Sukanto Tanoto’s Tax evasion & Sateri

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Sateri is Sukanto Tanoto’s company incorporated in the Cayman Islands, Sateri grows eucalyptus trees and produces specialty cellulose in Brazil, and operates a cellulosic fiber mill in China’s Jiangxi province to provide materials for textile and non-woven customers. In October 2010, Bank of China International, Credit Suisse and Morgan Stanley involved in Sateri’s IPO.

Sateri planned to raise US$1 billion in a Hong Kong initial public offering.

Read about it here http://www.chriswrightmedia.com/ifr-sukanto-tanoto-float-shows-asia-appetite-despite-history/

As mentioned in the report, Sukanto Tanoto bad reputation does not convince people. Sateri offered 505 million shares on the Hong Kong Stock Exchange at HK$6.6 per share. Sateri raised around $430 million from the IPO. 2 years later, just 1 year later in September 2011 the stock collapsed to just above HK$2.0 and going down afterwards. Now in Feb 2013, the stock just worth HK$1.84. Analyst predicts the stock will keep going down.

Clearly public does not trust the company with Sukanto Tanoto’s bad reputation.

Sukanto’s Asian Agri was recently charged $230 million with tax evasion. Added with Sukanto’s record of bad debts, corrupt practice and rainforests clearing.

Added to this stock misery, on February 6, 2013, Sateri was investigated by China anti dumping. The Chinese government launched an antidumping investigation of imports of cellulose pulp from the United States, Canada and Brazil based on a petition by Chinese pulp, paper, textile and cotton product producers. The Brazilian company named in the petition is Sateri Holdings Limited with a margin of 49%. Sateri is definitely going downhill.

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Sukanto Tanoto Closed down Fictitious Oil Companies in HK

Following the ruling from the Supreme Court of Indonesia that found Sukanto Tanoto’s Asian Agri guilty of tax evasion by using transfer pricing

Asian Agri ships the product (CPO) directly from 16 (sixteen) factories Asian Agri Group Companies in Indonesia to the European buyer, but also makes a paper sale of the goods to its whollyowned affiliate as foreign sales corporations (FSCs) in Macao, Mauritius, and British Virgin Island. The payment from the buyer is routed through Hong Kong Companies that arrange how much money will be sent to Asian Agri Indonesia as an income for tax purposes,

Sukanto Tanoto closed down all of his mailbox fictitious companies in Hong Kong in December 2012.
Twin Bonus Edible Oil, United Oils and Fats, Good Fortune, Ever Resources
http://www.gld.gov.hk/egazette/pdf/20131701/s620131701p2.pdf

THE COMPANIES ORDINANCE
(CHAPTER 32)
———
SPECIAL AND ORDINARY
RESOLUTIONS
OF
UNITED OILS & FATS LIMITED
———
Passed on 28th day of December, 2012
———
The following resolutions were passed as Special
and Ordinary Resolutions by Written Resolutions
of the Sole Member of the Company dated 28
December 2012 pursuant to Section 116B of the
Companies Ordinance in lieu of Extraordinary
General Meeting:—
As Special Resolution
“THAT the Company be and is hereby put into
Member’s Voluntary Liquidation and THAT
Ms. Lim Yi Ping of 12/F., The Lee Gardens, 33
Hysan Avenue, Causeway Bay, Hong Kong be
and is hereby appointed as Liquidator for the
purpose of such liquidation and THAT she is
authorised to distribute to the Sole Member of
the Company in cash or in specie the whole or
any part of the assets of the Company as she
may think fit.”
As Ordinary Resolution
“THAT the Liquidator’s Statement of Account
need not be audited.”
Law Sau Kuen, Grace
Sole Shareholder
UNITED OILS & FATS LIMITED

TRANSFER PRICING

According to a new survey by Ernst & Young that transfer pricing is the most important international tax issue that multinational enterprises (MNEs) now face. Transfer pricing involves the price at which transactions between units of multinational companies take place, including the intercompany transfer of goods, property, services, loans, and leases. Transfer Pricing has attracted increasing worldwide attention.

The significance of the issue is obvious when we recognize that transfer pricing (1) is conducted on a relatively larger scale internationally than domestically (2) is affected by more variables than are found in a strictly domestic setting (3) varies from company, industry to industry, and country to country, and (4) affects social, economic and political relationships in multinational business entities and sometimes, entire countries

 Governments around the world require transfer pricing methods base on the arm’s-length principle. That is a multinational ‘s business in different countries are taxed if they were independent firms operating at arm’slength from each other. The complex calculation of arm’s-length prices is less relevant today for global companies because fewer of them operate this way. An arm’s-length price is one that an unrelated party would receive for the same or similar item under identical or similar circumstances.

Acceptable arm’s-length pricing method include (1) comparable uncontrolled pricing (2) resale pricing (3) cost-plus pricing, and (4) other pricing methods. An emerging consensus among governments views arm’s-length pricing as the appropriate standard in calculating profits for tax purposes. However, countries vary in how arm’s-length pricing is interpreted and implemented, As a result, it is somewhat fluid concept internationally

Transfer Pricing schemes designed to minimize global taxes often distort the multinational control system. When each subsidiary is evaluated as a separate profit center, such pricing policies can result in misleading performance measures that generally lead to conflicts between subsidiary and enterprise goals. The international transfer pricing system must also attempt to accomplish objectives that are irrelevant in a purely domestic operation

These objective include (1) worldwide income tax minimization (2) minimization of worldwide import duties (3)avoidance of financial restrictions, (4) managing currency fluctuations, and (5) winning host country government approval. It is unlikely that a MNC will be able to accomplish all objectives with a single transfer pricing strategy. Priorities usually include the minimization of worldwide income taxes and import duties.

Advance Pricing Agreement (APAs), or they are called an Advance Pricing Arrangement (United Kingdom),and Preconfirmation System (Japan), are a mechanism whereby a multinational and a taxing authority voluntarily negotiate an agreed transfer pricing methodology that is binding on both parties. These agreements reduce or eliminate the risk of a transfer pricing audit, saving time and money for both the multinational and the taxing authority. The agreements are binding for a fixed period of time, for example 3 years in the United State.

TAX HAVENS COUNTRY

Sukanto Tanoto used Tax Haven Countries as a way of tax evasion.

A phenomenon that has emerged from the philosophy that foreign source income shouldnot be taxed at all or should be taxed only wen declared a dividend is the tax haven. A tax haven is defined as “a place where foreigners may receive income or own assets without paying high rate of tax upon them”
Tax havens offer a variety of benefits, including low taxes or no taxes on certain classess of income. Because of these benefits, thousands of so-called mailbox company have sprung up insuch exotic places as Lichtenstein, Vanuatu, and the Netherlands Antilles.

Some examples of types of taxhaven countries are as follows:

1. Countries with no income taxes, such as Bahamas, Bermuda, and the Cayman Islands.
RGE, APRIL, Sateri all are registered in Bahama.

2. Countries with taxes at low rates, such as the British Virgin Islands.

3. Countries that tax income from domestic sources but exempt income from foreign sources, such as Hong Kong, Liberia and Panama.

4. Countries that allow special privileges: generally their suitability as tax havens is limited.

To take advantage of a tax haven, a corporation would ordinarily set up a subsidiary in the tax haven country through which different forms of income would pass. The goal is to shift income from high-tax to tax haven countries. This is normally accomplished by using the tax haven subsidiary as an intermediary.

For example, an Indonesia manufacturer (Asian Agri or APRIL) could sell goods directly to a distributor in Germany and concentrate the profits in Indonesia, or it could sell the goods to a tax haven subsidiary at cost and then sell the goods to the German distributor, thus concentrating the profits in the tax haven subsidiary with no income taxes or with tax at low rates.

Every tax haven has advantage, such as having a low or zero rate of tax on all or certain categories of income, and offering a certain amount of banking or commercial secrecy. and disadvantages depending on what you hope to achieve. The 13 indicators identified here for judging a tax haven’s potential will help you gauge how each potential tax haven stacks up against your goals. The object, of course, is to find a tax haven with the maximum number of advantages that satisfy your requirements. (1) tax structure (2) political and economic stability (3) exchange controls (4)tax treaties (5) government attitude (6) modern corporation laws (7) simple incorporation procedures and competitive fees (8) communications and transportation (9) banking and professional services (10) English common law (11) secrecy and confidentially (12) investment incentives and opportunities (13) location

Extracted from:

Mohammad Zain. TAX MANAGEMENT THROUGH TAX HAVENS COUNTRY, TRANSFER PRICING AND PROFIT SHIFTING (With special reference to Indonesia case). 2nd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2nd ICBER 2011) PROCEEDING

Asian Agri Tax Manipulations Scheme

Asian Agri has 16 subsidiary companies in Indonesia that most of these companies produced Crude Palm Oil (CPO) for export and 5 companies in Tax Havens countries as affiliated companies (so-called mailboxes company) to minimize corporate taxes for the group as a whole.

A necessary element of such strategy is the prices at which goods and services are transferred between group companies. Profits for the corporate system as a whole can be increased by setting high transfer prices on components shipped from subsidiaries in relatively low tax countries, and low transfer price on component shipped from subsidiaries in relatively high tax countries Asian Agri Profit Shifting

The transfer pricing system can be used to shift taxable profits from a country with a high tax rate to a country with a lower tax rate: the result is that after taxes the MNC retain more profits

There are16 (sixteen) Asian Agri Group Companies in Indonesia, manufactures goods (CPO) and most of the CPO for sale overseas. Finished goods (CPO) are transferred from Asian Agri Group to its wholly owned sales affiliate for overseas sales through 5 (five) so-called mailbox companies in Tax Havens country, using a low markup policy and using a high markup policy for the real buyer.(1A, 2A, 3A, 1B, 2B)

The low markup policy results in larger pretax income, income taxes, and net income per unit in the selling country. On the other hand, the high markup policy has the opposite effect , that is, higher taxable income, income taxes, and net profit per unit in the manufacturing country. The affiliate companies in Tax Havens Country are likely represent the manufacturing company, there is no problem of larger pretax income since the tax rate imposes in tax havens country are very low: the result is that after taxes profit the Asian Agri Group retain a big profit.

The choice of organizational form for conducting foreign operation is also influenced by country incentives encourage to designed certain types of activities considered beneficial to the national economy. The location of production and distribution systems also offer tax advantages. Thus final sales of goods or services can be channeled through affiliates located in jurisdiction that offer tax shelter or deferral.

In these case, parent corporation (Asian Agri Indonesia) ships the product (CPO) directly from 16 (sixteen) factories Asian Agri Group Companies in Indonesia to the European buyer, but also makes a paper sale of the goods to its wholly owned affiliate as foreign sales corporations (FSCs) in Macao, Mauritius, and British Virgin Island. The payment from the buyer is routed through Hong Kong Companies that arrange how much money will be sent to Asian Agri Indonesia as an income for tax purposes.

Extracted from:

Mohammad Zain. TAX MANAGEMENT THROUGH TAX HAVENS COUNTRY, TRANSFER PRICING AND PROFIT SHIFTING (With special reference to Indonesia case). 2nd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2nd ICBER 2011) PROCEEDING

Palm oil king’s savings plan

Palm oil king’s savings plan, from Tempo Magazine, 1/07 

akrobat-pajak

 

 

 

 

 

 

 

Not all bosses are happy with the high tax burden. If it can be reduced, why not? It could be, that’s what is on the minds of the officials Raja Garuda Mas. In order to “downsize”, Tanoto, the owner of this business group, through its core team in the Asian Agri Group Annual drafting of tax payments (tax planning) for deposits to the state minimum. “Saving package” that, among others, performed by transferring profits from dozens of plantation companies in Indonesia to overseas affiliates. 

There are three modes: 

1. Fictitious COST
modes of operation: Created various types of costs in dozens of fictitious Asian Agri Group subsidiaries, called Jakarta Cost (building roads, cleaning lawns, contractors, etc.). Costs not really paid, but deposited into a personal account under the name of Haryanto Wisastra / Luke Eddy (HAREL) and Luke Eddy / Djoko Oetomo (ELDO). Subsequently the money were transferred to Tanoto’s overseas investment company (offshore company). 

2. HEDGING FICTITIOUS TRANSACTIONS 
modes of operation:
* Created transaction hedging contracts / hedging (forward contract) CPO sale or exchange between the Asian Agri Group company in Indonesia with affiliates abroad. This allegedly fictitious transactions was backdated. 
* Transactions are made ​​in such a way (an Indonesian company selling at a low price and buy at high prices, otherwise foreign companies selling at a high price and buy at low prices) so that the Indonesian companies always losses and company abroad is always profit.Consequently, there is a transfer of money from Indonesia to overseas companies. 

3. TRANSFER PRICING 
modes of operation:
CPO was sold at low price to affiliated (fictitious) companies in Hong Kong, British Virgin Islands, Macao. From this fictitious company, the CPO was sold at a higher (market) price to real buyers. By doing so, they are free from paying higher taxes in the country. Before 2003, the transaction directly through BVI companies, but since 2003 by companies in Hong Kong and Macao. 

Examples of transactions: 

Transaction 1: October 2004 

a. PT Inti Indosawit Subur sell 3500.34 metric tons of CPO to Twin Bonus Edible Oil & Fats Ltd. (Hong Kong) for U.S. $ 370/MT or worth a total of U.S. $ 1,295,125.8 (Invoice No.. 10018/I/10/02/04) 
b. Double Bonus CPO selling it to Global Advance (Macao) for U.S. $ 372.5 / MT valued at a total of U.S. $ 1,303,876.65 (Invoice No.. 101 052 908 Twin-I). Gains recorded U.S. $ 8,750.85. 
c. Global Advance (Macao) and then sell it to the CPO M / S Manickam Enterprises (India) with a price of U.S. $ 444.5 / MT valued at a total of U.S. $ 1,555,901.13 (Invoice No.. GAO/410/16-03210101). Gains recorded U.S. $ 252,024.48 

Transaction 2: October 2005

a. PT Supra Matra Abadi sell 2500 MT palm kernel oil (PKO) to Twin Bonus Edible Oil & Fats Ltd. (Hong Kong) at a price of U.S. $ 460/MT or worth a total of U.S. $ 1,150,000 (Invoice No.. 09602/I/21/14/05). 
b. Double Bonus PKO then sell it to Asian Agri Eternal Oils & Fats Ltd. (BVI) at a price of U.S. $ 462.5 / MT valued at a total of U.S. $ 1,156,250 (Invoice No.. 09,138,005 TWIN-I). Gains recorded U.S. $ 6,250. 
c. AAAOF (BVI) and then sell PKO to Palmco Oil Mill Sdn Bhd. (Malaysia) for U.S. $ 535/MT or worth a total of U.S. $ 1,310,750 (Invoice No.. 10001/I/95/14/05). Gains recorded U.S. $ 154,500. 

Transaction 3: August 2001 
a. PT Inti Indosawit Subur sell 999.3 metric tons of crude palm oil to Asian Agri Eternal Oils & Fats Ltd. (BVI) for U.S. $ 192.5 / MT or U.S. $ 192,365.25 (Invoice No. 004/E/IIS-JB/08/01) 
b. AAAOF (BVI) to sell 999.3 metric tons of CPO to Cargill (Singapore) for U.S. $ 220/MT or U.S. $ 219,846 (Invoice No.. 23,108-SCPO / I). AAAOF profit from this transaction (BVI) of U.S. $ 27,480.75 

Sukanto Tanoto setup paper (Mailbox) Companies in order to perform a variety of transactions abroad, in Tax Haven countries: Hong Kong, British Virgin Islands, and Macao. These companies are just mailbox companies, because: 
1. In a Hong Kong staff just placed the phone receiver. The phone number is different, but the fax number using the same line East Trade Ltd hunting. at 2701 Gloucester Tower, The Landmark, Hong Kong. 
2. Authority signature for the bank accounts in Hong Kong and Macao are the same. 
3. Of the audit report in Hong Kong known before 2004, these companies were non-active. In fact, in the report Asian Agri Group reported almost all palm oil exports are sold to Hong Kong companies. Presumably, these are one-sided transactions, not reported income in Hong Kong. 

The fake mailboxes companies that Sukanto Tanoto used are:1. Good Fortune Oils and Fats Ltd.. (Hong Kong) 
Suite F, 10 / F, Ho Lee Commercial Building, 38-44 D’Aguilar Street, Central Hong Kong 
Tel: 2810-7886 
Bank / Account: Standard Chartered Bank Hong Kong 
Acc. 317-0029751-6 (U.S. $) ,  317-0-032781-4 (HK $). 
Telephone receiver: Mr. Gary Cheung 

2. Twin Bonus Edible Oil & Fats Ltd. (HK) 
Suite 2306, Henley Bldg, 5 Queen’s Road Central, HK Tel: 2529-3861 
Bank / Account: United Overseas Bank Ltd.. Hong Kong 
Acc. 081-309-829-5 (HK $), 081-905-182-7 (U.S. $) 
Telephone receiver: Ms. Maureen Lai

3. United Oils and Fats Ltd.. (HK) 
Flat A, 15 / F, Shun Pont Commercial Bldg, 5-11 Thomson Road, Wanchai, HK 
Tel: 2866-2971 
Bank / Account: Industrial & Commercial Bank of China (Asia) Ltd.. Hong Kong 
Acc. 702-010-013988 (HK $), 702-056-001617 (U.S. $) 
Telephone receiver Ms. Sandy Cheung 

4. Ever Resources Oils and Fats Industries Ltd.. (HK) 
Room 1601 Wing On Centre 111 Connaught Road Central Hong Kong 
Tel: 2525-3511 
Bank / Account: Standard Chartered Bank Hong Kong 
Acc. 317-0029752-4 (U.S. $),  317-0-032782-2 (HK $) 
Telephone receiver Ms. Vickie Ng 

5. Global Oils and Fats Advance Commercial Offshore Ltd.. (Macao) 
Bank / Account: Fortis Bank (Hong Kong) 
Acc. 803239-1211 Fortis Bank (Hong Kong) 
Acc. * 803239-13212 
Signed by Sukanto Tanoto 

6.Asian Agri Oils and Fats Ltd Abadi. (BVI) 
Bank / Account: Fortis Bank (Hong Kong) 
Acc. 8013401211/511 Fortis Bank (Singapore) Rec. 
Signatories 8004330101 Tinah Bingei (Tanoto wife), Djoko Oetomo 

7. Talent Investment Ltd.. (Mauritius) 
Bank / Account: HSBC (Mauritius) 
Acc. 080-074586-020 Barclays Bank plc. (Mauritius) Rec. 8025097 
Account Signatory  Tinah Bingei 

Signatory 1-5 ​​corporate accounts are the same, namely: 
A. Tan Wei Lin, Tsang Shui Yuen, Roger Lai Yin Man, Maureen, Pul Wah Cheong, Doris 
B. Chau Kin Sing, Francis Leung Suk Yee, Carmen

Where does the money flow?

Each year, five of the Raja Garuda Mas Group (RGM) companies always make a plan: how much money to be cashed in to RGM.
In 2006, for example, two-parent company Asia Pacific Resources International Ltd. (APRIL) and Asian Agri Group, each has set a deposit of 70 per cent of its annual cash flow to the RGM. Its value is approximately U.S. $ 30 million (Rp 273 billion) for APRIL and U.S. $ 8 million (USD 72.8 billion) per month for the Asian Agri.
To achieve the targets, a variety of ways can be done, including among others, by raising the  (fictitious) cost  and reduced revenue (transfer pricing) or reduced profit, so the Asian Agri tax burden in the country will be reduced.

  1. The results from the profit transfer companies in Indonesia to affiliated companies abroad (presumably through transfer pricing and fictitious edging contracts transactions), such as the Global Advance Oil & Fats Ltd. (Macao) and the Asian Agri Abadi Oils and Fats Ltd. or  AAAOF (British Virgin Islands). The money was then forwarded to the Asian Agri as a dividend payment. 
  2. Asian Agri deposited the dividends to First Island Trust Company Ltd./Fitco (Mauritius) dan Treston International Ltd. (British Virgin Islands). According to the document of the Declaration of Ultimate Beneficial Ownership Treston (21 April 2004) and the Declaration of Trust Fitco (26 September 2003), the two companies are owned by Sukanto with Tinah Bingei (wife) and their two daughters: Imelda Tanoto and Belinda Tanoto. At the request of Treston and Fitco, dividends were transferred to a number of Sukanto’s overseas companies : Goalead Ltd., Headcorp International Ltd.., Etc.. 
  3. Deposit payment from the fictitious companies to accounts held by Haryanto Asian Agri Wisastra & Luke Eddy (HAREL) in Bank Permata and Luke Eddy & Djoko Oetomo (ELDO) at Bank Bumiputera. This money is eventually deposited into the  Goalead Ltd. account (Banca Intesa Bank, Hong Kong), which is owned by Sukanto Tanoto. 

A Who’s Who of Indonesian Biofuel

A Who’s Who of Indonesian Biofuel
Source: Asia Times – May 23, 2007
By Bill Guerin, Jakarta

Some of Indonesia’s most influential and politically connected companies have refocused their business strategies and are joining hands with foreign investors to push forward the government’s multi-billion dollar ambition to transform the country into the world’s leading biodiesel producer.

But there are major political, financial and environmental risks to the grand designs, which arguably are being understated and threaten to complicate the emerging industry’s outlook. The same local companies now leading Indonesia’s biofuel drive incurred and defaulted on huge foreign debts in the wake of the 1997-98 Asian financial crisis. Few fully repaid their debts and today they still dominate the country’s logging, wood-processing and pulp industries. Several also have highly suspect environmental records.

Now, they are landing big new foreign joint-venture deals to develop the nascent biofuel sector, including major investments in palm-oil plantation development and big new processing facilities that benefit from government incentives and policies aimed at rapidly developing the sector. For instance, Chinese energy giant China National Offshore Oil Corp (CNOOC) is among 59 foreign and local energy investors who in January signed many biofuel-related renewable energy agreements worth US$12.2 billion.

CNOOC is China’s leading energy company and leads the country’s broad strategic efforts to reduce its dependence on imported crude oil and offset the use of coal. It has recently teamed up with local plantation giant Sinar Mas Agro Resources and Technology (SMART) and Hong Kong Energy in what is being billed as the world’s largest biofuel project. It has plans to bring three biodiesel plants online this year and additional facilities in Papua and West Kalimantan provinces beginning in 2008.

SMART is listed on the Jakarta and Surabaya stock exchanges and is a subsidiary of the country’s largest oil palm grower, Golden Agri-Resources Ltd. It is also part of the controversial Widjaja family’s sprawling business empire, which includes Asia Pulp & Paper (APP), part of the Sinar Mas Group and Asia Pacific Resources International Ltd (APRIL), which in turn is controlled by Raja Garuda Mas International (RGM).

Therein, some analysts contend, lies big risks. At the height of the Asian financial crisis, Sinar Mas and APP defaulted on billions of dollars worth of loans, equivalent to more than a tenth of Indonesia’s total foreign debt. Many have put those dark days behind them, but their reputations as reliable business partners are still in doubt. APRIL owner Sukanto Tanoto is Indonesia’s richest man, according to a recent Forbes magazine survey, and he is recently on record as referring to palm oil as “green gold”.

Global market forces are definitely driving up prices, but the family’s past business practices are still questionable in the minds of certain credit analysts. Golden Agri-Resources Ltd plans a bond issue in Singapore this year, but US-based credit-rating agency Moody’s has warned that the company’s “complicated family-controlled organizational structure” risks funds being used to support affiliated companies.

The regionally-oriented RGM Asian Agri, which defaulted on $1.26 billion of debts owed to a consortium of foreign and local banks during the financial crisis, now operates over 200,000 hectares of palm oil, rubber and cocoa plantations across Indonesia, the Philippines, Malaysia and Thailand. Ranked as one of Asia’s largest primary producers of crude palm oil, the company manages more than 26 plantations totaling 160,000 hectares and 19 palm oil mills with a production capacity of more than 1 million tons. It also has three refineries processing crude palm oil into end products.

Riau province, home to both APP and APRIL’s giant pulp and paper mills, has more recently become Indonesia’s largest crude palm oil producing area. Both enterprises also have the lion’s share of plantation concessions there. Out of a total of 1,806,533 hectares of plantation concessions, APP holds 679,424 and APRIL 639,593. APRIL also has concessions for 57,807 hectares in the Riau islands.

Eyes on the Forest, a coalition of three environmental groups active in Riau, claimed that an independent investigation they conducted found that APRIL was involved in questionable forest clearance operations in two concession areas and that the company did not possess a valid logging license. APRIL has denied that it was not in “full legal compliance” and no legal action has been taken against the company.

 APRIL announced earlier this month a plan to spend $60 million on a new biodiesel plant with Texas-based Fulcrum Power Services and is now building a second paper mill in Sumatra province which will double its capacity to 800,000 tons per annum by year’s end. Meanwhile, RGM’s Asian Agri unit has a production capacity of about 1 million tons of crude palm oil per year, which is currently used mainly for food production, but the company now says it plans to build a palm-based biodiesel plant in the area.

 Another major player is publicly listed PT Bakrie Sumatera Plantations (BSP), owned by the listed conglomerate PT Bakrie & Brothers, which is 80% owned by the family of Coordinating Minister for People’s Welfare Aburizal Bakrie. The family accumulated and defaulted on part of more more than $1 billion in debts at the height of the Asian financial crisis related to a broad range of businesses.

BSP currently has concessions on 53,000 hectares of mixed plantations, the majority of them planted with oil palms. The company recently acquired another 25,500 hectares in Sumatra and expects to boost crude palm oil production to 180,000 tons this year, up from 158,000 in 2006. The company also operates three palm oil refineries in West Java and Sumatra and holds a 70% stake in Bakrie Rekin Bio-Energy, a joint venture with state-owned contractor Rekayasa Industri, with whom it has started building a biodiesel plant in Batam with a capacity of 100,000 tons per year

The Widjaja and Bakries are not the only ones bidding to rehabilitate their businesses and restore their family fortunes through biofuel-related businesses. For instance, the Salim Group’s publicly listed Indofood Agri Resources Ltd, with investments in oil palm plantations, commands a 60% share of Indonesia’s cooking oil sector. It recently raised $275 million in a share sale in Singapore to be partially used for biofuel-related outlays. The group was founded by Liem Sioe Liong, a renowned business associate of former strongman president Suharto.

Meanwhile, PT Astra Agro Lestari, owned by Indonesia’s giant auto maker Astra International, is the country’s largest crude palm oil producer. Founded by Suharto associate and former trade minister Bob Hasan, the company controls some 205,000 hectares of plantation area in Sumatra, Kalimantan and Sulawesi provinces. Hasan was convicted on corruption charges in February 2001 for causing the Indonesian government to lose $244 million in a fraudulent forestmapping project. He was released on parole in February 2004.

Although criticized for their past cozy relations with senior politicians, Indonesia’s emerging biofuel tycoons are almost universally taking their corporate cues from the government. The chairman of the government’s biofuel development committee, Alhilal Hamdi, says current planning envisages production of about 200,000 barrels of oil equivalent in biofuel per day by 2010. Towards that end, the government has ordered provincial governments to simplify arrangements for land-use permits, urged the Agriculture Ministry to encourage more raw material production, goaded the Industry Ministry to simplify plantlicensing procedures and passed a new investment law that gives foreigners control over land for as long as 90 years.

Most of the new land to be made available by the government will be used to nurture palm oil, the government’s most favored basic feedstock for biodiesel. Palm oil production hit 16 million tonnes last year, with about 60% of that total exported both as finished product known as RBD palm olein and crude palm oil. Total output is expected to grow by 500,000 tons to 750,000 tons a year for the foreseeable future as more acreage comes on stream.

One obvious controversial aspect of the master plan is the need for vast new land banks for plantation expansion, which some environmental groups say is accelerating already rapid deforestation. Indonesia currently has an estimated 5.5 million hectares of palm oil plantations, and the government now plans to more than double the total area under cultivation through the development of another 6.1 million hectares in Kalimantan, Papua and other provinces.

Currently, decisions on the maximum and minimum area to be used for palm oil and other commercial crop plantations are in the hands of the minister of agriculture. Plantation companies are licensed by local administrations in the respective provinces, which officially dispense 35-year renewable concessions based on the availability of land, population density and other factors. 

Environmentalists say the expansion of oil palm plantations continues to come at the expense of natural forests rather than the conversion of already denuded land because of the better soil conditions fresh-cut forest lands provide. The annual forest fires that rage through Indonesia and frequently smother neighboring countries in smog are started mainly by palm growers to clear land for new planting.

More significantly, perhaps, the biofuel industry’s economics are less than clearcut. Energy analysts note that biofuel projects around the world – even those benefiting from fat government subsidies – would be uncompetitive should crude oil prices fall to about $50 per barrel. Energy consultant Rudy Salim told Asia Times Online that any incentive for making and selling biodiesel produced with Indonesian palm oil will essentially disappear when crude palm oil prices reach levels above $650 per tonne. He emphasizes that biodiesel is in any case never going to be more than a “drop in the ocean” in terms of overall supply compared to fossil fuel-based diesel. He figures that based on an average price of crude palm oil under $500 per tonne, the break-even point for palm oil versus crude oil would be $40 per barrel of oil. Crude prices now hover around $62 a barrel, while commodity analysts expect palm oil will average $564 a tonne this year compared to between $400 and $500 last year. It’s not only industry analysts who are raising red flags.

 United Nations environment program executive director Achim Steiner last month warned attendees at a global business summit for the environment in Singapore that businesses run the risk of a public backlash if the globally in vogue green business model is hijacked by industries who engage in environmentally destructive practices. That may have been a veiled reference to the personalities leading Indonesia’s biofuel development.

Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has been in Indonesia for more than 20 years, mostly in journalism and editorial positions. He specializes in Indonesian political, business and economic analysis, and hosts a weekly television political talk show, Face

Catch Me, I’ll Expose You

ON December 2 2006, Vincentius Amin Sutanto received a text message on his cellphone. The former financial controller of the Asian Agri Group (AAG), a subsidiary of the Raja Garuda Mas Group (RGM), had coincidentally turned on his cellphone, which he had kept turned off since his escape to Singapore.

He initially thought the message was from his wife in Medan, North Sumatra. Two weeks earlier they had had to separate after his attempt at embezzling US$3.1 million (around Rp28 billion) from the company was uncovered. As it turned out, his assumption was way off the mark.
Looking at the calling number, +65-9815-xxxx, he realized it was from someone in Singapore. “I want to help. You can’t stay running forever and leave your family to suffer the consequences of your actions. So, please contact me,” read the message in English.
Although the message sounded quite sympathetic, Vincent did not trust it right away. Moreover, after checking, he had no record of the number. So, he decided to respond to the call from a public telephone.
His suspicions turned out to be right. When the call connected, the voice on the other end was that of a man who claimed to be a Mr. Goh. He introduced himself as an employee from a security agency hired by Sukanto Tanoto to find Vincent and arrest him. Sukanto is none other than the boss of the RGM Group.
Goh warned Vincent that he would not be able to escape because the Singapore Police as well as AAG were pursuing him. “Singapore is a small place. You will be arrested within a short time,” said Goh as told later by Vincent. Panicked by the threat, Vincent hung up the phone and immediately rushed back to his hotel.
THIS is just one part of the long story of Vincent’s escape and pursuit to Singapore. It all started mid-November last year when the 43-year-old-man defrauded the AAG to the tune of US$3.1 billion, a crime which also involved Hendri Susilo, a friend from junior high school days, and Ferry Sutanto, his younger brother.
The story caused quite a commotion because it occurred at AAG, which happened to be the flagship of the second largest company at RGM, owned by Sukanto Tanoto. The company, which produces palm oil, cocoa and rubber, owns some 150,000 hectares of land and has become one of the largest companies in the world.
Thanks to this gold mine of his, last year Forbes magazine even crowned Sukanto the richest person in Indonesia. His wealth is estimated at US$2.8 billion or around Rp25.5 trillion.
Vincent defrauded the company by sending a fictitious transfer order to the Fortis Bank (Singapore) that requested a transfer of US$3.1 million from AAG Oils & Fats Ltd (British Virgin Islands) to the Panin Bank in Jakarta.
In the order, Vincent forged the signatures of two AAG financial authority holders in Singapore, Kueh Chin Poh and Ong Chan Hwa. As it turned out the recipient of the hot money was PT Asian Agri Jaya and PT Asian Agri Utama, two fictitious companies established by Hendri in 2004.
Vincent was able to do this with ease, thanks to his powerful position within AAG. His last job was as the group’s financial controller, which had extremely broad powers including financial control and management, accounting, taxation and legal affairs.
With these overlapping powers, many of the “important keys” to the company’s inner workings lay in his hands, including AAG’s various endeavors to avoid its obligation to pay taxes to the state.
When he fled to Singapore, Vincent also ran away with the company’s data and turned this into a bargaining chip. Through a number of Sukanto’s right-hand people at AAG, he was even able to “request a pardon” for the fraud.
According to Tjandra Putra, the head of RGM’s Legal Division, Vincent threatened to make the company documents public if his request was not granted. When visiting Tempo’s offices on January 5, the Asian Agri officials also showed us evidence in the form of an email from Vincent with the subject: “Don’t Push Me Too Far.”
Also interesting is that in the email, Vincent also stated his disappointment over the company’s behavior in asking his wife, Ismiarti, to freeze his bank account. When asked about this, AAG’s legal manager, Hadi Susanto was quick to deny the accusation.
The company, he said, had only suggested freezing the account because it was initially presumed that Vincent had been abducted by a syndicate, which could have depleted his bank account. “The freezing [of the account] was done by Vincent’s wife herself,” he said.
But a Tempo source tells another story. After the case was uncovered, the company did indeed move quickly to trace the money and cover up Vincent’s “rash act.” In addition to requesting that the account be frozen, the company also raided his house and even seized documents and a computer belonging to Vincent, who incidentally lived at the housing complex owned by AAG in Medan.
The top executives at AAG were understandably upset because the data Vincent took with him was no laughing matter. They ranged from daily transaction records to company finances, bank deposit slips to the flow of funds into Sukanto’s personal safe. He also held plans on the company’s tax payments.
Even more shocking is the common thread running across the hundreds of authentic documents, indicating years of effort by the Sukanto business group to evade its tax obligations to the state.
And the amounts were not insignificant. Since 2002 alone, the total amount of unpaid taxes seems to be around Rp1.1 trillion. This figure was obtained by calculating AAG’s total corporate income tax of as much as 30 percent from company profits that were intentionally transferred overseas (around Rp3.6 trillion).
“Pak Vincent had already reported these suspicions of tax manipulation and corruption to the KPK (Corruption Eradication Commission),” said Mikael Marut, Vincent’s attorney. Mikael also asserts that, “Because this was in the state’s interest, Pak Vincent asked for legal protection.” KPK spokesperson Johan Budi S.P. has confirmed that the commission received the report. “Our team is still investigating it,” he said.
In broad terms said a Tempo source, there was manipulation of taxes through profit transfers to AAG-affiliated companies overseas in places such as Hong Kong, the British Virgin Islands, Macao and Mauritius. Three types of methods were used: fictitious costs, fictitious hedging transitions and pricing transfers. The aim was no less than to reduce recorded profits in order to minimize tax payments.
Most prominent are the fictitious costs—complete with fictitious receipts for auditing purposes. Annually, fictitious cost entries could be as much as US$10-20 million. Once, they even reached US$60-70 million. However, after being warned by the auditor that this method was too crude, it was then done through another mechanism, transfer pricing, that is selling products to overseas affiliated companies at a low price, before reselling them to the real purchaser at the genuine market price. By this means, the company managed to incur low tax rates in Indonesia.
These fictitious costs at AAG were known as Jakarta costs, because a team in Jakarta planned them. Payments were recorded as cost for scores of AAG’s subsidiary companies in Medan. Payment checks were also issued, for example to build roads and cut grass.
Strangely, it was precisely these monies that went into a private account in the name of Haryanto Wisastra and Eddy Lukas (abbreviated as HAREL) at Permata Bank, which was then shifted to Eddy Lukas and Djoko Oetomo’s (ELDO) account at Bank Bumiputera. The three are known as being people trusted by Sukanto.
Need proof? One piece of evidence are the outlays made by 11 AAG units on November 1, 2001. The total amount spent on that date was some Rp20.9 billion. On the same day, an identical amount also went into the ELDO account. “From this evidence, it is strongly suspected that the costs were indeed fictitious,” said the earlier source.
Eddy, the Director of AAG, denies the charges. According to Eddy, all of the transactions have been internally audited and by the tax office, “It’s impossible that there were fictitious costs.” Moreover he says, there were not many such cases.
However, when Tempo again showed Eddy the transition record of the HAREL account at Bank Bali (now Permata Bank) for December 2002, containing records of 16 entries for that month of as much as Rp92 billion, even Eddy was astonished. “We cannot confirm [this], it must be studied properly,” he said evasively.
There is a good possibility that the funds were eventually channeled into Sukanto’s own pockets. The evidence being that after the funds were converted into dollars, there were a large number of deposits from the HAREL account into Goalead Ltd (Hong Kong). And its connection with Sukanto is clearly evident. The First Island Trust Company Ltd (owned by the Sukanto family) also once requested that AAG dividends be deposited into Goalead.
There are suspicions of other tax irregularities committed by AAG through the transfer of pricing data. The modus operandi was to sell crude palm oil (CPO) at low prices to affiliated companies in the British Virgin Islands, Hong Kong and Macao.
But five of the Hong Kong companies are actually just paper companies. All that exists is one person to answer the phone. From financial reports that have already been audited, it is known that before 2004 these companies did not even register any income. Strangely, in the Asian Agro Abadi International Ltd financial report audited by the offices of Ernst & Young, it cites a significant number of transactions carried out with these Hong Kong companies.
Another method of evading taxes which the Sukanto Group has been accused of, uses fictitious CPO hedging transactions and foreign currencies. Transaction hedging is a sale and purchase forward contract between two parties at a jointly agreed price.
The same source also suspects that these hedging transactions may also be fictitious. Transactions should only be on paper and made based on backdating. This method enables forward contract transactions to be made in such a way that the Indonesia-based companies would always incur a loss and must therefore transfer money to an affiliated overseas company.
Eddy flatly denies the charges, saying that all transactions were carried out based on market prices that fluctuate. “Is that manipulation?” he asked curtly. Moreover, he says, the sales were still within the range of the standard export price set by the government. So they couldn’t just do as they please and agree to a price that is way different from government stipulations. “So, that information is incorrect, [to say that] we always incur losses or carry out transfer pricing,” he said. With regard to tax planning, AAG, through a six-page dossier sent to Tempo, stated that it is a part of business planning that is commonly put on hold. “The thing that must be avoided is tax evasion.”
However, when again shown AAG’s financial report, this time Eddy lapsed into silence. There it states that for three consecutive years, an AAG unit suffered financial losses in forward transactions. There can only be two explanations: there was a shady deal in the transactions or the companies under the AAG flag don’t do so well during forward transactions.
No clear or direct answer has yet been provided by the AAG management. Confronted with all these documents, Tjandra Putra was only able to say, “It’s up to you, believe Vincent’s information or our explanation.”

Vincentius Amin Sutanto: Sukanto Tanoto’s Lost Son

Vincentius Amin Sutanto: (Tempo/Muradi)




Vincentius Amin Sutanto, the whistle-blower in the Rp 1.25 trillion (US$129.47 million) tax evasion scandal at Sukanto Tanoto’s compnay Asian Agri and who is himself serving an 11-year prison term for embezzlement, has been granted release on parole.

Deputy Law and Human Rights Minister Denny Indrayana said on Friday that Vincentius, former financial controller at Asian Agri, deserved leniency for his role as a justice collaborator in the case.

“The release on parole takes effect from Jan. 11. This is a reward for Vincentius,” he said.

Amin Sutanto Vincent (Vincent) is the former financial controller at the Asian Agri Group owned by tycoon Sukanto Tanoto. He was tried for swindling money from PT Asian Agri Oil and Fats Ltd.. Singapore, a subsidiary Asian Agri. Together with two colleagues, Hendry Susilo and Agustinus Ferry Sutanto, Vincent setup two companies to hold funds of U.S. $ 3.1 million from Asian Agri.

Vincent had not yet had time to enjoy that money. Comrade Vincent, Hendry, withdrawn USD 200 million, before the act got uncovered. After that, Vincent fled to Singapore. In the midst of his flight, Vincent had asked forgiveness for Sukanto Tanoto, but failed. This man eventually chose to go home and complain to the Corruption Eradication Commission about alleged tax evasion committed Asian Agri.

Vincent is currently serving his jail term at Cipinang penitentiary after being found guilty of embezzling Asian Agri’s funds. Vincentius attempted to swindle $3.1 million from the company but only managed to secure Rp 200 million.

In December 2012, the Supreme Court found Asian Agri guilty of tax evasion and told the giant company, owned by business tycoon Sukanto Tanoto, to pay Rp 2.5 trillion in fines. The court also sentenced its former tax manager Suwir Laut to two years in prison.

The verdict became the court’s first ruling on a tax evasion case.

Denny said that the biggest tax evasion scandal in the country would not have been uncovered without Vincentius’ vital role and testimony. “We have carefully examined the parole. He deserved the parole because he was not the main perpetrator in the scandal, he admitted his wrongdoing and willingly cooperated with law enforcement agencies to uncover the tax evasion,” Denny said.

Denny hoped that the release on parole would encourage other justice collaborators.

Recently, Vice President Boediono called on the country’s court system to lower the sentence for whistle-blowers and justice collaborators in tax scandals. “We will provide incentives for those who can help investigators dig deeper,” said Boediono.