions over a period covering nearly two decades.

Earthsight calculated that BM Group logged and degraded an area of virgin forest the size of London during the last decade alone.

Click here to read more

Explore Earthsight's interactive map here

Timber!

The bitter arbitration battle ended on 29 August 2019, when Khabarovsk territory's arbitration court ruled that the provincial authorities were right to cut off Asia Les from the forests.¹⁰³

Emboldened, the plaintiffs launched a flurry of further claims aimed at recovering roubles.¹⁰⁴ The cases unearthed, amongst other things, that the company had failed to fulfil reforestation measures.¹⁰⁵

BM Group staff protests continued¹⁰⁶ – again, to no avail. Khabarovsk governor Sergei Furgal on 6 September 2019 confirmed that Asia Les and Logistic Les had been booted from the priority list in comments to the TASS news service at the Eastern Economic Forum.¹⁰⁷

By October, dozens of employees had left Asia Les and those who remained counted down to layoffs.¹⁰⁸ Staff told reporters of seizures of company equipment, likely to prevent its resale.¹⁰⁹ Natalia Pudovkina, now back in the fold with her husband as the BM Group's managing director and public face, criticised the media "hype" surrounding the arrests and complained that the regional government treated them unfairly.¹¹⁰

In Vladimirovka, the small village by the Nimelen river, residents feared the return of long, lonely winters. Rumours emerged that the end of the leases would mean demolishing their beloved bridge. How would an ambulance reach them now?

The debate it sparked forced governor Furgal to appeal for calm in an interview with TV channel Gubernia, reassuring viewers that the bridge and associated road "will continue to stand".¹¹¹ Informed sources told the press the falsehood had been promulgated by the company in an attempt to turn public opinion against the authorities seeking to clamp down on their law-breaking.¹¹²

Starved of forests, Asia Les would be lucky to last another month, reported Russia's official news agency, Interfax.¹¹³

Then, finally, it happened. The territory's arbitration court on 5 December 2019 declared the sawmill bankrupt and appointed an external administrator to manage the winding up process.¹¹⁴ The Russian bankruptcy register confirms the court's decision, and charts creditors' ongoing attempts to claw back funds.¹¹⁵

State development bank Vneshekonombank, known as VEB, recently filed bankruptcy suits against Pudovkin¹¹⁶ and two of BM Group LLC's three co-owners¹¹⁷, Andrey Krymsky¹¹⁸ and Konstantin Beznosyuk¹¹⁹, who, together, also own the logging giant's export arm, Asia Export.¹²⁰ Another letter landed at the door of the Asia Les sawmill's Chinese owners, Suifenhe Songlin International Trade Company.¹²¹

As investors gathered and decided on next steps, so did law enforcement. Two days before Christmas 2019, representatives from the prosecutor's office brought crimes connected to the sawmill swindle to the head of Khabarovsk territory's elected government, Furgal.¹²²

Based on the fraud uncovered, investigators alleged that Asia Les illegally logged nearly 600,000 cubic metres of wood – enough to fill London's Royal Albert Hall almost seven times – on the leases concerned.¹²³ Helped, of course, by taxpayers' money.

Processed into finished products such as cladding, Earthsight estimates this wood had a street value in excess of €874 million ($1.025 billion).¹²⁴

Far from connecting Khabarovsk to the world, Asia Les had conducted industrial-scale environmental crime, and the time had come to hold the perpetrators accountable. First in the dock: the former forestry chief.

Get out of jail card

The Khabarovsk Central District Court on 13 March 2020 found Vasily Shikhalev guilty of abuse of office and handed him a suspended prison sentence of four years and six months.¹²⁵

The court heard how, between 2013 and 2018, while in charge of the region's forestry industry, he lobbied and did favours for Pudovkin.

Banning him from public office, the court found Shikhalev illegally secured Asia Les cut-price rents for state forests without tender, significantly understating their size (estimated damage to the federal budget, according to prosecutors: more than €840,000). When the project ran more than a year behind schedule, he ordered officials not to take action and hid evidence of rule breaking.¹²⁶

"He had a conflict of interest – to make a positive impression of his work on the governor of the Khabarovsk territory – to create the appearance of the effective attraction of investments," prosecutor Konstantin Kurguzov told the court.¹²⁷ "Shikhalev was also friendly with Pudovkin and decided to help him to keep his project in the list of priority investment projects."

As a result, Shikhalev allowed nearly €11 million in illegal federal subsidies and illegal logging worth €98.6 million.¹²⁸ Total losses to the state treasury are estimated at as much as €117 million.¹²⁹ In a separate civil suit, he agreed to pay the Federal Forest Agency more than €840,000 in fines – the same sum his dodgy land leases cost the Russian taxpayer.¹³⁰

Despite prosecutors demanding the disgraced politician spend time behind bars, he was spared jail after reaching a pretrial agreement with investigators. The criminal case was therefore tried without examining evidence.¹³¹

This meant the court didn't hear quite how close the corrupt former politician's family was to Pudovkin and the botched business venture to which he had provided patronage. A Russian corporate register shows that in February 2019, the month before his arrest, his son, Vasily Shikhalev Jr, was CEO at Asia Export, the BM Group affiliate controlling a small stake in Asia Les and jointly owned by Pudovkin's sons.¹³² Vasily Jr has also worked as BM Group's strategic development director since July 2018, according to his LinkedIn profile.¹³³

In Khabarovsk, it seems, the line between loggers and forestry officials is blurred to the point of invisibility. As it turns out, the corruption in this case extends all the way to Moscow.

Russian roulette

A lawyer, a lumberjack and a bureaucrat walk into a restaurant.

Prosecutors won't give you a punch line, only details on an unlikely encounter that gave Pudovkin another friend in a high place.

The first details emerged on 21 June 2019 when agents in Moscow detained Vladimir Potapkin, a former department head at the federal industry and trade ministry who quit on an unspecified date earlier that year.¹³⁴ He was sent to Khabarovsk where a court arrested him on corruption charges.¹³⁵

Investigators in the territory accused Potapkin of accepting bribes totalling €876,000 from Pudovkin in return for showering Asia Les with state subsidies.¹³⁶ An official press release says the sawmill firm received €5.3 million as a result.¹³⁷ He is also said to have helped place the project on the priority list.¹³⁸

Prosecutors in the trial against the ex-official say Pudovkin paid kickbacks from 2016 to 2019 – when the sawmill ran beyond its original deadline – through a mutual friend, lawyer Anton Tolmachev, who fled the country to avoid prosecution.¹³⁹

Their witness, none other than Pudovkin, admitted coming up with the scheme and told the court Tolmachev acted as a conduit for money sent in the guise of interest-bearing loans. The payments reportedly occurred after Potapkin introduced the pair to each other at a Moscow restaurant.

His evidence differed slightly from his earlier claim to investigators that the transfers were Potapkin's idea – which, if proven, may have got him off the hook legally.¹⁴⁰ Regardless, the BM Group boss had confessed to orchestrating bribes to serve his business interests.

The defence argues that Pudovkin testified against their client to have two of his three charges dropped.

Russia's deputy prosecutor general Dmitry Demeshin last month sent the case against the disgraced tycoon to court. Pudovkin is charged with bribery "on an especially large scale", one count of which he admitted to in an indictment hearing announced on 19 November.¹⁴¹

The official press release on the upcoming case alleges that money changed hands under "threats" from the bureaucrat.

Potapkin, who maintains his innocence, appeared in the defendants' cage in Khabarovsk on 12 October wearing a t-shirt, jeans and – because of the coronavirus pandemic – a powder blue surgical mask.¹⁴²

He denied lobbying for Pudovkin and receiving money from Tolmachev, saying it was "very stupid" to have supposedly entrusted a known gambling addict to relay such large sums. "Tolmachev was losing all the money that got to him," news outlet RBC quotes him as saying.¹⁴³ "It was a fact that all his acquaintances knew about. He borrowed and lost money from many of our friends."

Drawing on casino receipts and a psychiatric report on Tolmachev, Potapkin's legal team argues instead that the lawyer was probably borrowing funds to feed his habit.

The trial continues.

BM Group's foreign buyers

When its major projects fell from grace and dirty tricks emerged – corruption, lies and, as Pudovkin himself admitted at an indictment hearing, bribery – BM Group kept selling sought-after wood in plain sight. This went on week after week, month after month, in shipments of suspect lumber abroad.

Shipping records obtained by Earthsight show that three BM Group companies – Asia Les, Logistic Les and Asia Export – and another outfit closely linked to them, SDS Logistic, made €186.3 million from wood exports between January 2015 and April 2020, the entire period for which data is available. They sold 1.4 million tonnes of BM Group logs and lumber – more than one and a half times the weight of the Golden Gate Bridge in San Francisco.¹⁴⁴ Raw logs went to China, while beams and boards also entered the EU, Japan and elsewhere.

The products were overwhelmingly Dahurian larch, with some Siberian spruce and Yezo – or dark-bark – spruce. Tougher than most softwoods and water resistant, larch is a popular material for cladding buildings, building yachts and interior panelling.¹⁴⁵

Asia Les is listed as 'manufacturer' of three-fifths (62 per cent) of the BM-linked goods exported over the period, mostly in 2017 and 2018. More than 890,000 tonnes of trunks and sawn wood bearing its name, worth €97.1 million, entered supply chains across Europe and Asia, as well as the Marshall Islands.

According to the records, Pudovkin's pet project produced nearly all the group's exports in the two years before the damning audit report was released. Its exports then halted, only for BM affiliate Logistic Les to pick up the baton.

Satellite images show Asia Les was still logging, but officially, at least, it had stopped exporting. Sister firm Logistic Les, on the other hand, suddenly sprang out shipments of the same wood in the same quantities to the same customers. It seems likely this was laundered Asia Les timber.

In response to a detailed list of facts in this article, BM Group management told Earthsight that all products exported were harvested in accordance with all relevant laws and regulations. They claim the wood had nothing to do with the activities and criminal case against "individuals" like Pudovkin.

But neither BM Group management nor their European customers could explain the coordinated switch in supplier. Even if the wood wasn't from the same source – and there was no way buyers could be sure – it was tainted by association, given the close links between Logistic Les and its affiliate, links highlighted in media reports of the sawmill scandal.¹⁴⁶

So where did the dodgy goods go, both before and after the news broke? BM Group's biggest customer was China, accounting for nearly €111.3 million (60 per cent) of export sales, followed by Japan (€38.4 million, representing 21 per cent of sales). But most of the rest – wood worth €28.8 million (and about four times that at point of retail) – made its way to Europe, despite laws there meant to stop it.

SDS Logistic

Khabarovsk haulage firm SDS Logistic shipped tens of thousands of tonnes of wood manufactured by Logistic Les over the period covered by the shipping records.¹⁴⁷

Representatives for BM Group say the firm is "independent" of Pudovkin's business empire, but close links between them challenge this claim.

SDS Logistic founder Svyatoslav Sochnev, who led the firm until October this year, previously served as general manager of Logistic Les.¹⁴⁸ His departure coincided with SDS moving address from a quiet residential road to the same building as BM Group. Only a few offices separate them.

BM Group and its affiliated companies list the name and contact details for the same company representative as SDS Logistic on documents filed to a leading certification scheme for wood suppliers (see Chapter Four: 'The Watchdog').

Greenwash

How did all these firms end up sourcing suspect wood seemingly in breach of EU law? In one word: certificates. In another: greenwash.

Though some told Earthsight that their due diligence went further, all rely to a significant extent for their EUTR compliance on certificates from leading forestry and wood supply accreditation bodies the Forest Stewardship Council (FSC) and its main competitor, Programme for the Endorsement of Forest Certification, known as PEFC.

Bookcases and bed frames, wardrobes and wallpaper, coffee cups, toilet roll, napkins and straws – all commonly bear these watchdogs' clean, green logos. The symbols tell shoppers that to make this product, loggers receive fair working conditions, trees are felled sustainably and legally, and forest dwellers protected.

Unfortunately, mounting evidence shows illegally sourced and high-risk wood has repeatedly received their stamps of approval, due to fundamental flaws and conflicts of interest within the green schemes. BM Group wood, it turns out, is no exception.

Earlier this year, Earthsight revealed how FSC had certified illegal wood from Ukraine ending up in IKEA products.¹⁹⁰ The report also documented the green scheme's long history of failure to spot or stop crime and human rights abuses in forests across the tropics.¹⁹¹

Yet, as Earthsight reported at the time, FSC is still the best of a bad bunch, at least compared to rival PEFC (see 'PEFC-no-evil').

Whether good, bad or merely a rubberstamp, a certificate does not prove timber traders follow the law on its own. Yet PEFC actively encourages buyers to believe that, with rules that treat certified wood as low risk regardless of origin and exempt it from the due diligence duties imposed on buyers by the scheme.¹⁹²

PEFC-no-evil

Though touted as a shield against crooks, PEFC has made some major blunders.

Fundamental flaws have led environmental groups to dismiss the label as "greenwash" for trafficking illegal wood.

Click here to read more

When presented with Earthsight's findings, which included a critique of the green label, many BM customers still sought to defend themselves by pointing out that their purchases were PEFC certified. The same attitude is common among the bodies enforcing EUTR in each member state: "competent authorities". Over the past few years, Earthsight has exposed a litany of cases where suspect timber entered Europe in apparent breach of the law thanks to such certificates.

Jacob Jürgensen managing director Rolf von Loßberg told Earthsight that the German competent authority "sees PEFC, among others, as a very relevant tool and considerable instrument in exercising due diligence", a view he saw no reason to doubt.

Its Russian supplier clocked this early on.

Sleeping watchdog

In a corporate presentation, BM Group called papers from a leading certification scheme like PEFC or FSC "the main condition" to selling timber abroad.¹⁹⁸

It gained PEFC status for most of its forest leases in late 2012, just before EUTR took effect, and quickly plastered the non-profit's name on web pages, PowerPoint slides and promotional videos.¹⁹⁹ Affiliated companies – including Asia Les – also obtained PEFC certificates for their mills. Duly reassured, European customers started signing cheques.

The forests which would receive the PEFC stamp of approval included areas leased to Asia Les, as well as to neighbour Amur Forest and sister sawmill Logistic Les. Audits specifically claimed that everything was shipshape legally; the forest leases were legit, taxes duly paid. This meant the European buyers, in complying with their own PEFC certificates, could if they wished mark the wood down as "low risk", no further checks needed.²⁰⁰

Missing a scam centred on a sawmill that does not exist is one thing. Failing to act when the news broke is worse. And yet, today, the world-leading watchdog is still greenwashing companies and wood linked to Asia Les.

The scandal drew countless column inches and airtime on flagship current affairs programmes when news of the March 2019 raids and arrests appeared online on the same day they occurred; the damning accounts chamber audit report exposing fraud at the sawmill was made public months before. The auditors appear not to have noticed either. Instead, after a few days spent perusing paperwork in mid-February last year, they issued BM Group and, with it, Asia Les a shiny new certificate on 23 March 2019 – five days after cameras captured security service officers taking Pudovkin and his friend Shikhalev into custody.

Both the factory and the forests of Asia Les have now lost their PEFC status.²⁰¹ But the wider BM Group empire, though weakened, still stretches over 1,537 square kilometres of certified forests – an area the size of London²⁰², and including a planned nature reserve.²⁰³ The credentials, issued to the management company of which Pudovkin remains CEO, covers leases listed under the name of BM affiliate Hokinus²⁰⁴, itself ultimately owned by his two sons.²⁰⁵

Papers accompanying the certificate and last amended in June 2020 state that BM Group LLC – i.e. Pudovkin – remains in charge of protecting biodiversity within these woodlands as well as developing and monitoring compliance with logging plans. Other responsibilities include protecting them from illegal logging. Nowhere in the documents is there a mention of the scandal or that the certificate has been revised and the Asia Les leases dropped.²⁰⁶ The global green body swept the whole thing under the rug, leaving the perpetrators in charge.

PEFC International CEO Ben Gunneberg and Andrey Ryzhkov, director of PEFC Russia, said that credentials for Asia Les were withdrawn in the summer of 2019. The move, they added, came after the non-profit launched an investigation into the company auditing BM Group firms, SGS Vostok²⁰⁷, after learning of the scandal from the news media.

The full results of the probe, carried out by Moscow-based accreditation body Industrial Safety²⁰⁸, have never been published, but Ryzhkov said they led to annual inspections by PEFC of the auditing firm. This time interval had been extended, he went on, because of disruption caused by the coronavirus pandemic.

While dismissing Earthsight's findings as "rather tendentious" and stating that they "do not correspond to the facts", Ryzhkov said PEFC would investigate SGS Vostok afresh. Two days after Earthsight wrote to PEFC International, the head office filed a formal complaint with the auditing body against certificates issued for BM Group, Logistic Les, Asia Export and SDS Logistic.²⁰⁹

SGS Vostok issued a short statement that did not address Earthsight's specific findings but said that its activities comply with PEFC standards and Russian law.²¹⁰ At the time of writing, it has yet to respond to PEFC about the complaint.

Just friends

The auditing body on whom PEFC pins blame, SGS Vostok, is not a tinpot outfit but, rather, a subsidiary of the world's leading inspection, verification and certification firm, the multibillion-dollar stock exchange-listed Swiss corporation SGS SA.²¹¹

Its profits are great, its reputation in forest certification less so. In fact, the multinational has a uniquely troubled track record in this area. Earthsight revealed in an investigation earlier this year that SGS had issued FSC papers to an IKEA supplier in Ukraine caught breaking logging laws.²¹² Our report also documented numerous scandals relating to FSC and involving the Swiss firm, including in Indonesia, Romania and Guyana.²¹³

Given the fundamental flaws within PEFC systems (see 'PEFC-no-evil'), especially in spotting organised crime and corruption, the certification system's failure in this case does not simply boil down to the actions of a single auditing firm. The auditors certified precious virgin forests as ripe for logging (see 'Chop, chop'), for example, but according to PEFC standards that was OK. Bring on the bulldozers.

That said, a glaring conflict of interest suggests there's something fishy here. PEFC records for BM Group list one Alexey Prikhodko as the company's representative. His name and contact details also crop up for affiliated companies Asia Les, Amur Forest, Logistic Les and Asia Export, as well as for SDS Logistic. Prikhodko is not an employee, however, but a part-time consultant. BM Group management, answering questions sent to him and forwarded on, said that he "represents [our] interests in certification issues as a competent and experienced specialist".

So far, so understandable. But here's the hitch. Prikhodko sat on BM Group's side of the table during the certification process, while, on the other, charged with independently verifying its activities, was his Facebook friend and business partner Andrey Zakharenkov.

PEFC documents name Zakharenkov as one of two SGS representatives who inspected BM Group's leased woodlands in 2016. Two years later, he set up a forestry services firm called LessCentr, jointly owned by himself and Prikhodko.²¹⁴ Then, in 2019, when BM Group's certificate came up for renewal, Zakharenkov took his usual place among the auditors, as did his friend, for the loggers. Despite the arrest scandal hitting headlines mere days before, a reissued certificate was waved through.

Responding to questions, Prikhodko confirmed a friendship with Zakharenkov but denied that the connection created a conflict of interest skewing the PEFC certification process in BM Group's favour. "We have a lot of friends in the professional community," he said, adding that, as far as he knew, his friend is a contractor to the SGS branch and so could not approve PEFC certificates.

He went on to claim that Zakharenkov stepped down from certification audits in April 2018. Yet the public summary of the PEFC assessment of BM Group LLC in February 2019 clearly names Zakharenkov as an auditor.²¹⁵

Prikhodko's contact details contain another possible connection. He lists a Mail.ru email address whose username – the bit before the 'at' sign (@) – "ecolesdv" may refer to DVNII EcoLes, a defunct forest partnership that Zakharenkov co-founded.²¹⁶ Prikhodko denies ever having any link to DVNII EcoLes and says the username reflects his affiliation with ecological issues in the region's forestry sector.

The apparent conflict of interest is especially concerning because there are grounds to suspect that the rot in BM Group's logging operations spread much further than the criminal investigation revealed. Forest management plans and cutting permits for the company's logging leases remain secret, while the coronavirus pandemic has kept their remote sites even more inaccessible to outsiders. Truly independent checks by Earthsight or others on whether the loggers complied with a wide range of other regulations meant to reduce harm to fragile habitats are, therefore, not possible. Corruption, like a fungus, thrives in the dark.

Even if PEFC's auditors meant well, they stood little chance of finding anything. Inspectors had only a few days to assess logging across a sprawling, remote stretch of woodlands accessible only along a few winding roads. And experience elsewhere shows how easy it is for corrupt officials and venal companies to control what auditors do and don't see.²¹⁷

Over less than a decade, the Asia Les swindle exposed major blind spots in tackling the illegal timber trade.

In what may well be the largest single scandal of its kind, Earthsight has estimated that European consumers have shelled out somewhere in the region of €59 million to €316 million cladding their homes with illegal Russian wood.²¹⁸ Far from EU laws preventing them from handling this timber, European companies profited handsomely from it.

Disgraced but still in business, BM Group president Alexander Pudovkin will soon appear in court for a bribery charge, one count of which he admitted at an indictment hearing. Former federal official Vladimir Potapkin faces up to 15 years in prison if convicted of accepting the kickbacks, and a question mark remains over middleman lawyer Anton Tolmachev's whereabouts.

After a fine, corrupt former politician Vasily Shikhalev is free once more to enjoy his retirement.

Justice may still be done, perpetrators punished, but this is uncertain. Either way, it won't bring back those swathes of precious virgin forests or prevent another timber baron taking Pudovkin's place, with a new corrupt official in their pocket. Nor will it prevent a new Taiga King selling to eager buyers.

PEFC may very well pull the certificates of the firms responsible, a hollow victory given most of them will soon cease to exist. What's left of Pudovkin's empire is mostly in the hands of liquidators.²¹⁹

Preventing a repeat of the scandal will take meaningful action to address root causes, both in Russia and Europe.

Russian president Vladimir Putin recently ordered his government to strengthen state oversight over priority projects following the timber baron's grand logging scam. A list of instructions approved after a videoconference meeting with officials on 29 September includes penalties for companies who fail to submit progress reports on time and banning the sale of unprocessed or rough wood from forest plots provided under the scheme, the latter measure seemingly drawn directly from Asia Les.²²⁰ It isn't much, given the entrenched problems with timber corruption in the vast nation. But it is something.

BM Group customers in Europe, though, largely deny any structural problems exist, as apparently does PEFC. For them, it's business as usual.

When the EU's flagship timber law took effect, Brussels admitted that the bloc was "an important export market for those countries where levels of illegality and poor governance in the forest sector are most serious".²²¹

Seven years later, Pudovkin's prolific waste of Russian forests and funds shows this is still the case. The sawmill saga stresses how importers in Europe need to stop waving through suspect wood on sight of shiny certificates or official papers from corrupt countries. But most importantly, the bodies enforcing EUTR should demand that they do more, or look elsewhere for their wood.

Making sure companies comply with the law isn't easy, especially when many authorities tasked with this job in member states are understaffed and underfunded. But this case shows the problem goes deeper.

It is no secret that Russia is the EU's largest supplier of high-risk wood, and long-standing guidance on EUTR stresses that illegal logging is a particular problem in the Russian Far East. The vast majority of the bloc's imports from that region are of larch. Who's the single biggest buyer of that larch? Jacob Jürgensen. Their second largest supplier? BM Group. Arguably, monitoring shipments of this wood from BM Group to Jürgensen should have been the top priority for EUTR enforcement anywhere in Europe.

Authorities in Germany, Belgium, France and elsewhere are clearly failing in their duties. Until this changes, chainsaws will continue to roar to supply unwitting European wood customers, bringing big paydays for crooks.

The European Parliament last month demanded additional powers to stop the EU contributing to deforestation and associated human rights abuses worldwide. MEPs voted to extend the existing checks on illegal timber to other goods driving forest loss like palm oil, beef and soy, in a measure which could also extend controls on timber to encompass wood from legal sources if it led to deforestation.

The UK government is also considering something similar. Whether any such laws reach the statute books remains to be seen. But one thing is certain: they will stand little chance of achieving their goals if, like EUTR, they are not made to work.

As authorities dither, loggers drive deeper into forests crucial to confronting the climate crisis and home to some of the planet's rarest animals and plants. Chop, chop.