Mitigate the risks in your supply chain

Learn which actions we recommended to mitigate the risks associated with the timber sources from Viet Nam.

Source Certified Materials 

NEPCon believes that third party certification (for example FSC and PEFC certification) can provide strong assurances of the legality of the products they cover. Companies seeking to mitigate the risks of sourcing illegal timber should seek to purchase third party certified materials wherever possible. 

While the European Timber Regulation does not include an automatic “green lane” for certified products, it does recognise the value of certification as a tool for risk assessment and mitigation. The European Commission says that companies “may rate credibly certified products as having negligible risk of being illegal, i.e. suitable for placing on the market with no further risk mitigation measures, provided that the rest of the information gathered and the replies to the risk assessment questions do not contradict such a conclusion.”

For more information on using certified materials in your due diligence, including how to assess whether a certification system meets EUTR requirements, see the page on Certification and Due Diligence.

Mitigation recommendations

There are five recommended actions to mitigate the risks associated with timber sources from Viet Nam:

1. Fully map your supply chain

• Our supply chain mapping tool can help you do this.

2. Obtain and verify documents

• Land tenure documents
  • Land-use certificate (Red Book) or land lease agreement. Every household or state forestry company must physically possess one of these. The land-use certificate or land lease agreement should cover the correct area and be signed off by the Local Authority
    • If the land-use certificate (Red Book) was issued prior to 2000, the land measurements and borders may not be included
    • Although pre-2000 Red Books still constitute legal proof of land-use rights, care should be taken when relying on them as there is an increased risk of conflicting land-use rights where the borders are uncertain
    • A forest owner must pay for a copy of the Red Book, so there are instances where small landowners or households cannot afford to pay for their Red Book and it is kept in the District Office. In these cases, the forest owner should still have a 'Decision' from the District Staff’ which shows they have a Red Book for that land
  • Business Registration Certificate for companies. Check document is still valid/authentic with DPI/HEPZAs or PPC signature and stamps
• Tax related documents
  • Proof of payment of taxes (VAT and income taxes) 
  • Receipts/records for payment of income taxes 
  • Sales documents. Check they include applicable sales taxes
  • Sales and transport documents. Check that the volumes, species and qualities given match the fees paid. These documents are frequently falsified
• Harvesting related documents:
  • Regulations held by the forest organisation. Verify that these regulations cover the EIA
  • Employment contracts for the employees held by the forest company. Verify that these contracts cover the training and personal protective equipment requirements
• Trade and transport documents
  • Vehicle registration (which includes the year, vehicle type, vehicle load capacity)
  • Company/contractor ownership documents for the vessel or truck
  • Two licenses are required as issued by the Transportation Agency and the Public Security Agency for each vessel or truck the company or individual operates
  • Organisations or individuals operating vessels or trucks for transporting forest products from the forest must have relevant licenses
  • Sales documents. Check that products are correctly classified (species, quantities, qualities etc.)
  • Custom declarations. Check that products are correctly classified (species, quantities, qualities etc.)
  • Export, import and re-export certificates issued by competent authorities (CITES Management Authorities) for all cross border-trade of CITES-listed species. Note that there is a risk that permits have been obtained fraudulently.
  • Registration, declaration, tax, commodity contracts and design for export of produced forest products in place. Importers should check the documents have been signed correctly and cross check that quantities and qualities match other documents 
• Offshore trade and transfer pricing
  • Determine if the company has any affiliates/subsidiaries in known tax havens (see http://www.financialsecrecyindex.com/).
  • Obtain copies of the annual disclosure of inter-company transactions in the prescribed form (Appendix 1-GCN/CC) and contemporaneous transfer pricing documentation to support the arm’s-length nature of their inter-company transactions
  • Review any transactions that have taken place between the company you are purchasing from and the affiliate in the known tax haven. Can information be obtained relating to prices at which similar transactions have been entered into by unrelated parties. How do those prices compare? Were the profits from this particular deal reasonable?

3. Consult stakeholders

• Local tax department confirms land tax receipts
• Local authorities and other stakeholders confirm whether there are conflicting land-use claims to a forest area
• Authorities confirm that an operation is up-to-date in payment of applicable taxes. 
• Trade union confirms results of annual inspections for the company
• Social insurance office/department (at provincial or district level) provides a copy of the social insurance records for the forest company. Verify that the company has the requisite social insurance for their workers

4. Carry out on-site verification

• Confirm that environmental requirements are complied with in practice
• Confirm that employment conditions are observed in practice
• Confirm that personal protective equipment and training requirements are complied with in practice
• Confirm that the material you are buying matches the material on the invoice

5. Conduct targeted timber testing

• Conduct timber testing on samples of purchasd material to verify the species or origin of timber, where appropriate