Laos routinely flouts export bans on a massive scale to satisfy the ravenous timber processing industries of Vietnam.

The rainforests of Laos are being plundered. Emboldened by weak or non-existent law enforcement, a nexus of corrupt officials and businessmen have fostered a rampant trade in illegal timber.

The situation threatens some of the last intact tropical forests in the Mekong region, according to a recent report by the London-based Environmental Investigation Agency (EIA).

The 21-page report, titled Crossroads: the Illicit Timber Trade between Vietnam and Laos, claims that “at least” half a million cubic metres of illegal timber flows into Vietnam from Laos each year. Much of this trade is undertaken by several large companies – some with strong links to the Vietnamese military.

The racket has been fuelled by a massive surge in Vietnam’s wood furniture manufacturing sector, now the sixth-largest in the world, which processes the timber into outdoor furniture and other consumer products. Much of these wood products end up on shelves in the West – the endpoint of a pernicious and largely unacknowledged global market chain.

Due to restrictions on logging within Vietnam that were introduced in the late 1990s, the country now imports around 80% of its raw timber from abroad. Laos – a country with close political links to Hanoi and a long, porous border with Vietnam – has been a natural destination for loggers. “Vietnam is displacing its deforestation next door,” said Julian Newman, EIA’s campaigns director.

Most of the timber originates from the tropical forests of Laos’ southern panhandle, a “treasure trove of biodiversity” that is a source of rare hardwoods and the home of endangered tiger and elephant species. According to the United Nations’ Food and Agriculture Organisation, Laos’ forest cover fell from around 70% in the 1940s to 41% in 2002 – and EIA claims continued logging will only quicken the decline.

Vietnamese authorities have denied any involvement of their armed forces in the logging trade. Foreign Ministry spokesman Nguyen Phuong Nga said last month that “all illegal logging and smuggling of timber will be strictly dealt with according to Vietnamese law.”

But during field investigations conducted in 2010 and 2011, EIA identified the main player in the logging trade as the Company of Economic Cooperation (COECCO), an army-owned firm described as the “business arm of Vietnam’s Military Zone 4 command”. COECCO sources most of its logs from Laotian dam clearance sites, the group found.

Newman said few people in Laos benefited from the trade, other than corrupt government officials and “some well-connected businesspeople” such as Phonesack Vilaysack – whom the report identifies as “one of the wealthiest men in Laos”. At the same time, wood manufacturers in Laos complain of a shortage of raw materials and rural communities relying on forest products are being left in the lurch.

“It seems well-connected companies are able to skirt around the regulations,” Newman said. “We didn’t get the impression there was much benefit to the local people.”

However, activists say there is reason to be optimistic. The export of Vietnamese wood products to the West – EIA claims that last year finished wood products from Vietnam ended up in 26 countries including the European Union, United States and Japan – may give campaigners leverage against loggers.

In 2008, the United States Congress passed an amendment to the Lacey Act, an existing anti-wildlife trafficking law, extending its prohibitions to the import of illegally-sourced wood and wood products. At the time of its passage, Alexander von Bismarck, the EIA’s executive director, said the amendment marked “a new phase in the global effort to improve forest governance”.

The EU's policy to fight illegal logging and the associated illegal trade in timber – known as the Forest Law Enforcement Governance and Trade (FLEGT) Action Plan – was introduced in 2003. Rafael Dochao Moreno, charge d’affaires of the EU Delegation to Cambodia, said that under the Union’s FLEGT Action Plan, six countries – Ghana, Cameroon, Congo Brazzaville, Liberia, Indonesia and the Central African Republic – have already agreed to Voluntary Partnership Agreements (VPA) pledging to “improve forest governance and transparency” in their forest sectors.

A new EU Timber Regulation, adopted in October 2010 and set to come into force in March 2013, will require all companies importing timber to the EU to “trace products to the country of harvest and ensure that the timber is not illegally harvested”.

Transgressors will likely face penalties such as “fines, seizures of goods, and suspension of trade with the exporting supplier country”. He said FLEGT-licensed timber from VPA countries would be considered “automatically compliant” with the new Regulation: it will have a “green lane” entering the EU market.

“The EU Timber Regulation as well as the US Lacey Act are “game-changers” as legislative instruments,” Dochao Moreno said. “By using the trade leverage and market mechanisms provided by these two major world markets, the EU and the USA have made good forest governance and legal timber trade a necessary requirement for timber producing and exporting countries who wish to continue exporting to these two markets."

Newman said he has already noticed changes in southern Vietnam, where suppliers in recent years have begun to pursue certified wood, recognising that on-the-books timber purchases are better for business. Challenges, of course, remain – not least the corruption inherent in the illegal logging racket.

But Newman said there was enough information for importers in the West to choose responsible suppliers – a change that would hopefully also “feed back” up the supply chain to at-risk rainforests in Laos. “We want to encourage companies to carry out proper risk assessment. There’s enough information out there for companies to think about what kinds of woods they using and where it’s coming from,” he said.

In the case of Vietnam, there may also be leverage of another sort: the country is currently in the process of applying for funding through the UN’s Reduced Emissions from Deforestation and Forest Degradation (REDD) programme. Newman said this was a good opportunity for campaigners to point out Vietnam’s hand in displacing its deforestation to neighbouring Laos and hold the authorities to account.

“With the corruption inherent in this trade,” he said, “we need some outside pressure to try and clean it up.”