A recent crackdown by Brazilian police and environmental authorities resulted in Latin American flooring giant Indusparquet being fined hundreds of thousands of dollars and being partially banned from operating for allegedly using fraudulent permits. This has not stopped America’s largest flooring retailer, Floor & Decor, from continuing to buy from them
In May 2016, the Brazilian environmental enforcement agency – IBAMA – approached the Federal Police (PF) in the southeastern state of Sao Paulo with a suspicion: one of its staff might be implicated in fraudulent schemes to launder illegal tropical timber for third parties.
These suspicions led to a two-year investigation that resulted in the largest timber seizure in Sao Paulo’s history and the implication of Brazil’s top flooring exporter in the scandal.
In late May 2018, IBAMA and the Federal Police seized 1,818 cubic metres of illegal timber in Sao Paulo, the largest seizure in the state’s history. The timber, which IBAMA announced had not been accompanied by the necessary permits, belonged to the Brazilian multinational Indusparquet, a major manufacturer and supplier of wooden flooring to over 40 countries in all corners of the world.
The seizure was the culmination of IBAMA and PF’s two-year investigation known as Operation Patio. The company has strongly denied any wrongdoing.
In addition to the seized timber worth $2.5 million, IBAMA announced that it had uncovered 10,740 cubic metres of fictitious timber credits – which did not match the company’s actual stocks – on permits in the company’s possession.
This scheme, which IBAMA has called the “authorisation of fictitious stocks”, allegedly allowed the company to hide illegally-extracted timber – possibly from protected areas – among other timber obtained legally.
As a result of Operation Patio, Indusparquet ‘s main warehouse was banned from trading timber, and the company was slapped with US $171,473 in fines.
The embargo of the main factory was suspended after three weeks, but information obtained from IBAMA by Earthsight through a Freedom of Information request reveals that as of 1 October, Indusparquet’s secondary warehouse remained under embargo. The final application of the fines are also still pending a decision by IBAMA following the company’s appeal.
IBAMA and PF claim to have carried out 13 arrest warrants in several cities in Sao Paulo in connection with Operation Patio. Those responsible may be charged with conspiracy to commit a crime, perjury, fraud and other crimes with potential sentences of 1 to 12 years detention. In a letter to Earthsight, Indusparquet stated that no-one from the company is under any criminal investigation.
Indusparquet is a major player in Brazil’s timber industry.
The company boasts of having supplied wooden flooring to the Vatican, the Taj Mahal, the Mirage Hotel in Las Vegas, Dolce & Gabbana shops in Milan, Louis Vuitton shops in Paris, and celebrity houses, including Jennifer Aniston’s and Bono’s. It is among Brazil’s 20 largest multinational corporations, with distribution centres in Florida, Italy, France and Argentina.
Indusparquet timber seized by IBAMA, May 2018.
This is not the company’s first brush with suspect timber. In 2008 the investigative agency Reporter Brasil exposed the company for purchasing illegally-extracted Amazonian timber from four sawmills in the state of Mato Grosso embargoed by IBAMA.
Three of these sawmills were based in the town of Colniza, a corner of the country notorious for illegal logging and violence against those who speak out against the practice, and the setting for the infamous Colniza massacre of 2017, previously highlighted by Earthsight.
Indusparquet’s largest US customer is billion-dollar firm Floor & Decor Outlets of America, the US’s largest flooring retailer. Headquartered in Georgia and with nearly 90 shops throughout the country, in 2017 Floor & Décor overtook arch rival Lumber Liquidators to become the country’s largest specialist flooring retailer, with sales of $1.4bn.
Two years ago Lumber Liquidators was fined $13m by US authorities for trading in illegal timber from Russia. The company had been importing flooring made from timber that had been illegally logged in the Russian Far East despite multiple red flags and risk of sourcing from the region being known to employees.
Prior to IBAMA’s announcement, Floor & Decor was importing at least half a million dollar’s worth of high-end tropical wood flooring from Indusparquet each month. Our research indicates that all or nearly all of Floor & Decor’s tropical wood flooring is supplied by the Brazilian company, including all of its most prestigious and expensive flooring products.
Did this summer’s scandals around Indusparquet perhaps make Floor & Decor think twice about continuing to trade with the company? Far from it. Within days of the embargo of its main factory being lifted, shipments from Indusparqet to Floor & Decor began again.
Our evidence reveals wood with a retail value of well over $1.6m has left Indusparquet’s factory bound for Floor & Decor since the findings were announced, with the latest shipment arriving at Savannah in Georgia on 3 November.
The shipments include products sold under Floor & Decor’s ‘Quest Exotic Hardwoods’ and ‘Lifescapes’ brands, made from a number of high-value wood species, including ‘Brazilian Cherry’ (real name Jatoba), found in Brazil’s Amazon, and ‘Brazilian chestnut’ (real name Sucupira), native to the Cerrado.
The Cerrado, a vast tropical savannah ecoregion of Brazil, is one of the most threatened biomes in the country, and is home to nearly a third of all of the country's flora species that are threatened with extinction. Jatoba has been listed as one of Brazil’s most threatened trees.
In a letter to Earthsight, Indusparquet acknowledged that it had been a target of Operation Patio but denied any wrongdoing.
The company claims that it has not committed any illegalities and that the fines levied by IBAMA were due to “operational questions related to adjustments between the physical volume of timber and the information registered on [IBAMA’s] timber control system”.
The company also claims that IBAMA revoked the suspension of its main warehouse once “adjustments” were made that clarified the discrepancies between Indusparquet’s physical stocks and the volumes declared on its permits.
Indusparquet has not clarified why its other warehouse continues to be suspended, although it has stated that all its “purchase, sale and export activities are – and have always been – made only by the company’s main warehouse”. The company said that “all the timber purchased by the company is of legal origin and has the appropriate documentation.”
Floor & Decor’s continued relationship with Indusparquet isn’t just worrying for its customers in America. It also poses legal and reputational risks. The US Lacey Act bans the import of timber that was illegally sourced in another country. If a company is caught handling such wood, the penalties it faces depend in part on how hard it had tried not to.
The ongoing illegal logging scandal shrouding one of Floor & Decor’s biggest suppliers should surely be cause for concern. While all its shipments have Brazilian government papers, that alone does not shield the company from legal risk.
Floor & Decor failed to reply to Earthsight's repeated written and verbal requests for comment. Indusparquet is appealing the fines issued by IBAMA. In the meantime, ships laden with its timber continue to arrive at ports in the US from Brazil, to be sold to Floor and Decor’s customers across the country.