US and EU firms are importing large amounts of wood potentially linked to illegal deforestation after Brazilian President Jair Bolsonaro's administration controversially lifted sanctions against the country's biggest flooring exporter, a report said Tuesday.

The report, published by London-based environmental group Earthsight, said that Brazilian firm Indusparquet was "thriving across the US and EU" after being "let off the hook" by Bolsonaro's far-right government despite evidence apparently linking it to illegal logging in the Amazon rainforest.

Brazilian environmental agency Ibama seized more than 1,800 cubic meters of wood from an Indusparquet subsidiary in 2018, estimated to be worth $2.5 million.

The seizure stemmed from an investigation into allegations that a corrupt Ibama official had fraudulently helped illegal loggers "launder" their timber by issuing fake permits.

However, after Bolsonaro came to power in 2019, his administration's appointee to Ibama's Sao Paulo office canceled a fine of 482,300 reais against Indusparquet (about $122,000 at the time) and released more than 1,600 cubic meters of its impounded timber, Earthsight said.

Ibama said in a statement it had been convinced by Indusparquet's explanation that its apparent permit irregularities were in fact an accounting error.

Indusparquet denied any wrongdoing.

Aerial view of logs of wood seized by the Amazon Military Police at the Manacapuru River in Manacupuru, Amazonas State, Brazil on July 16, 2020
Aerial view of logs of wood seized by the Amazon Military Police at the Manacapuru River in Manacupuru, Amazonas State, Brazil on July 16, 2020 AFP / Ricardo Oliveira

The company "deeply condemns these frivolous claims implicating it based on untruths and mere suspicions, whose backdrop is politically motivated," it said.

The case is the latest in a series of environmental controversies under Bolsonaro, who has presided over soaring deforestation in the Amazon and is pushing to open protected lands in the world's biggest rainforest -- a vital resource in the race to curb climate change -- to logging, mining and agribusiness.

Earthsight said it found that Indusparquet's exports to the United States and Europe rose sharply despite the investigation, possibly violating import regulations.

In the US, imports from Indusparquet have risen 15 percent in volume since 2018, it said.

In Europe, companies in France, Italy and Belgium have continued importing from Indusparquet since 2018, while Denmark has become a new destination, Earthsight said.

"Cases like this make a mockery of international claims to be getting on top of the rampant illegality threatening the world's tropical forests," Earthsight director Sam Lawson said in a statement.

"With the Bolsonaro regime undermining efforts to tackle the problem... it is more important than ever to bar suspect wood from markets overseas. Governments in the US and Europe must act urgently to better enforce their laws."