Timber Legality Risk Assessment

Malaysia - Sabah
Version 1.3
<MONTH> l May 2018
<YEAR>

COUNTRY RISK
ASSESSMENTS

This risk assessment has been developed by NEPCon with support from the LIFE programme of the European Union, UK aid from the UK
government and FSCTM.

www.nepcon.org
NEPCon has adopted an “open source” policy to share what we develop to advance sustainability.
This work is published under the Creative Commons Attribution Share-Alike 3.0 license. Permission
is hereby granted, free of charge, to any person obtaining a copy of this document, to deal in the
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copyright notice and this permission notice shall be included in all copies or substantial portions of
the document. We would appreciate receiving a copy of any modified version.

Disclaimers
This Risk Assessment has been produced for educational and informational purposes only. NEPCon is
not liable for any reliance placed on this document, or any financial or other loss caused as a result of
reliance on information contained herein. The information contained in the Risk Assessment is accurate,
to the best of NEPCon’s knowledge, as of the publication date

The European Commission support for the production of this publication does not constitute
endorsement of the contents which reflect the views only of the authors, and the Commission cannot be
held responsible for any use which may be made of the information contained therein.

This material has been funded by the UK aid from the UK government; however, the views expressed
do not necessarily reflect the UK government’s official policies.

The contents of this risk assessment is based on the risk assessments developed for FSCTM. This risk
assessment is not equal to the approved FSC risk assessments when implementing the controlled wood
standard FSC-STD-40-005. Only formally approved FSC risk assessments shall be used for the
implementation of the FSC standards.

FSC is not otherwise associated with the project Supporting Legal Timber Trade.

For risk assessment conducted according to the FSC-STD-40-005, ONLY entries (or information) that
have been formally reviewed and approved by FSC and are marked as such (highlighted) can be
considered conclusive and may be used by FSC candidate or certified companies in risk assessments
and will meet the FSC standards without further verification. You can see the countries with approved
risk assessment in the FSC document: FSC-PRO-60-002b V2-0 EN List of FSC-approved Controlled
Wood documents 2015-11-04. “

The original document of FSC can be accessed here https://ic.fsc.org/en/document-center

Contents

A. Introduction ........................................................................................................ 1
B. Overview of Legality risks...................................................................................... 3
C. Overview of the forest sector in Malaysia - Sabah...................................................... 5
D. Legality Risk Assessment ..................................................................................... 11
LEGAL RIGHTS TO HARVEST ...................................................................................... 11
1.1. Land tenure and management rights ................................................................. 11
1.2. Concession licenses ......................................................................................... 15
1.3. Management and harvesting planning ............................................................... 19
1.4. Harvesting permits.......................................................................................... 22
TAXES AND FEES ..................................................................................................... 28
1.5. Payment of royalties and harvesting fees ........................................................... 28
1.6. Value added taxes and other sales taxes ........................................................... 32
1.7. Income and profit taxes ................................................................................... 35
TIMBER HARVESTING ACTIVITIES .............................................................................. 40
1.8. Timber harvesting regulations .......................................................................... 40
1.9. Protected sites and species .............................................................................. 43
1.10. Environmental requirements ........................................................................... 48
1.11. Health and safety .......................................................................................... 53
1.12. Legal employment ......................................................................................... 58
THIRD PARTIES’ RIGHTS ........................................................................................... 67
1.13 Customary rights ........................................................................................... 67
1.14. Free prior and informed consent ..................................................................... 72
1.15. Indigenous/traditional peoples’ rights .............................................................. 74
TRADE AND TRANSPORT ........................................................................................... 80
1.16. Classification of species, quantities, qualities .................................................... 80
1.17. Trade and transport ...................................................................................... 84
1.18. Offshore trading and transfer pricing ............................................................... 88
1.19. Custom regulations ....................................................................................... 91
1.20. CITES .......................................................................................................... 96
1.21. Legislation requiring due diligence/due care procedures ..................................... 99
Annex I. Timber source types ................................................................................... 101
This page has been left intentionally blank
 A. Introduction
This Timber Legality Risk Assessment for Sabah in Malaysia provides an analysis of the risk of
sourcing timber from areas of illegal harvesting and transport. NEPCon has been working on
risk assessments for timber legality, in partnership with a number of organisations, since
2007.
In that time, NEPCon has developed timber risk assessments for more than 60 countries,
illustrated in Figure 1.

Figure 1. Countries for which NEPCon have developed a legality risk assessment for timber

The risk assessments are developed in collaboration with local forest legality experts and use
an assessment methodology jointly developed by FSC and NEPCon. A detailed description of
the methodology can be found on the NEPCon Sourcing Hub.

For risk assessment conducted according to the FSC-STD-40-005, ONLY entries (or
information) that have been formally reviewed and approved by FSC and are marked as such
can be considered conclusive and may be used by FSC candidate or certified companies in
risk assessments and will meet the FSC standards without further verification.
You can see the countries with approved risk assessment in the FSC document: FSC-PRO-60-
002b V2-0 List of FSC approved Controlled Wood documents.
All FSC Risk Assessments can be downloaded in the FSC Document Centre.

This risk assessment was prepared by NEPCon between 2014 and 2018 as follows:

Draft prepared by NEPCon: December 2014.

Stakeholder consultation July – August 2018

Final approval by FSC: 8 May 2018

1 Timber Legality Risk Assessment – Malaysia - Sabah

 FSC CW effective date: 8 May 2018

NEPCon originally published the Timber Legality Risk Assessment for Sabah Malaysia in
August 2017. Since then, amendments to the Assessment have been made. These changes
have been made to align the risk assessment with the final FSC version, which NEPCon have
worked with FSC to update based on stakeholder feedback received in September 2017.

2 Timber Legality Risk Assessment – Malaysia - Sabah

 B. Overview of Legality risks
Timber Risk Score: 23 / 100 in 2017
This report contains an evaluation of the risk of illegality in Sabah for five categories and 21
sub-categories of law. We found:
• Specified risk for 16 sub-categories.

• Low risk for 4 sub-categories.

• No legal requirements for 1 sub-category.

The Timber Risk Score for Sabah is 23 out of 100. The key legality risks identified in this
report concern legal rights to harvest, timber harvesting activities, taxes and fees, third
parties’ rights, and trade and transport.
For Legal Rights to Harvest, there is a risk that:
• Local communities lose their customary rights to land when it is gazetted as a forest
reserve or is alienated for development projects (1.1).
• People wanting to register native land are wrongfully informed by the Lands and
Survey Department about the procedure (1.1).
• Concession licenses and harvesting permits for PFR are awarded corruptly because of
unfair competition, nepotism and cronyism (1.2, 1.4)
• Management and harvesting regulations are not followed during the harvest of
rubberwood (1.3)
For Taxes and Fees, there is a risk that goods and services tax (GST) is not paid (1.6)
For Timber Harvesting Activities, there is a risk that:
• Reduced Impact Logging is not practiced in PFR as legally required (1.9).
• Protected areas, and protected species in PFR, are harvested (1.9).
• Mitigation measures identified in environmental impact assessments are not
implemented (1.10).
• Health and safety requirements, such as those related to the provision and use of
personal protective equipment and first aid kits, are not followed (1.11).
• Legal rights of migrant workers are violated (e.g. non-payment of wages, wrongful
deduction of wages to cover work permits, long working hours, sub-standard living
conditions or unfair dismissal) (1.12).
• Short-term workers without documentation and contracts (e.g. forest pass,
immigration papers or employment contract) are employed (1.12).
For Third Parties´ Rights, there is risk that:
• ‘Free, prior, and informed consent’ is not obtained from local indigenous communities
prior to gazettal of land or harvesting and customary rights are violated (1.13 – 1.15)
• Communities lose their customary rights to land when it is gazetted as forest reserve
or other protected area (1.13).
For Trade and transport, there is a risk that:
• Timber species are classified incorrectly (1.16)

3 Timber Legality Risk Assessment – Malaysia - Sabah

 • Transfer pricing occurs (1.18)
• Fraudulent CITES permits are used (1.20)
• Gonystylus spp., Aquilaria spp. and Dalbergia spp. are harvested illegally (1.20)
Timber source types and risks
There are four main source types of timber in Sabah. The below table sets out the types of
timber. Knowing the “source type” that timber originates from is useful because different
source types can be subject to different applicable legislation and have attributes that affect
the risk of non-compliance with the legislation. All timber producing land in Sabah is classified
as either the Permanent Reserve Forest, State Land or Alienated Land.
We have analysed the risks for all source types and found the risks differ between them,
usually by the classification of land.

Managed natural Timber that comes from the Permanent Reserve Forest
forest timber (PRF), State Land or Alienated land that is being
managed for the purpose of producing timber (i.e.
forests are regenerated after the harvest).

Conversion natural In the Permanent Reserve Forest, clearance takes

forest timber place under a Timber Plantation Concession Licence,
the natural forests can be cleared to make way for a
timber plantation.
On State land and Alienated land, the natural forests
can be cleared for non-forest uses, usually agriculture
with appropriate permits.

Plantation timber Industrial timber plantations (e.g. Acacia, Eucalyptus,

Teak) commonly occur in the Permanent Reserve
Forest.
On State land and Alienated land, plantations are rare,
occurring when timber plantations established in the
PRF are later excised to state land.

Rubber wood Rubber wood is either a by-product from Replanting

Operations (i.e. when the trees have stopped
producing the latex and are cleared to make way for
new rubber trees) or when rubber trees are planted for
wood production. Rubberwood is grown in the PRF, on
State Land and on Alienated land (that has been
classified as ‘Agricultural Land’)

4 Timber Legality Risk Assessment – Malaysia - Sabah

 This table summarises the findings of the timber legality risk assessment by source type.

Permanent
Legal State Land Alienated Land
Sub-category Reserve Forest
Category
MNF ITP RB MNF ITP RB MNF ITP RB

1.1 Land tenure and management

rights
Legal 1.2 Concession licenses
rights to
harvest 1.3 Management and harvesting
planning
1.4 Harvesting permits
1.5 Payment of royalties and
harvesting fees
Taxes and
1.6 Value added taxes and other
fees sales taxes
1.7 Income and profit taxes
1.8 Timber harvesting regulations
1.9 Protected sites and species
Timber
harvesting 1.10 Environmental requirements
activities 1.11 Health and safety
1.12 Legal employment
1.13 Customary rights
Third 1.14 Free prior and informed
parties’ consent
rights 1.15 Indigenous/traditional peoples
rights
1.16 Classification of species,
quantities, qualities
1.17 Trade and transport
1.18 Offshore trading and transfer
Trade and pricing
transport
1.19 Custom regulations
1.20 CITES
1.21 Legislation requiring due
diligence/due care procedures

KEY
Managed Natural Forests (MNF)
Industrial Timber Plantations (ITP)
Agricultural plantations or land, producing rubberwood (RB)
Low risk
Specified risk
Not applicable

5 Timber Legality Risk Assessment – Malaysia - Sabah

 C. Overview of the forest sector in Malaysia - Sabah
According to the most up to date statistics available from the Ministry of Natural Resources and
Environment (NRE), Malaysia's total land area is 33.08 million hectares, of which 18.2 million
hectares (55.01%) forested (MNRE 2014). This data is for 2014. Of these 18.2 million hectares,
the forested area is divided into:
• Totally protected area / protected area: 2.57 million hectares (14.12%);

• Permanent reserved forest/ permanent forest estate/ permanent forest estates: 11.6
million hectares (63.73%)

• State land forest: 3.8 million hectares (20.87%)

Under the Malaysian Constitution, forestry comes under the jurisdiction of the respective State
Governments. As such, each State is empowered to enact laws on forestry and to formulate
forestry policy independently. The executive authority of the Federal Government only extends
to the provision of advice and technical assistance to the States, training, the conduct of
research, and in the maintenance of experimental and demonstration stations. Forest
Management-related issues are governed at the Federal level by two Ministries; the Ministry of
Natural Resources and Environment and the Ministry of Plantation Industries and Commodities.

In Malaysia there are 3 geographical regions: Peninsular Malaysia, Sabah and Sarawak. The
State Governments of these three demarcations have jurisdiction over agriculture, land and
soil conservation, rivers, water and forest resources.

Peninsular Malaysia is made up of 11 states and two federal territories. These individual states
have a fairly uniform set of laws and regulations for forest management. The states of Sabah
and Sarawak are autonomous, and each have differing laws and regulations. A common
approach to forest management for the three regions was facilitated through the National
Forestry Council (NFC). The NFC harmonised Sustainable Forest Management (SFM) policies
and practices between Federal and State Governments. However, it must be noted that the
National Forestry Council no longer exists and forestry matters are now incorporated into the
meetings of the National Land Council. Generally, while forestry matters are managed by State
governments, under the Constitution the Federal government can enact laws to harmonise and
standardise State enactments. To this end, the National Forestry Act 1984 was formulated and
later adopted by the individual States and Territories in Peninsular Malaysia.

Legally, land in Malaysia is divided into State Land, Alienated Land (i.e. state land that has
been alienated for development) and the Permanent Reserved Forest (PRF which includes forest
reserves, protected forests, National Parks/Wildlife & Bird Sanctuaries). These legal categories
can include various types of forests including unlogged virgin forests, selectively logged forests,
forests that have been cleared and regenerated naturally, and planted forests (including
plantations of rubber, acacia and other exotic species).

Logging and land clearance/conversion is permitted on most State Land and Alienated Land.
Logging and land clearance is also permitted in those parts of the PRF that have been zoned
for timber production, however the land must be replanted with timber species. No logging is
permitted in those parts of the PRF that have been zoned for protection (including water
catchment forests, national parks, wildlife reserves and bird sanctuaries). The state
governments have the power to remove any area from the PRF should they wish to use the
land for some other purpose.

6 Timber Legality Risk Assessment – Malaysia - Sabah

 On these land types, different use permits and licenses can be issued, depending on the State
(Timber Trade Portal, 2016; MNRE 2014a; MNRE 2014b; Australian Government Department
of Agriculture and Water Resources 2017; Australian Government Department of Agriculture
and Water Resources 2017a and Australian Government Department of Agriculture and Water
Resources 2017b). The main types are natural forest concession, plantations and agricultural
use permits:

1. Permanent Reserved Forest

a. Natural forest, being managed for long term timber production.

b. Natural forest being cleared as part of, or to establish, a timber plantation

concession.

c. Timber plantation (e.g. Acacia, Eucalyptus, Latex Timber Clones Rubberwood)

in forest reserves.
d. Agricultural plantations (primarily rubberwood, but also some other fruit woods
etc.…), that has reach the end of its productive life and is being cleared to
make way for a new agricultural/forest plantation NB: very rare in the PRF.

2. State Land
a. Natural forest, being managed for long term timber production.

b. Natural forests being cleared for future potential land use the land is zoned for
possible future use for agriculture, housing, etc. but no private title to the land
has yet been issued.

c. Timber plantation (NB: rare). Occasionally, timber plantations established on

forest reserves are later excised to state land. This land is usually more
profitably used for growing oil palm or rubber, not trees for timber.

d. Agricultural plantation (primarily rubberwood, but also some other fruit woods
etc.…), that has reach the end of its productive life and is being cleared to
make way for a new agricultural or forest plantation.

3. Alienated Land

a. Natural forest, being managed for long term timber production.

b. Natural forests being cleared for future potential land use – land holders are
given the rights to log the area which will be converted into another use.

c. Timber plantations are rare (usually used for growing oil palm or rubber, rather
than trees for timber). A harvest permit or license is required.

d. Timber from private “agricultural” estates. This is mainly rubberwood

plantations that are being cleared for oil palm or for another rotation of rubber
(i.e. grown primarily for latex and not primarily for timber). Includes the
cultivation of trees their produce, i.e. fruit and rubber.

In some cases, Malaysian law recognises the existence of native customary rights (NCR) over
State Land, Alienated Land and the PRF. In such cases, common law requires that the State
obtain the consent of the NCR holders prior to any activity on that land. This is a grey area in
the law and there remains significant ambiguities on the extent to which NCR can be claimed.
The majority of NCR claims are not recognised by the State Governments. There are no specific

7 Timber Legality Risk Assessment – Malaysia - Sabah

 restrictions in the statutes regulating the harvesting of timber on indigenous reserves or areas
for where there are communal property rights. Consequently, the authorities manage such
areas no differently from areas without such rights. Thus these areas are not distinguished in
the table on timber source types.

The forestry and timber agencies in Malaysia ('upstream') who issue harvesting permits,
licenses and log transport documents are:

• Forestry Department Peninsular (FDPM) and the State Forestry Departments under the
authority of the National Forestry Act 1984, guided by the National Forestry Policy 1978
(revised 1992).
• Sabah Forestry Department (SFD) under the Forest Enactment 1968

• Sarawak Forestry Corporation (SFC) under the Sarawak Forestry Corporation Ordinance,
1995 & Forest Department Sarawak (FDS) under the Forest Ordinance, 1958 (Cap. 126).
The licensing authorities issuing export and import licenses for timber products, as provided
for under Schedule 2 of the Customs (Prohibition of Export) Order 2012 and (Prohibition of
Import) Order 2012:

1. Malaysian Timber Industry Board (MTIB) for Peninsular

2. Sabah Forestry Department; and

3. Sarawak Timber Industry Development Corporation (STIDC)

In 2016, Malaysia had a Corruption Perception Index of 49 (2015:50). There are several
reports of corruption in the forestry sector in Malaysia, and corruption is an issue of relevance
to the legality of timber grown there. According to the World Bank Worldwide Governance
Indicators Malaysia receives a ranking of 0,64 in Rule of law; 0,48 in Control of Corruption;
0,84 in Regulatory Quality and 1,14 for Government Effectiveness on a scale of -2,5 to 2,5.

The Malaysian Timber Certification Scheme (MTCS) is a voluntary, PEFC-endorsed and state-
supported third-party certification scheme for PRFs in Malaysia. It does not apply to State Land
and Alienated Land. In Peninsular Malaysia, MTCS is implemented with each state as a single
Forest Management Unit. As of 31st May 2017, the PRFs of six out of the eleven states in
Peninsular Malaysia are certified under MTCS (Forest Management); three concessions in
Sarawak; and one concession in Sabah (MTCS, 2017). In Sabah, the Sabah Timber Legality
Assurance System (TLAS) is a third-party certification scheme made mandatory by Sabah state
government for all timber licensees regardless of land type (PRF, State Land or Alienated Land)
with annual audits taking place.

The list of sources provided in FSC-PRO-60-002a, section 3.3.3 has been reviewed for relevance
regarding the national legality risk assessment of Malaysia. The following sources have been
used:

a) Chatham House: http://www.illegal-logging.info/;

b) Environmental Investigation Agency: http://www.eia-international.org;

c) EU FLEGT process:
http://ec.europa.eu/comm/development/body/theme/forest/initiative/index_en.htm;

d) Government reports and assessments of compliance with related laws and regulations;

8 Timber Legality Risk Assessment – Malaysia - Sabah

 e) Independent reports and assessments of compliance with related laws and
regulations, e.g., the Royal Institute of International Affairs:
http://www.illegallogging.org;

f) Interpol: http://www.interpol.int/Crime-areas/Environmental-crime/Projects/Project-
LEAF;
g) Justice tribunal records;

h) Transparency International Corruption Perceptions Index:

http://www.transparency.org/policy_research/surveys_indices/cpi;

i) World Bank Worldwide Governance Indicators:

http://data.worldbank.org/datacatalog/worldwide-governance-indicators;
j) In cases where other sources of information are not available, consultations with
experts within the area shall be conducted.
Where relevant, they have been specifically referenced under “sources of Information” for each
applicable indicator. The remaining sources were found not to be relevant for the legality risk
assessment for Malaysia.

Consultation with in-country experts was carried out throughout the drafting of this assessment
in 2015-2017, including face to face consultation meetings held in Malaysia. A broad range of
experts were consulted, including representatives from Non-government organizations, a
number of relevant Government Ministries and enterprises. Due to confidentiality issues, the
experts consulted have not been named specifically in this report, but a full list of experts was
provided to Policy and Standards Unit (PSU) of the FSC International Center.

Internet based research has been carried out for each indicator in English.

References

Where possible, links to sources of information and applicable legislation have been included in
this assessment. Note that links to legislation in particular can change frequently, and the links
in this report, that were correct at the time of preparation, may no loger be viable.

• Australian Government Department of Agriculture and Water Resources (2017). Country

specific guideline for Malaysia (Sabah) - Department of Agriculture and Water Resource
and Ministry of Plantation Industries & Commodities. Available at:
http://www.agriculture.gov.au/SiteCollectionDocuments/forestry/australias-forest-
policies/illegal-logging/malaysia-sabah.pdf, accessed 8 February 2017.
• Australian Government Department of Agriculture and Water Resources (2017a). Country
specific guideline for Malaysia (Sarawak) - Australian Government and the Government of
Malaysia. Available at:
http://www.agriculture.gov.au/SiteCollectionDocuments/forestry/australias-forest-
policies/illegal-logging/malaysia-sarawak.pdf

• Australian Government Department of Agriculture and Water Resources (2017b). Country

specific guideline for Malaysia (Peninsular),[pdf] Australian Government and the
Government of Malaysia. Available at:
http://www.agriculture.gov.au/SiteCollectionDocuments/forestry/australias-forest-
policies/illegal-logging/malaysia-peninsula.pdf

9 Timber Legality Risk Assessment – Malaysia - Sabah

 • European Timber Trade Federation (2016). Timber Trade Portal – Malaysia. Accessed 6 April
2016 at http://www.timbertradeportal.com/countries/malaysia/.

• Malaysian Ministry of Natural Resources (2014). Official Portal Ministry of Natural Resources
and Environment (NRE) "Negaraku, Alam Sekitarku" - Total Forested Areas in Malaysia
(1990-2014). Accessed 6 April 2018 at http://www.nre.gov.my/en-
my/Forestry/Pages/Statistics-Forest.aspx.

• Malaysian Ministry of Natural Resources (2014a). Official Portal Ministry of Natural

Resources and Environment (NRE) "Negaraku, Alam Sekitarku" - Forest Types In Permanent
Reserved Forest (1990-2014). Accessed 6 April 2018 at http://www.nre.gov.my/en-
my/Forestry/Pages/Forest-Types-In-Permanent-Reserved-Forest.aspx

• Malaysian Ministry of Natural Resources (2014b). Official Portal Ministry of Natural

Resources and Environment (NRE) "Negaraku, Alam Sekitarku" - Forestry facts. Accessed
6 April 2018 at http://www.nre.gov.my/en-my/Forestry/Pages/Forestry-fact.aspx.

10 Timber Legality Risk Assessment – Malaysia - Sabah

 D. Legality Risk Assessment

LEGAL RIGHTS TO HARVEST

1.1. Land tenure and management rights

Legislation covering land tenure rights, including customary rights as well as management rights that
includes the use of legal methods to obtain tenure rights and management rights. It also covers legal
business registration and tax registration, including relevant legal required licenses. Risk may be
encountered where land rights have not been issued according to prevailing regulations and where
corruption has been involved in the process of issuing land tenure and management rights. The
intent of this indicator is to ensure that any land tenure and management rights have been issued
according to the legislation.

1.1.1. Applicable laws and regulations

• Sabah Land Ordinance, 1930 (Sabah Cap.68) http://sabah.gov.my/phb/wp-

content/uploads/2011/05/LandOrdinance.pdf

• Sabah, Native Court Enactment 1992

http://www.sabah.gov.my/mlgh/nativecourtsenactment1992.pdf

• Sabah Forest Enactment, 1968 (Part IV Section 41)

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Land Acquisition Ordinance, 1950

http://sabah.gov.my/phb/wpcontent/uploads/2011/05/LandAcquisitionOrdinance.pdf

• Forest Rules 1969. Available at:

http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/Forest1968%28Rules1
969%29.pdf

• Local Government Ordinance, 1961. Available at:

http://www.sabah.gov.my/mlgh/LocalGovernmentOrdinance1961.pdf

1.1.2. Legal authority

• District Office
• Sabah Forestry Department

• Lands and Surveys Department

1.1.3. Legally required documents or records

• Sustainable Forest Management License Agreement (SFML) or Long term timber

License agreement

• Record on decision by the Civil Court and Native Court

• Contract agreement with local communities with use rights for use of land.

11 Timber Legality Risk Assessment – Malaysia - Sabah

 • For Alienated land, a valid land title or a letter of confirmation on the status of the land
application from the Assistant Collector of Land Revenue and a receipt of payment of
land premium.

1.1.4. Sources of information

Government sources
• forest.sabah.gov.my (N.Y.) Sabah Forestry Department – official Portal. [online]
Available at: http://www.forest.sabah.gov.my/
• Department of Environment. (2010). Environmental Requirements: A Guide for
Investors. Kuala Lumpur: Government of Malaysia.

• Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available: http://www.forest.sabah.gov.my/ar2016/11.pdf,
accessed 8 February 2018

Non-government sources
• Chan, J. (2016, March 1). To prevent fraud, Sabah MACC wants to reissue native
certificates. Retrieved from: http://www.themalaymailonline.com/malaysia/article/to-
prevent-fraud-sabah-macc-wants-to-reissue-native-certificates .

• Colchester, M., Jalong, T., Alaza, L. (2013). 'Conflict or Consent?' Chapter 10: Sabah:
Genting Plantations and the Sungai and Dusun Peoples. [online]. Forest Peoples.
Available at:
http://www.forestpeoples.org/sites/fpp/files/private/publication/2013/12/conflict-or-
consent-chapter-10-sabah-genting-plantations-and-sungai-and-dusun-peoples.pdf
[Accessed 2 March 2015]

• Daily Express, (2015). Natives must be told, rules court. Available at:
http://www.dailyexpress.com.my/news.cfm?NewsID=96067 [Accessed 31 January
2017].

• Expert consultation conducted by NEPCon, (2015) including personal communication 4.

• forestlegality.org (2009). TTAP Legality Checklist - Malaysia. Available at:

http://www.forestlegality.org/risk-tool/country/malaysia

• sourcing.gftn.panda.org (N.Y.). WWF Global Forest Trade Network: Common

Framework for Assessing Legality of Forestry Operations, Timber Processing and Trade
- Principles, Criteria and Indicators for Malaysia. [online]. WWF-GFTN. Available at:
http://sourcing.gftn.panda.org/files/PDF/legal_documentation_malaysia.pdf and
http://sourcing.gftn.panda.org/files/PDF/legality_framework_malaysia.pdf

• theborneopost.com (2014). Govt urged to give priority to the natives in land disputes.
[online] Sept. 29, 2014. Available at:
http://www.theborneopost.com/2014/09/29/govt-urged-to-give-priority-to-natives-in-
land-dispute/ [Accessed 2 March 2015]

• Toh, S. M. and Grace, K. T. (2006). Understanding forest tenure in South and

Southeast Asia, Case study: Sabah Forest ownership. [online]. FAO. Available at:
ftp://ftp.fao.org/docrep/fao/009/j8167e/j8167e10.pdf

12 Timber Legality Risk Assessment – Malaysia - Sabah

 • World Resources Institute (WRI) (2013). Forest Legality Alliance Risk Tool, 2013:
Malaysia: http://www.forestlegality.org/risk-tool/country/malaysia#tab-management.

1.1.5. Risk determination

Overview of Legal Requirements

Land matters in Sabah are controlled by the State Government, and claims to land
ownership must be approved and registered by the State. Formal tenures are always
related to land, and not to forest or mineral resources.

To obtain land ownership in Sabah, the most common way is via a land application to the
State government through the Land and Survey Department. However, sections 9(1), 76
and 78 of the Sabah Land Ordinance (SLO) opens for alternative routes for native
ownership in Sabah. In addition, the SLO provides some protection of indigenous
customary rights, as it introduces a strict set of conditions that must be followed to claim
customary land (Toh & Grace, 2006, p. 254). The Land Ordinance is administered by the
Land and Survey Department.
Property rights in Sabah fall into three categories:

• State property rights: Permanent Reserved Forests and State Land forest come under
this category

• Private property rights: apply where the State has Alienated Land for development,
usually oil-palm or other plantations owned by private companies. The Land Ordinance,
Part IV, provides private ownership rights for individuals (indigenous title) and
communal property rights (communal title) for community ownership. Companies can
buy land from the government Alienated Land or indigenous title holders. The owner of
the Alienated Land is required to supply a certified copy of the land title to SFD for
issuance of a Form 1 Licence for timber harvesting (Toh & Grace, 2006).

• Communal property rights: Communities can also gain communal property rights
through applying for an indigenous reserve. This differs from communal title in that the
community cannot transfer these rights to other parties. There are also restrictions on
land use, and a Board of Trustees must be established to manage the indigenous
reserve. Although communal property rights are enshrined by law, only a very small
area is currently gazetted under them (Toh and Grace, 2006).

To formalize the presence of communities in forest reserves, Sabah Forestry Department

has recently introduced the use of Occupation Permits (OPs) that can be on PRF and SL.
Although the community participates in deciding the duration of and total area covered by
the permit, the final decision remains with Sabah Forest Department (Toh and Grace,
2006).

Description of risk
There is a risk of insecure land tenure, especially related to community and indigenous
land rights. The risk relates to land right disputes between communities and state/private
sector for timber regardless of source (PRF, SL or AL).

• Land conflict in Sabah is common. Native communities are often unaware of their
rights under the SLO and are unfamiliar with the legal process of claiming land, often

13 Timber Legality Risk Assessment – Malaysia - Sabah

 leading to conflict with the State, which is quick to gazette resource-rich land to other
purposes (Toh and Grace, 2006).

• Land disputes in Sabah exists when indigenous communities fail to register and claim
their traditional lands and the State gazettes this land for other purposes, such as
designating it as a forest reserve or alienating it for development purposes (Toh &
Grace, 2006).

• According to Toh and Grace (2013) "Communities tend to have only limited
understanding of their indigenous rights as provided in the Land Ordinance, and many
communities have not formally registered their traditional claims through Occupation
Permits (OP)." However, these issues relate to State Land, and to a lesser extent to
Forest Reserves although there are a few issues on land tenure right disputes between
forest enterprise/private sector and local community.”
• There are examples where Natives wanting to register native land have been
wrongfully informed by the Lands and Survey Department about the procedure. The
wrong forms have instead been provided, with the result that communities have given
up their land. Courts have ruled that mistakes have been made and should be
corrected by the Lands and Survey Department, but according to a local social NGO
this has not yet taken place (Expert consultation, 2015, personal communication 4).

• There are reports that insufficient notice is given of the gazettal of areas gazettal. This,
as well as the reported failure to properly consult forest communities – has resulted in
communities losing their customary rights to land when it is gazetted as forest reserve
or other protected area or when it is alienated for development projects (Toh and
Grace, 2006).

• In early 2015 a ruling was made by the High Court that a proposed alienation of land
was withdrawn because the Lands and Survey Department had not given sufficient
notice to the Natives claiming native land under Section 13 of the Sabah Land
Ordinance (Daily Express, 2015).

• In Sabah, the greatest risk in land tenure appears to be fraud in the issuance of native
licenses. In the spring of 2016, the Malaysian Anti-Corruption Commission (MACC)
estimated that thousands of fake native licenses have been bought by non-natives
through criminal syndicates (Chan, 2016). Several prominent cases of land fraud in
Sabah have surfaced in 2016, where it was revealed that foreigners had purchased
large areas native customary land; one non-native held more than 300 native titles
(Chan, 2016). The extent of the fake licenses is so large that the MACC have called for
a complete recall of all native certificates and revaluation of the system of issuance,
including the introduction of a new and improved certificate (Chan, 2016).

• According to the 2016 Annual Report of the Sabah Forestry Department (NB: this is the
most recent report available), of the 234 forestry offences detected in 2016, 2 were
Illegal Entry of Forest Reserve and 26 were Illegal Cultivation in Forest Reserve (Sabah
Forestry Department, 2017).

Based on the available information relating to the risk of dispute between FMEs and native
community rights, this indicator has been assessed as Specified for all sources.

Risk Conclusion

14 Timber Legality Risk Assessment – Malaysia - Sabah

 This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.1.6. Risk designation and specification

Specified

1.1.7. Control measures and verifiers

• The organisation shall ensure claims to land ownership have to be approved and
registered by the State.

• The organisation shall ensure there are Sustainable Forest Management License
Agreements (SFMLAs) in place on PFRs.
• The organisation shall ensure that where there are communities present in forest
reserves (either PFRs or SL), the Sabah Forestry Department has issued Occupation
Permits (OPs) for the communities.

• The organisation shall ensure that proper consultation has taken place with the
communities on all types of land.

1.2. Concession licenses

Legislation regulating procedures for the issuing of forest concession licenses, including use of legal
methods to obtain concession license. Especially bribery, corruption and nepotism are well-known
issues in connection with concession licenses. The intent of this indicator is to avoid risk related to
situations where organizations are obtaining concession licenses via illegal means such as bribery, or
where organizations or entities that are not eligible to hold such rights do so via illegal means. Risk
in this indicator relates to situations where due process has not been followed and the concession
rights can therefore be considered to be illegally issued. The level of corruption in the country or
sub-national region is considered to play an important role and corruption indicators (e.g.,
Corruption Perception Index, CPI) should therefore be considered when evaluating risks.

1.2.1. Applicable laws and regulations

• Forest Rules, 1969

http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/Forest1968%28Rules1
969%29.pdf

• Director of Forestry Circular: FD26/2009

• Forest Enactment 1968 [Section 15 & 24]. Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SabahLaws/StateLaws/ForestEnactment1968
.pdf

1.2.2. Legal authority

• Sabah Forestry Department

1.2.3. Legally required documents or records

• Concession permits

15 Timber Legality Risk Assessment – Malaysia - Sabah

 • Harvest permits/license

• SFMLA

• Approval of forest harvesting area

• Letter of approval for issuance of licence from NRO (PF & SL – short term licence).

• Approved EIA study / PMM where applicable

• Demarcation of harvesting area.

• Approved Inventory Report

• Payment of licence fees and other charges imposed

• Letter of approval for issuance of harvesting

• Licence in AL from DoF.

1.2.4. Sources of information

Government sources
• Sabah Forestry Department Annual Report 2013 (Forest Resource Management).
Available at:
http://www.forest.sabah.gov.my/images/pdf/publications/AR2013/Chap18.pd

• Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available:
http://www.forest.sabah.gov.my/ar2016/11.pdf, accessed 8 February 2018.

Non-governmental sources
• sarawakreport.org, (2012). Malaysian foreign Minister Named in MACC Investigation
into Sabah Timber Corruption. [online]. Available at:
http://www.sarawakreport.org/2012/04/malaysian-foreign-minister-named-in-macc-
investigation-into-sabah-timber-corruption-national-expose/

• NEPCon, (2013). Evaluation and revision of the Sabah TLAS standard and audit
checklists 2013. [online].

• Sarawak Report, (2012). Malaysian Foreign Minister Named in MACC Investigation into
Sabah Timber Corruption – NATIONAL EXPOSE. Available at:
http://www.sarawakreport.org/2012/04/malaysian-foreign-minister-named-in-macc-
investigation-into-sabah-timber-corruption-national-expose/

• NEPCon expert consultation 2015, including NEPCon expert consultation 2015, Personal
Communication 1; -NEPCon expert consultation 2015Personal Communication 2 and
NEPCon expert consultation 2015-Personal Communication 7.

1.2.5. Risk determination

Overview of Legal Requirements

Any registered company, company with trading license or qualified individual (Sabahan)
who intends to harvest forest produce from permanent forest (PF) and State Land (SL)

16 Timber Legality Risk Assessment – Malaysia - Sabah

 must obtain an approval from the Secretary of Natural Resources (SUHB) under the Chief
Minister’s Department or the Director of Forestry (DoF) for Alienated Land (AL).

Forest Resource Management Division (FRM) of Sabah Forestry Department (FDS) ensures
that areas gazetted for specific purposes, including Native Customary Right (NCR) land are
excluded from the area to be approved for harvesting in PF and SL.
FRM Division of FDS ensures that there is approval to enter and occupy SL.

The licenses are valid for a period stated within them (for example, for Alienated Land,
licenses can be issued for a period of 100 years in areas that average 100 000 ha), but the
licenses for the PRF cannot exceed 5 years, but can be renewed for a further two years.

For State Land, a Temporary Occupation License is also required under the Land Ordinance
(per 24(4) of the Land Enactment).

Licenses issued for Alienated Land must be issued to the owner/lessee of that land only, or
with the written permission of the owner/lessee (per 24(5) of the same act).

Licenses are not transferable.

These licenses are either Sustainable Forest Management License Agreements
(SFMLA)/Long-term-license (LTL) or concession licenses.
Concessions in Forest Reserves are subject to the following requirements (NEPCon, 2013):

• The licence (SFMLA/LTL) shall have an approved Annual Work Plan containing maps
and description of areas and types of operations to be carried out during the year and
approved by Sabah Forest Department.

• The licensee shall have a Comprehensive Harvesting Plan (CHP) containing total and
net production areas; harvesting volumes, diameter, limits, species and protected
areas that are approved by Sabah Forest Department.

• Letter of approval for issuance of licence from Natural Resources Office (NRO)
(Permanent Reserved Forest & State Land) under the Chief Minister's Department. -
Approval of forest harvesting area

• Approved EIA study / PMM (Proposal of Mitigation Measures) where applicable

• Demarcation of harvesting area

• Approved Inventory Report

• Payment of licence fees and other charges imposed

In a concession, there are many compartments known as coupes. Under the principle of
SFM, one company is permitted to harvest only a few coupes at any given time in
accordance to the Forest Management Plan, CHP and Annual Work Plan.
The coupe permit validity is normally 15 years depending on the conditions of the license.
The company is not permitted to operate in any area for which it has not yet been issued a
coupe permit even though that area may be within its concession.

Description of risk
There is a risk of corruption in the allocation of concession licenses in Sabah:

17 Timber Legality Risk Assessment – Malaysia - Sabah

 • In 1997, Sabah Forestry Department (SFD) divided the Permanent Reserved Forest of
Sabah into 27 FMUs. The Sabah Forest Department then allocated areas within these
FMUs (as 100-year concession license agreements) to private forest enterprises under
19 Sustainable Forest Management License Agreements (SFMLA). Eleven concession
licenses were issued between 1993 and 2011. (Sabah Forestry Department 2013).
• Since 2012, some concessions have been suspended due to lack of compliance with the
license agreements, some of these have been re-allocated in a process of companies
submitting applications that are reviewed by the Forestry Department. Successful
applicants must pay a RM5 million bond for the agreement. If the conditions of the
concession license agreement are not fulfilled and then revoked, the money will be
withheld. The latest SFMLA was issued in 2012, and the latest concession license was
issued in 2011.
• Sabah has long been suspected of corruption in relation to the issuance of licenses. In
2012, the Sarawak Report unveiled how the MACC was in possession of evidence
linking then Foreign Minister Anifar Aman to millions of ringgits achieved through
corruptly issued logging licenses by his brother, then Sabah Chief Minister, Musa Aman
(Sarawak Report, 2012).

• According to the 2016 Annual Report of the Sabah Forestry Department (NB: this is the
most recent report available), of the 234 forestry offences detected in 2016, 2 were
Illegal Entry of Forest Reserve and 26 were Illegal Cultivation in Forest Reserve (Sabah
Forestry Department, 2017). These offences are related to a lack of concession license.

The process of issuing concession licenses is clearly defined and well known, but there is a
lack of transparency when issuing the permits and as there are indications of corruption
the risk is considered specified.

The concession licensing system applies to the PRF, State Land and Alienated Land, these
sources are deemed to be specified risk. This licensing system does not apply to
‘agricultural land’ which occurs on Alienated Land, and as such is deemed not applicable.

Risk Conclusion
Not applicable to Agricultural Land on Alienated Land.
‘Specified risk’ for all other source types. Identified laws are not upheld consistently by all
entities and/or are often ignored, and/or are not enforced by relevant authorities.

1.2.6. Risk designation and specification

Not applicable to Agricultural Land on Alienated Land.

Specified risk for all other source types.

1.2.7. Control measures and verifiers

• The organisation shall ensure that a valid concession license is in place which meets all
the legal requirements.

• The organsiation shall ensure that any public allegations of corruption in awarding of
concession licence have been rebutted publically.

18 Timber Legality Risk Assessment – Malaysia - Sabah

 • Independent stakeholder consultation shall confirm that legal procedures for obtaining
concession licenses have been followed

1.3. Management and harvesting planning

Any legal requirements for management planning, including conducting forest inventories, having a
forest management plan and related planning and monitoring, as well as approval of these by
competent authorities. Cases where required management planning documents are not in place or
are not approved by competent authorities should be considered. Low quality of the management
plan resulting in illegal activities may be a risk factor for this indicator as well.

1.3.1. Applicable laws and regulations

• Sabah Forest Enactment 1968, Part IIIA-Section 28A and 28B

http://faolex.fao.org/docs/pdf/mal10907.pdf

1.3.2. Legal authority

• Sabah Forestry Department

1.3.3. Legally required documents or records

• Forest Management Plan

• Comprehensive Harvesting Plan (CHP)

• Plantation Development Plan (PDP)

• Record of demarcated boundaries

• EIA

1.3.4. Sources of information

Government sources
• SFD Publications. "Forestry in Sabah" Commemorative Edition, In Celebration of the
Sabah Forestry Department Centennial time capsule sealing (2005-2105).
• Sabah Forestry Department, (2013). Forest Resource Management. Available at:
http://www.forest.sabah.gov.my/images/pdf/publications/AR2013/Chap18.pdf.

Non-Governmental Sources
• Expert consultation conducted by NEPCon in 2015, Personal Communication 1 and 2.
• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial
Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.

1.3.5. Risk determination

Overview of Legal Requirements

In accordance with section 28A of the Sabah Forest Enactment, all forest licenses for areas
exceeding 1000 hectares in the PRF or on State Land, must be preceded by the

19 Timber Legality Risk Assessment – Malaysia - Sabah

 preparation of both (a) a forest management plan or forest harvesting plan, as the case
may be; and (b) a reforestation plan.

Concessions (i.e. under either a Sustainable Forest Management License Agreement/Long-

term License Agreement (SFMLA/LTL)) can be issued for natural forest and plantations
only on Permanent Reserved Forest (PRF), and are subject to the following requirements:
• The licensee (SFMLA/LTL) shall have an approved Annual Work Plan (AWP) containing
maps and description of areas and types of operations to be carried out during the
year. The licensee is required to obtain approval for the AWP based on the 10-year
Forest Management Plan (FMP) and/or 10-year Plantation Development Plan (PDP).
The Forest Management Plan describes the long-term management approach for the
SFMLA areas based on forest types, terrain and current conditions of the FMU. It also
outlines adequate planning and site preparation for harvesting operations.
• The licensee shall have a Comprehensive Harvesting Plan (CHP) containing total and
net production areas; harvesting volumes, diameter, limits, species and protected
areas that are approved by Sabah Forest Department.

The Forest Management Plan describes the long-term management approach for the
SFMLA areas based on forest types, terrain and current conditions of the FMU. It also
outlines adequate planning and site preparation for harvesting operations.

The CHP must comply with the Reduced Impact Logging (RIL) Operation Guide Book
requirements for harvesting and operations (roads, density and location of skid tracks and
log landings, harvestable tree marking and stream buffer zone identification). The CHP
must be developed by a registered CHP contractor.

In 2013, 40 CHP were approved, covering an area of 10,764.83 ha. This is a downward
trend compared to the CHP approved area in 2011 of 24,006.90 ha (Sabah Forestry
Department 2013).
The reduction of CHP coverage in some licenses in Natural Forest Management (NFM)
areas was due to a change in priorities to concentrate on salvaging timbers on Integrated
Timber Plantation (ITP) areas for plantation activities on Forest Reserves (FR) (Sabah
Forestry Department 2013, p. 181)

For commercial logging on Alienated Land, companies do not need to prepare CHPs. The
only requirements for planning logging activities in such areas are using a registered
logging contractor, submitting quarterly logging progress reports and a closing inspection
report. These are not considered applicable to this indicator and are addressed elsewhere
in this report at indicator 1.8 Timber harvesting regulations.

Regarding Agricultural Land (i.e. rubberwood), where the agricultural land occurs within
the PRF (very rare), or on State Land, the planning requirements apply.
Where the rubber wood is grown on Alienated Land (the most common type of rubber
wood plantation), there are no planning requirements (Lim 2013).

The concession licences of the Sabah Foundation's (agency set up by the Government)
Concession Areas were agreed in the 1960s before the requirement for management plans
and detailed harvesting plans, and as such they are not required to produce planning

20 Timber Legality Risk Assessment – Malaysia - Sabah

 documents. However, the Foundation has started voluntarily producing harvesting plans
(NEPCon Expert Consultation 2015).

Description of Risk
• According to the experience of the authors, and the experts consulted in the
preparation on this report, the requirements relating to harvesting plans are considered
implemented and followed. The mandatory Sabah TLAS has been implemented by the
Sabah Forestry Department and FMEs across the PRF, and State Land is audited
annually whereby the requirements relating to harvesting plans are inspected (Expert
consultation 2015). There is sufficient control on requirements relating to harvesting
plans across these land types in Sabah.

• Extensive internet research, conducted in the preparation of this report, has not turned
up any information indicating a specified risk in this indicator. As there has been quite
thorough research conducted into the timber industry in Sabah, the lack of information
about a risk in this indicator is considered relevant to the designation of the risk.
• For rubberwood (grown on Agricultural Land on either SL or the PRF), because there is
no royalty charged at the time of harvesting, there is little incentive for the forestry
department to monitor logging in rubber plantations actively (Personal Communication
1 and 2). As such, the lack of monitoring and enforcement reportedly leads to lower
levels of compliance in rubberwood plantations (Expert consultation, 2015). Note that
there is ver

• For timber harvesting concession above the 1000 ha thresholds in either State Land or
Permanent Reserved Forest (PRF), based on the experience of the authors and experts
consulted in the preparation of this report, the risk is considered low.

• For Agricultural Land (occurring on either State Land or the PRF), based on the
experience of the authors and experts consulted in the preparation of this report, the
risk is considered specified.

• As there are no requirements for management and harvesting planning for Alienated
Land, this indicator is not applicable to all timber sourced from that land type (NB:
including rubberwood).

Risk Conclusion
‘Specified risk’ for rubberwood grown in the PRF and State Land. Threshold (2) is met.
Identified laws are not upheld consistently by all entities and/or are often ignored, and/or
are not enforced by relevant authorities.
‘Low risk’ for the Permanent Reserved Forest (PRF) and State Land. Threshold (1) is met.
Identified laws are upheld. Cases where law/regulations are violated are efficiently
followed up via preventive actions taken by the authorities and/or by the relevant entities.

Not applicable for Alienated Land.

1.3.6. Risk designation and specification

Specified risk for rubberwood grown in the PRF and State Land.

Low risk for the Permanent Reserved Forest (PRF) and State Land.

21 Timber Legality Risk Assessment – Malaysia - Sabah

 Not applicable for Alienated Land.

1.3.7. Control measures and verifiers

• Maps showing harvesting areas (in compliance with the harvesting plan)

• Document review: approved harvesting plan and management plan

• Field visits to verify that the contractors have a Timber Extraction Contract
• Approved forest management plans shall exist for the FMU where the harvesting is
taking place.
• Forest management plans shall contain all legally required information and procedures.

• Annual operating or harvesting plans shall be in place and approved by legally

competent authorities.
• Annual operating or harvesting plans shall contain information and procedures,
according to all legal requirements.
• The contents of the operating and harvesting plans shall be consistent with approved
forest management plans.
• Plans for carrying out harvesting operations shall be subject to public disclosure and
objections prior to commencement if legally required.
• Harvesting restrictions shall be identified in management plan and maps if legally
required.
• Harvesting inventories shall be conducted according to legal requirements.

• Field verifications shall indicate that the contents of the harvesting plans are adhered
to in the field.

• Stakeholder consultation shall indicate that the forest management plan has been
approved according to legally prescribed process.

1.4. Harvesting permits

Legislation regulating the issuing of harvesting permits, licenses or other legal document required for
specific harvesting operations. It includes the use of legal methods to obtain the permit. Corruption
is a well-known issue in connection with the issuing of harvesting permits. Risk relates to situations
where required harvesting is carried out without valid permits or where these are obtained via illegal
means such as bribery. In some areas, bribery may be commonly used to obtain harvesting permits
for areas and species that cannot be harvested legally (e.g., protected areas, areas that do not fulfil
requirements of minimum age or diameter, tree species that cannot be harvested, etc.). In cases
where harvesting permits classify species and qualities to estimate fees, corruption and bribery can
be used to classify products that will result in a lower fee. The level of corruption in a country or sub-
national region is considered to play an important role and corruption indicators should therefore be
considered when evaluating risks. In cases of illegal logging, harvesting permits from sites other
than the actual harvesting site may be provided as a false proof of legality with the harvested
material.

1.4.1. Applicable laws and regulations

22 Timber Legality Risk Assessment – Malaysia - Sabah

 • RIL Operation Guidebook. Code of Practice for Harvesting in Sabah. Available at:
http://www.fao.org/fileadmin/templates/rap/files/meetings/2012/120503_reduced_im
pact.pdf
• Environment Protection Enactment 2002. Available at:
http://www.sabah.gov.my/jpas/laws/EPE/EPE02.pdf
• Director of Forestry Circular: FD26/2009

• Parks Enactment 1984. Available at: http://sabah.gov.my/phb/wp-

content/uploads/2011/05/ParksEnactment1984.pdf

• Water Resources Enactment 1998. Available at: http://sabah.gov.my/phb/wp-

content/uploads/2011/05/SabahWaterResourcesEnactment1998.pdf

• Sabah Land Ordinance, 1930 (Sabah Cap.68). Available at:

http://sabah.gov.my/phb/wp-content/uploads/2011/05/LandOrdinance.pdf

• Sabah Forest Enactment, 1968. Available at:

http://faolex.fao.org/docs/pdf/mal10907.pdf
• Forest Rules 1962. Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/Forest1968(Rules1969
).pdf

1.4.2. Legal authority

• Sabah Forestry Department

1.4.3. Legally required documents or records

Permanent Forest Reserve:

• Sustainable Forest Management Licence Agreement, or:

• Long term timber licence agreement

Non-PFR:
• Approval or harvesting license from SFD

• Form 2 (b) licence for alienated land

• Form 1 licence

• Short-term license: Schedule III, Form 1.

1.4.4. Sources of information

Government sources
• forest.sabah.gov.my (N.Y.) Sabah Forestry Department – official Portal. [online]
Available at: http://www.forest.sabah.gov.my/

• Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available:
http://www.forest.sabah.gov.my/ar2016/11.pdf, accessed 8 February 2018.

Non-government sources

23 Timber Legality Risk Assessment – Malaysia - Sabah

 • Transparency International, (2017). Corruption Perception Index 2016. Available:
https://www.transparency.org/country/MYS. Accessed 5 February 2018.

• theborneopost.com (2014). Govt urged to give priority to the natives in land disputes.
[online] Sept. 29, 2014. Available at:
http://www.theborneopost.com/2014/09/29/govt-urged-to-give-priority-to-natives-in-
land-dispute/ [Accessed 2 March 2015]

• Toh, S. M. and Grace, K. T. (2006). Understanding forest tenure in South and

Southeast Asia, Case study: Sabah Forest ownership. [online]. FAO. Available at:
http://www.fao.org/forestry/10515-0462aee542d13dc983cd2bb1d09c073fa.pdf
• World Resources Institute (WRI) (2013). Forest Legality Alliance Risk Tool, 2013:
Malaysia: http://www.forestlegality.org/risk-tool/country/malaysia#tab-management.

• sourcing.gftn.panda.org (N.Y.). WWF Global Forest Trade Network: Common

Framework for Assessing Legality of Forestry Operations, Timber Processing and Trade
- Principles, Criteria and Indicators for Malaysia. [online]. WWF-GFTN. Available at:
http://sourcing.gftn.panda.org/files/PDF/legal_documentation_malaysia.pdf and
http://sourcing.gftn.panda.org/files/PDF/legality_framework_malaysia.pdf

• forestlegality.org (2009). TTAP Legality Checklist - Malaysia. Available at:

http://www.forestlegality.org/risk-tool/country/malaysia

• Colchester, M., Jalong, T., Alaza, L. (2013). 'Conflict or Consent?' Chapter 10: Sabah:
Genting Plantations and the Sungai and Dusun Peoples. [online]. Forest Peoples.
Available at:
http://www.forestpeoples.org/sites/fpp/files/private/publication/2013/12/conflict-or-
consent-chapter-10-sabah-genting-plantations-and-sungai-and-dusun-peoples.pdf
[Accessed 2 March 2015].

• Sarawak Report, (2012). Malaysian Foreign Minister Named in MACC Investigation into
Sabah Timber Corruption – NATIONAL EXPOSE. Available at:
http://www.sarawakreport.org/2012/04/malaysian-foreign-minister-named-in-macc-
investigation-into-sabah-timber-corruption-national-expose/

• The Borneo Project, (2012). Malaysian Foreign Minister Named in MACC Investigation
into Sabah Timber Corruption. Available at:
https://borneoproject.org/updates/malaysian-foreign-minister-named-in-macc-
investigation-into-sabah-timber-corruption

• Expert consultation conducted by NEPCon, (2015). Including NEPCon expert

consultation 2015, personal communication.

1.4.5. Risk determination

Overview of Legal Requirements

Any company or person who intends to harvest forest produce from a forest area must
have a valid harvesting licence. The issuance of a harvesting licence for PRF, SL, AL
(whether on natural forest or on plantations) is subject to:

24 Timber Legality Risk Assessment – Malaysia - Sabah

 • Letter of approval for issuance of licence from Natural Resources Office (NRO) (PF &
SL) under the Chief Minister's Department, or the Director of Forestry (DoF) for
Alienated Land (AL)

• Approval of forest harvesting area

• Approved EIA study / PMM where applicable

• Demarcation of harvesting area

• Approved Inventory Report (for selective logging inside forest reserves only)
• Payment of licence fees and other charges imposed

In Sabah a harvesting license can be in the form of:

• Sustainable Forest Management License Agreement/Long-term License Agreement

(SFMLA/LTL) for concessions on PRF

• Form I license: short-term license for logging activities on forest reserve or State land.
• Form IIB: Normally issued for harvesting from Alienated Land, where timber can be
harvested for land clearance for agricultural purposes (mostly oil palm, rubber and
other short-term crops).

For forest reserves, the National Resources Office decision is based on the SFD
recommendation of Class II (commercial forest). Once approval is received from the
National Resource Office, the Sabah Forestry Department informs the successful applicant,
stating conditions of approval (including the need for Environmental Impact Assessment
(EIA) or Proposal for Mitigation Measures (PMM), if necessary).

In the case of State Land, the National Resource Office verifies the application for
harvesting rights. Eligible applications are forwarded – together with maps showing the
relevant area – to the Lands and Survey Department (LSD) to ascertain availability of the
area. (Use of the land can lead to its privatisation). The NRO decision is based on the
recommendation made by the LSD, covering availability of the area, and ensuring that any
designated water catchments or kampong reserves are excluded from the area.

For Alienated Land or in the situation where a company is authorized by the owner, and
regarding permission to remove forest produce under licence: The District Forestry Officer
(DFO) verifies the status of the land and its ownership and then submits the application to
the Director of Forestry for approval. The Director of Forestry issues a letter of approval to
the DFO for removal of forest produce.
Description of Risk
There is a risk of corruption in the process of issuing harvesting permits, and a lack of
harvesting permits.

• The licensing process in Sabah for any permits is not based on a tender process and is
thus not transparent. Historically, there have been strong indications of license holders
having ties with the Chief Minister in Sabah (see for example Sarawak report 2012 and
Borneo Project 2012). However, the process of issuing permits is clear and well known.
In 2012 there were reports (through documents leaked from MACC) of the Chief
Minister allocating concessions to his brother despite a conflict of interest (Sarawak

25 Timber Legality Risk Assessment – Malaysia - Sabah

 Report 2012). The case was not brought to court, but indicates a risk of
nepotism/cronyism in the issuing of licenses (Sarawak Report 2012)

• Form IIB has earlier been abused by contractors, mainly for extraction of timber in
areas meant for conversion, to include volumes of timber logged outside the clear-
felling area, and thus including illegal timber into the timber chain. This abuse has
been minimized and better regulated by the Sabah Forest Department. However, there
are no evidence to prove no such actions no longer occurs (Expert consultation 2012,
Personal Communication 1 and 7).

• According to the 2016 Annual Report of the Sabah Forestry Department (NB: this is the
most recent report available), of the 234 forestry offences detected in 2016, 22 were
Illegal Felling (Section 20 Forest Enactment 1968) in forest reserve; 25 were Illegal
Felling in State land (Section 23 Forest Enactment 1968); and 65 were Illegal
Possession under section30(1)(g) Forest Enactment 1968 (Sabah Forestry Department,
2017). The annual report states:
‘The year 2016 marked an increase of 62 cases compared to
2015 largely due to better enforcement throughout the state
with special teams assessed in discharging their duties diligently
and professionally. During the year under review, there was an
increase in offences of illegal felling in forest reserves and state
lands due to illegal land clearing for oil palm plantations. Another
main threat is an increase in the illegal harvesting of Agarwood
(gaharu) by foreigners in particular as indicated from the cases
encountered in Keningau and Sandakan regions. Cases in forest
reserves may have increased, but they mainly involved small
timber extraction, which if not countered, can add up the extent
of forest loss. Unfortunately, forest clearing has not yet been
sufficiently addressed. We need to do better in 2017.’
• In 2016, Transparency International gave Malaysia a Corruption Perception Index score
of 49 out of 100 (on a scale from 0 to 100 where 100 is lowest level of corruption).
Malaysia was ranked 55 out of the 167 countries assessed. The score of 49 see’s
Malaysia losing points compared to 2015, where they scored 50 and 2014 where they
scored 52.

• The process of issuing concession licenses is clearly defined and well known, but there
is a lack of transparency when issuing the permits and as there are indications of
corruption. Furthermore, misuse of Form IIB licenses has been reported and the risk is
thus considered Specified for all timber sources.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.4.6. Risk designation and specification

Specified risk

26 Timber Legality Risk Assessment – Malaysia - Sabah

 1.4.7. Control measures and verifiers

• Field visits shall verify that maps are in compliance with reality

• Harvesting permits shall exist

• Harvesting limits shall be clearly defined based on maps and quantities

• Authorities shall confirm the validity of harvesting permit

• Field inspection shall confirm that harvesting takes place within limits given in the
harvesting permit.
• Field inspection shall confirm that information regarding area, species, volumes and
other information given in the harvesting permit is correct and within limits prescribed
in the legislation.

27 Timber Legality Risk Assessment – Malaysia - Sabah

 TAXES AND FEES

1.5. Payment of royalties and harvesting fees

Legislation covering payment of all legally required forest harvesting specific fees such as royalties,
stumpage fees and other volume-based fees. It also includes payments of the fees based on correct
classification of quantities, qualities and species. Incorrect classification of forest products is a well-
known issue often combined with bribery of officials in charge of controlling the classification.

1.5.1. Applicable laws and regulations

• Forest Enactment 1968 [Sections 24C & 42(d), (e)]

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Forest Rules 1969, Rule 12(1)

• CF Circular 1/81 Measurement of Timber for Royalty Assessment-CF No 1/81 2006
Version, 1st Revision

1.5.2. Legal authority

• Sabah Forestry Department

1.5.3. Legally required documents or records

• Royalty paid logs will have the following documents and markings:

• Logs bear Property Hammer Marks

• Logs bear Forestry Department Inspection Mark

• Logs bear Forestry Department Revenue Hammer Mark.

• All logs have species symbol and serial number incised at both ends.

• Timber Disposal Permit (TDP) which provides details of logs, including: the licence
where the logs were extracted, the serial number, log specification by species, log
diameter and length, date of scaling and reference to the royalty payment receipt.

1.5.4. Sources of information

Government sources
1.1.1. Sabah Forestry Department, Forest Legislation, Available at:
http://www.forest.sabah.gov.my/discover/policies/forest-legislation

• Sabah Forest Department 2013: Chapter 12, Enforcement, Investigation & Prosecution.
Available
at:http://www.forest.sabah.gov.my/images/pdf/publications/AR2013/Chap12.pdf

• Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available at:
http://www.forest.sabah.gov.my/ar2016/11.pdf, accessed 8 February 2018.

28 Timber Legality Risk Assessment – Malaysia - Sabah

 • Australian Government, (2017). Country specific guideline for Malaysia (Sabah) [pdf].
Department of Agriculture and Water Resource and Ministry of Plantation
Industries&Commodities. Available at:
http://www.agriculture.gov.au/SiteCollectionDocuments/forestry/australias-forest-
policies/illegal-logging/malaysia-sabah.pdf, accessed 8 February 2017.
• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March
2013). Available at:http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf,
Accessed 13 February 2018.

Non-government sources
• Borneo Post, May 2017. Hike in hill timber charges negative for timber players,[online]
Available at:: http://www.theborneopost.com/2017/05/12/hike-in-hill-timber-charges-
negative-for-timber-players/, [accessed 8 February 2018].
• Daily Express, (2016). Nearly 800 forestry offences in five years. Available at
http://www.dailyexpress.com.my/news.cfm?NewsID=113724 [6 April 2018].
• Hoare, A. (2015). Illegal Logging and Related Trade - The Response in Malaysia.
[online]. A Chatham House Assessment. Chatham House, London. Available at:
http://www.illegal-
logging.info/sites/default/files/CHHJ2365_Malaysia_Logging_Research_Paper_A4_01_1
5_WEB.PDF [Accessed 23 February 2015]

• NEPCon Expert consultation, 2015, personal communication1 and personal

communication 2.

• World Resources Institute (WRI) (2013). Forest Legality Alliance Risk Tool, 2013:
Malaysia: http://www.forestlegality.org/risk-tool/country/malaysia#tab-management
[accessed 23 February 2015]

1.5.5. Risk determination

Overview of Legal Requirements
Section 24C of the Forest Enactment 1968, and Rule 12(1) of the Forest Rules 1969,
stipulate the royalty payment requirements for all harvested timber. All logs transported
must have the royalty paid prior to leaving the licenced area or approved royalty
assessment area. Payment of royalties must be made to the District Forestry Officer and
shall include supporting documents such as the Log Summary and Log List with species,
log dimension and volume. The District Forestry Officer conducts a field inspection and
verifies the company's log dimensions based on the Guideline for Measurement of Timber
for Royalty Assessment and assesses royalty payments based on the applicable royalty
rates.

The current royalty rates are published on the Sabah Forestry Departments website:
http://www.forest.sabah.gov.my/media-centre/rapid-info/guidelines/723-fd-18-2016-
sabah-timber-royalty-effective-1st-july-2016.

Prior to the assessment of royalties, the District Forestry Officer verifies that: logs bear
Property Hammer Mark, logs bear the Forestry Inspection Mark and all logs have species
symbol and serial number incised at both ends of log, and volume corresponds to the
company's Log List and Log Summary.

29 Timber Legality Risk Assessment – Malaysia - Sabah

 Once royalties have been paid, the District Forestry Officer will issue a receipt for royalty
payments.

A Concession or Harvest permit will not be issued if relevant fees have not been paid by
the forest enterprise or private land owner.

Royalty is based on volume and species. Forest managers pay all royalties, farmers and
Community Forestry Cess, Forest Rehabilitation Fees and Removal Pass fees before they
can remove the timber from the licensed area. Sabah Forestry Department collects
payment and issues receipts, Timber Disposal Permit and Removal Pass. District Forestry
Officers verify all payment receipts where the forest operations are being conducted. The
Sabah Forestry Department Annual Report for 2016 states that the royalty rates of logs for
export and for domestic processing were revised effective 1st July 2016, with an average
increase of export royalty at RM10/m3 for most species but some species namely Belian
showed a significant increase at RM50/m3. The royalty for local processing showed an
increase of RM5/m3. The royalty of plantation timber species for both export and import
however remained unchanged. The export royalty for processed timber was also revised
whereby the export royalty of plywood was raised by RM5/m3 and Belian sawn timber
increased by RM20/m3

According to the Sabah Country Specific Guidelines published by the Australian

Government and this guideline was co-endorsed by the Malaysian governments in March
2017 “rubberwood logs produced from Alienated land in Sabah are royalty exempted,
while rubberwood logs produced from PFE (Industrial Tree Plantation Zone of SFMLA) are
subject to royalty payment.”

According to the Sabah TLAS document, Industrial Plantation Timber (ITP) from State Land
and Alienated Land is exempted from royalty payments.

In July 2017, the Sarawak Government introduced a significant increase in the timber
royalties for the state. This increase, the only one since the mid-1980’s, is predicted to see
an increase in revenue for the state from the timber sector. According to the Borneo Post
(May 2017), the hike will result in the collection of RM200 million to RM300 million per
annum under the revised rate, compared to about RM15 million under the present rate.

Description of Risk
• The system is considered well implemented, with the gaps allowing abuse of the
system having been minimised in recent years through improved enforcement and
constant third-party surveillance (e.g. as part of the Sabah TLAS FMU monitoring
programme) (Personal Communication 2).

• The SABAH TLAS annual auditing applies to all timber concessions and SFD has
incentive to collect revenues, thus royalties’ payment collection is considered an area
of strength in Sabah’s forestry enforcement (Personal Communication 2).
• According to the Forest Legality Initiative’s Risk Tool (2013):

“Most tax revenue is collected by the National Government of

Malaysia, but state governments are allowed to collect land-
related revenue, including timber export duties. These policies
have encouraged state governments to maximize these
revenues. In some cases, state taxation has jeopardized the

30 Timber Legality Risk Assessment – Malaysia - Sabah

 national goal of sustainable forest management. The state exit
tax, among others, encourages operators to smuggle wood out
of states like Sarawak and Sabah to avoid paying the fee. In
Sabah, for example, there are several fees, royalties, taxes, etc.,
that must be paid to extract forest resources. These include:
payment to a community forest cess fund, royalties based on
species groupings, fees for an occupational permit, machinery
registration fees, rehabilitation funds, performance bond for SFM
license agreement, among a few others.”
• According to the 2016 Annual Report of the Sabah Forestry Department (NB: this is the
most recent report available), of the 234 forestry offences detected in 2016, only 1
(one) was for royalty evasion. This compares with the 2013 Annual Report, which
stated that no cases of royalty evasion were noted that year (SFD 2013, p.78).

• The 2016 Annual Report notes “a slight increase in log production from the natural
forest coupled with revision of royalty rates and a consistent increase in the royalty
collection from agro-forestry activities, however showed much better forest revenue
collection at RM 225.4 million as compared to RM 189.4 million in 2015”.

• According to Chatham House. Before a logging licence is issued, potential licensees

must pay a timber premium on the area to be harvested and deposit funds with the
respective forestry department to offset future royalties. The royalties due are
recorded by the forest checking stations. The computerized system to register
payments and harvests is considered effective, although the level of payment of
royalties is not known. (Hoare, 2015, p. 4).

• Unlike Peninsular Malaysia, where specific issues of tax evasion have been raised in
recent years, no information could be found in the preparation of this report to indicate
that evasion of royalty payments in Sabah is a specific problem. The Daily Express
reported on the statistic of the Sabah Forestry Department (SFD) in October 2016 –
that article states that the SFD ‘recorded a total of 789 cases in various forestry
offences over the last five years, [… of which] 197 cases of unpaid timber taxes and
possession of timber without papers” were detected. Note that the Sabah FD annual
report shows only one case for royalty evasion.

• In addition, the expert input into this report included specific advice that the issue of
tax and royalty evasion in Sabah is strongly mitigated by the incentives for
government to ensure compliance, this is because of the heavy reliance on the revenue
generated from the timber sector.

Based on the available information, the risk for this indicator is considered low.

For rubberwood grown on alienated land, this indicator is not applicable as this timber
source is exempt form royalty obligations.

For Industrial Plantation timber from State Land and Alienated Land, this indicator is not
applicable.

Risk Conclusion
Not applicable for rubberwood grown on alienated land and Industrial Plantation Timber
from State Land and Alienated Land.

31 Timber Legality Risk Assessment – Malaysia - Sabah

 This indicator has been evaluated as low risk for all other source types. Identified laws are
upheld. Cases where law/regulations are violated are efficiently followed up via preventive
actions taken by the authorities and/or by the relevant entities.

1.5.6. Risk designation and specification

Not applicable for rubberwood grown on alienated land and Industrial Plantation Timber
from State Land and Alienated Land.

This indicator has been evaluated as low risk for all other source types.

1.5.7. Control measures and verifiers

N/A

1.6. Value added taxes and other sales taxes

Legislation covering different types of sales taxes, which apply to the material being sold, including
selling material as growing forest (standing stock sales). Risk relates to situations where products
are sold without legal sales documents or far below market price resulting in illegal avoidance of
taxes.

1.6.1. Applicable laws and regulations

• Goods and Services Tax Act 2014 (GST). Part I, Section 3 (Meaning of business),
Section 4 (Meaning of supply); Part III, Section 9 (Imposition and scope of goods and
services tax); Part V, Section 33 (Issuance of tax invoice) -
http://www.federalgazette.agc.gov.my/outputaktap/20140619_762_BI_ACT%20762.p
df

1.6.2. Legal authority

• Royal Malaysian Customs Department

1.6.3. Legally required documents or records

• Records of payment kept by forest managers/company

1.6.4. Sources of information

Government sources
• Sabah Forestry Department[online],Available at
http://www.forest.sabah.gov.my/discover/policies/forest-legislation Malaysia-EU FLEGT
VPA; http://www.flegtvpa.my/sabah-tlas GST industry guide on forestry
www.gst.customs.gov.my/en/rg/SiteAsssets/gst_bill/BI ACT 762.pdf.
• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March
2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.

Non-Government Sources
• Annuar, H. A., Salihu, I. A., & Obid, S. N. (2014). Corporate Ownership, Governance
and Tax Avoidance: An Interactive Effects. Procedia - Social and Behavioural Sciences,

32 Timber Legality Risk Assessment – Malaysia - Sabah

 164, 150-160.[online], Available at:
https://www.sciencedirect.com/science/article/pii/S1877042814058832

• Borneo Post. (2013, November 22). Sabah to retain State Sales Tax when GST
implemented – Musa. Retrieved from www.theborneopost.com:
http://www.theborneopost.com/2013/11/22/sabah-to-retain-state-sales-tax-when-
gstimplemented-musa/

• Borneo Post. (2016, January 29). Waive SST until CPO price stabilises. Retrieved from
www.theborneopost.com: http://www.theborneopost.com/2016/01/29/waive-sst-until-
cpoprice-stabilises/
• New Straits times, (2017). 2,621 companies fail to comply with GST Act:
https://www.nst.com.my/news/2016/07/159375/2621-companies-fail-comply-gst-act

• The Malaysian Reserve, March 2017. Business warned not to cheat GST system.
Available: https://themalaysianreserve.com/2017/03/31/business-warned-not-to-
cheat-gst-system/, accessed 9 February 2018.
• The Sun Daily, (2017). Over 2,000 cases of tax evasion related to GST charged in court
since 2015. Available: http://www.thesundaily.my/news/2017/10/25/over-2000-cases-
tax-evasion-related-gst-charged-court-2015, accessed 9 February 2017.

• Ting, E. H. (2015). At a Glance – The Malaysian Goods and Services Tax Act 2014.
Abdullah Chan & Co.[online], Available at: http://www.abdullahchan.my/wp-
content/uploads/At-a-Glance-The-Malaysian-GST-Act-2014.pdf

• Transparency International Malaysia. (2011). Forest Governance Integrity Report:

Peninsular Malaysia. Transparency International Malaysia.[online], Available at:
http://fgi.transparency.org.my/wp-content/uploads/sites/3/2013/09/Publication-
Report-Peninsular-Malaysia.pdf

1.6.5. Risk determination

Overview of Legal Requirements
The Goods and Services Tax (GST) was implemented on a nation-wide basis April 1st,
2015 and replaced the former types of sales- and service tax. The GST is a multi-staged
“… consumption based tax on goods and services” (Ting, 2015, p. 2) and as such it differs
from direct taxes (RPGT, income tax etc.).

According to the Goods and Services Tax Act 2014, the GST applies to goods or services
supplied in Malaysia, as well as on any importation of goods into Malaysia (Ting, 2015) and
is rated at either 6% or 0% unless explicitly exempt by the law.
Generally upstream activities involve in a supply of logs are treated as taxable supplies
and subject to GST at standard rate. Reforestation and forestation as well as forest
husbandry are also part of the upstream activities. GST treatments for these activities are
in accordance to the normal provision as prescribed in the GST Act, Regulations and
Orders.

Generally downstream activities involve in the conversion and manufacturing of logs in

primary and secondary processes and subsequently supplied are treated as taxable
supplies of goods and subject to GST at standard rate.
For GST purposes, any taxable person who make a taxable supply of goods or services in

33 Timber Legality Risk Assessment – Malaysia - Sabah

 Malaysia with an annual turnover exceeding the prescribed threshold in the past 12
months, or expected to exceed the prescribed threshold within the future of 12 months,
are liable to register for GST.

GST registered person, you are required to

(a) keep your business records for 7 years.

(b) issue a tax invoice to taxable person for provision of taxable supply;

(c) complete and submit the GST returns and pay the Director General the amount of
tax not later than the last working day of the month following the end of the
specified taxable period;

(d) provide all information and reasonable assistance as requested by the Director
General in the event of an inspection;

(e) notify the Director General in writing when you cease making taxable supplies or
when you transfer your business;

(f) If you are a voluntary registrant, you must remain registered for at least two years;
(g) show the price as GST inclusive when you issue a receipt.

In Sabah, there has been great commotion about the implementation of the GST in 2015,
because Sarawak and Sabah already had their own State Sales Taxes (SST). The SST is
imposed on Crude Palm Oil (CPO), slot machines and lotteries. From the perspective of
Sarawak and Sabah, the issue with the introduction of the GST is the choice between
losing important state income and the prospect of ‘double taxation’ on e.g., CPO (Borneo
Post 2016).

This is because while the SST goes in the State coffers, the GST belongs to the Federal
Government. The two Bornean States chose to retain their SST and CPO is thus both
subject to GST and SST; something that affects especially the mills and consequently
affects the price the mills can pay farmers for their Fresh Fruit Bunches (Borneo Post,
2013; Borneo Post, 2016).

Description of Risk
• Since GST was introduced in Malaysia in April 2015, there is possibly some tax evasion
in the forest products sector but no sector-specific reports highlight this as a risk.

• Based on the Customs Department’s audit, most of the 417,000 GST-registered

companies nationwide were not ready in terms of record-keeping, usually managed by
third parties such as tax agents, accountants or consultants (New Straits Times (NST),
2017).
• In 2017, the Sun Daily reported that over 2,000 cases of tax evasion related to GST
have been charged in court since 2015. The article states that Customs have opened a
total of 14,578 investigation papers since the GST implementation of which some
2,097 cases were prosecuted in court. As of July, 928 of the cases were found guilty.
Deputy Finance Minister Datuk Othman Aziz is quoted as saying "one of the biggest
issues we face is the failure to declare taxes by businesses.” The article does not
contain any specific information about the industries affected.

34 Timber Legality Risk Assessment – Malaysia - Sabah

 • Regarding the enforcement of the GST requirement, according to the Malaysian
Reserve (March 2017), Royal Malaysian Customs is “well prepared” to detect cheats,
dodgers or illegal collection of the Goods and Services Tax (GST). Businesses that may
try to take advantage of loopholes have been warned that the Customs department,
which is responsible for collection, has in place the technology and a highly skilled task
force to detect any fraud. The Royal Malaysian Customs GST director Datuk
Subramaniam Tholasy said the department is well prepared and is armed with the
toughest laws to act against offenders. “We have a system that can recognise
anomalies based on the returns submissions. It will pick up the faulty ones and tag it
with a red flag, if anything is suspicious”.
• Transparency International Malaysia (2011) reports that the risks are transfer pricing
(tax evasion through undervaluation) and bribery to undervalue timber. Family,
government and foreign ownerships have been proven as the potential determinants of
corporate tax avoidance (Annuar, 2014); these types of ownerships are also found in
the palm oil plantation sector in Malaysia.

Given the general lack of GST readiness reported by the NST, and the specific corruption
issues related to the timber sector, a precautionary approach has been taken to the
evaluation of this indicator, and it is considered specified.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.6.6. Risk designation and specification

Specified risk

1.6.7. Control measures and verifiers

• Sales documents shall include applicable sales taxes.

• Receipts for payment sales taxes shall exist.

• Volumes, species and qualities given in sales and transport documents shall match the
fees paid.

• Sales prices shall be in line with market prices.

• Harvested species, volume and qualities shall match the sales documents.
• Authorities shall confirm that operation is up to date in payment of applicable sales
taxes.
• Consultation with financial authority to verify that all required income and profit taxes
have been paid

1.7. Income and profit taxes

Legislation covering income and profit taxes related to the profit derived from sale of forest products
and harvesting activities. This category is also related to income from the sale of timber and does
not include other taxes generally applicable for companies or related to salary payments.

35 Timber Legality Risk Assessment – Malaysia - Sabah

 1.7.1. Applicable laws and regulations

• Income Tax Act 1967: Part II - Imposition and General Characteristic of the Tax,
Section 3 (Charge of income tax), Section 4 (Classes of income).
http://www.kpmg.com.my/kpmg/publications/tax/22/a0053.htm

• The Goods and Services Act 2014 -

http://www.customs.gov.my/en/pg/Documents/BI%20ACT%20762.pdf

1.7.2. Legal authority

• The Ministry of Finance -

http://www.treasury.gov.my/index.php/en/ministrysprofile/treasurys-profile.html The
ministry in charge of formulating and implementing monetary policies and further in
charge of distribution and the management of financial resources of Malaysia.
• Inland Revenue Board of Malaysia

• Royal Malaysian Customs Department -

http://www.customs.gov.my/en/ci/Pages/ci_vmv.aspx Responsible for the nations
indirect tax

1.7.3. Legally required documents or records

• Receipt of payment maintained by company and IRB which normally can only be
obtained from the company or from IRB with company authorisation

1.7.4. Sources of information

Government sources
• Inland Revenue Board official website Available at:
http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=5&bt_posi=3&bt_unit
=1&bt_sequ=2&bt_lgv=2; LAWS OF MALAYSIA ONLINE VERSION OF UPDATED TEXT
OF REPRINT; Act 53 INCOME TAX ACT 1967 As at 1 October 2017 ; [online], Available
at:
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Pindaan%20Act
%2053%20-%2023%2011%202017.pdf

Non-Government sources
• Annuar, H. A., Salihu, I. A., & Obid, S. N. (2014). Corporate Ownership, Governance
and Tax Avoidance: An Interactive Effects. Procedia - Social and Behavioural Sciences,
164, 150- 160.,[online], Available at:
https://www.sciencedirect.com/science/article/pii/S1877042814058832

• Chin, M. (2011). Biofuels in Malaysia: An Analysis of the Legal and Institutional

Framework. Bogor, Indonesia: CIFOR.,[online], Available at:
https://books.google.dk/books?id=mkNLPmZC0eoC&printsec=frontcover&source=gbs_
ge_summary_r&cad=0#v=onepage&q&f=false

• Josephine Hilary Dom, Inland Revenue Board, Malaysia, (2013). Enforcement Trend
and Compliance Challenges: Malaysia’s Experience. The Fourth IMF-Japan High-Level
Tax Conference for Asian Countries. Available:

36 Timber Legality Risk Assessment – Malaysia - Sabah

 https://www.imf.org/external/np/seminars/eng/2013/asiatax/pdfs/malaysia2.pdf,
accessed 9 February 2018.

• Nor Shaipah Abdul Wahab, 2015a: Corporate Tax In Malaysia: Revenue, Collection And
Enforcement
https://worldconferences.net/proceedings/icssr2015/full%20paper/IC%20035%20COR
PORATE%20TAX%20IN%20MALAYSIA.pdf.

• Nor Shaipah Abdul Wahab, 2015b. Corporate Tax in Malaysia: Revenue, Collection and
Enforcement - E-Proceeding of the International Conference on Social Science
Research, ICSSR 2015. Available:
https://worldconferences.net/proceedings/icssr2015/full%20paper/IC%20035%20COR
PORATE%20TAX%20IN%20MALAYSIA.pdf, accessed 9 February 2018.

• PWC 2016/2017 Malaysia Tax Booklet, 2017:

https://www.pwc.com/my/en/assets/publications/2017-malaysian-tax-booklet.pdf- Nor
Shaipah Abdul Wahab, 2015: Corporate Tax in Malaysia: Revenue, Collection and
Enforcement,[online], Available at:
https://www.pwc.com/my/en/assets/publications/2017-malaysian-tax-booklet.pdf

• PwC. (2016). 2015/2016 Malaysian Tax and Business Booklet. Kuala Lumpur, Malaysia:
24 Palm oil Risk Assessment – Malaysia - Peninsular PricewaterhouseCoopers Taxation
Services Sdn Bhd.,[online], Available at:
https://www.pwc.com/my/en/assets/publications/2016-malaysian-tax-business-
booklet.pdf

• Transparency International (2011). Forest Governance Integrity Report - Peninsular

Malaysia. Accessed 24 February 2015 at http://transparency.org.my/wp-
content/uploads/sites/3/2013/09/Publication-Report-Peninsular-Malaysia.pdf.

• Transparency International, (2017). Corruption Perception Index 2016. Available at:

https://www.transparency.org/whatwedo/publication/corruption_perceptions_index_20
16 . [Accessed 5 February 2018.]

1.7.5. Risk determination

Overview of Legal Requirements

Income taxation is managed and enforced centrally by the Federal Government in
Malaysia.
In Malaysia, the standard taxation of corporate income is at 25% percent. This level of
taxation applies to all sectors, except for the following: banking, insurance, air transport
and shipping. Taxable income is all earnings derived from Malaysia and covers gains from
dividend, royalty and land trading. Companies with annual earnings below 2,500,000MYR
is classified as ‘Small to-Medium Enterprise’ (SME) and qualifies for a 5% tax decrease for
the first 50,000MYR (PWC, 2017). All related records and receipts must be maintained for
inspection by the Inland Revenue Board staff/inspector whenever needed (Inland Revenue
Board). Even small-scale farmers and small companies must pay tax. If they do not have a
registered company, they must declare tax as individual income (Abdul Wahab, 2015).

Description of Risk

37 Timber Legality Risk Assessment – Malaysia - Sabah

 • There is a risk of manipulation of the taxable amount (giving extra bonus, buying
assets that can be deducted). However, all companies are subject to tax audits, and
are audited by tax agencies, ensuring transparency and that tax deduction takes place
according to the tax regulations and rules. Income tax is well-monitored and enforced
(Abdul Wahab, 2015).
• Between year 2000 and year 2013, the composition of direct taxes to the Malaysian
government’s total revenue is made up by corporate tax at the largest, followed by
individual tax, petroleum tax and others. This trend is consistent and significant for the
14-year period, and is expected to continue for future years due to effective
enforcement policy of the tax authority (Abdul Wahab, 2015a).

• The main risk in relation to taxation is related to corruption. In 2016, Transparency

International gave Malaysia a Corruption Perception Index score of 49 out of 100 (on a
scale from 0 to 100 where 100 is lowest level of corruption). Malaysia was ranked 55
out of the 167 countries assessed. The score of 49 see’s Malaysia losing points
compared to 2015, where they scored 50 and 2014 where they scored 52.

• Transparency Internationals corruption index and thus corruption is an issue in

Malaysia. In relation to forestry and oil palm plantation development, Transparency
International Malaysia (2011) reports that the risks are transfer pricing (tax evasion
through undervaluation) and bribery to undervalue timber. Family, government and
foreign ownerships have been proven as the potential determinants of corporate tax
avoidance (Annuar, 2014).

• Chin (2011), who reports that there have been several complaints from the palm oil
industry about the heavy taxation and this can thus be considered a prime motivation
for tax evasion. It is likely that this observation can also apply to the timber sector.

• In the paper Corporate Tax in Malaysia: Revenue, Collection and Enforcement, Abdul
Wahab (2015b) states that the ‘loophole[s] in the tax system may create opportunities
for firms to avoid or evade the corporate tax. Studies in corporate tax field find
evidence on tax planning opportunities created by ambiguity of the tax laws and firms’
specific characteristics. Tax planning interpretation is basically referring to tax
avoidance and evasion. Tax planning activities among firms are mainly triggered by the
availability of the opportunity to avoid tax.’ The paper concluded by recommending the
‘government […] levy sufficient corporate tax and respond to the increase
administrative and compliance costs in its current enforcement strategies.’
• Josephine Dom of the IRB, in a presentation at the Fourth IMF-Japan High-Level Tax
Conference for Asian Countries in 2013 listed the following as the key compliance
challenges for the IRB:

- Improving voluntary compliance;

- Tax evasion and frauds;

- Cross-border transactions, e-commerce and aggressive tax planning

- Limited human resources and enhancing skills of audit officers.

- Underground economy/cash economy

- Incomplete recordkeeping among SME and sole proprietor

38 Timber Legality Risk Assessment – Malaysia - Sabah

 - High tax arrears every year

Although there are no specific reports of income tax evasion in the forestry sector in
Sabah, the well documented corruption issues are considered significant enough to
warrant a specified risk finding, based on the precautionary approach.

Risk Conclusion
‘Specified risk’. Identified laws are not upheld consistently by all entities and/or are often
ignored, and/or are not enforced by relevant authorities.

1.7.6. Risk designation and specification

Low risk

1.7.7. Control measures and verifiers

N/A

39 Timber Legality Risk Assessment – Malaysia - Sabah

 TIMBER HARVESTING ACTIVITIES

1.8. Timber harvesting regulations

Any legal requirements for harvesting techniques and technology including selective cutting, shelter
wood regenerations, clear felling, transport of timber from felling site and seasonal limitations etc.
Typically this includes regulations on the size of felling areas, minimum age and/or diameter for
felling activities and elements that shall be preserved during felling etc. Establishment of skidding or
hauling trails, road construction, drainage systems and bridges etc. shall also be considered as well
as planning and monitoring of harvesting activities. Any legally binding codes for harvesting practices
shall be considered.

1.8.1. Applicable laws and regulations

• Forest Enactment 1968 (Sabah En. No. 2 of 1968) - Section 28A and 28B

• Reduced Impact Logging (RIL) Operation Guide Book: Code of Practice for Forest
http://www.fao.org/fileadmin/templates/rap/files/meetings/2012/120503_reduced_im
pact.pdf
• Harvesting in Sabah, Malaysia 2009

• RIL Operation Guide Book Specifically for Crawler Tractor Use 2001.

• Reference Manual for Timber Harvesting

• Operations in Commercial Class II Forest Reserves in Sabah 1996

• Environment Protection Enactment - Section 38 -

http://www.sabah.gov.my/jpas/laws/EPE/EPE02.pdf

1.8.2. Legal authority

• Sabah Forestry Department

1.8.3. Legally required documents or records

• Sustainable Forest Management Licence Agreement (SFMLA) or Long Term Licence
(LTL) conditions

• Comprehensive Harvesting Plan (CHP)

• Approved Annual Work Plan (AWP)

• Field verification report-Borang SPKP RIL01

• Production records

• Daily felling record

• Letter of approval by SFD

• EIA

• Compartment record book

• Analysis of Permanent Sample Plots (PSP) data

40 Timber Legality Risk Assessment – Malaysia - Sabah

 • Compliance report

• Post-harvest Inventory

• Closing Inspection Report

• Records of silvicultural treatments

• Permanent Sample Plot Records

• Sustainable Forest Management Licence Agreement

1.8.4. Sources of Information

Government sources
• SFD Publications. "Forestry in Sabah" Commemorative Edition, In Celebration of the
Sabah Forestry Department Centennial time capsule sealing (2005-2105) Available at:
http://books.mouvier.ru/#t=Forestry+in+Sabah+compiled+by+the+Sabah+Forestry+
Department.+compiled+by+the+Sabah+Forestry+Department.
• Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available at:
http://www.forest.sabah.gov.my/ar2016/11.pdf, accessed 8 February 2018.

• Sabah Forest Department 2015 –[online], Available at:

http://www.forest.sabah.gov.my/media-centre/press-release/436-all-long-term-forest-
licensees-to-be-certified-on-their-forest-management-under-any-internationally-
recognised-and-accredited-system-director-of-forestry

Non-government sources
• Expert consultation conducted by NEPCon, 2015. Personal Communication 1 and 2.

1.8.5. Risk determination

Overview of Legal Requirements

There are various means of control over timber harvesting operations in Sabah, depending
on the land status.
For PRFs, State Land and Alienated Land, all licensees must adhere to the following
conditions as stipulated in the licence conditions:

i. A licensee must register a Property Hammer Mark, and the Property Hammer Mark
must be stamped at the end of each log produced (natural forest), and per batch
for plantation timber.

ii. A licensee must incise each extracted log with a serial number.
iii. A logging contractor must be registered with the SFD prior to commencing
operations.
iv. The requirement to prepare daily harvesting records.

v. Submission of Quarterly Logging Progress Report and Closing Inspection Report.

vi. Prohibition of timber harvesting in steep slopes (25° and above) and buffer zones
as stipulated in the licence conditions.

41 Timber Legality Risk Assessment – Malaysia - Sabah

 The conditions of harvesting licence stipulate several protected species of timber that are
prohibited from being harvested in PRF or Natural Forest Management Areas.

In the PRF and State Land, only a licenced area is allowed for timber harvesting. For
Alienated Land, timber can be felled for land clearance for agricultural purposes as the
land is Alienated Land, but no timber can be removed without royalty payment and with
proper markings and thereafter issuance of Form IIB licence.

For selective logging Forest Reserves (SFMLA/LTL), there are additional harvesting
controls, including the use of Reduced Impact Logging, and the operation will be guided by
a Comprehensive Harvesting Plan which includes requirements relating to road
construction, directional felling and mapping trees for harvest. For logging involving
clearance for timber plantations or clearance of plantation timber inside Forest Reserves
the SFMLA requires that a Plantation Development Plan be completed.
Description of Risk
• A small amount of harvesting is taking place in PRF in Sabah, as the concessions are
often degraded due to earlier logging. Companies now often spend resources to restore
the forest. The FMUs are being monitored under the EIA requirements by the Forestry
Department through onsite audits and aerial surveys carried out 1–2 times a year
(NEPCon Expert Consultation 2015.).

• The Sabah Forestry Department has 35 District Forestry Officers conducting audits paid
for by the Forestry Department. Field monitoring by the authorities is complicated by
the remote locations of the forests being logged. However, the requirement is generally
considered well-implemented (Expert consultation 2015, personal communication 1).

• The 2016 Annual Report from the Sabah Forestry Department states that almost 40
per cent of the 234 forestry offences from that year were “breach of license
conditions”. The annual report does show a significant uptick in enforcement activities.
The number of people convicted and arrested for forestry offences has significantly
increased over the five years leading up to 2016: In 2012 there were 61 offences, 59
in 2013, 91 in 2014, 138 in 2015 and 176 in 2016. This is not necessarily an indicator
of more offences, just that more offences are being detected and prosecuted.

• According to experts consulted (2015), the harvesting requirements for SL, AL and
plantations are less stringently applied, or absent. Despite the lack of information to
indictate an absence of risk here, the strong advice of the experts was that the risk is
not significant enough here, in the sense of scale and impact to warrant this indicator
being found to be specified.

• According to Sabah Forestry Department, the implementation of third party auditing on

all long-term licensees has had a positive impact on enforcement. This was introduced
to ensure that forest activities comply with the terms and conditions of the Sustainable
Forest Management License Agreements (SFMLAs). As of December 2014, 840,000 ha
of forest were certified, and another 213,000 ha is expected to be fully certified during
2015 (SFD 2015). Forest certification is a cornerstone of the State Government Forest
Policy and thus encouraged at State level.

• EIA for Sabah is more widely and consistently implemented as there is no minimum
threshold of land area, meaning all harvesting project needs to conduct an EIA (Expert
consultation 2015, personal communication 2). Sabah also has a dedicated department

42 Timber Legality Risk Assessment – Malaysia - Sabah

 focused on the implementation of EIA, namely the Sabah Environmental Protection
Department (Expert consultation 2015, personal communication 2).

Based on the input of experts consulted, and the experience of the authors of this report,
the risk is considered low for this indicator.

Risk Conclusion
This indicator has been evaluated as low risk. Identified laws are upheld. Cases where
law/regulations are violated are efficiently followed up via preventive actions taken by the
authorities and/or by the relevant entities.

1.8.6. Risk designation and specification

Low risk

1.8.7. Control measures and verifiers

N/A

1.9. Protected sites and species

International, national, and sub national treaties, laws, and regulations related to protected areas
allowable forest uses and activities, and/or, rare, threatened, or endangered species, including their
habitats and potential habitats. Risk relates to illegal harvesting within protected sites, as well as
illegal harvest of protected species. Note that protected areas may include protected cultural sites,
including sites with historical monuments.

1.9.1. Applicable laws and regulations

• Forest Enactment 19688 – sections 28A & 28B

• EIA Guidelines for Logging and Forest Clearance Activities 2002

• Sabah Land Ordinance of 1930 -

https://theredddesk.org/sites/default/files/land_ordinance_1975.pdf

• Wildlife Conservation Enactment 1997. Section 9-24, 25-39, 40-53 and 54-63.
Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/WildlifeConservation19
97%28Regulations1998%29.pdf

• Biodiversity Enactment 2000. Section 9, 15, 16 and 17. Available at:

http://www.wipo.int/edocs/lexdocs/laws/en/my/my055en.pdf
• Rhino Species Action Plan 2012-2016. Available at:
http://www.rhinoresourcecenter.com/index.php?s=1&act=refs&CODE=note_detail&id=
1367738814

• EIA Guidelines for Logging and Forest Clearance Activities 2002

• State Cultural Heritage (Conservation) Enactment 1997. Available at:

http://www.lawnet.sabah.gov.my/Lawnet/SabahLaws/StateLaws/CulturalHeritage%28
Conservation%29Enactment1997.pdf

43 Timber Legality Risk Assessment – Malaysia - Sabah

 • Orang Utan Action Plan 2012-2016. Available at:
http://archive.mpoc.org.my/Summary_of_the_Orang_Utan_State_Action_Plan_%28Sa
bah_Wildlife_Department,_2012_%E2%80%93_2016%29.aspx
• Elephant Action Plan 2012-2016. Available at:
http://www.mpoc.org.my/Review_of_Sabah_Elephant_Action_Plan_2012.aspx

1.9.2. Legal authority

• Sabah Department of Environment (DOE): enforces the Environmental Quality Act

1974.

• Sabah Department of Director General of Lands and Mines (JKPTG): enforces land law
and legislation regarding with land administration.

• Royal Malaysian Customs Department (RMC): enforces Customs Act 1967 (amended in
1988).

• Sabah Department of Fisheries (DOF): enforces Fisheries Act 1985 (Act 317).

• Sabah Forestry Department: is responsible for enforcing the Forest Enactment 1968.
• Sabah Department of Irrigation and Drainage (DID): enforces Sabah Water Resources
Enactment 1998.
• Sabah Wildlife Department: enforces Wildlife Conservation Enactment 1997.

• Environment Protection Department: Advise the government of development activities,

to comply with various environmental legislation and guidelines so that the process of
development do not unduly degrade the environment.

• Sabah Parks: Protection and management of designated conservation areas as parks,

for conservation needs and other uses. It also provides a resource for the development
of various tourism related business opportunities, directly and indirectly.

1.9.3. Legally required documents or records

• Forest Management Plan

• Latest list of endangered, rare and threatened species of flora and fauna
• Malaysian Red List (flora)

• IUCN Red List (fauna)

• List of protected species

• List of totally protected species

• Map depicting location of important cultural, ecological, economic or religious sites

1.9.4. Sources of Information

Government sources
• wildlife.gov.my (2010) Red list of mammals for peninsular Malaysia. [online]. Available
at:
http://www.wildlife.gov.my/images/stories/penerbitan/lain_lain/Redlist%20Final.pdf

44 Timber Legality Risk Assessment – Malaysia - Sabah

 • Sabah Forestry Department, (2017). Annual Report 2016 – Chapter 11: Enforcement,
Investigation & Prosecution. Available at:
http://www.forest.sabah.gov.my/ar2016/11.pdf accessed 8 February 2018.

• Ministry of Natural Resources and Environment, Malaysia. (2014). Fifth National Report
to the Convention on Biological Diversity. Putrajaya: Ministry of Natural Resources and
Environment, Malaysia. Retrieved from https://www.cbd.int/doc/world/my/my-nr-05-
en.pdf
Non-Government sources
• iucnredlist.org (N.Y.). The IUCN Red List of Threatened Species. [online]. Available at:
http://www.iucnredlist.org/

• Expert consultation conducted by NEPCon, 2015, including personal communication 1,

2 and 7.
• Azhar, B., Sapari, M., Zulkifly, S., Suhailan, W. M., & Sajap, A. S. (2013). Protecting
Biodiversity Outside Natural Forests: Environmental-friendly Oil Palm Plantations as an
Off-reserve Strategy in Peninsular Malaysia. TROPICAL AGRICULTURAL
SCIENCE.[online], Available at:
https://www.researchgate.net/publication/285580644_Protecting_Biodiversity_outside
_Natural_Forests_Environmental-_friendly_Oil_Palm_Plantations_as_an_Off-
reserve_Strategy_in_Peninsular_Malaysia

• Human Rights Commission of Malaysia (SUHAKAM). (2013). REPORT OF THE

NATIONAL INQUIRY INTO THE LAND RIGHTS OF INDIGENOUS PEOPLES. Human Rights
Commission of Malaysia (SUHAKAM). Retrieved from
http://nhri.ohchr.org/EN/Themes/BusinessHR/Business%20Womens%20and%20Childr
ens%20Rights/SUHAKAM%20BI%20FINAL.CD.pdf

• Lim, T. W. (2013). Illegalities in Forest Clearance for Large-scale Commercial

Plantations. Forest Trends. Retrieved from http://www.forest-
trends.org/publication_details.php?publicationID=4195

• Clean Malaysia. (2016, February 13). Malaysia’s Lax Enforcement is failing Endangered
Species. Retrieved from Clean Malaysia: http://cleanmalaysia.com/2015/08/28/5-
reasons-malaysias-wildlife-conservation-act-is-one-of-historys-most-important-wildlife-
regulations/

• Yong, C., SACCESS, & JKOASM. (2014). Deforestation Drivers and Human Rights in
Malaysia. Forest Peoples Programme. Retrieved from
http://www.forestpeoples.org/sites/fpp/files/private/publication/2014/12/deforestation
-drivers-and-human-rights-malaysia.pdf

1.9.5. Risk determination

Overview of Legal Requirements

As a signatory of the CBD, Malaysia has an obligation to contribute to global targets for
protected areas.
The Protection of Wildlife Act 1972 was repealed and replaced by the Wildlife Conservation
Enactment 1997. The new Act contains significantly stricter provisions on species
protection by assigning new species a protective status and raising the protection status of

45 Timber Legality Risk Assessment – Malaysia - Sabah

 several other species (Ministry of Natural Resources and Environment, Malaysia, 2014).
The Act also provides for “presumptions under the law” (Ministry of Natural Resources and
Environment, Malaysia, 2014). Simply by being in possession of snares, the presumption
under the law is that there was the intention to hunt, trap and/or kill wildlife which is
punishable by a fine of up to RM100,000 and a prison term of up to three (3) years, or
both. There is also the presumption now that if any wildlife or any part or derivative or any
wildlife or snare is found on any premises, the ‘occupier’ of the premises is presumed to be
in possession of the above (Ministry of Natural Resources and Environment, Malaysia,
2014). The Act also provides for more punitive measures (Ministry of Natural Resources
and Environment, Malaysia, 2014). For example, any person who has been convicted of an
offence under the Act or any of its subsidiary legislation may be barred from holding any
license, permit or special permit for a period not exceeding five (5) years from the date
proceedings in respect of the conviction concludes (Ministry of Natural Resources and
Environment, Malaysia, 2014). Another significant change made under the new Act relates
to the power to compound offences under the previous Act (Ministry of Natural Resources
and Environment, Malaysia, 2014). As a result, certain offences such as failure to obtain
prerequisite special permits in relation to Totally Protected species, the female or the
immature of a Totally Protected species will result in prosecution of the offence rather than
an offer to compound the offence through a fine (Ministry of Natural Resources and
Environment, Malaysia, 2014).

The Sabah Land Ordinance of 1930 upholds the principle of the protection of natives’ rights
to their lands as well as the recognition that natives practised their own customs and laws.
Administrators are required to give careful regard to those customs. Native Customary
Rights land can be established through Customary Tenure, Native Title, Communal Title,
and Native Reserves (Human Rights Commission of Malaysia (SUHAKAM), 2013).
In Sabah there are numerous protected areas within and outside of forest reserves.
Protected areas inside forest reserves include those areas categorised as Class 1:
Protection Forest Reserve, Class 6: Virgin Jungle Reserve and Class 7: Wildlife Reserve. No
logging is allowed in these reserves.

There are several protected species of timber that are prohibited from being harvesting in
the Natural Forest Management zones of forest reserves.

Inside forest reserves Comprehensive Harvesting Plans (for selective logging) and
Plantation Development Plan shall include which areas and which timber species cannot be
felled. Since 2012 this criterion is being enforced through random on-site audits by the
Environmental Department.

There are no requirements for the protection of species on forested State Land or on
Alienated Land.
Description of Risk
• RIL (Reduced Impact Logging) practices are supposed to be implemented for Natural
Forest Management; however according to the expert consultation (2015), only a
handful of companies are in fact fully implementing RIL, with most FMEs only partially
implementing RIL.

46 Timber Legality Risk Assessment – Malaysia - Sabah

 • Field monitoring by the authorities is complicated by forest logging often taking place
remotely; with inadequate enforcement capacity (Expert consultation. personal
communication 1, 2 and 7).

• According to personal communication 1, commercial logging in protected areas is rare,

but based on the inadequate enforcement capacity, this indicator is considered
Specified risk.

• Malaysia’s Fifth National Report to the Convention on Biological Diversity states that
the country’s monitoring against CBD targets is weak: “The lack of cohesive and
comprehensive monitoring mechanisms/indicators towards the National Policy on
Biological Diversity has posed some challenges towards measuring actual progress in
certain conservation areas. Malaysia recognises the need to step up efforts on
awareness raising on the importance and significance of biodiversity conservation,
protection and management across all levels of society in Malaysia (Ministry of Natural
Resources and Environment, Malaysia, 2014).”
• Malaysian authorities, underfunded and undermanned, continue to play catch-up with
illegal wildlife traffickers (Clean Malaysia, 2016).

• Given the complexity of the natural ecosystems, environmental consultants have

difficulty identifying specific mitigation measures for the protection of certain rare and
threatened species. Few proponents are willing to pay for expertise that addresses the
full range of species found in a natural project site. There is no central source of
practical information related to the distribution of rare species in Malaysia. Given this
scenario, environmental consultants often address biodiversity conservation indirectly
by focusing on keeping an area of natural habitat intact via river buffers and slope
protection, with the occasional addition of token set-aside areas associated with salt-
licks or swampy areas that would not be operable anyway (Lim, 2013).
• There is a growing number of land dispute cases filed in courts by native landowners
against oil palm plantation companies, state government and others in the industry
(Yong, SACCESS, & JKOASM, 2014). Apart from loss of land, many community
witnesses complained that the opening of plantations has resulted in destruction of
graveyards and crops, and pollution of rivers and loss of livelihoods and traditional
ways of life (Human Rights Commission of Malaysia (SUHAKAM), 2013).

Based on the reported instances of illegal encroachment and the knowns shortcomings of
the enforcement agencies, the risk for this indicator is considered specified.
Risk Conclusion
This indicator has been evaluated as specified risk for the Permanent Forest Reserve.
Identified laws are not upheld consistently by all entities and/or are often ignored, and/or
are not enforced by relevant authorities.
The requirements do not apply to other sources.

1.9.6. Risk designation and specification

Specified risk for the Permanent Forest Reserve

N/A for other timber sources.

47 Timber Legality Risk Assessment – Malaysia - Sabah

 1.9.7. Control measures and verifiers

• All legally protected areas (including species habitats) shall be included in the
management plan or related documentation if required by the legislation.

• Confirm that all legally established procedures for surveying, managing and protecting
endangered or threatened species within the management unit have been followed.
• Review RIL implementation guidelines and reports of RIL implementation at forest
level. Verification of RIL implementation in the forest shall be confirmed, and worked
shall be interview to confirm awareness of RIL requirements.

• The Forest manager shall be able to identify and record any protected species in their
area and where possible to conduct inventory on number of species involved.
• The satellite data from Global Forest Watch can give a first indication if harvesting is
encroaching on protected areas.
• WWF, UNEP and other institutions provide guidance on biodiversity hotspots, the
locations of which should be referenced with concession location data.
• A press review can also help to identify if a company has been involved in hunting of
protected species or destruction of protected areas.

1.10. Environmental requirements

National and sub-national laws and regulations related to the identification and/or protection of
environmental values including but not limited to those relating to or affected by harvesting,
acceptable level for soil damage, establishment of buffer zones (e.g. along water courses, open
areas, breeding sites), maintenance of retention trees on felling site, seasonal limitation of
harvesting time, environmental requirements for forest machineries, use of pesticides and other
chemicals, biodiversity conservation, air quality, protection and restoration of water quality,
operation of recreational equipment, development of non-forestry infrastructure, mineral exploration
and extraction, etc... Risk relates to systematic and/or large-scale non-compliance with legally
required environmental protection measures that are evident to an extent that threatens the forest
resources or other environmental values.

1.10.1. Applicable laws and regulations

• Forest Rules 1969 – Rule 15

http://www.sarawakforestry.com/pdf/laws/the_forest_rules.pdf

• Environmental Impact Assessment (EIA) Guidelines for Logging and Forest Clearance
Activities, 2002 - https://www.elaw.org/content/malaysia-sabah-environmental-
impact-assessment-eia-guidelines-logging-and-forest-clearance-a

• Environment Protection Enactment 2002-Sec.12,13,14,20 and 37 -

http://ww2.sabah.gov.my/jpas/laws/EPE/EPE02.pdf

• Environment Protection Order 2005 (Prescribed activities)

http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/EnvironmentProtection
2002%28PrescribedActivities%28EnvironmentalImpactAssessment2005%29%29.pdf

48 Timber Legality Risk Assessment – Malaysia - Sabah

 • Environment Protection (Environmental Impact Assessment) Order 2012
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/EnvironmentProtection
2002%28PrescribedActivities%28EnvironmentalImpactAssessment2005%29%29.pdf
• Environment Protection (Registration of Environmental Consultant) Rules 2005 -
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/EnvironmentProtection
2002%28RegistrationOfEnvironmentalConsultants2005%29.pdf

• Forest Enactment 1968, Section 15 & 24 and 28(A)

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Environment Protection (Registration of Environmental Consultant) Rules 2005.

Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/EnvironmentProtection
2002%28RegistrationOfEnvironmentalConsultants2005%29.pdf

• Environmental Quality Act, 1974. Available at:

http://faolex.fao.org/docs/pdf/mal13278.pdf

1.10.2. Legal authority

• Environment Protection Department: Advise the government of development activities,

to comply with various environmental legislation and guidelines so that the process of
development do not unduly degrade the environment.

• Sabah Forestry Department: is responsible to ensure that the management and

development of Sabah's forest reserves are in accordance with the principles of
Sustainable Forest Management under the principal forestry law in Sabah that is the
Forest Enactment 1968.

• Sabah Department of Environment (DOE): is responsible to prevent, eliminate, control

pollution and improve the environment, consistent with the purposes of the
Environmental Quality Act 1974.

• Sabah Department of Occupational Safety and Health (DOSH): is responsible for the
administration and enforcement of legislations related to occupational safety and
health of the country.

• Sabah Department of Director General of Lands and Mines (JKPTG): is responsible for
Amendment or improvement of any provision of land law and legislation regarding with
land administration; Management of the record of Federal Government’s Property in
Land; Acquisition of the alienated land for Federal Project purposes; Tenancy and
enforcement of Federal Government’s Property in Land; and Management of Small
Estate Distribution.

• Sabah Department of Agriculture (DOA): is responsible for the provision of consultation

services, technical support and professional advice in various agricultural field to
ensure sufficient food production that are safe for consumption and control
environmental pollution.

• Sabah Department of Irrigation and Drainage (DID): is responsible to provide

engineering expertise services and water resources management including river
management, coastal and manage flood and drought to improve water security and
environment sustainability.

49 Timber Legality Risk Assessment – Malaysia - Sabah

 • Department of Wildlife: Protection and conservation of wildlife and associated tourism
products, and provide opportunities for tourism development through research,
identification of potential tourism spot, eco-tourism partnership, and technical
assistance.

• Sabah Parks: Protection and management of designated conservation areas as parks,

for conservation needs and other uses. It also provides a resource for the development
of various tourism related business opportunities, directly and indirectly.

1.10.3. Legally required documents or records

• Forest Management Plan

• Comprehensive Harvesting Plan

• Approved EIA Report - Preparation of EIA reports shall be undertaken by environmental
consultants that are registered with the Sabah Environment Protection Department and
hold valid certificates of practice.

• Approved EIA report or Approved (PMM)

• Signed Agreement of Environmental Conditions/ Mitigation Declaration

• Letter of Compliance to the Environmental Conditions/ Mitigation Declaration  Letter

of Compliance issued by EPD

• The Agreement of Environmental -Conditions/ Mitigation Declaration

1.10.4. Sources of information

Government sources
• forest.sabah.gov.my (N.Y.) Sabah Forestry Department- Official portal. Available at:
http://www.forest.sabah.gov.my/discover/policies/forest-legislation

• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March

2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.
Non-government sources
• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial
Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.
• Malaysia Productivity Corporation. (2014). Reducing Unnecessary Regulatory Burden
on Businesses: Growing Oil Palm. Malaysia Productivity Corporation. Retrieved from
http://www.mpc.gov.my/wp-content/uploads/2016/04/Recommendation-Report-
RURB-Growing-Oil-Palm.pdf

• Memon, A. (2012). Devolution of environmental regulation: Retrieved from

http://www.unep.ch/etu/publications/13)%2045%20to%2061%20doc.pdf

• Sharom, A. (2008). Environmental Laws in Malaysia: Time to Walk the Walk. Inaugural
University of Malaya Law Conference. Kuala Lumpur. Retrieved from
http://eprints.um.edu.my/13465/1/environmental_laws_in_malaysia.pdf

50 Timber Legality Risk Assessment – Malaysia - Sabah

 • Ministry of the Environment, Japan. (n.d.). Overview of Environmental Issues and
Environmental Conservation Practices in Malaysia.[online], Available at:
https://www.env.go.jp/earth/coop/oemjc/malay/e/malaye1.pdf

• Maidin, A. J. (2005, November 17). Challenges in implementing and enforcing

environmental protection measures in Malaysia. Retrieved from The Malaysian Bar:
http://www.malaysianbar.org.my/environmental_law/challenges_in_implementing_and
_enforcing_environmental_protection_measures_in_malaysia_by_ainul_jaria_bt_maidi
n.html

1.10.5. Risk determination

Overview of Legal Requirements

According to the Forest Rules 1969 – Rule 15 and the Environmental Impact Assessment
(EIA) Guidelines for Logging and Forest Clearance Activities, 2002, the EIA requirements in
Sabah are:

i. The Licensee/Land owner has an approved EIA Report from the Director of
Environment Protection Department (EPD) for forest related activities involving
removal of timber involving an area of 500 ha and above.
ii. The licensee/Land owner has an approved PMM from the Director of EPD for forest
related activities involving removal of timber involving an area between 100 ha and
500 ha.

iii. The licensee / land owner has an approved EIA from the Director of EPD for forest
related activities involving removal of timber involving an area of 50 ha and above
adjacent to any protected areas.

According to the Forest Rules 1969, the Forest Resource Management Division (FRM) of
Sabah Forestry Department (FDS) determines if the harvesting area to be licensed is
subject to an EIA/PMM requirement. EPD (Evaluation of EIA Report Division) evaluates
EIA/PMM report submitted by a registered environmental consultant for consideration and
upon approval requires Licensee/Land Owner to sign the Agreement of Environmental
Condition (AEC)/Mitigation Declaration (MD). FRM Division of FDS verifies that EIA/PMM
report has been approved by EPD prior to the issuance of harvesting license. iv. EPD
monitors the implementation of mitigation measures on the specified area under the
AEC/MD. Frequency: EPD monitors the submission of quarterly Environmental Compliance
Report (ECR) by a registered environmental consultant and conduct inspection on any area
upon receival of complaint for serious non-compliance verified from the ECR.
Under the Wildlife Conservation Enactment 1977 (Section 38) it is a requirement that the
licensee of any area must first notify the Director of the Wildlife Department one month
prior to harvesting.

Environmental Impact Assessments (EIAs) shall be conducted for logging areas greater
than 500 hectares whether in PRF, AL or SL and whether for selective logging or clearance
for plantations and whether natural forest or planted timber. Forest enterprises are
required to fulfil this requirement prior to harvesting being conducted. The sensitive areas
are normally identified in the approved harvest map. The Forest Resources Management

51 Timber Legality Risk Assessment – Malaysia - Sabah

 (FRM) Division of the Sabah Forestry Department (SFD) determines if the harvesting area
to be licensed is subject to an EIA requirement.

The Environmental Protection Department (EPD) evaluates the EIA report submitted for
consideration by a registered environmental consultant and upon approval requires the
licensee/land owner to sign an Agreement of Environmental Condition (AEC)/Mitigation
Declaration (MD).

Forest Resource Management Division of Sabah Forest Department verifies that the EIA
report has been approved by Environmental Protection Department prior to the issuance of
the harvesting licence.
Logging of some areas below 500 ha may also be subject to environmental requirements if
the area is deemed to be particularly sensitive by the EPD. In some cases, an EIA may be
required for such logging.
Description of risk
• "In Sabah and Sarawak most forest conversion projects do produce EIAs. In Sabah, it
is estimated that about 80% of oil palm plantations submit EIAs for new plantings and
some companies apply for EIAs retrospectively (after the forest has been felled).
Around 90% of EIAs submitted are eventually approved with several mitigation
measures prescribed. However, in practice, there is considerable non-compliance with
mitigation due to ambiguities regarding the implementation of these measures. [...]
The environmental authorities face a number of challenges in enforcing the mitigation
measures highlighted above. They recognize that streams and slopes identified by
1:50k scale maps inadequately represent the reality on the ground. However, the
maximum fine for non-compliance is limited (in Sabah this is only RM20,000 per
compliance audit visit). Such fines are hardly a deterrent when the additional revenue
gained by noncompliance can be in the order of hundreds of millions of ringgits.
Sabah’s EPD has only 13 enforcement officers to monitor more than 300 active
projects." (Lim 2013).

• “In Sabah, it is estimated that about 80% of oil palm plantations submit EIAs for new
plantings and some companies apply for EIAs retrospectively (after the forest has been
felled).” (Lim, 2013).

• According to Lim, risks thus exist where harvesting takes place on areas meant to be
converted to agriculture that often do not comply with environmentally required
harvesting regulations, e.g. riparian zones, HCVs, slopes. Similar risks may apply to
selective logging of natural forest as well as harvesting in plantations and on
agricultural land.

• Malaysia is geographically a very large territory to administer while the DOE has had
limited resources to undertake its functions (Memon, 2012). Despite the significant
numbers of breaches of environmental law, the proportion of prosecutions or other
enforcement action is extremely low (Maidin, 2005). To date there are only five
reported cases under the heading of environmental law in the law reports in Malaysia
(Maidin, 2005) The local authorities and other government agencies prosecute
environmental offenders using laws other than the environmental law, principally tort
law (i.e. nuisance, trespass, negligence) (Maidin, 2005). The DOE, as the principal
agency entrusted to implement and enforce the environmental protection legislation

52 Timber Legality Risk Assessment – Malaysia - Sabah

 has limited powers to deal with the land planning system (Maidin, 2005). This is
because power to regulate land development is solely within the discretion of the State
Planning Committee at the state government level and the local planning authorities at
the local government level (Maidin, 2005). In Sabah, the establishment of state-level
enactments and the agency Environment Protection Department to carry out EIAs for
forestry and land conversion activities while the DOE covers EIAs related to other
activities such as emissions from factories (Lim, 2013).
• There are also serious problems with the EIA system under the law as there is
commonly conflict of interest involved with the companies hiring consultants to do the
EIA, and loopholes whereby EIA is required based on the size of the project but
plantation companies can easily break the project into smaller lots to avoid the EIA
requirement (Sharom, 2008).
• Most officials from environment related departments including the Town and Country
Planning Department and the DOE often lack sufficient expertise to vet the
Development Proposals and the EIA reports submitted by the applicants seeking for
grant of planning permission (Maidin, 2005). Despite the realisation of the importance
of monitoring compliance of the EIA process, it is lacking due to lack of personnel and
increasing numbers of newly approved development projects (Maidin, 2005).

Based on the available information the risk for this indicator has been assessed as
specified for all sources.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.10.6. Risk designation and specification

Specified risk

1.10.7. Control measures and verifiers

• Ensure an EIA has been prepared for any area greater than 500 ha.

• Conduct on-site visit to confirm logging has been done in conformance with the EIA. If
not, avoid purchasing.

• Review Environmental monitoring compliance reports prepared by the EPD. Annual

compliance reports, but it is not always completed for all companies every year.

1.11. Health and safety

Legally required personnel protection equipment for persons involved in harvesting activities, use of
safe felling and transport practice, establishment of protection zones around harvesting sites, and
safety requirements to machinery used. Legally required safety requirements in relation to chemical
usage. The health and safety requirements that shall be considered relate to operations in the forest
(not office work, or other activities less related to actual forest operations). Risk relates to
situations/areas where health and safety regulations are consistently violated to such a degree that
puts the health and safety of forest workers at significant risk throughout forest operations.

53 Timber Legality Risk Assessment – Malaysia - Sabah

 1.11.1. Applicable laws and regulations

• Occupational Safety and Health Act 1994. Section 16, 29, 30 and 31 Clause 34 and 37
of the Sustainable Forest Management Licence Agreement SFMLA. - Available at:
http://www.ilo.org/dyn/travail/docs/1628/Occupational%20Safety%20and%20Health
%20Act%201994%20-%20www.agc.gov.my.pdf
• Employees’ Social Security Act 1969. Available at:
http://www.ilo.org/dyn/travail/docs/1626/Employees%27%20Social%20Security%20A
ct%201969%20-%20www.agc.gov.my.pdf

• Workmen’s Compensation Act 1952. Available at:

http://myhos.mohr.gov.my/eAkta/akta_sosial/Akta%20Pampasan%20Pekerja%20195
2%20(Akta%20273).pdf
• Industrial Relations Act, 1967. Available at:
http://www.ilo.org/dyn/natlex/natlex4.detail?p_lang=en&p_isn=48066&p_country=MY
S&p_count=199
• Employees Provident Fund Act, 1991. Available at:
http://www.ilo.org/dyn/natlex/natlex4.detail?p_lang=en&p_isn=43880&p_country=MY
S&p_count=199

• Pesticides Act 1974-Section 28-30. Available at:

http://www.ecolex.org/ecolex/ledge/view/RecordDetails;jsessionid=F6843ED0274B1BA
2FD007560EE5296D3?id=LEX-FAOC013354&index=documents

• Factories and Machineries Act 1967. Available at:

http://www.dosh.gov.my/index.php/en/list-of-documents/acts/26-03-factories-and-
machinery-act-1967-revised-1974-acts-139/file

• Labour Ordinance (Sabah Cap 67)-Section 118. Available at:

http://www.sabahlaw.com/Labour_Ordinance.htm

1.11.2. Legal authority

• The Ministry of Human Resources (MOHR): Ministry charged with the regulation of
wages as well as health and safety standards

• The Department of Occupational Safety and Health (DOSH) Sarawak is the department
under MOHR responsible for the safety, health and welfare of the working people.

• Labour Department
• Sabah Forestry Department

• Social Security Department (SOCSO)

1.11.3. Legally required documents or records

• Safety and health records

• It is required of all employer and self-employed persons to produce a written
Occupational Health & Safety policy. It is further the responsibility of the employer to
advise about the content of the policy, revise it as well as alter it based on suggestions
made by his employees

54 Timber Legality Risk Assessment – Malaysia - Sabah

 • Meeting minutes by safety and health Committee

• Records on equipment and maintenance

• Accident record

• Notification of accident, Dangerous occurrence, Occupational poisoning and

Occupational disease.
• FD Certificate of Identity.

1.11.4. Sources of information

Government sources
• Department of Occupational Safety and Health Malaysia http://www.dosh.gov.my

• Quarterly reports on direct employment in the logging and wood processing sectors
through Shuttle Returns No. IV, V and VIII.

• Annual report on direct employment in management and administration of the forest

resources.

• Annual report on injury rate in the forestry sector.

Non-Government sources
• Expert consultation 2015, including personal communication 1 and 2.
• Bahrin, J. S. (2016). Self-Regulation and Occupational Safety and Health Act (OSHA)
1994. Dinner talk between the Society of Occupational and Environmental Medicine of
the Malaysian Medical Association (SOEM-MMA), the Malaysia Medical Association
(MMA) and the Executive Director of Malaysian Employers Federation (MEF). (pp. 1-2).
Kuala Lumpur: Malaysian Employers Federation.

• Daily Express. (2014). 94 industrial accidents in Sabah palm oil sector last year. Daily
Express. 17 January 2014.
http://www.dailyexpress.com.my/news.cfm?NewsID=88001

• Human Rights Watch. (2011). They Deceived Us at Every Stage: Abuse of Cambodian
Domestic Workers Migrating to Malaysia. Human Rights Watch.

• ILO. (2004). Safety and Health Fact Sheet - Oil Palm. Geneva: International
Programme on the Elimination of Child Labour.

• ILO. (2013). Malaysia - 2013. Retrieved from www.ilo.org:

http://www.ilo.org/dyn/legosh/en/f?p=14100:1100:0::NO::P1100_ISO_CODE3,P1100
_YEAR:MYS,2013
• Kumar, M., Ismail, N.A. and Govindarajo, N.S., 2014. Way to measure the concept
precarious working conditions in oil palm plantations. Asian Social Science, 10(21),
pp.1-10.

• Villadiego, L. (2015). Palm oil: why do we care more about orangutans than migrant
workers? The Guardian.

• US Department of Labour. (2014). List of Goods Produced by Child Labour or Forced

Labour. Washington D.C.: US Department of Labour.

55 Timber Legality Risk Assessment – Malaysia - Sabah

 • US Department of State. (2016). 2015 Trafficking in Persons Report. US Department of
State.

• Asia Pacific Migration Network. (2014, November 10). 'Slave labour’ in Malaysia: Time
to rethink migrant labour management. Retrieved from www.apmigration.ilo.org:
http://apmigration.ilo.org/news/slave-labour2019-in-malaysia-time-to-rethink-
migrant-labour-management

• Business & Human Rights Resource Centre. (2015, June 10). Malaysia: Palm oil
company PJP Pelita Selangau denies exploitation & abuse of 100 Indonesian workers in
Sarawak. Retrieved from www.business-humanrights.org: https://business-
humanrights.org/en/malaysia-palm-oil-company-pjp-pelita-selangau-denies-
exploitation-abuse-of-100-indonesian-workers-in-sarawak

• Al-Mahmood, S. Z. (2015, July 26). Palm-Oil Migrant Workers Tell of Abuses on

Malaysian Plantations. Retrieved from www.wsj.com:
http://www.wsj.com/articles/palm-oil-migrant-workers-tell-of-abuses-on-malaysian-
plantations-1437933321

1.11.5. Risk determination

Overview of Legal Requirements
The Occupational Safety and Health Act 1994 and regulations have the principal objective
of providing for the prevention of harm to employees at work. This legislation applies to
workers involved in harvesting timber from all forest types (forest reserves, Alienated Land
and State Land). These include:

• Active management commitment: A policy statement that reflects commitment to the

health and safety of employees, employers and others.

• Hazard identification and control: A systematic identification of hazards to employees

in the workplace, including appropriate controls.
• Information, training and supervision: Systems in place to ensure workers have the
training or supervision to do the work safely and efficiently.

• Accident reporting and investigation: Investigation and recording of employee

workplace accidents (and appropriate documentation).

• Emergency procedures: A plan covering procedures during emergencies, which may

occur on the job.
The Act places responsibilities on employers, self-employed people and employees to
ensure that their work activities do not harm themselves or other people. For forest
operations, other people include visitors, people passing the operation, and the public who
may be near an operation.

Under the Act, employers are required to provide and maintain a safe working
environment; provide and maintain facilities for the safety and health of employees;
ensure that machinery and equipment are safe for employees; ensure that working
arrangements are not hazardous to employees; provide procedures to deal with
emergencies that may arise while the employees are at work; and provide information,
instruction, training and supervision as is necessary.

56 Timber Legality Risk Assessment – Malaysia - Sabah

 Employers have general duties relating to the management of hazard, e.g. working at
heights above three meters; activities under raised objects; earthworks and excavations;
harmful noise; cleaning, maintenance and repair of machinery; protective structures of
self-propelled plant; employment of young persons. Refer to Section 15, Part IV, OSHA
1994
Employers have a duty to maintain, keep clean and provide access to the following
facilities, sufficient for the place of work: washing facilities; toilets; drinking water; first-
aid equipment; facilities for employees who become ill at work; facilities for changing and
storing clothes; facilities for meals; lighting; emergency exit plans.
Description of Risk
• There is still lack of awareness of health and safety requirements amongst Forest
Management Enterprises, particularly by small business owners/private land owners.
On-site workers seldom wear personal protective equipment; first aid kits are lacking;
and there is no strict enforcement of these requirements (Personal communication 1
and 2).

• There is a requirement to report to DOSH regarding any accidents. DOSH has the
authority to close operations until accidents have been investigated. If there is a
breach, the director or CEO of the FME can be brought to court. Thus, accidents are
often not reported by the FME and there is a lack of knowledge of accident statistics.
Statistics from DOSH on occupational accidents by sector in 2017 up to the month of
April shows that the “Agriculture, Forestry, Logging and Fishing” sector recorded the
second highest number of occupational accidents among other sectors, indicating high
risk in workers’ health and safety in this sector (DOSH, 2017).

• While the legal requirements for OSH effectively covers the potential risks in the
forestry sector, research shows several instances of alleged breaches of the OSH
requirements (Al-Mahmood, 2015; Human Rights Watch, 2011; Villadiego, 2015; US
Department of State, 2016). Of special interest to Peninsular Malaysia is the Wall
Street Journal report by Al-Mahmood (2015), who reported grave breaches of OSH
standards in FELDA plantations.

• One study conducted by Kumar, Ismail & Govindarajo (2014) suggested that OSH
breaches were more common in smallholder- than large-scale (palm oil) plantations.
However, this suggestion stands in contradiction to the widespread OSH breaches
reported in FELDA-plantations by Al-Mahmood (2015).
• While reports of OHS breaches in the forestry sector are not as common as the palm oil
sector, it does show a breakdown of the monitoring and enforcement of the
requirements, which may impact the forestry sector in a similar way.

• According to the sources reviewed and stakeholders consulted, there is still a lack of
awareness of health and safety requirements amongst forest enterprises, particularly
by small business owners/private land owners. Common examples include on-site
workers seldom wearing protective equipment, lack of first aid kit, and no strict
enforcement of this requirement (Personal communication 1 and 2)

Although a number of the risks mentioned here are specific to the palm oil sector, based
on a precautionary approach, the indicator has been assessed as specified for all timber

57 Timber Legality Risk Assessment – Malaysia - Sabah

 sources. Based on the description of risk, the indicator is considered Specified for all
sources.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.11.6. Risk designation and specification

Specified risk

1.11.7. Control measures and verifiers

• Monitoring on use of Personal Protective Equipment (PPE) by site workers through

record on issuance of PPE and site visit.

• Checking on Health and Accident records

• Quarterly reports on direct employment in the logging and wood processing sectors
through Shuttle Returns No. IV, V and VIII.
• Annual report on direct employment in management and administration of the forest
resources.
• Review:

o Policy statement
o Work permit for foreign workers, if any

o Employee Provident Fund (EPF)

o Social Security Organization (SOSCO)

o Records of insurance policies

o Occupational Safety and health Committee

o FD Certificate of Identity

1.12. Legal employment

Legal requirements for employment of personnel involved in harvesting activities including
requirement for contracts and working permits, requirements for obligatory insurances, requirements
for competence certificates and other training requirements, and payment of social and income taxes
withhold by employer. Furthermore, the points cover observance of minimum working age and
minimum age for personnel involved in hazardous work, legislation against forced and compulsory
labour, and discrimination and freedom of association. Risk relates to situations/areas where
systematic or large scale noncompliance with labour and/or employment laws. The objective is to
identify where serious violations of the legal rights of workers take place, such as forced, underage
or illegal labour.

1.12.1. Applicable laws and regulations

58 Timber Legality Risk Assessment – Malaysia - Sabah

 • Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007 (Amendment
2010) -
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%20670.pdf
• Children and Young Persons (Employment) Act 1966 -
http://www.ilo.org/dyn/travail/docs/1529/Children%20and%20Young%20Persons%20
Employment%20Act%201966.pdf

• Employees Provident Fund Act - Part V, Section 42, 45. Available at:
http://www.ilo.org/dyn/natlex/natlex4.detail?p_lang=en&p_isn=43880&p_country=MY
S&p_count=199
• Employee's Social Security Act 1969 - Section 3. Available at:
http://www.ilo.org/dyn/travail/docs/1626/Employees%27%20Social%20Security%20A
ct%201969%20

• Employment (Information) Act 1953 -

http://asean.org/storage/2016/06/MA8_Employment-Information-Act-1953.pdf
• Employment (Restriction) Act 1968 -
http://myhos.mohr.gov.my/eAkta/akta_perburuhan/Akta%20Sekatan%20Kerja%2019
68%20(Akta%20353).pdf

• Employment Act 1955. Available at:

http://www.ilo.org/dyn/natlex/docs/WEBTEXT/48055/66265/E55mys01.htm

• Industrial Relations Act 1967. Available at:

http://www.ilo.org/dyn/natlex/docs/ELECTRONIC/48066/99440/F1841123767/MYS480
66.pdf

• Minimum Wage Order 2012. Available at:

http://www.ilo.org/dyn/natlex/natlex4.detail?p_lang=en&p_isn=96034&p_country=MY
S&p_count=199

• National Wage Consultative Council Act 2011 (section 23, 24). Available at:
http://www.ilo.org/dyn/travail/docs/1506/National%20Wages%20Consultative%20Cou
ncil%20Act%202011%20-%20malaysianlaw.my.pdf

• Occupational Safety and Health 1994 -

http://www.utar.edu.my/osh/file/OSHA%201994%20-%20Act%20514.pdf

• Sabah Labour Ordinance -

http://myhos.mohr.gov.my/eAkta/akta_perburuhan/Ordinan%20Buruh%20(Sabah%2
0Bab%2067).pdf
• Sabah Weekly Holidays Ordinance -
http://www.lawnet.sabah.gov.my/lawnet/SabahLaws/StateLaws/HolidaysOrdinance.pdf
• Trade Unions Act 1959 (Act 262) -
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%20262.pdf
• Trade Unions Act 1959 (Act 262). Available at:
http://myhos.mohr.gov.my/eAkta/akta_jheks/TRADE_UNION_ACT_1959%20(ACT%20
262).pdf

59 Timber Legality Risk Assessment – Malaysia - Sabah

 • Wages Council Act 1947 - http://asean.org/storage/2016/06/MA10_Wages-Councils-
Act-1947-Act-195.pdf

• Workers Minimum Housing Standards and Amenities Act 1990 (Act 446) -
http://www.ilo.org/dyn/natlex/docs/ELECTRONIC/87154/118009/F797374692/MYS871
54.pdf
• Workmen’s Compensation Act 1952. Available at:
http://myhos.mohr.gov.my/eAkta/akta_sosial/Akta%20Pampasan%20Pekerja%20195
2%20(Akta%20273).pdf

1.12.2. Legal authority

• Department of Labour Sabah

• KWSP (EPF)
• Perkeso (Socso)

• The Ministry of Human Resources (MOHR): Ministry charged with the regulation of
wages as well as health and safety standards
• Department of Labour Sabah

• Occupational Health and Safety Department – Responsible for reviewing, enforcing and
promoting industrial health and safety

• The Industrial Court of Malaysia: Main functions are to “… hear and down decisions or
awards in industrial disputes referred to it by the Minister or directly by the parties”
(Industrial Court of Malaysia, n.d.) and to monitor the collective agreement reached
between the employer/trade union of employers and trade union of employees
(http://www.mp.gov.my/en/about-us/client-s-charter)

• Social Security Organization (SOSCO): Government Agency administering and

enforcing the Employee Social Security Act 1969 and Employee Social Security General
Rules 1971

• Ministry of Finance - Employees' Provident Fund (EPF): Management of mandatory

savings- and retirement planning for all Malaysian workers in the private sector. To
Malaysians, membership of EPF is obligatory and voluntary for non-Malaysian workers.

• Ministry of Home Affairs: Main function is “To ensure orderly management of the issue
of travel documents, entry/exit of citizens and foreign nationals as well as the issue of
appropriate passes to foreign nationals who reside in this country in accordance with
immigration acts and regulations” (http://www.moha.gov.my/index.php/en/maklumat-
korporat/fungsi-kementerian)
• The Immigration Department: Charged with issuance of passports and travel
documents to Malaysians, visas, passes and permits to foreign nationals and
management the movement of people at authorized entry and exist points
(http://www.imi.gov.my/index.php/en/corporate-profiles/introduction.html)

1.12.3. Legally required documents or records

• Employment records

60 Timber Legality Risk Assessment – Malaysia - Sabah

 • Insurance records

• Payment records

• Records of number of people employed

• Employment Contract

• Migrant workers have a valid passport, valid visa as well as pass a medical exam prior
to employment

1.12.4. Sources of information

Government sources

• minimumwages.mohr.gov.my (N.Y.) Minimum wage website. [online]. Available at:

http://minimumwages.mohr.gov.my/

• perkeso.gov.my (N.Y.) The official Website of social Security Organisation. [online].

Available at: http://www.perkeso.gov.my/en/

• PERKESO. (n.d.). Social Security Principles. Retrieved August 10, 2016, from
www.perkeso.gov.my: http://www.perkeso.gov.my/en/social-security-
protection/social-security-principles.html

• kwsp.gov.my (N.Y.) Agency under the Ministry of Finance Malaysia. [online]. Available
at: http://www.kwsp.gov.my/portal/en/web/kwsp/home

Non-government sources

• Borneo Post. (2015, February 11). Sarawak’s palm oil industry in dire need of workers.
Retrieved from www.theborneopost.com:
http://www.theborneopost.com/2015/02/11/sarawaks-palm-oil-industry-in-dire-need-
of-workers/

• Borneo Post. (2016, February 20). Nod for Sarawak, Sabah to recruit own foreign
workers. Retrieved from www.theborneopost.com:
http://www.theborneopost.com/2016/02/20/nod-for-sarawak-sabah-to-recruit-own-
foreign-workers/

• Business & Human Rights Resource Centre. (2015, June 10). Malaysia: Palm oil
company PJP Pelita Selangau denies exploitation & abuse of 100 Indonesian workers in
Sarawak. Retrieved from www.business-humanrights.org: https://business-
humanrights.org/en/malaysia-palm-oil-company-pjp-pelita-selangau-denies-
exploitation-abuse-of-100-indonesian-workers-in-sarawak

• ICLG. (2016). The International Comparative Guide to: Employment and Labour Law
2016 (6th ed.). Global Legal Group.

• ILO. (2013). Malaysia - 2013. Retrieved from www.ilo.org:

http://www.ilo.org/dyn/legosh/en/f?p=14100:1100:0::NO::P1100_ISO_CODE3,P1100
_YEAR:MYS,2013

• Liaw, E., Vijendran Henry, R. (2011). Country Report: Malaysia. ILO Training Workshop
on Labour Law Reforms, ILO Standards and Trade Union Agenda Bangkok, 08-12
August 2011. STIEU-BWI and MYTUC. Accessed 24 February 2015 at http://actrav-

61 Timber Legality Risk Assessment – Malaysia - Sabah

 courses.itcilo.org/en/a3-52648/a3-52648-part-material/country-
reports/malaysia/at_download/file.

• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial

Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.

• Motlagh, J. (2013, April 8). Palm Oil for the West, Exploitation for Young Workers in
Malaysia. Retrieved from www.theatlantic.com:
http://www.theatlantic.com/international/archive/2013/04/palm-oil-for-the-west-
exploitation-for-young-workers-in-malaysia/274769/

• Othman, S. A., & Rahim, R. A. (2014). Migrant Workers in Malaysia: Protection of

Employers. Pertanika - Social Sciences & Humanities, 271-282.

• Sapienza, S. (2013, February 12). Growing Demand for Palm Oil Drives Malaysia to
Employ Child Migrant Workers. Retrieved from www.pbs.org:
http://www.pbs.org/newshour/bb/world-jan-june13-palmoil_02-12/

• US Department of State. (2016). 2015 Trafficking in Persons Report. US Department of

State.

• Villadiego, L. (2015). Palm oil: why do we care more about orangutans than migrant
workers? The Guardian.

• Expert consultation 2015, including, personal communication 2

1.12.5. Risk determination

Overview of Legal Requirements

Rights and benefits for workers engaged in forestry are mostly covered in the Employment
Act 1955, which includes wages, maternity benefits, working hours and paid leave.

• Section 8 of the Employment Act 1955 and Section 5 of the Industrial Relations Act
1967 (IRA) prescribe the inclusion in the individual worker’s employment contract any
condition restricting the rights of workers to organize or join a union and participate in
its lawful activities. Sections 5 and 7 of the Industrial Relations Act 1967 lists Unfair
Labour Practices such as intimidation, dismissal or threat of dismissal for joining a
trade union or becoming an office bearer, discrimination against a union member
regarding employment, promotion, conditions of employment and working conditions.
However, the IRA also states explicitly that an employer may dismiss, demote, transfer
or refuse to promote a worker on other grounds.
• Establishment of unions is allowed only when approved by the Management of an FME
before being registered by the industry. Unions are not common in FMEs and there are
no unions in the FMEs in Peninsular Malaysia. The Malaysian Trade Union Act
guarantees the right to form or participate in trade union activities, but it restricts the
right to strike, calling for "socially responsible behaviour". Strikes are extremely rare in
Malaysia for several reasons, including strong demand in the labour market and the
Government's promotion of "industrial harmony" (summary of information provided by
Liaw and Henry, 2011).

62 Timber Legality Risk Assessment – Malaysia - Sabah

 The Employment Act 1955 (EA) covers employees that have a monthly salary less than
2,000MYR, engage in manual labour, supervise manual labour, operate propelled
machinery, or work as a domestic servant, as well as employees in certain positions in
sea-going vessels (ICLG, 2016).

The coverage of manual labour means that the EA effectively covers most forestry workers
and is significant to the forestry industry. Employees covered by the EA have the following
minimum terms and conditions of employment:
• Maximum hours of work per day and per week;

• Overtime payment for work more than normal hours of work;

• Protection from deduction of wages;

• Paid annual leave/vacation leave;

• Paid sick leave

• Minimum 10 paid public holidays, five of which are determined by law

• Termination notice period

• Payment of termination benefits, except in cases where the termination of employment
is due to misconduct or poor performance
• A minimum wage of 920MYR per month or 4.42 per hour in Sarawak (ICLG, 2016)

The EA requires all employees in the private sector to be members of the Employee’s
Provident Fund (EPF) and the Social Security Organization (SOCSO). EPF handles savings-
and retirement- planning, while SOCSO provides medical insurance. SOCSO membership is
contingent upon a salary not exceeding 3,000MYR unless the employee is a registered
contributor (PERKESO, n.d.).

An important note is that foreign nationals working in Malaysia are excluded from EPF and
SOCSO (ICLG, 2016). Instead, foreign workers are covered by the Workmen’s
Compensation Act. The EA also states that all contracts with a duration of one month or
more must be in written form and contain provision for termination. Should a written
contract not exist, the employment relationship and contractual terms still stand (ICLG,
2016)?

People working in the forest sector in Malaysia are covered by the EA and thus enjoy a set
of minimum terms and conditions of employment, as well as implied rights to protection
from unjust dismissal (ICLG, 2016). Unionizing is governed by the Trade Unions Act 1959
(TUA) and the Industrial Relations Act 1967 (IRA). Membership is restricted to certain
sectors and the law prohibits migrant workers from forming a trade union, but allows for
migrant workers to join an existing union. Subject to section 28(1) of the Trade Union Act,
a migrant worker cannot hold an executive position in a trade union.

Malaysian law states that all job vacancies must be offered to Malaysian nationals before
opening for migrant applications. An application to the Immigration Department (ID) is
made by the employer and if successful, the ID will grant the employer with a license to
import migrant workers. Migrant workers must then be able to show a valid visa and
passport as well as pass a medical exam (Othman & Rahim, 2014). Upon expiry of the visa

63 Timber Legality Risk Assessment – Malaysia - Sabah

 (usually valid for three months), the migrant worker is terminated. Migrant labour is thus
temporary and workers are tied to one Malaysian employer.

Referent to the Workmen’s Compensation Act of 1952, all employers must insure all their
foreign employees. In addition, it is the duty of the employer to produce a written OSH
policy for the workplace, hire a safety and health officer (only in some cases) as well as
provide the necessary training to the employees (ILO, 2013). Migrant labourers in
Malaysia thus enjoy legal protection that is like that of Malaysians.
Description of Risk
According to the experts consulted, there is a risk that wages are below the minimum
prescribed level. They reported examples of wages being lower than minimum pay, which
often occurs through the contractor providing housing, water and electricity and deducting
this from the minimum cost. This is an illegal practice, as housing and medical care cannot
be used as an equivalent to wages.

There is also a risk that migrant workers are not afforded the correct legal working
conditions

• Although the laws of Malaysia do not discriminate against migrant workers, in practice,
the rights of migrant workers are not protected: workers suffer from non-payment of
wages, wrongful deduction of wages to cover work permits, long working hours, sub-
standard living conditions (also applicable to Malaysian forest workers); no insurance
cover; travel documents withheld by employers; and unfair dismissal, etc. (Liaw and
Henry, 2011).

• "A significant share of the workforce in Malaysia comprises legal and illegal foreign
workers from Indonesia, Bangladesh and the Philippines. One estimate indicates that
there were or are more than 800,000 illegal workers in Malaysia. The presence of
illegal workers often signifies that other labor-related laws are ignored. For example,
the quality of the housing and amenities available to fieldworkers often falls short of
the standard prescribed by law. One study finds that more than 35% of estate families
live in houses that do not meet the basic minimum requirement, regulated by the
Workers Minimum Standards of Housing and Amenities Act 1990." (Lim, 2013, p. 27).
However, this is not widespread in the forest management area in Peninsular Malaysia
and workers are often locals.

• Malaysia’s legal framework is currently insufficient to protect foreign workers, because

the law imposes several processing fees and levies on the employer and consequently
allows these fees to be deducted from the workers’ wages, thus incentivizing forced
labour and debt bondage. Other common treatment of foreign workers includes
passport retention, contract violations, restricted movement, wage fraud, poor housing
conditions and lack of H&S training (NEPCon Expert Consultation 2015).
• Industrial growth in Malaysia has often led to an acute labour shortage in certain
sectors, necessitating an influx of migrant workers. According to the 2015 Trafficking in
Persons (TIP) report prepared by the US Department of State, Malaysia is a major
destination for illegal trafficking and forced labour. This has been especially evident in
the palm oil industry in Malaysia and Indonesia, which employs a total of some 3,5
million workers (Villadiego, 2015). In Malaysia, most of these workers are migrant
workers from the Philippines, Nepal, Bangladesh and Indonesia.

64 Timber Legality Risk Assessment – Malaysia - Sabah

 • It is estimated that Malaysia currently has two million documented, and even more
undocumented, foreign workers (US Department of State, 2016, p. 254).

• Malaysia’s legal framework is currently insufficient to protect foreign workers, because

the law imposes several processing fees and levies on the employer and consequently
allows these fees to be deducted from the workers’ wages, thus incentivizing forced
labour and debt bondage (US Department of State, 2016).

• Common policies in the treatment of foreign workers further include passport retention
(both authorized and unauthorized), contract violations, restricted movement, wage
fraud and imposition of debt by both recruitment agents and employers (US
Department of State, 2016, p. 255).

• In 2015, the Business & Human Rights Resource Centre concluded that: “There have
been complaints of mistreatment, exploitation by unscrupulous recruitment agencies,
physically abuse and poor living and work conditions of foreign workers” and further
that these problems are exacerbated by the lack of law enforcement.
• Several reports of abuse of foreign workers in Malaysian oil palm plantations have
surfaced in the media in the last couple of years. Of greatest relevance to Peninsular
Malaysia is probably an article by the Wall Street Journal in 2015 that reported horrible
treatment and systematic abuse of foreign workers in some plantations (Al-Mahmood,
2015). Workers reported that they did not receive their salaries, lived secluded from
society in inadequate housing, lacked training in operating machinery and spraying
herbicides, and had to cover their own medical costs. Because they were in Malaysia
illegally, they dared not complain to the employer (Al-Mahmood, 2015). This is one of
many cases of alleged abuse of foreign workers in the Malaysian palm oil industry,
which have prompted the US Department of Labor to designate palm oil as a product
produced by both forced- and child labour (US Department of Labor, 2014). Hence,
despite enjoying legal protection close to that of Malaysian nationals, reports of abuses
of foreign labour are much more prominent in the media.

While the most publicised instances of illegality in this indicator relate to the palm oil
sector, and not the forestry sector, it does indicate a breakdown in governance, and
inadequate monitoring and enforcement of these requirements. Available data is not
sufficient to determine whether legal employment requirements are enforced in the
forestry sector, so a precautionary approach has to be applied for this indicator.

In Sabah, issues with sub-contractors have been found in relation to FMEs illegally
employing short-term workers, without documentation and contracts (forest pass,
immigration papers, employment contract). Since regular control visits by the authorities
have been introduced, this risk has been reduced. However, the risk is still considered
specified Personal communication 2).
In Sabah, as in Sarawak, the issue of migrant workers is especially pertinent in the palm
oil sector, as Sabah currently faces a significant shortage of labour in the oil palm industry
(Borneo Post 2016). Recognizing that need for foreign labour as locals seems unwilling to
take the dirty, dangerous and difficult (3D) work as oil palm harvesters, Sabah has been
allowed to import its own foreign labour (Borneo Post, 2016). However, this sourcing of
migrant labour is not without risks. Several reports of the use of child labour in Sabah
have hit the media (Motlagh, 2013; Sapienza, 2013) and coupled with the report from the
Wall Street Journal uncovering systematic abuses in the import and treatment of migrant

65 Timber Legality Risk Assessment – Malaysia - Sabah

 workers in Malaysia (though most related to Peninsular Malaysia), we have a picture of a
Malaysian palm oil industry oftentimes unconcerned with most immigrants performing 3D
work.

The risk is specified for all sources of timber.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.12.6. Risk designation and specification

Specified risk

1.12.7. Control measures and verifiers

• Conduct thorough review of employment records and relevant documents; and when
required conduct field verification.

• For high risk migrant workers, interviews with workers shall confirm receipt of wages
(and that wages have not been deducted to cover work permits), legal working hours,
adequate living conditions, insurance and that travel documents are not being withheld
by employers.

• Review the records of number of people employed

- Compliance Report

- SFMLA

- Work permits for foreign workers

66 Timber Legality Risk Assessment – Malaysia - Sabah

 THIRD PARTIES’ RIGHTS

1.13 Customary rights

Legislation covering customary rights relevant to forest harvesting activities including requirements
covering sharing of benefits and indigenous rights.

1.13.1. Applicable laws and regulations

• Aboriginal Peoples Act 1954 - link

• Environmental Protection Enactment 2002

• Forest Enactment, 1968. (Part IV Section 41) Available at:

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Land Acquisition Act 1960 -

http://www.kptg.gov.my/sites/default/files/article/Act%20486-PENGAMBILAN.pdf

• Land Ordinance, 1930 (Sabah Cap.68). Available at: http://sabah.gov.my/phb/wp-

content/uploads/2011/05/LandOrdinance.pdf
• Malaysia Federal Constitution -
http://www.agc.gov.my/agcportal/uploads/files/Publications/FC/Federal%20Consti%20
(BI%20text).pdf

• National Land Code (Act No. 56 of 1965) -

http://www.kptg.gov.my/sites/default/files/article/NLC1956DIGITAL-VER1.pdf

• Native Court (Native Customary Laws) Rules 1995. Available at: http://www.gavel-
publications.com/assets/toc/9789833519330.pdf

• Native Court Enactment 1992. Available at:

http://www.sabah.gov.my/mlgh/nativecourtsenactment1992.pdf

• State Cultural Heritage (Conservation) Enactment 1997. Available at:

http://www.lawnet.sabah.gov.my/Lawnet/SabahLaws/StateLaws/CulturalHeritage%28
Conservation%29Enactment1997.pdf
• Sustainable Forest Management Licence Agreement – Clause 23

• United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) -

http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf

1.13.2. Legal authority

• Native court
• Sabah Forestry Department

• Lands and Surveys Department

1.13.3. Legally required documents or records

• Records of consultation with natives

• Long term timber licence agreement

67 Timber Legality Risk Assessment – Malaysia - Sabah

 • Sustainable Forest Management License Agreement

• Record on decision by the Civil Court and Native Court

• Contract agreement with local communities with use rights for use of land

• Established Native Customary Rights

1.13.4. Sources of information

Government sources
• forest.sabah.gov.my (N.Y.) Sabah Forestry Department- Official portal. Available at:
http://www.forest.sabah.gov.my/discover/policies/forest-legislation

• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March

2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.

Non-government sources
• Chan, J. (2015, February 13). Sabah lists 42 ethnic groups to replace 'lain lain' race
column. Retrieved from www.themalaymailonline.com:
https://web.archive.org/web/20160601095050/http://www.themalaymailonline.com/m
alaysia/article/sabah-lists-42-ethnic-groups-to-replace-lain-lain-race-column
• Colchester, M., Jalong, T., & Alaza, L. (2013). Marcus Colchester, Thomas Jalong and
Leonard Alaza. In M. Colchester, & S. Chao, Conflict or Consent? The oil palm sector at
a crossroads (pp. 259-282). FPP, Sawit Watch and TUK INDONESIA.

• Dailyexpress.com.my (2015). Natives must be told, rules court. [online]. Daily Express
2015. Available at: http://www.dailyexpress.com.my/news.cfm?NewsID=96067

• Expert consultation conducted by NEPCon, 2015

• Forest Peoples Programme. (2016, April 8). Tongod villagers secure settlement of land
claim with palm oil developer Genting Plantations. Retrieved from
www.forestpeoples.org: http://www.forestpeoples.org/topics/palm-oil-
rspo/news/2016/04/tongod-villagers-secure-settlement-land-claim-palm-oil-developer-
g

• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial

Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.

• Subramaniam, Y. (2015). Ethnicity, Indigeneity and Indigenous Rights: The Orang Asli
Experience. QUT L. Rev., 15, 71.

• Toh, S. M and Grace, K. T. (2006). Understanding forest tenure in South and Southeast
Asia, Case study: Sabah Forest Ownership. [online]. FAO. Available at:
ftp://ftp.fao.org/docrep/fao/009/j8167e/j8167e10.pdf

1.13.5. Risk determination

Overview of Legal Requirements

Native customary rights (NCR) are accepted as a source of law in Malaysia’s constitution
and have been upheld as valid by the courts. The specifics of customary laws vary among

68 Timber Legality Risk Assessment – Malaysia - Sabah

 the dozens of tribal communities in Malaysia but several general principles have
widespread application. A community (kampung) claims general rights over its traditional
territory (wilayah adat) up to one day’s walk from the main settlement. The territory is
defined along natural boundaries such as streams and ridges.

Native customary rights cover;

a) land possessed by customary tenure;

b) land planted with fruit trees, when the number of fruit trees amounts to fifty and
upwards to each hectare;

c) isolated fruit trees, and sago, rotan, or other plants of economic value, that the
claimant can prove to the satisfaction of the Collector were planted or upkept and
regularly enjoyed by him as his personal property;

d) grazing land that the claimant agrees to keep stocked with a sufficient number of
cattle or horses to keep down the undergrowth;

e) land that has been cultivated or built on within three years;

f) burial grounds or shrines;

g) usual rights of way for men or animals from rivers, roads, or houses to any or all of
the above.

Within a community, individual fields (ladang) and orchards (dusun) are assigned to
families belonging to the community that originally cleared the forest and planted the
area. Certain areas (particularly village water catchments) are zoned as protected forest
(hutan tagal) which is subject to various controls, with clearance not permitted. It is
accepted that outsiders may enter the unprotected parts of a community’s territory for
hunting or the collection of forest produce. However, clearance of natural forest for
plantations requires the consent of the community. Fines (sogit) can be imposed for
transgressions such as unlawful entry into a protected forest and for forest clearance
without the consent of the community. In Sabah and Sarawak native courts are
empowered to try offences and determine the level of compensation required (Lim 2013).

Communities can gain communal property rights through applying for an indigenous
reserve. This differs from communal title in that the community cannot transfer these
rights to other parties. There are also restrictions on land use, and a Board of Trustees
must be established to manage the indigenous reserve (Toh and Grace, 2006). Communal
titles are given out to a group of Natives, with attached rules as to use, i.e. no individual
title to be issued, specific land size allocation per family, specific crop to be grown, and to
be managed by a Board of Trustees.

Under Section 13 of the Sabah Land Ordinance, it is specifically provided that upon receipt
of any application for unalienated country land, it shall be the duty of the Collector to
publish a notice calling upon any claimant to native customary rights in such land who is
not yet in possession of a registered documentary title to make or send in a statement of
his claim within a date to be specified in the notice. If no claim is made the land shall be
dealt with as if no such rights existed.

Temporary Occupation Licences (TOL) are not allowed to be issued on areas with Native
Customary Right (NCR) claims described under the Land Ordinance.

69 Timber Legality Risk Assessment – Malaysia - Sabah

 Sustainable Forest Management License Agreements (SFMLA) / Long Term License (LTL)
holder or its appointed consultant must conduct a Social Baseline Survey of the licensed
forest area during the preparation of a 10-year Forest Management Plan to identify or get
details of the population and area of the existing village within the Licensed Area. Local
community and native people living within and adjacent to the SFMLA area have free
access to the forest area for hunting or fruit collection as well as using the forest
enterprise's facilities such as school and clinic. They are also allowed to practice the Tagal
and Sogit system along the river (a traditional way of fish farming). Ownership in forest
reserves is not permitted and, to formalize the presence of communities in forest reserves,
Sabah Forestry Department has introduced the use of Occupation Permits (OPs). Although
the community participates in deciding the duration of and total area covered by the
permit, the final decision remains with Sabah Forestry Department (Toh and Grace 2013).
The Director of Forestry may exempt Natives from payment of royalties through the
issuance of Form IIA license for any of the following forest produce taken from State Land
and Alienated Land: the construction or repair of a dwelling house; the construction of
fences and temporary huts on any land lawfully occupied; the construction or repair of
native boats; the upkeep of fishing stakes and landing places; firewood to be consumed
for domestic purposes; or the construction and upkeep of clinics, schools, community
halls, places of worship, bridges and any work for the common benefit (including for
traditional medicine purposes) of the native inhabitants of the kampong.

Sabah is extremely diverse and currently has at least 42 ethnic groups and more than 200
sub-groups, which constitutes a majority of the population in Sabah, but is still considered
minorities in a Malaysian perspective (Chan, 2015). A review of the Federal Constitution of
Malaysia shows that the indigenous interests of Sabah and Sarawak is protected. Article
153(1) establishes that the Federal Government needs to safeguard the special position of
natives in Sabah and Sarawak.

In addition, and in respect of the native legal system in place prior to British
colonialization, a system of legal pluralism is present in Sabah and Sarawak. Native courts
are present as an addition to the existing courts and hears matters regarding breaches of
native laws or customs involving native parties.

In Sabah, the Native Court is established under the Native Courts Enactment 1992 and is
comprised of a court of appeal, a district native court as well as a native court. However,
despite a constitutional protection of native custom, it is evident that the indigenous
peoples of Sabah suffer from a high level of tenure insecurity.

Governed by the Sabah Land Ordinance, the law on land tenure in Sabah is biased towards
restriction of indigenous access to land and maximizing land available for private- or
plantation development (Toh & Grace, 2006). As an example, this bias is exercised
through the requirement of indigenous land to be continually developed to retain land
rights; something which contradicts the methods of shifting agriculture and crop rotation
often exercised by indigenous communities.

An important note on this subject is that Malaysia has adopted the United Nations
Declaration on the Rights of Indigenous Peoples (UNDRIP) and thus adheres to some level
of international standards. As argued by Subramaniam (2015), while UNDRIP might not be
legally enforceable as such, its adoption does bring about some moral and ethical
expectations (p. 72). Hence, while perhaps not in direct opposition to the national legal

70 Timber Legality Risk Assessment – Malaysia - Sabah

 framework, the status and treatment of the indigenous peoples of Sabah in relation to land
tenure is in contradiction with Malaysia’s international moral obligations.

Description of Risk
• The complex nature of land tenure in Sabah and the high level of corruption has made
NCR breaches one of the most prominent issues in Malaysia for many years. According
to government records, in 2013 there were 32,554 cases of pending land claims in
Sabah out of which 2,000 was regarding NCR (Colchester, Jalong, & Alaza, 2013).
While this may not signify violations, it shows a highly inefficient system of land
registration potentially causing frustration and land conflict.
• The Malaysian legal framework on the indigenes of Sabah, provides on the one side
recognition and protection of the native customs legal system while also affording
incontestable power over land matters to the State authority to promote private land
development over NCR rights. Consequently, while there exists little doubt of the
encroachment of land development projects on NCR land, both the Federal- and State
governments oftentimes operate within the law to make these concessions. However,
the customary right to land is increasingly recognized by the courts in Malaysia, which
have ruled in favour of the indigenous groups on many disputes in Sabah and thus
indicated that the government’s limited interpretation of NCR rights is faulty (Forest
People Programme, 2016).

• There have been several prominent conflicts ending up in the High Court and
consequently attracting large amounts of public attention. However, the most famous
case has been Genting Plantations vs. the Sungai and Dusun Peoples, which have
lasted from 2002-2016. In April 2016, the High Court handed down the decision of the
land dispute. While the details of the final settlement are unknown, the court decided
to uphold the NCR claims (Forest People Programme, 2016).
• In general, the disputes between the Orang Asli and the State- and Federal
government have been solved in the courts and the decisions of the courts seems to be
respected by both parties. An issue here is that a court case is both protracted and
expensive and consequently oftentimes out of reach for the indigenous groups of
Malaysia.

• There are examples where Natives wanting to register native land have been
wrongfully informed by the Lands and Survey Department about the procedure. The
wrong forms have instead been provided, with the result that communities have given
up their land. Courts have ruled that mistakes have been made and should be
corrected by the Lands and Survey Department, but according to a local social NGO
this has not yet taken place (personal communication 4; Toh and Grace 2006 and Daily
Express 2015).
• Insufficient notice given of gazettal of areas gazettal – as well as failure to properly
consult forest communities – has resulted in communities losing their customary rights
to land when it is gazetted as forest reserve or other protected area or when it is
alienated for development projects including logging (Toh and Grace, 2006). In early
2015 a ruling was made by the High Court that a proposed alienation of land was
withdrawn because the Lands and Survey Department had not given sufficient notice to

71 Timber Legality Risk Assessment – Malaysia - Sabah

 the Natives claiming native land under Section 13 of the Sabah Land Ordinance (Daily
Express 2015).

Risks exists for native people losing their right to ancestral land despite recognized
legislative rights to keep this land. Several court cases are ongoing, but there is still need
for changed practices when allocating FMEs. Thus, the risk is considered specified for all
timber sources

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.13.6. Risk designation and specification

Specified risk

1.13.7. Control measures and verifiers

• Documents or records of consultations with local communities for any land or rights
dispute resolutions. A community use zone (CUZ) can be set aside for communal use.

• The absence of conflicts over customary rights is a good verifier to determine how well
customary rights are respected in a given case.

• Newspaper reviews and interviews can be part of the set of verifiers to assess the
situation.

• Stakeholder consultation shall confirm that customary rights are observed during
harvesting activities.

1.14. Free prior and informed consent

Legislation covering “free prior and informed consent” in connection with transfer of forest
management rights and customary rights to the organisation in charge of the harvesting operation .

1.14.1. Applicable laws and regulations

• Land Ordinance, 1930 (Sabah Cap.68) Available at: http://sabah.gov.my/phb/wp-

content/uploads/2011/05/LandOrdinance.pdf

• Native Court Enactment 1992 Available at:

http://www.sabah.gov.my/mlgh/nativecourtsenactment1992.pdf

• Forest Enactment, 1968 (Part IV Section 41)

http://faolex.fao.org/docs/pdf/mal10907.pdf

• UN Declaration on Rights of Indigenous Peoples 2007

• Native Court (Native Customary Laws) Rules 1995

• Native Court (Native Customary Laws) Rules 1995
http://www.lawnet.sabah.gov.my/Lawnet/SubsidiaryLegislation/NativeCourts1992%28
NativeCustomaryLaws1995%29.pdf

• Sustainable Forest Management Licence Agreement – Clause 23

72 Timber Legality Risk Assessment – Malaysia - Sabah

 • State Cultural Heritage (Conservation) Enactment 1997. Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SabahLaws/StateLaws/CulturalHeritage%28
Conservation%29Enactment1997.pdf

1.14.2. Legal authority

• Native court
• Sabah Forestry Department

• Lands and Surveys Department

1.14.3. Legally required documents or records

• Long term timber licence agreement

• Sustainable Forest Management License Agreement

• Record on decision by the Civil Court and Native Court

• Contract agreement with local communities with use rights for use of land

1.14.4. Sources of information

Government sources
• forest.sabah.gov.my (N.Y.) Sabah Forestry Department- Official portal. Available at:
http://www.forest.sabah.gov.my/discover/policies/forest-legislation

• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March

2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.

Non-government sources
• Dailyexpress.com.my (2015). Natives must be told, rules court. [online]. Daily Express
2015. Available at: http://www.dailyexpress.com.my/news.cfm?NewsID=96067

• Expert consultation conducted by NEPCon, 2015

• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial

Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.

• Toh, S. M and Grace, K. T. (2006). Understanding forest tenure in South and Southeast
Asia, Case study: Sabah Forest Ownership. [online]. FAO. Available at:
ftp://ftp.fao.org/docrep/fao/009/j8167e/j8167e10.pdf

1.14.5. Risk determination

Overview of Legal Requirements

Unlike in Peninsular Malaysia, the Sabah Land Ordinance has specific provisions to address
the regulation of the native customary land rights related to FPIC.
Clearance of natural forest for plantations requires the consent of the community. NCR
laws impose fines (sogit) for transgressions such as unlawful entry into a protected forest
and for clearance (without consent of the community) of forest areas with NCR claims.

73 Timber Legality Risk Assessment – Malaysia - Sabah

 Discussion, consultation and consent from Natives are required if NCR or claims of NCR
exist.

In Sabah Native courts are empowered to try offences and determine the level of
compensation required (Lim 2013).

SFMLA/LTL holder or its appointed consultant conducts Social Baseline Survey of the
licensed area during the preparation of a 10-year Forest Management Plan to identify or
get details of the population and area of the existing village within the Licensed Area.
Description of Risk
Despite the Land Ordinance requiring communities to be informed through a formal notice
of land being allocated to FMEs, this has failed to happen. An example is in early 2015 a
ruling was made by the High Court that a proposed alienation of land was withdrawn
because the Lands and Survey Department had not given sufficient notice to the Natives
claiming native land under Section 13 of the Sabah Land Ordinance (Daily Express 15).

The Daily Express (2015) further refer to how large areas of customary land in the past
has been lost due to insufficient notice to the Natives.

As there is insufficient evidence available to indicate the risk is low according to the
thresholds, a precautionary approach must be applied and as such, a specified risk has
been found for this indicator.

Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.14.6. Risk designation and specification

Specified risk

1.14.7. Control measures and verifiers

• Documents or records of consultations with local communities for any land or rights
dispute resolutions.

• The absence of conflicts over customary rights is a good verifier to determine how well
customary rights are respected in a given case.

• Newspaper reviews and interviews can be part of the set of verifiers to assess the
situation.
• Stakeholder consultation shall confirm that customary rights are observed during
harvesting activities.

1.15. Indigenous/traditional peoples’ rights

Legislation that regulates the rights of indigenous/traditional people as far as it’s related to forestry
activities. Possible aspects to consider are land tenure, right to use certain forest related resources
or practice traditional activities, which may involve forest lands.

1.15.1. Applicable laws and regulations

74 Timber Legality Risk Assessment – Malaysia - Sabah

 • Aboriginal Peoples Act 1954 -
http://www.kptg.gov.my/sites/default/files/article/Act%20134-
Oboriginal%20Peoples%20Act.pdf
• Environmental Protection Enactment 2002

• Forest Enactment, 1968. (Part IV Section 41) Available at:

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Land Acquisition Act 1960 -

http://www.kptg.gov.my/sites/default/files/article/Act%20486-PENGAMBILAN.pdf

• Land Ordinance, 1930 (Sabah Cap.68). Available at: http://sabah.gov.my/phb/wp-

content/uploads/2011/05/LandOrdinance.pdf

• National Land Code (Act No. 56 of 1965) -

http://www.kptg.gov.my/sites/default/files/article/NLC1956DIGITAL-VER1.pdf

• Native Court (Native Customary Laws) Rules 1995. Available at: http://www.gavel-
publications.com/assets/toc/9789833519330.pdf
• Native Court Enactment 1992. Available at:
http://www.sabah.gov.my/mlgh/nativecourtsenactment1992.pdf
• State Cultural Heritage (Conservation) Enactment 1997. Available at:
http://www.lawnet.sabah.gov.my/Lawnet/SabahLaws/StateLaws/CulturalHeritage%28
Conservation%29Enactment1997.pdf

• Sustainable Forest Management Licence Agreement – Clause 23

• United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) -

http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf

1.15.2. Legal authority

• Native court
• Sabah Forestry Department

• Lands and Surveys Department

1.15.3. Legally required documents or records

• Records of consultation with natives

• Long term timber licence agreement

• Sustainable Forest Mangement License Agreement

• Record on decision by the Civil Court and Native Court

• Contract agreement with local communities with use rights for use of land

• Established Native Customary Rights

1.15.4. Sources of information

Government sources

75 Timber Legality Risk Assessment – Malaysia - Sabah

 • forest.sabah.gov.my (N.Y.) Sabah Forestry Department- Official portal. Available at:
http://www.forest.sabah.gov.my/discover/policies/forest-legislation

• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March

2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.
Non-government sources
• Chan, J. (2015, February 13). Sabah lists 42 ethnic groups to replace 'lain lain' race
column. Retrieved from www.themalaymailonline.com:
https://web.archive.org/web/20160601095050/http://www.themalaymailonline.com/m
alaysia/article/sabah-lists-42-ethnic-groups-to-replace-lain-lain-race-column

• Colchester, M., Jalong, T., & Alaza, L. (2013). Marcus Colchester, Thomas Jalong and
Leonard Alaza. In M. Colchester, & S. Chao, Conflict or Consent? The oil palm sector at
a crossroads (pp. 259-282). FPP, Sawit Watch and TUK INDONESIA.

• Daily Express 2015: Natives must be told, rules court.

http://www.dailyexpress.com.my/news.cfm?NewsID=96067

• Dailyexpress.com.my (2015). Natives must be told, rules court. [online]. Daily Express
2015. Available at: http://www.dailyexpress.com.my/news.cfm?NewsID=96067

• Expert consultation conducted by NEPCon, 2015

• Forest Peoples Programme. (2016, April 8). Tongod villagers secure settlement of land
claim with palm oil developer Genting Plantations. Retrieved from
www.forestpeoples.org: http://www.forestpeoples.org/topics/palm-oil-
rspo/news/2016/04/tongod-villagers-secure-settlement-land-claim-palm-oil-developer-
g

• Lim, T. W. (2013). Malaysia: Illegalities in Forest Clearance for Large-Scale Commercial

Plantations – report prepared for Forest Trends. Accessed 24 February 2015 at
http://www.forest-trends.org/publication_details.php?publicationID=4195.

• Subramaniam, Y. (2015). Ethnicity, Indigeneity and Indigenous Rights: The Orang Asli
Experience. QUT L. Rev., 15, 71.

• Toh, S. M and Grace, K. T. (2006). Understanding forest tenure in South and Southeast
Asia, Case study: Sabah Forest Ownership. [online]. FAO. Available at:
ftp://ftp.fao.org/docrep/fao/009/j8167e/j8167e10.pdf

1.15.5. Risk determination

Overview of Legal Requirements

Native customary rights (NCR) are accepted as a source of law in Malaysia’s constitution
and have been upheld as valid by the courts. The specifics of customary laws vary among
the dozens of tribal communities in Malaysia but several general principles have
widespread application. A community (kampung) claims general rights over its traditional
territory (wilayah adat) up to one day’s walk from the main settlement. The territory is
defined along natural boundaries such as streams and ridges.

Native customary rights cover:

76 Timber Legality Risk Assessment – Malaysia - Sabah

 a) land possessed by customary tenure;

b) land planted with fruit trees, when the number of fruit trees amounts to fifty and
upwards to each hectare;

c) isolated fruit trees, and sago, rotan, or other plants of economic value, that the
claimant can prove to the satisfaction of the Collector were planted or upkept and
regularly enjoyed by him as his personal property;

d) grazing land that the claimant agrees to keep stocked with a sufficient number of cattle
or horses to keep down the undergrowth;

e) land that has been cultivated or built on within three years;

f) burial grounds or shrines;

g) usual rights of way for men or animals from rivers, roads, or houses to any or all of the
above.
Within a community, individual fields (ladang) and orchards (dusun) are assigned to
families belonging to the community that originally cleared the forest and planted the
area. Certain areas (particularly village water catchments) are zoned as protected forest
(hutan tagal) which is subject to various controls, with clearance not permitted. It is
accepted that outsiders may enter the unprotected parts of a community’s territory for
hunting or the collection of forest produce. However, clearance of natural forest for
plantations requires the consent of the community. Fines (sogit) can be imposed for
transgressions such as unlawful entry into a protected forest and for forest clearance
without the consent of the community. In Sabah and Sarawak native courts are
empowered to try offences and determine the level of compensation required (Lim, 2013).

Communities can gain communal property rights through applying for an indigenous
reserve. This differs from communal title in that the community cannot transfer these
rights to other parties. There are also restrictions on land use, and a Board of Trustees
must be established to manage the indigenous reserve (Toh and Grace, 2006). Communal
titles are given out to a group of Natives, with attached rules as to use, i.e. no individual
title to be issued, specific land size allocation per family, specific crop to be grown, and to
be managed by a Board of Trustees.

Under Section 13 of the Sabah Land Ordinance, it is specifically provided that upon receipt
of any application for unalienated country land, it shall be the duty of the Collector to
publish a notice calling upon any claimant to native customary rights in such land who is
not yet in possession of a registered documentary title to make or send in a statement of
his claim within a date to be specified in the notice. If no claim is made the land shall be
dealt with as if no such rights existed.

Temporary Occupation Licences (TOL) are not allowed to be issued on areas with Native
Customary Right (NCR) claims described under the Land Ordinance.
Sustainable Forest Management License Agreements (SFMLA) / Long Term License (LTL)
holder or its appointed consultant must conduct a Social Baseline Survey of the licensed
forest area during the preparation of a 10-year Forest Management Plan to identify or get
details of the population and area of the existing village within the Licensed Area. Local
community and native people living within and adjacent to the SFMLA area have free
access to the forest area for hunting or fruit collection as well as using the forest

77 Timber Legality Risk Assessment – Malaysia - Sabah

 enterprise's facilities such as school and clinic. They are also allowed to practice the Tagal
and Sogit system along the river (a traditional way of fish farming). Ownership in forest
reserves is not permitted and, to formalize the presence of communities in forest reserves,
Sabah Forestry Department has introduced the use of Occupation Permits (OPs). Although
the community participates in deciding the duration of and total area covered by the
permit, the final decision remains with Sabah Forestry Department (Toh and Grace, 2013).

The Director of Forestry may exempt Natives from payment of royalties through the
issuance of Form IIA license for any of the following forest produce taken from State Land
and Alienated Land: the construction or repair of a dwelling house; the construction of
fences and temporary huts on any land lawfully occupied; the construction or repair of
native boats; the upkeep of fishing stakes and landing places; firewood to be consumed
for domestic purposes; or the construction and upkeep of clinics, schools, community
halls, places of worship, bridges and any work for the common benefit (including for
traditional medicine purposes) of the native inhabitants of the kampong.
Description of Risk
• There are examples where Natives wanting to register native land have been
wrongfully informed by the Lands and Survey Department about the procedure. The
wrong forms have instead been provided, with the result that communities have given
up their land. Courts have ruled that mistakes have been made and should be
corrected by the Lands and Survey Department, but according to a local social NGO
this has not yet taken place (Expert consultation, 2015).

• Insufficient notice given of gazettal of areas gazettal – as well as failure to properly

consult forest communities – has resulted in communities losing their customary rights
to land when it is gazetted as forest reserve or other protected area or when it is
alienated for development projects (Toh and Grace, 2006). In early 2015 a ruling was
made by the High Court that a proposed alienation of land was withdrawn because the
Lands and Survey Department had not given sufficient notice to the Natives claiming
native land under Section 13 of the Sabah Land Ordinance (Daily Express
http://www.dailyexpress.com.my/news.cfm?NewsID=96067).

Risk exists for indigenous people losing their right to ancestral land despite recognized
legislative rights to keep this land. Several court cases are ongoing, but there is still need
for changed practices when allocating FMEs. Thus, the risk is considered specified for all
timber sources.
Risk Conclusion
This indicator has been evaluated as specified risk. Identified laws are not upheld
consistently by all entities and/or are often ignored, and/or are not enforced by relevant
authorities.

1.15.6. Risk designation and specification

Specified risk

1.15.7. Control measures and verifiers

• Documents or records of consultations with local communities for any land or rights
dispute resolutions. A community use zone (CUZ) can be set aside for communal use.

78 Timber Legality Risk Assessment – Malaysia - Sabah

 • Absence of conflict and practice of self-determination is a first verifier of established
Indigenous Peoples' rights.

79 Timber Legality Risk Assessment – Malaysia - Sabah

 TRADE AND TRANSPORT

1.16. Classification of species, quantities, qualities

Legislation regulating how harvested material is classified in terms of species, volumes and qualities
in connection with trade and transport. Incorrect classification of harvested material is a well-known
method to reduce/avoid payment of legality prescribed taxes and fees. Risk relates to material
traded under illegal false statements of species, quantities or qualities. This could cover cases where
this type of false classification is done to avoid payment of royalties or taxes or where trade bans on
product types or species are implemented locally, nationally or internationally. This is mainly an
issue in countries with high levels of corruption (CPI<50).

1.16.1. Applicable laws and regulations

• Forest Enactment 1968: Part IA, Part III-Section 24C, & 27

http://faolex.fao.org/docs/pdf/mal10907.pdf

• Forest Rules, 1969 (Rule 3)

http://www.sarawakforestry.com/pdf/laws/the_forest_rules.pdf

• Director or Forestry Circular FD: 21/2010 (Removal Pass for Plantation Logs) - SL/AL.
• State Forest Rules: Second schedule (premium rate), Third schedule (royalty rate),
Fourth schedule (forest premium and cess), Fifth schedule (liquidated damages)

• Sabah Forest Enactment, 1968. Available at: Forest Rules 1969 - Rule 15(1). Available
at: Director of Forestry Circular FD: 21/2010 Issuance of Removal Pass for Plantation
Logs

1.16.2. Legal authority

• Sabah Forestry Department

1.16.3. Legally required documents or records

• Records of payment
• Form IIB (a license to take forest produce on prepayment of royalty)

• Timber Disposal Permit

• Removal Pass

• Removal Pass for Plantation Logs

For Alienated Land:

• Evidence of ownership (land title and other documents)

• Payment Receipt of land premium

• Letter/agreement/contract between the land owner and contractor

• Letter of confirmation of land ownership or status from the ACLR

• Form IIB

• Timber Disposal Permit

80 Timber Legality Risk Assessment – Malaysia - Sabah

 • Removal Pass

For Industrial Timber Plantations

• Quarterly Logging Progress Report

• Occupation Permit

• Registered Hammer Mark Record

• Logging Contractor Registration Certificate

• Log list for sawmill processing

• Transit Pass

• Removal Pass

• Letter of Compliance issued by EPD

1.16.4. Sources of information

Government sources:
• Sabah Forestry Department: http://www.forest.sabah.gov.my/discover/policies/forest-
legislation
• Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March
2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.

• Timber Royalty: http://www.forest.sabah.gov.my/discover/sustainable-

management/forest-ind

Non-government sources
• Expert consultation conducted by NEPCon in Malaysia from 2015-2016, including
personal communication 1.

1.16.5. Risk determination

For Alienated Land (in accordance with Land Ordinance (Sabah Cap. 68); Forest Rules,
1969 (Rule 3); and Forest Enactment, 1968 [Section 24(5)]), once harvesting has been
carried out in accordance with a Form IIB (application before felling of timber) and with
proper land titles:

i. The District Forestry Officer (DFO) carries out boundary stones inspection on the
ground and measures logs volume for royalty assessment and submits report to
DoF for approval.

ii. Director of Forestry (DoF) issues approval to DFO for issuance of Form IIB
(application of timber felled).

iii. DFO issues Timber Disposal Permit (TDP) and Form IIB.
iv. Forest Ranger/Forester issues Removal Pass (RP).

The verification procedure applies for each application to remove logs and/or wood
residues.

81 Timber Legality Risk Assessment – Malaysia - Sabah

 For Industrial Timber Plantations on the PRF (Forest Rules, 1969 [Rule 15(1)]):

i. DFO ensures that all plantations logs are extracted from an area as approved in the
AWP with coupe permit issued upon commencement of harvesting operation.

ii. Forest Ranger/Forester verifies monthly production records for all plantation logs
based on volume or weight as stated in the Transit Pass.
iii. DFO ensures that the licensee/logging contractors adhered to the harvesting license
/coupe permit conditions throughout the harvesting operations.
iv. DFO ensures that Quarterly Logging Progress Report is prepared and submitted to
the DoF quarterly.

v. DFO ensures that logging contractor has a valid annual registration certificate. vi.
Forest Ranger/Forester verifies that all plantation logs incised with serial numbers,
transported for sawmill processing are hammer marked with registered Property
Hammer Mark. 15

vi. DFO verifies that areas occupied for stumping within forest reserve have a valid
occupation permit.

vii. EPD monitors the implementation of mitigation measures on the specified area
under the Agreement. EPD monitors the submission of quarterly environmental
compliance report by a registered environmental consultant and conduct inspection
every four months based on the consultant’s recommendation:

For Industrial Timber Plantations on SL/AL (Director’s Circular FD: 21/2010 (Removal Pass
for Plantation Logs)):

viii. DFO ensures that all plantations logs incised with serial numbers, transported for
sawmill processing are hammer marked with registered Property hammer Mark.

ix. Forest Ranger/Forester issues Removal Pass with the word “Royalty Exempted”
stamped on it and records the approximate volume of timber removed.
x. EPD monitors the implementation of mitigation measures on the specified area
under the Agreement. EPD monitors the submission of quarterly Environmental
Compliance Report (ECR) by a registered environmental consultant and conduct
inspection every four months based on the consultant’s recommendation.

For PF, SL & AL (excluding ITP) (Forest Rules, 1969 (Rules 20A)):

• Where the license/permit includes requirements for Reduced Impact Logging (RIL):
o DFO verifies that all Comprehensive Harvesting Plan (CHP) conditions are met
throughout harvesting operation.
o DFO verifies that the key forest workers are properly trained with minimum
competency standard as specified in Table 1.2 within the RIL Operation Guide
Book prior and during the harvesting operation.

o Forest Ranger/Forester verifies that Daily Felling Record is maintained and

updated daily during harvesting operation.

o DFO ensures that Quarterly Logging Progress Report is submitted to the DoF
quarterly.

82 Timber Legality Risk Assessment – Malaysia - Sabah

 o DFO ensures that Closing Inspection Report is submitted to the DoF within six
months after harvesting operation is completed.

• Where the license/permit does not mandate RIL:

o DFO verifies that all logging contractors are registered with FDS once before the
harvesting operation commences.
o DFO ensures that Quarterly Logging Progress Report is submitted to the DoF
quarterly.
o DFO ensures that Closing Inspection Report is submitted to the DoF after
completion of harvesting operation.

o DFO ensures that Property Hammer Mark is registered with FDS once before
harvesting operation commences.

o Forest Ranger/Forester ensures that all extracted logs are inscribed with serial
numbers when applying for scaling order.

o DFO ensures that area occupied for stumping within PF has valid occupation
permit or TOL for area inside SL before harvesting operation commences.

o EPD monitors the implementation of mitigation measures on the specified area

under the Agreement, through the submission of quarterly ECR by a registered
environmental consultant and conduct inspection on any area, upon receival of
complaint for serious non-compliance verified from the ECR.

All natural and plantation logs shall be classified based on volume or weight, as well as
species. This shall be recorded in the removal pass. Also the type of logging (RIL/non-RIL,
class, helicopter-logging) shall be included in the removal passes.

Description of Risk
• Volumes and species are controlled at Forest Department Control Check points, and no
timber is removed without going through the check points along the road. However,
there is a reported risk of incorrect classification of timber as a means of royalty
evasion (Personal communication 1 and Expert Consultation 2015-16)).

• There is no royalty payable for rubberwood or ITP on Alienated Land (see indicator
1.5), therefore the incentive for false declaration is low for these sources. There is a
theoretical risk that shipments that are declared to be “rubberwood” or ITP might be
some other species, so there is a risk of misclassification associated with these
sources. However, it is important to take into consideration that the supply chain for
rubberwood does not interact with supply chain from other forest species.
• As indicator 1.5 for Sabah has been evaluated as low risk, the associated risks in this
indicator are also evaluated as low as all classification is done for the purposes of
royalty calculation.

Risk Conclusion
‘Low risk’. Identified laws are upheld. Cases where law/regulations are violated are
efficiently followed up via preventive actions taken by the authorities and/or by the
relevant entities.

83 Timber Legality Risk Assessment – Malaysia - Sabah

 1.16.6. Risk designation and specification

Specified risk

1.16.7. Control measures and verifiers

• Random samples of shipments should be assessed and verified to be of the species,

quality and quantity specified.
• Verification of the Removal Pass to ensure that the species and volumes are indicated
with royalty payment correctly.

1.17. Trade and transport

All required trading permits shall exist as well as legally required transport document which
accompany transport of wood from forest operation. Risk relates to the issuing of documents
permitting the removal of timber from the harvesting site (e.g., legally required removal passes,
waybills, timber tags, etc.). In countries with high levels of corruption, these documents are often
falsified or obtained by using bribery. In cases of illegal logging, transport documents from sites
other than the actual harvesting site are often provided as a fake proof of legality with the harvested
material.

1.17.1. Applicable laws and regulations

• Forest Rules 1969 - Rule 15(1)

http://www.sarawakforestry.com/pdf/laws/the_forest_rules.pdf

• Director of Forestry Circular FD: 21/2010 Issuance of Removal Pass for Plantation Logs

• Director of Forestry Circular FD: 31/2013 (Handling of rubber wood (log) from
Alienated Land)

1.17.2. Legal authority

• Sabah Forestry Department

1.17.3. Legally required documents or records

• Daily felling and extraction form

• Log summary record

• Removal pass

• Timber disposal permit

• Log tracking system

• Check scale form

• Export declaration form

• Log Arrival Book kept at the mill by the SFD; used RPs are stamped as 'Used Removal
Pass'.

1.17.4. Sources of information

Non-Government sources

84 Timber Legality Risk Assessment – Malaysia - Sabah

 • Sabah Forestry Department, (2013). Sabah TLAS document (revised as at 06 March
2013). http://www.forest.sabah.gov.my/images/pdf/en/flegt/TLAS4.pdf, Accessed 13
February 2018.

Non-Government sources
• Hoare (2015). Illegal Logging and Related Trade the Response in Malaysia. [online]. A
Chatham House Assessment. Energy, Environment and Resources. Available at:
https://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/201501
21IllegalLoggingMalaysiaHoare.pdf

• Expert consultation 2015. Personal communication 1 and 2.

1.17.5. Risk determination

Overview of Legal Requirements
The movement of all commercial logs is regulated by Rule 15(1) of the Forest Rules 1969,
which requires that all timber to be transported must be accompanied by a Removal Pass
(RP) upon payment of the royalties to the government, or a Transit Pass for transportation
of logs from the extraction area to the royalty assessment area. All logging trucks must
also be registered with the Sabah Forest Department.
For timber produced on SL, PRF or AL (other than from Industrial Tree Plantations), the
following requirements and procedures apply (Forest Rules, 1969 [Rule 15(1)]):

1. For logs where royalty is assessed at the Pangkalan or Weigh Bridge at the Mill Gate:

i. All logs transported from the Stumping Point to the Pangkalan, or weigh bridge at
the mill gate bear Property Hammer Mark, FDS Inspection Hammer Mark and are
accompanied by a Transit Pass and/or CS Form.

ii. All logs transported from the Pangkalan to the Port of loading/to the mill bear FDS
Royalty Hammer Mark and are issued with Removal Passes upon payment of
royalty.
iii. Logs transported between mills must be accompanied with Removal Passes.

2. For logs where royalty is assessed at the Stumping Point/licensed area:

i. All logs transported from the Stumping Point/licensed area to the mill or port of
loading bear Property Hammer Mark, FDS Inspection Hammer Mark, FDS Royalty
Hammer Mark and are issued with Removal Passes upon payment of royalty.

ii. Logs transported between mills must be accompanied with Removal Passes
iii. Logs transported from a designated area to another destination only allowed from
07:00 a.m. to 07:00 p.m., unless with the DoF’s approval outside the stipulated
time.

iv. The validity of Removal Pass is determined by the distance and mode of log
transportation and may range from 1 to 3 days for land transportation or maximum
1 week for river/sea transportation subject to extension with a new removal pass
by the DoF.

Verification of compliance takes place at the following points in the supply chain:

85 Timber Legality Risk Assessment – Malaysia - Sabah

 1. At the Pangkalan /Weigh Bridge:

a. Forest Ranger/Forester ensures that all logs bear Property Hammer Mark, and
FDS Inspection Hammer Mark and are accompanied by a Transit Pass and
records log arrival at the Pangkalan/Weigh Bridge at the mill gate.

b. Forest Ranger/Forester ensures that relevant statutory charges for all logs
transported from the Pangkalan to the mill/port of loading have been collected
and all logs bear FDS Revenue Mark, except for weighed logs which are
randomly marked, and logs are accompanied by a Removal Pass.

Note: Logs to be weighed are randomly marked with the Inspection Hammer Mark.

2. At the mill
a. Forest Ranger/Forester inspects logs upon arrival and “stamps” Removal Pass
as “Used Removal Pass” upon verification of the consignment.
b. Forest Ranger/Forester ensures that logs arrival have been recorded in Log
Arrival Book.
3. At the Port of Loading:

a. Forest Ranger/Forester inspects logs and verifies that the logs’ details records
tally with the Removal Pass as stated in the Export Declaration/export
supporting documents.

b. Forest Ranger/Forester stamps Removal Pass as “used Removal Pass” upon

verification of each consignment. Frequency: The verification procedure applies
for every load of logs transported.

Note: Weighed logs are small diameter and irregularly shaped logs.

For Industrial Timber Plantations (ITP) on the PRF:

1. All plantation logs transported from the harvesting area to an approved weigh
bridge/weigh bridge at the mill gate for royalty assessment bear Property Hammer
mark, FDS Hammer Mark (Marked randomly) and are accompanied by Transit Pass.

2. All logs transported from the weigh bridge to the Port of loading/to the mill bear FDS
Property Hammer Mark (marked randomly) and are issued with Removal Passes upon
payment of royalty.

3. If logs are transported to another mill, the mill must apply for another Removal Pass to
be issued by a Forestry Officer.
For ITP from SL and AL

1. The land owner has a contract with the contractor to remove logs and wood residues.
2. ii. Licensee ensures that an approval to transport plantation logs to an approved weigh
bridge has been obtained from the DoF (SL) or the District Forestry Officer (AL) and all
logs bear Property Hammer Mark and FDS Inspection Hammer Mark (marked
randomly).

86 Timber Legality Risk Assessment – Malaysia - Sabah

 3. The licensee ensures that all logs transported from the weigh bridge to the Port of
loading/to the mill are issued with Removal Passes upon recording of volume (weighed
volume).

4. If logs are transported to another mill, the mill must apply for another Removal Pass to
be issued by a Forestry Officer.
5. Licensee transport logs from a designated area to another destination only from
7.00am to 7.00pm, unless with the DoF’s approval for transportation outside the
stipulated time.

6. The validity of Removal Pass is determined by the distance and mode of log
transportation and may range from 1 to 3 days for land transportation or maximum 1
week for river/sea transportation subject to extension with a new removal pass by the
DoF.
The verification of compliance is carried out by the Forest Ranger/Forester who verifies
land title and/or letter of consent/contract/Power of Attorney to extract planted timber.
1. At the Weigh Bridge:

a) Forest Ranger/Forester inspects logs upon arrival and records logs arrival and
weighed volume.

b) DFO issues Receipt of royalty payment.

c) DFO issues Removal Pass for logs transported to the destination (unless exempted:
Example; weigh bridge is at the mill gate).

2. At the Mill

a) Forest Ranger/Forester inspects logs upon arrival and “stamps” Removal Pass as
“Used Removal Pass” upon verification of the consignment. No Removal Pass is
required for logs weighed at the mill gate.

b) Forest Ranger/Forester ensures that logs arrival have been recorded in Log Arrival
Book.

3. At the Port of Loading:

a) Forest Ranger/Forester inspects logs and verifies that the log details as recorded in
the Removal Pass tallies with the details as in the Export Declaration/export
supporting documents.

b) Forest Ranger/Forester stamps Removal Pass as “used Removal Pass” upon

verification of each consignment

The verification procedure applies for every load of logs transported.

Description of Risk
• As the Removal Passes are paper documents, this makes the process of tracking
timber slow and cumbersome (Hoare 2015). A thorough review of the literature did not
call this finding into question.
• According to the experience of the authors of this report, and the experts consulted in
its preparation, the manual Removal Pass system is robust in the sense that it is
systematic for all shipments of timber, and this leads experts to believe that the risks

87 Timber Legality Risk Assessment – Malaysia - Sabah

 posed by a centralised electronic system (“massive fraud”) are not present in the
manual system. (Personal communication 2). While there are theoretical risks
associated with such a system, there is no evidence that this happening on a scale or
with an impact sufficient to warrant a specific risk based on this.

• In addition to the evidences provided above, by following the logic applied in indicator
1.16 Classification of species, quantities and qualities, as the risks associated with the
payment of royalties is considered low for Sabah, the associated requirements for
classification and trade and transport (related to this indicator) are also considered low
risk.
Risk Conclusion
‘Low risk’ Identified laws are upheld. Cases where law/regulations are violated are
efficiently followed up via preventive actions taken by the authorities and/or by the
relevant entities.

1.17.6. Risk designation and specification

Low risk

1.17.7. Control measures and verifiers

N/A

1.18. Offshore trading and transfer pricing

Legislation regulating offshore trading. Offshore trading with related companies placed in tax havens
combined with artificial transfer prices is a well-known way to avoid payment of legally prescribed
taxes and fees to the country of harvest and considered as an important generator of funds that can
be used for payment of bribery and black money to the forest operation and personnel involved in
the harvesting operation. Many countries have established legislation covering transfer pricing and
offshore trading. It should be noted that only transfer pricing and offshore trading as far as it is
legally prohibited in the country, can be included here. Risk relates to situations when products are
sold out of the country for prices that are significantly lower than market value and then sold to the
next link in the supply chain for market prices, which is often a clear indicator of tax laundry.
Commonly, the products are not physically transferred to the trading company.

1.18.1. Applicable laws and regulations

• Malaysia Income Tax Act, 1967 - Sec.140A

http://www.kpmg.com.my/kpmg/publications/tax/22/a0053.htm

• Income Tax (Transfer Pricing) Rules 2012

http://www.hasil.gov.my/pdf/pdfam/MalaysianTransferPricingGuidelines2012.pdf
Income Tax (Advance Pricing Arrangement) Rules 2012
http://www.hasil.gov.my/pdf/pdfam/MalaysianAPAGuidelines2012.pdf

1.18.2. Legal authority

• Inland Revenue Board Malaysia

1.18.3. Legally required documents or records

88 Timber Legality Risk Assessment – Malaysia - Sabah

 There are no specific transfer pricing documentation requirements in the MITA, the general
provision in the MITA (specifically Section 82) requires taxpayers to maintain appropriate
documentation to support their transactions. Such records must be retained for a period of
seven years and include:

• Company details – Ownership structure, company organisational chart and

operational aspects of the business;

• Transaction details – Summary of the related party transactions, pricing policy,

price breakdown, terms of the transaction, economic conditions at the time of the
transaction and any independent comparable transactions; and
• Determination of arm’s-length price – Selection of pricing methodology, functional
analysis and comparability analysis.

1.18.4. Sources of information

Government sources
• hasil.gov.my (2012) Transfer Pricing Guidelines 2012. [online]. IRBM. Available at:
http://www.hasil.gov.my/pdf/pdfam/MalaysianTransferPricingGuidelines2012.pdf

Non-Government sources
• deloitte.com (2012). Malaysia International Tax and Business Guides by Deloitte.
[online]. Available at:
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-
malaysiaguide-2016.pdf

• eoi-tax.org (2012). Malaysian Advance Pricing Arrangement Guidelines. [online].

Available at: http://www.eoi-tax.org/jurisdictions/CA#agreements

• Global Witness (2013). Inside Malaysia’s shadow state. March 19:

https://www.globalwitness.org/campaigns/forests/inside-malaysias-shadow-state

• pwc.com (2012). International transfer pricing. [online]. Report by

PriceWaterhouseCoopers. Available at:
http://download.pwc.com/ie/pubs/2012_international_transfer_pricing.pdf

• The Malaysian digest (2013). Lawyers in Taib Video Expose to Face Police Probe,
Answer Misconduct Charges [online]. Available at:
http://malaysiandigest.com/news/174742-lawyers-in-taib-video-expose-to-face-police-
probe-answer-misconduct-charges.html

1.18.5. Risk determination

Overview of Legal Requirements

Malaysia has exchange of information relationships with 73 jurisdictions through 73 DTCs
and 1 TIEA (eoi, 2012).

In Malaysia, Multinational Enterprises involved in transfer pricing must be able to provide

adequate, documented proof to support their transfer pricing policies. Under the self-
assessment system, the taxpayer is responsible for clearing any alleged non-compliance
with transfer pricing legislation. A general anti-avoidance provision under subsection
140(1) of the Income Tax Act 1967 (ITA as amended) empowers the Director General

89 Timber Legality Risk Assessment – Malaysia - Sabah

 (DG) to disregard certain transactions which he believes have the direct or indirect effect
of altering the incidence of tax, and adjust as he thinks fit, to counteract the effects of
such transactions. Section 140 will also be applied in the adjustment of transfer prices.
Section 140 allows the DG to disregard transactions believed not to be at arm’s length and
make the necessary adjustments to revise or impose tax liability on the persons
concerned. Under subsection 140(6), the said non-arm’s length dealings include
transactions between persons one of whom has control over the other and between
persons both of whom are controlled by some other person.

Upon a tax audit or enquiry, taxpayers must substantiate that their transfer prices have
been determined in accordance with the arm's length principle as prescribed under the
Transfer Pricing Rules 2012 and Guidelines. Control measures or factors that trigger the
Inland Revenue Board (IRB) to carry out a transfer pricing audit include outstanding tax
enquiries, sustained losses, use of tax havens, fluctuations in profits from year to year,
third-party information and instances where a company has not been tax audited in the
past six years.

Recently, the Malaysian IRB issued a new requirement relating to transfer pricing in the
Corporate Income Tax Return Form ('Form') for 2014. This new 'check-the-box' disclosure
as to whether transfer pricing documentation has been prepared is a sign of the increasing
focus and scrutiny on transfer pricing matters by the IRB, whether mandatory
documentation requirements have been met. Previously, taxpayers were required to
disclose whether transfer pricing documentation had been prepared only if they received a
Form MNE 1/2011 ('Form MNE') from the IRB.

As the IRB is intensifying its efforts on transfer pricing through audits, this revision to the
Form is a further indicator of transfer pricing being an area of priority now and in the
imminent future. Not satisfying the IRB's mandatory requirements carries substantial tax
risks that an appropriate analysis and documentation exercise can help avoid.

Description of Risk
To date, no legal cases concerning transfer pricing have been decided by the Malaysian
courts. However, a few cases have recently gone to court and are awaiting hearing. Most
of the cases involving disputes on transfer pricing issues have been settled out of court,
and the details have not been published.

Since the transfer pricing guidelines were issued in Malaysia in July 2003, the MIRB has set
up a team at its head office that specialises in transfer pricing audits. This has been further
enhanced with the establishment of separate transfer pricing teams in the various tax
audit assessment branches of the MIRB across the country. Most of the tax officers have
experience handling tax investigations and tax audits. The officers are continually updating
their knowledge through dialogues with other tax administrations in the region, in addition
to participating in training conducted by foreign and international tax authorities/bodies,
such as the OECD (Deloitte 2012, Deloitte 2012a).
In 2013, Global Witness exposed the occurrence of transfer pricing amongst forestry
companies with ties to the former Sarawak Chief Minister Taib (Global Witness 2013). The
exposé focused on the sale of forested land in Malaysia to foreigners and highlighted the
existence of strategies to avoid real property gains tax by under-declaring the true value
of and having the full value transferred offshore. The case is not directly linked to sale of

90 Timber Legality Risk Assessment – Malaysia - Sabah

 timber, but provides an indication of unlawful price manipulation can occur within the
forest sector.

The case took place in Sarawak, but as the legal requirements are the same in all of
Malaysia and the general level of corruption in Malaysia indicates a risk that transfer
pricing also could take place in any Malaysian State.
Based on the limited available information, a precautionary approach has been used to find
this indicator specified risk.
Risk Conclusion
‘Specified risk’. Identified laws are not upheld consistently by all entities and/or are often
ignored, and/or are not enforced by relevant authorities.

1.18.6. Risk designation and specification

Specified risk

1.18.7. Control measures and verifiers

• Determine if the company has any subsidiary operating in a known tax haven.
• Review internal invoicing to determine whether the prices used were comparable to
market prices.
• Review transfer pricing documentation to prove market price-based transactions.

1.19. Custom regulations

Custom legislation covering areas such as export/import licenses, product classification (codes,
quantities, qualities and species).

1.19.1. Applicable laws and regulations

• Customs Acts 1967 [Act 235]. Available at:

https://www.mytradelink.gov.my/documents/10179/0/Customs-act
• Customs Export Prohibition Order (1998). Available at:
http://www.vertic.org/media/National%20Legislation/Malaysia/MY_Customs_Prohibitio
n_Exports_Order_Schedule3.pdf

• Customs Import Prohibition Order. Available at:

http://www.env.go.jp/recycle/yugai/reg/pua_20121231_P.U.%28A%29490-
LaranganImportFinal[Warta311212].pdf

• Sabah Forest Enactment, 1968 - http://faolex.fao.org/docs/pdf/mal10907.pdf

• Forest Rules 1962 -

http://www.sarawakforestry.com/pdf/laws/the_forest_rules.pdf

1.19.2. Legal authority

• Sabah Forest Department

• Customs Department

91 Timber Legality Risk Assessment – Malaysia - Sabah

 1.19.3. Legally required documents or records

Imports
• Company Import Certificate-FDS

• Import clearance (CD1 Form)-RMC

• Phytosanitary certificates (DoA)

• Physical Inspection report by FDS.

• Records of Import data (FDS)

• Import license/permit

• Company ROC certificate and trading license.

Exports
• Export License

• Inspection reports

• Endorsed/Export Approval Stamped on CD2 Form

• Export data (output of SJHP)

• Company ROC certificate and trading license

1.19.4. Sources of information

Non-government sources
• UNODC, (2017). Criminal justice response to wildlife crime in Malaysia - A rapid
assessment: Available:
https://www.unodc.org/documents/southeastasiaandpacific/Publications/2017/Malaysia
_Assessment_-_09.pdf, accessed 13 February 2018.

• Expert consultation conducted by NEPCon, 2015

• New Straits Times, (2017). Sabah timber industry set to boost with return of licensing
power: LDP. Available: https://www.nst.com.my/news/nation/2017/05/242178/sabah-
timber-industry-set-boost-return-licensing-power-ldp, accessed 13 February 2018.

1.19.5. Risk determination

Overview of Legal Requirements

According to the Sabah TLAS document, the follow procedures apply for imports and
exports of timber from the state:

Imports

A company intending to import timber and timber products needs to register with the
Registrar of Companies (ROC), FDS and poses a trading license. Note: ROC registration is
not applicable to sole proprietors/enterprise/individual and only a trading license is
required.

92 Timber Legality Risk Assessment – Malaysia - Sabah

 A company intending to import timber products (logs/veneer/sawn timber) is subject to
phytosanitary requirements and obtains an import permit from the Department of
Agriculture (DoA).

A company intending to import timber products is required to obtain Customs’ clearance

(using CD1 Form) by Royal Malaysian Customs (RMC). iv. Imported timber is subject to
inspection by FDS and payment of inspection fees to FDS.

The following verification procedure applies:

1. FDS (DFO) checks compliance of company’s application for Importer’s Certificate
and issues Importer’s Import Certificate.

2. FDS (DFO) ensures that the applicant for the import license is registered with ROC
and/or with trading license and have a valid sales contract.

3. FDS (DFO) checks the CD1Form for every consignment of imported timber. iv. FDS
(DFO) conducts random10 % physical inspection each consignment against import
declaration and other supporting documents, collects Inspection fees and records
volume of imported timber. v. DoA inspects consignment for compliance to
phytosanitary requirements. Frequency: The above procedures apply to every
consignment of imported timber.

Exports

A company intending to export timber and timber products needs to be registered with the
Registrar of Companies (ROC) and poses a trading license. Note: ROC registration is not
applicable to sole proprietors/enterprise/individual and only a trading license is required.

A company/sole proprietor (Enterprise) declares timber and timber products to be

exported to the District Forestry Officer with a valid export permit or annual export license
with supporting documents such as Log summary, Sales Contract, Invoice, Packing List,
Borang EIS 1/2000 (declaration on the source of processed timber to be exported), CITES
Permit, where applicable, receipt of royalty payment and other fees where applicable (for
logs, sawn timber, veneer, plywood and moulding) (not applicable to planted timber from
SL and AL and other products not mentioned herein).

Exporters of certain round logs, timber and timber products must pay export royalties, as
provided in the Forest Rules 1969:

HS Codes 44 and 94.

Any company/person engaged in the export of timber under these HS Codes must be
registered and licensed by SFD. Registered and licenced companies/persons are issued
with a registration and export licence. A timber export permit is issued by SFD to these
persons/companies upon satisfaction of all export requirements.

The Second Schedule of the Customs (Prohibition of Exports) Order 2012 lists the timber
and timber products that require an export licence/permit from SFD prior to export.
HS Codes 47 and 48 (pulp and paper)

Exporters under these codes must make a declaration using Customs Export Declaration
Form K2 and submit it to the Customs Department for final clearance of exports.

93 Timber Legality Risk Assessment – Malaysia - Sabah

 In June 2017, the licensing power for imports and exports to Sabah was transferred from
the Malaysian Timber Industry Board to the Sabah Forestry Department (New Straits
Times 2017).

Description of Risk
• Malaysia receives timber from 3rd countries as long as export documents are in place
and without requiring proof of legal origin. When this timber enters the supply chain
and is processed into secondary products there is a possibility that an export license
can be issued for products that could have an illegal origin. However, international
trade in timber from Malaysia is generally well regulated and there is only a low risk
that the Malaysian custom regulations have been violated (Personal communication 1
and 2).

• An October 2017 report from the New Straits Times states that ‘MTIB intercepts illegal
shipment of round logs worth RM500,000’. The article claims that Malaysian Timber
Industry Board (MTIB) has revealed that it foiled an attempt in August to smuggle 10
containers filled with 133 round logs of the banned keruing species, worth RM500,000.
MITB director-general Datuk Jalaluddin Harun said the logs, en route from Pahang to
India, were seized at Westports Malaysia in Port Klang on Aug 22.”

The 2017 report from the UNODC contains a number of observations relevant to this
indicator:

• Port Klang is Malaysia’s largest port […] figures prominently in the seizures of large
quantities of wildlife products. Between 2011 and 2014 the port was the subject of two
Malaysian Anti-Corruption Commission (MACC) investigations into corruption. (These
investigations were not specifically related to wildlife or forest crime cases, but do
indicate the presence of some officials complicit in illicit activities). […] It stands to
reason that some of the corrupt customs officials previously investigated by the MACC
in relation to other offences (between 2011 and 2014), or others working at the port at
that time, may have played a role in facilitating the importation and re-export of
wildlife products into and from Malaysia during that period.

• Corruption has plagued the Royal Malaysian Customs Department (RMCD) over the last
several years and is something that the Department has shown it is committed to
addressing. All customs officers take an oath and sign a pledge committing to integrity,
as all government agencies are required to do. All civil servants (including customs
officers and their spouses) must also declare personal assets every five years as well
as any trip abroad. At the start of every shift, customs officers must declare how much
money is being carried on their person, and it is checked again at the end of the shift.
Supervisors can also make spot checks during a shift to ensure compliance. There is an
RMCD Internal Disciplinary Board that conducts an initial assessment of any allegations
made against customs officers.

• Cases can also be started by MACC, and the RMCD supports these investigations. There
are also integrity officers from the MACC that are seconded within the Customs
Department. Internationally, RMCD requests for assistance and information sharing are
conducted under the Regional Intelligence Liaison Office of the World Customs
Organization (WCO) with other countries (for example the United States, Korea, or
Turkey).

94 Timber Legality Risk Assessment – Malaysia - Sabah

 • Domestically, Customs has good cooperation with domestic wildlife agencies, notably
Perhilitan, FDS, and SWD, and with other agencies such as the MACC, RMP and MTIB.
Intelligence on environmental crime is disseminated to other agencies on a case-by-
case or ad-hoc basis.

• Most of the identified illegal trade cases undertaken by the MTIB relate to trans-
shipments and imports of timber. From 2012 to 2017, the MTIB investigated 34 cases
related to prohibited imports, of which 22 cases related to the illegal imports/trans-
shipments of CITES-listed timber species. Despite having the necessary provisions
within the Act, none of these investigations resulted in a period of imprisonment, with
all being resolved by way of administrative sanction.

• According to the MTIB, the majority of timber imported into or exported from Malaysia
is in the form of furniture, and to a lesser extent, whole logs. Primary export
destinations include the US, EU, Japan and to a lesser extent China. Most of the timber
imported into Malaysia is from China and Indonesia.
• It is surprising that in Malaysia there are more wildlife cases before the courts than
forestry cases. […] This could be because the MTIB has not yet commenced any
prosecutions that resulted in court action for timber cases. It will be interesting to see
if these numbers change now that Sabah and Sarawak will be taking over the role of
the MTIB within their jurisdictions.

• Shortcomings of MTIB:

o Prison terms for forestry offences are not applied

o Regulatory agency with little law enforcement experience

o No intelligence unit

o No formal law enforcement training

o No central CHIS system

o Does not use advanced investigative methodologies

o Challenges with identification of nonnative CITES-listed species

• The Malaysian Legislators and Courts have shown themselves to be innovative and in
touch with the needs of the environment. They are to be congratulated for the strength
of judgement that sees those engaged on transnational and domestic wildlife crime
feeling the full weight of the law
• The Customs Department has 709 officers working in the Enforcement Division posted
throughout the country, handling all tasks relating to law enforcement. Customs
officers are well trained and educated, with senior officers requiring a Bachelor’s
Degree as a minimum requirement for employment.

• At this moment, the overall effectiveness of Malaysia’s effort to address the

international aspect is questionable. Despite many seizures there is very little to show
in the way of arrests, prosecutions and convictions. There has also never been a
controlled delivery of any of the shipments seized by the RMCD. Seizures of a finite
wildlife resource will not prevent or stop wildlife trafficking. In the absence of arrests,
seizures alone may in fact do more harm than good.

95 Timber Legality Risk Assessment – Malaysia - Sabah

 Because the import/export regulation functions only reverted to Sabah Forestry
Department from MTIB in July 2017 (New Straits Times 2017), it is too early to properly
evaluate the effectiveness of the monitoring and enforcement functions. Based on the
analysis provided in the UNODC report, and applying a precautionary approach, the risk
for this indicator has been evaluated as specified.
Risk Conclusion
‘Specified risk’. Identified laws are not upheld consistently by all entities and/or are often
ignored, and/or are not enforced by relevant authorities.

1.19.6. Risk designation and specification

Low risk

1.19.7. Control measures and verifiers

N/A

1.20. CITES
CITES permits (the Convention on International Trade in Endangered Species of Wild Fauna and
Flora, also known as the Washington Convention). Note that the indicator relates to legislation
existing for the area under assessment (and not e.g., the area from which CITES species are
imported).

1.20.1. Applicable laws and regulations

• International Trade in Endangered Species Act 2008 (Act 686). Available at:
http://www.unodc.org/res/cld/document/international-trade-in-endangered-species-
act-2008_html/International_Trade_in_Endangered_Species_Act_2008.pdf
• Customs Act 1967 [Act 235]. Available at:
https://simplymalaysia.files.wordpress.com/2011/10/act-235-customs-act-1967.pdf

• Customs (Prohibition of Exports) Order 2012. Available at:

http://www.env.go.jp/recycle/yugai/reg/pua_20121231_LaranganExport.pdf

1.20.2. Legal authority

• State Forestry Department SFD

1.20.3. Legally required documents or records

• CITES Export or re-Export permit issued by SFD.

1.20.4. Sources of information

Government sources
• mtib.gov.my (N.Y.) Malaysian Timber Industry Board. [online]. Available at:
http://www.mtib.gov.my

Non-Government sources
• Barden, A., Awang Anak, N., Mulliken, T., Song, M. (2000). Heart of the Matter -
Agarwood Use and Trade and CITES Implementation for Aquilaria malaccensis . [online]

96 Timber Legality Risk Assessment – Malaysia - Sabah

 Available at: http://www.traffic.org/publications/heart-of-the-matter-agarwood-use-
and-trade-and-cites-impleme.html

• checklist.cites.org (N.Y). CITES Species Checklist. [online]. Available at:

http://checklist.cites.org/#/search/country_ids[]=127&cites_appendices[]=I&cites_ap
pendices[]=II&cites_appendices[]=III&output_layout=alphabetical&level_of_listing=0&
show_synonyms=1&show_author=0&show_english=1&show_spanish=1&show_french
=1&scientific_name=Plantae&page=1&per_page=20&locale=en
• cites.org (2004). Proposal for the inclusion of Gonystylus spp (Ramin). [online].
Available at: http://www.cites.org/common/cop/13/raw_props/ID-Ramin.pdf
• cites.org (N.Y.). CITES Country Profile: Malaysia. [online]. Available at:
http://www.cites.org/eng/cms/index.php/component/cp/country/MY

• Expert consultation conducted by NEPCon, 2015 - Personal communication 5

• Gratzfeld, J., Tan, B. (2008). Agarwood - saving a precious and threatened resource.
[online] Botanic Gardens Conservations International. Available at:
http://www.bgci.org/resources/article/0576/

• New Straits Times, (2017). Sabah timber industry set to boost with return of licensing
power: LDP. Available: https://www.nst.com.my/news/nation/2017/05/242178/sabah-
timber-industry-set-boost-return-licensing-power-ldp, accessed 13 February 2018.

• speciesplus.net (N.Y). Species+ Database. [online]. Available at:

http://www.speciesplus.net/

• Teck Wyn, L., Awang Anak, N. (2010) Wood for the Trees - A review of the Agarwood
Trade in Malaysia. [online] TRAFFIC Southeast Asia. Available at:
http://www.academia.edu/812244/Wood_for_the_Trees_A_Review_of_the_Agarwood_
Trade_in_Malaysia

• Teck Wyn, L., Soehartono, T., Hin Keong, C. (2004). Framing the Picture: An
assessment of Ramin trade in Indonesia, Malaysia and Singapore. [online] TRAFFIC
Southeast Asia Available at : http://www.illegal-
logging.info/item_single.php?it_id=126&it=document

• unep.wcmc.org (2013). CITES Tree Species. [online]. Available at: http://www.unep-

wcmc.org/medialibrary/2013/07/10/7a9ef9fe/Trees_CITES_listed_updated_July_2013.
pdf
• UNODC, (2017). Criminal justice response to wildlife crime in Malaysia - A rapid
assessment: Available:
https://www.unodc.org/documents/southeastasiaandpacific/Publications/2017/Malaysia
_Assessment_-_09.pdf accessed 13 February 2018.

• World Resources Institute (WRI) (2013). Forest Legality Alliance Risk Tool, 2013:
Malaysia: http://www.forestlegality.org/risk-tool/country/malaysia#tab-management
[accessed 23 February 2015]

1.20.5. Risk determination

Overview of Legal Requirements

97 Timber Legality Risk Assessment – Malaysia - Sabah

 Malaysia acceded to CITES in 1977. The export of goods made from Dalbergia spp,
Aquilaria spp. Gonystylus spp., Taxus chinensis and Taxus wallichianais is included on the
CITES list under the CITES Commercial Regulations under Appendix II (CITES Checklist).

As of July 2017, the Management Authority for timber species in Sabah, is the Sabah
Forestry Department, who is responsible for the issuance of export, import and re-export
permits for the CITES listed timber species: Ramin or Karas/Gaharu wood originating from
Malaysia.
The Ministry of Natural Resources and Environment (NRE) is the Scientific Authority under
CITES. To legally export either Ramin or Karas wood, operators will need to work with
these bodies.

For the export of Ramin, a CITES export permit application must be made directly to SFD
and NRE, while for Agarwood products/Karas (either woodchip or Agarwood oil), exports
are subject to the approval of the company quota, made in advance. States apply for
export quotas of Agarwood/Karas before applying for the CITES permit. Other operators
wanting to import and re-export products made with these materials from these trees will
need a similar permit to re-export before these goods reach their final destinations.

Description of Risk
• Importing countries have contacted the MTIB to verify the authenticity of the CITES
documents, and thereby several of cases of false CITES permits have been detected,
which shows that there is a risk of fraud with CITES permits for products originating
from Malaysia (Personal communication 5).

According to the 2017 UNODC report:

• Malaysia is one of eight countries identified by CITES as being of “primary concern”

and heavily implicated in the illegal trade in ivory.

• All seized wildlife and timber products are handled in accordance with the provisions of
relevant legislation and the Enforcement Standing Instructions. Any timber seized in
Malaysia is measured, marked, recorded and photographed, and put into secure
storage that only the investigating officer can access. A similar system exists for
wildlife seizures.

• Even though capacity-building programmes have been conducted to identify CITES-

listed timber species, customs officers still need to contact the MTIB to conduct joint
inspections of timber cases.

• Most of the identified illegal trade cases undertaken by the MTIB relate to trans-
shipments and imports of timber. From 2012 to 2017, the MTIB investigated 34 cases
related to prohibited imports, of which 22 cases related to the illegal imports/trans-
shipments of CITES-listed timber species. Despite having the necessary provisions
within the Act, none of these investigations resulted in a period of imprisonment, with
all being resolved by way of administrative sanction. According to the MTIB, most of
timber imported into or exported from Malaysia is in the form of furniture, and to a
lesser extent, whole logs. Primary export destinations include the US, EU, Japan and to
a lesser extent China. Most of the timber imported into Malaysia is from China and
Indonesia.

98 Timber Legality Risk Assessment – Malaysia - Sabah

 The risk is considered specified due to the risk of using false CITES certificates.

Because the CITES functions only reverted to Sabah Forestry Department from MTIB in
July 2017 (New Straits Times 2017), it is too early to properly evaluate the effectiveness
of the monitoring and enforcement functions. Based on the analysis provided in the
UNODC report, and applying a precautionary approach, the risk for this indicator has been
evaluated as specified.

Risk Conclusion
‘Specified risk’. Threshold (2) is met: Identified laws are not upheld consistently by all
entities and/or are often ignored, and/or are not enforced by relevant authorities.

1.20.6. Risk designation and specification

Specified risk for all CITES species

1.20.7. Control measures and verifiers

The authenticity of CITES permits should be verified by MTIB. MTIB can be contacted by
email.

1.21. Legislation requiring due diligence/due care procedures

Legislation covering due diligence/due care procedures, including e.g. due diligence/due care
systems, declaration obligations, and /or the keeping of trade related documents, legislation
establishing procedures to prevent trade in illegally harvested timber and products derived from such
timber, etc.

1.21.1. Applicable laws and regulations

N/A

1.21.2. Legal authority

N/A

1.21.3. Legally required documents or records

N/A

1.21.4. Sources of information

N/A

1.21.5. Risk determination

N/A

1.21.6. Risk designation and specification

N/A

1.21.7. Control measures and verifiers

N/A

99 Timber Legality Risk Assessment – Malaysia - Sabah

100 Timber Legality Risk Assessment – Malaysia - Sabah
 Annex I. Timber source types
The table Timber Source Types in Malaysia – Sabah identifies the different types of sources of
timber it is possible to find is possible in the country of origin.

‘Timber Source Type’ is a term used to describe the different legal sources of timber in a
country, in order to allow a more detailed specification of risk. The Timber Source Type is used
to clarify:

• which forest types timber can be sourced from legally;

• what the legal requirements are for each source type, and

• if there are risks related to certain source types and not others.

Timber Source Type can be defined by several different characteristics. It may be based on the
actual type of forest (e.g. plantation or natural), or other attributes of forests such as
ownership, management regime or legal land classification. In this context Timber Source
Types are defined and discerned using the following characteristics:
a. Forest type - refers to the type of forest such as plantation or natural tropical forest, or
mixed temperate forest. Often the clearest differentiation is between natural forest and
plantations.

b. Spatial scale (Region/Area) - relating to meaningful divisions of a nation. However, in

some cases the assessment may be carried out at national level where that allows the
risk assessment to establish risk at a meaningful level. E.g. a small country with
uniform legislation and a uniform level of risk in all areas of the country, as national
level assessment may be enough. In case there are significant differences in the legal
framework or legality risks between different types of ownership (e.g. public forest,
private forest, industrial forest), between different type of forest (e.g. natural forest
and plantations) and/or between different geographical regions the conformance risk
evaluation shall specify these differences when specifying the risk and apply the
appropriate control measures.
c. Legal land/forest classification - refers to the legal classification of land. Focus is on
land from where timber can be sourced, and this could entail a number of different legal
categories such as e.g. permanent production forest, farm land, protected areas, etc.

d. Ownership - Ownership of land may differ in a country and could be state, private,
communal etc. Ownership of land obviously have impacts on how land can be managed
and controlled.

e. Management regime - Independently of the ownership of the land, the management of

forest resources may differ between areas. Management may also be differentiated as
private, state, communal or other relevant type.

f. License type - Licenses may be issues to different entities with a range of underlying
requirements for the licensee. A license might be issued on a limited area, limited
period of time and have other restrictions and obligations. Examples could be a
concession license, harvest permit, community forestry permit etc.

101 Timber Legality Risk Assessment – Malaysia - Sabah

 TIMBER SOURCE TYPES IN MALAYSIA - SABAH

Forest type Region / Legal Land Ownership Management License / Description of source type
Area Classification regime Permit Type

Natural National Permanent State State (via Harvest 1a. Timber from this source includes timber
Forest Forest Reserve - private permit or from ”natural forest” (i.e. selective logging)
FM concession) license management areas

1b. Timber from this source originates in areas

of natural forest being cleared as part of a
timber plantation concession (i.e. concession for
the clearance of natural forest for conversion to
monoculture timber plantations)

Permanent State State Harvest 2. Generally no timber sourcing is permitted

Forest Reserve permit or from protected areas (including National Parks
– Protected area license and Wildlife Sanctuaries)

State land State State Harvest 3. Permits for clearance of natural forest are
(harvesting permit or given to private companies who have the rights
permit) license to log the area but do not have ownership rights
to the land (the land is zoned for possible future
use for agriculture, housing, etc. but no private
title to the land has yet been issued)

Alienated land Private Private Harvest 4. Permit for clearance of natural forest for
permit or private use (this almost always results in the
license forest being cleared for non-forest use such as
agriculture)

102 Timber Legality Risk Assessment – Malaysia - Sabah

 Private Private
Timber National Alienated land Harvest 5. Native or exotic timber species (e.g. Acacia,
plantations permit or Eucalyptus, Latex Timber Clones Rubberwood)
license from timber plantations are seldom established
on private land (this land is usually more
profitably used for growing oil palm or rubber
primarily for latex – not primarily for timber)

State land State State Harvest 6. Timber plantations are very rarely established
(Harvesting permit or on state land. However, timber plantations
permit) license established on forest reserves that have since
been excised and have had their status changed
to “state land” could have timber plantations on
them

Permanent State State (Via Harvest 7. Timber plantations (e.g. Acacia, Eucalyptus,
Forest Reserve private permit or Latex Timber Clones Rubberwood) are often
concession) license established in forest reserves.

Agricultural National Alienated land Private Private Harvest 8. Timber from private ”agricultural” estates
areas (e.g. permit or mainly consists of rubberwood from rubber
rubber license plantations that are being cleared for oil palm or
for another rotation of rubber (i.e. grown
plantations)
primarily for latex and not primarily for timber)

State land State State Harvest 9. Similarly to (8), timber from agriculture on
(harvesting permit or stateland includes rubberwood harvested from
permit) license rubber plantations

Permanent State State Harvest 10. Very occasionally, there are small
Forest Reserve (Harvesting permit or agricultural rubber plantations (i.e. planted
permit) license primarily for latex) in PFR that can be harvested
for their timber the same was as in (7)

103 Timber Legality Risk Assessment – Malaysia - Sabah

 This risk assessment has been developed with funding from
FSCTM. FSC is not otherwise associated with the project
Supporting Legal Timber Trade. For risk assessment conducted
according to the FSC-STD-40-005, ONLY entries (or information)
that have been formally reviewed and approved by FSC and are
marked as such (highlighted) can be considered conclusive and
may be used by FSC candidate or certified companies in risk
assessments and will meet the FSC standards without further
verification. You can see the countries with approved risk
assessment in the FSC document: FSC-PRO-60-002b V2-0 EN
List of FSC-approved Controlled Wood documents 2015-11-04.

About
Supporting Legal Supporting Legal Timber Trade is a joint project run by NEPCon
with the aim of supporting timber-related companies in Europe
Timber Trade with knowledge, tools and training in the requirements of the EU
Timber Regulation. Knowing your timber’s origin is not only good
for the forests, but good for business. The joint project is funded
by the LIFE programme of the European Union and UK aid from
the UK government.

NEPCon (Nature Economy and People Connected) is an international,

non-profit organisation that builds commitment and capacity for
mainstreaming sustainability. Together with our partners, we foster
solutions for safeguarding our natural resources and protecting our
climate.

NEPCon | www.nepcon.org | [email protected]

FSCTM A000535 | PEFC/09-44-02 |
104 Timber Legality Risk Assessment – Malaysia - Sabah

www.nepcon.org