An illegal trade of Australian sandalwood is flourishing in Western Australia.

It is a trade that supplies hungry Asian markets that cannot get enough of the spicy, sweet-smelling timber and are prepared to pay $15,000 a tonne for it.

Since March last year more than 170 tonnes of illegal sandalwood - worth $2.5 million - has been seized by authorities.

A government-regulated quota system is supposed to ensure only 3,000 tonnes of native sandalwood is removed each year, but even the WA Government admits it does not know how much timber is being stolen.

"It's fair to say we don't know how much sandalwood has been taken illegally," WA Environment Minister Bill Marmion said.

There has been just a single successful prosecution since 2007 and a handful of cautions issued.

Sam Teesdale is one of a few dozen licence holders who are permitted to harvest small quantities of wild sandalwood each year.

"What's a $10,000 fine for $500,000 worth of wood?" he said.

"It would be a good business to be in."

Mr Teesdale says the fine is nowhere near enough.

"The Minister wants to get stuck into these guys and make an example of it and let the public know it," he said.

"If the public read about it, we're not doing anything, we'll go for a drive out to the bush, and away they go; unless there's a huge penalty it'll keep going."

Wescorp holds the sole government contract to sell native sandalwood harvested on crown land.

Its executive chairman, Tim Coakley, says WA's industry is the laughing stock of the world.

"I think the biggest problem is that we've always held ourselves up as a sustainable harvesting industry, that we plant seedlings for every tree that's taken out," he said.

"There wasn't any illegal wood around, we probably scoffed a little about the other countries, India, that denuded their own resource, held ourselves on a bit of a pedestal.

"Now we're the laughing stock of the industry in the world because there's more illegal wood coming out of Western Australia than legal wood."

'Ethically' sourced

Sandalwood oil finds its way onto our shelves as perfumes, incense, moisturisers and make-up.

The industry believes most of the illegal timber makes its way into Asian markets, but questions have been raised about the local supply of sandalwood oil.

One supplier is AustOils. According to its website, it produces up to 200 kilograms a week of oil from what it describes as ethically sourced stocks.

But company spokesman Steven Darley told 7.30 it only used the word ethical because "it sounds good".

Still, he denied using illegal native timber and said he relied on plantation wood.

The Department says WA's plantation wood is still too young to provide commercial oil.

Widespread concerns over the industry's sustainability have led to a parliamentary inquiry.

The WA Government is promising to get tough on those flouting the laws and looking to increase fines.

"The $200 is definitely too low, I mean $10,000 seems like a reasonable figure," Mr Marmion said.

Since 2007 there has been only one successful prosecution and one $1,000 fine.

Mr Marmion admits that is inadequate.

"Certainly not when the value of sandalwood has gone up from $3,000 to $15,000 a tonne," he said.

"There needs to be a strong disincentive to stop people pinching sandalwood."

But just when that will come into effect remains unclear.

Conservationists say the illegally logged forest will take more than 50 years to recover.