Larry Pileggi, The Sukanto Tanoto Professor

Larry Pileggi is the Tanoto Professor of Electrical and Computer Engineering at Carnegie Mellon University.

Larry should have realized that Sukanto Tanoto is a corrupt entrepreneur responsible for destroying rain forests in Indonesia. Larry is still comfortably and Proudly carry the Tanoto Professorship.

Look at what other universities have done:

Students and dons at 14 Oxford colleges have urged the university to purge its £3.3bn endowment fund of all investments in fossil fuel companies. The move follows 64 Oxford professors and other senior academics signing an open letter and a petition by over 800 students, staff and alumni.

The fossil fuel divestment campaign won a major victory today as Stanford University announced it would drop coal companies from its massive $18.7 billion endowment, the fourth largest of any American university. The action follows a petition by student group Fossil Free Stanford, five months of research by Stanford’s Advisory Panel on Investment Responsibility and Licensing, and finally a vote by the Board of Trustees.

Larry, it’s time for you to dump the Tanoto name.


Lake Toba indigenous people fight for their frankincense forest against Sukanto Tanoto

It was a cool and foggy day in Dolok Ginjang forest, but that did not stop villagers of Pandumaan and Sipituhuta in North Sumatra from heading to work to extract frankincense from the trunks of its tall trees.

Frankincense, an aromatic tree resin used in perfumes and incense, is the primary source of income for local people in the area. Every Monday, most of the men would go to the forest to incise the bark of the trees. They would bring food, drinks, and supplies, working and sleeping in the forest before returning home at the end of the week.

However, that routine has been disrupted for the past few years as land conflict has erupted between villagers and wood pulp producer PT Toba Pulp Lestari (TPL), formerly known as PT Inti Indorayon Utama, over the forest area.

The 4,100-hectare frankincense forest, locally known as tombak hamijon, is located in three areas — Tombak Sipiturura, Dolok Ginjang, and Lombang Nabagas. According to research conducted by the Indigenous People’s Alliance of the Archipelago (AMAN), villagers of Pandumaan and Sipituhuta have depended on the forest for their livelihoods for nearly 300 years and 13 generations.

The villagers have established customary laws in their lands. However, in 2009, the then-minister of Forestry, MS Kaban, issued a division letter for North Sumatra that included the districts of North Tapanuli, Toba Samosir, Samosir, Simalungun, Dairi, Pakpak Bharat, South Tapanuli, and Humbang Hasunduntan in the concession areas of TPL. The company was formerly affiliated with pulp and paper giant, Asia Pacific Resources International Limited (APRIL) and its parent Royal Golden Eagle (RGE), but is now independently listed on the Indonesian Stock Exchange in Jakarta.

“After the company came to this area, they cut down natural trees including frankincense trees. [If] the trees died, there will be less sap. Even if the trees were still alive, [the tree sap] won’t be enough [to extract]. This is really affecting local people’s livelihood,” said Reverend Haposan Sinambela, who is involved in defending the rights of the local people.

The area in dispute. Courtesy of Global Forest Watch. Click here to enlarge.

Sinambela said that local people had managed their forest for generations and made a pact with their ancestors to guard the area.

“We extracted the sap without destroying the trees,” he added. “That way, the forest is still sustainable. We are forbidden to destroy the forest because natural disaster will occur. It is why we will always protect our forests even if our lives [are] at stake.”

The impacts of conversion were felt by Lambok Lumban Gaol, one of the villagers.

“The frankincense forest used to be cool and fresh, with birds flying free and we even [could] see bears, water was fresh. But, now, it is hot and arid land, logged timber everywhere,” said Gaol whose family has been living in the area for many generations. “[The weather] is not that cool anymore. We used to wear gloves and thick blankets at six in the morning. Now, the forest has been replaced by eucalyptus.”

 A TPL access road that cuts through an area of forest. Photo: Ali Made

Local People vs. The Company

As conflicts between villagers and the company increased, the National Forestry Council recommended that Pandumaan and Sipituhuta villages be excluded from TPL concession areas in 2011.

The recommendation was supported by Humbang Hasundutan Regional Representatives Council (DPRD), which asked in 2012 to revoke the 2005 ministry decision letter to the district government.

In addition, they recommended that the company stop operating in conflicted areas altogether until solutions were reached. At the same time, they also proposed adjustment of the company’s designated working areas, which was at the core of the problem.

However, these recommendations proved ineffective. In early 2013, local farmers from Pandumaan and Sipituhuta caught TPL employees entering their forest areas and cutting down frankincense trees. Clashes broke out between farmers and the employees in the ensuing days, resulting in the arrests of 31 farmers by the mobile police brigade, also known as Brimob. Police later released 15 of the farmers, with the other 16 remaining in detention. One of the detainees was Reverend Haposan Sinambela.

In September 2013, ten villagers accompanied by AMAN met with a Ministry of Forestry official, a Humbang Hasundutan district government representative, and TPL management, in Jakarta.

Pandumaan-Sipituhuta villagers meeting with representatives of the Ministry of Forestry, local government, and TPL, in Jakarta. (Sapariah Saturi)

Despite of villagers’ firm standing to exclude their areas from the concessions, the meeting concluded that partnership would be the solution. This allows TPL timber harvesting to continue in the concession areas, while allowing local villagers to take non-timber forest products as long as they don’t interfere with company oerations.

In addition to Pandumaan and Sipituhuta, eight other villages agreed to the partnerships — Pansur Batu, Aek Nauli I, Aek Nauli II, Hutajulu, Hutapaung, Simataniari, Habinsaran, and Sionam Hudon Timur.

Meanwhile, Dedy Sofhian Armaya, corporate communications officer of TPL, stated that the concessions located in the forest areas were authorized by the ministry.

“[The villagers] were the ones using violence to get land recognitions,” said Armaya, who believes there are more peaceful ways to raise objections. “They could talk to the ministry or go to court. The law and regulations allow for such objections. It is possible to exclude their villages from the concessions or enclave if they meet the requirements.”

However, local villagers opted instead for demonstrations, blocking TPL activities in the field, intimidating workers, damaging the pulping plants, and burning company-owned equipment. These actions, he said, prompted the company to seek for protection from the police.

Furthermore, Armaya questioned the legitimacy of the claims Pandumaan and Sipituhuta villages have to their customary lands.

“They claimed Toba Pulp Lestari working blocks as their customary lands with a 12-kilometer distance from [villages]. Meanwhile, closer villages don’t claim [their customary lands],” he said, adding that other villages wanted to cooperate and even requested road development so that they’d have easier access to the frankincense forest.

According to Armaya, the company managed only 75,000 hectares — or 40 percent — of their concessions, despite permit allowances of 70 percent management.

“The [company’s] policy provide more room for protection purposes,” he said. “[Frankincense] trees are important for local people’s livelihood. The company promised not to cut down those trees.”

Pile of timber logged from an area controlled by​PT TPL. Photo: Ali Made

Partnerships Denied Customary Rights

According to Andiko Sultan Mancahyo, Executive Director of the Assciation for Community and Ecology-based Law Reform (HuMa), partnerships cannot be forced. He believes this is especially true for situations that concern not only economic issues, but the values of local communities, as well.

“Indigenous people [do] not consider the frankincense forest merely in the context of economy, but also for its cultural values,” Mancahyo said.

Sandra Moniaga, a commissioner of the National Commission on Human Rights (Komnas HAM), believes that the claims local people have to their customary lands are human rights that cannot be treated as objects to be bought and sold.

“The [national forestry] council recommendation to exclude both villages from the company’s areas is in accordance with the human rights principle, but somehow the ministry [of forestry] overlooked it,” Moniaga said.

According to Moniaga, many of the villagers had no knowledge about the concession, even after the company established itself in the area.

“The company should be transparent about their concession areas and open a dialogue with local people to verify the areas,” she said. “Whether this is customary lands or not? If it is [a customary land], then there should be an agreement. If local people refuse, then they should leave, if they agree for partnership then proceed.”

The river in Register 41 in Pandumaan-Sipituhuta villages used to be clear and wide. Now, it is dirty and polluted. This image shows a drainage canal. (Ayat S Karokaro) after pulp companies cleared the area.

Meanwhile, AMAN secretary general, Abdon Nababan, said that the conflict originated from the ministry’s 2005 decision letter, which resulted in the granting of permits for timber concessions before legal designations had been established.

“The ministry of forestry misinterpreted the [1999] Forestry Law on Forest Area Designation, which was supported by the Constitutional Court in 2012, that there should not be any permits granted before the forest stipulation is legally acknowledged,” said Nababan. “TPL is an example [of many cases] that forest area designation has not been completed but permits were already granted. It resulted [in] land conflicts with local people and communities in the area.”

Without increased clarity regarding the status of land rights in North Sumatra, conflicts will continue to escalate. And while regulations set forth by Indonesia’s Constitutional Court do acknowledge customary forest rights, the continued granting of permits to companies before concessions are even designated undermines the rights of local people to access and manage their own forests.

Business leaders tell forest destroyer Sukanto Tanoto to reform

Forest destruction by APRIL in Sumatra, Indonesia

Pressure is mounting on April, the notorious forest destroyer that is determinedly trying to pulp what’s left of Indonesia’s rainforests. This afternoon, the World Business Council for Sustainable Development gave April an ultimatum: put down the chainsaws or get out of the clubhouse.

April – or Asia Pacific Resources International Holdings Limited, to give it its full title – is the second largest pulp and paper company in Indonesia. The largest paper company, Asia Pulp and Paper (APP), agreed to stop clearing rainforest just over a year ago following a successful campaign by Greenpeace and other organisations.

It’s ridiculous that April, Indonesia’s number one cause of deforestation for pulp, is a member of any organisation with sustainable in the title, let alone one led by the CEOs of over 200 of the largest and best-known companies on the planet.

So last year we wrote to the WBCSD, suggesting that they should kick April out. After a bit of to-ing and fro-ing, today they announced that April’s membership was being put on probation and gave it twelve months to get its house in order or be thrown out on its ear.

April is just one part of a multi-billion pound deforestation empire, the Royal Golden Eagle group, known as RGE. This includes the palm oil company Asian Agri, which WWF caughtbankrolling the destruction of Tesso Nilo national park, and Toba Pulp Lestari, which is reported to be in repeated conflict with local communities, whose forests it is merrily pulping.

The WBCSD now expects not just April but all RGE companies to stop destroying forest if it wants to retain its membership.

Being kicked out of a club like the WBCSD might seem like small beer to you and me. But April has already been expelled from the Forest Stewardship Council. And the fact is, companies like April rely on membership of these international organisations to claim their credentials.

This isn’t about a logo on a website: being ousted sends a very clear message that April and its equally notorious sisters are not companies to do business with.

April’s owner, Indonesian tycoon Sukanto Tanoto, needs to take this warning very seriously. It’s not too late for his empire to turn over a new leaf and announce an immediate moratorium on deforestation.

After all, if APP can turn off the bulldozers, what’s stopping April and the rest of the RGE empire?

WBCSD tells Sukanto Tanoto to shape up or ship out

Asia Pacific Resources International Ltd (APRIL), the second largest pulp and paper company in Indonesia, has been threatened with expulsion from the World Business Council for Sustainable Development (WBCSD) – a coalition of some 200 international companies that claim to be committed to sustainability – unless it can demonstrate that it has ended its role in deforestation.

According to Greenpeace, APRIL’s membership to the WBCSD was last week put on formal probation and it has been given twelve months to comply. The company’s membership with the WBCSD’s Forest Solutions Group has also been suspended.

Further, the WBCSD has recommended that “APRIL consider transferring membership to its parent company – the Royal Golden Eagle Group – covering all its various operating units; including prospects of aligning RGE’s other forest industry operations with the FSG membership principles”.

“When an organization led by CEOs of some of the world’s biggest corporations threatens to kick it out of the club, then you would think APRIL would listen. It’s time for APRIL to take this threat seriously and finally implement an immediate moratorium on all further forest clearance. If companies like APP can, then what is APRIL waiting for?” said Phil Aikman, Senior Campaigner at Greenpeace.

Activists have stepped up campaigns to change APRIL’s sourcing practices after its biggest competitor — Asia Pulp & Paper — signed a comprehensive forest conservation policy last February. APRIL has no such policy.

Recent government data reveal that 60 percent of fiber supply to APRIL’s pulp mill in Indonesia is rainforest wood. Unnamed Sources claim that in 2012 APRIL suppliers planned to clear some 60,000 hectares of rainforest per day.

“Given APRIL’s recent heavy dependence on rainforest fiber, Greenpeace has serious concerns about APRIL’s commitment to a zero deforestation policy and any ambition it may have to become 100 percent reliant on plantation fiber. Greenpeace will continue to expose APRIL and RGE’s role in forest destruction and cut through the game of smoke and mirrors the company is playing with its customers,” said Aikman.


Sukanto Tanoto continues with forest destruction despite new sustainability policies

In January of this year, APRIL – Indonesia’s second-largest pulp and paper company and part of the RGE corporate empire controlled by Sukanto Tanoto – announced a new ‘sustainability’ policy, claiming to have placed a moratorium on plantation development until conservation assessments are completed in its supplier concessions.  RGE also owns Asian Agri, a major Indonesian palm oil producer.

A combination of pressure created by APP’s forest conservation commitments and from both the international marketplace and the World Business Council on Sustainable Development,forced APRIL to at least appear committed to greater environmental responsibility.

But the small print of the commitments tells the real story.  APRIL ‘will only use plantation fibre by the end of 2019’. That means that the company can continue to rely on fibre from rainforests until that time.

Equally troubling is that the commitments do not cover the other pulp companies controlled by Tanoto, they ‘apply entirely and exclusively to Asia Pacific Resources International Holdings Ltd (“APRIL”), which is an independently managed company with operations in Indonesia. Yet Sukanto Tanoto, the ultimate owner of APRIL, owns/controls various others, including Toba Pulp Lestari,another Sumatra-based company with a history of rainforest clearance and social conflict, as well as the China-based Asia Symbol – known until last year as APRIL China.

To check if these limited new APRIL commitments actually mean anything where it matters – in the rainforests of Indonesia – Greenpeace investigators have recently been to Pulau Padang, an APRIL supplier on Padang Island, Sumatra. As you can see from these pictures taken in March, rainforest clearance and drainage of peatland has continued even after APRIL’s high profile ‘sustainability’ pledges.  Apparently, development of such forest and peatland areas is not covered by APRIL’s ‘moratorium’.


A new drainage canal has been opened in this APRIL concession in Pulau Padang, Riau, Indonesia. 06/03/2014 © Greenpeace


The news this week that APRIL has formed a Sustainability Advisory Committee to help implement its commitments must therefore be seen in the context of the company– apparently within the remit of its new commitment –continuing deforestation and peatland development.

While we do not doubt the good intentions of the members of the Sustainability Committee – for instance, the committee currently includes WWF and WBSCD –  the reality is that the policy that this committee is helping to implement will not stop deforestation nor will it address the impacts of all Tanoto’s pulp companies.


Rainforest logs being stacked in Pulau Padang concession, Riau, Indonesia. 06/03/2014 © Greenpeace


To be credible APRIL and other pulp companies ultimately owned/controlled by Sukanto Tanoto (including Toba Pulp, Asian Symbol and Sateri) must commit to:

  • An immediate moratorium on further forest clearance across all supplier concessions in Indonesia until independent assessments have identified all forests and other conservation values for protection.
  • No further plantation development on forested peatland and best practice management to avoid and reduce greenhouse gas emissions from existing plantations on peatland.
  • Transparency regarding all supplier concessions in Indonesia and on the percentage of MTH fibre used at each of the group’s pulp mills.
  • Sustainability action plans that cover all global fibre sourcing.
  • Greater clarity regarding forest restoration and compensation commitments.

In the absence of these commitments, and with continued rainforest clearance taking place in APRIL concessions in Indonesia, Greenpeace advises all companies purchasing paper and/or pulp from APRIL to suspend these contracts immediately.

Zulfahmi is a forest campaigner at Greenpeace Southeast Asia

Sukanto Tanoto continues to destroy peat lands and rainforests

Rainforest in Sumatra
Active clearance of peatland forest inside a PT. Riau Andalan Pulp & Paper (PT RAPP) pulpwood concession on Pulau Pedang, Bengkalis Regency, Riau Province taken 05/20/2014. PT RAPP is a subsidiary of APRIL, the pulp & paper division of the Royal Golden Eagle (RGE) Group, a conglomerate owned by Singapore-based businessman Sukanto Tanoto. On 28 January 2014, APRIL announced that it intends to continue to use rainforest logs until at least 2020. All photos © Ulet Ifansasti / Greenpeace


Indonesian logging giant Asia Pacific Resources International Limited (APRIL) is continuing to destroy endangered rainforests on Sumatra despite a high profile commitment to clean up its operations, reveal aerial photos captured by Greenpeace last month (May 2014).

The pictures show excavators leveling forests on carbon-dense peatlands on Pulau Padang, an island where APRIL claims to be restoring forest. Visible in the images are canals dug to drain peatlands to make them suitable for industrial acacia plantations.

The photos clearly show APRIL’s subsidiary PT. Riau Andalan Pulp & Paper (PT RAPP) violating the spirit of APRIL’s forest conservation policy, which commits the company to protecting and restoring high conservation value forests and high carbon stock areas. Pulau Padang’s peatlands store massive amounts of carbon while maintaining the structural integrity of the low-lying island and providing a home for tropical forest species, including endangered birds and mammals.

APRIL announced its conservation policy in January after long-standing criticism from environmentalists for its forest management practices, which include large-scale conversion of rainforests for industrial plantations. The policy was immediately condemned by Greenpeace and other groups as falling far short of the commitment launched a year earlier by Asia Pulp & Paper (APP), APRIL’s biggest competitor. Activists said the policy was full of loopholes and allowed the company to continue pulping rainforests and peatlands for another five years.

Now, less than four months after the commitment, activists have captured damaging evidence of business-as-usual practices from APRIL, says Greenpeace campaigner Zulfahmi.

“APRIL’s commitments mean nothing,” Zulfahmi told The Sydney Morning Herald. “It’s just confirmation that they still intend to destroy forests until 2019.”

But APRIL, which claims it is the victim of a smear campaign and that its commitment is greener than those of its competitors, says the forest destruction is consistent with its pledge.

“We are currently developing our last new plantation in an area of Pulau Padang licensed by the Indonesian government,” an APRIL spokesman told The Sydney Morning Herald. “Our policy mandates that the work will be completed by December . . . So if one of your questions is ‘are you violating your own policy?’, the answer is ‘no’.”‘

“[The] Enhanced Policy exceeds any commitment we have ever made,” a presentation from APRIL states. “[It] takes APRIL’s commitments to the next level – environment, community and business.”

APRIL is currently working with Fauna and Flora International (FFI) on a forest protection project in the neighboring Kampar Peninsula. A tentative agreement to work with WWF fell through last month when an investigation by the conservation group discovered recent peatlands destruction within an APRIL concession in Indonesian Borneo.


An excavator piles natural forest logs at a log pond inside a PT. Riau Andalan Pulp & Paper (PT RAPP) pulpwood concession on Pulau Pedang, Bengkalis Regency, Riau Province located at 1°0’51″N 102°19’50″E. © Ulet Ifansasti / Greenpeace

Vast hidden profits: from Asia’s palm oil giants to a tiny British tax haven

There is a street market selling Caribbean trinkets to cruise-liner passengers, a harbour full of super-yachts, a small park with chickens running around and several banks with long queues inside them.

But apart from a few middle-aged white men in expensive suits walking purposefully around Road Town, and nameplates showing that the world’s biggest accountancy firms have offices here, there’s barely anything in this small Caribbean capital to suggest that the British Virgin Islands is the world centre of offshore financial secrecy, corporate ownership, trust funds, paper companies and complex structures designed to avoid and possibly evade national financial regulation.

According to the BVI’s government, Road Town is home to about 13,500 people, one million corporations and half the world’s offshore companies. The tiny British tax haven has plenty of poor people, but the offshore companies based there held more than $615bn in assets in 2010, according to the International Monetary Fund, and last year attracted more than $92bn of direct investment – more than went to India and Brazil combined. A single building in the capital is reputed to be home to more than 90,000 companies.

But there are no names on the few brass plaques to be seen, no public lists of owners or directors available in the government’s Financial Services Commission building on the Road Town Pasea Estate, no financial reports or addresses beyond anonymous PO box numbers. Around 100 firms in Road Town will set up, administer and keep secret an anonymous company for around $1,500 – few questions asked.

The money might spend only seconds in the relevant electronic accounts, but the British Virgin Islands is the preferred domicile of most of the world’s wealthy corporations and individuals. In China, it is said, you have not succeeded until you have set up your own subsidiary in the British Virgin Islands.

So it was no great surprise last year, when it emerged in Indonesian supreme court documents that the giant palm oil branch of the Royal Golden Eagle International conglomerate of forestry, rubber and palm plantation companies, owned by the billionaire tycoon Sukanto Tanoto, was using a web of shell companies based in Road Town and other tax havens to enable its palm oil companies to evade tax.

But what astonished corporate-watchers was how its subsidiary, the agribusiness giant Asian Agri, was operating. According to evidencecontained in the 8,000 court papers, the group, which employs 25,000 people across 14 subsidiaries and owns 165,000 hectares of plantations, was engaged in routine and systematic fraudulent accounting practices.

Using European and US banks, as well as the auditing services of international accounting firms and paper companies based at Portcullis TrustNet Chambers, PO Box 3444 Road Town, they and their fictitious subsidiaries sold vast quantities of palm oil to other fictitious affiliates in Hong Kong, Macao and in the BVI at an artificially low price. In a process known as transfer pricing, the commodities were then sold on at a higher price to real buyers, thus avoiding higher taxes in Indonesia.

In only one of thousands of transactions, Asian Agri’s subsidiary, PT Inti Indsawit Subur, sold 999.3 tonnes of palm oil in August 2001 to Asian Agri Abadi Oil and Fats for $192,335. This company then sold it on to international commodity dealers for $219,846, reaping a profit of $27,511.

In another transaction highlighted in the case, 2,500 tonnes of palm oil was sold to a fictitious Hong Kong company, then to a fictitious BVI company and eventually on to a genuine Malaysian company, banking a profit for Asian Agri of $154,500.

Court documents also provide evidence of mass production of fake invoices as well as fake hedging contracts. The Indonesian supreme court estimated that Asian Agri Group (AAG) evaded $112m of tax over a few years and ruled that the company must pay $205m in fines as well as the taxes owed.

But Indonesia’s anti-corruption officials are so short of resources that, until the AAG case, no major company had been successfully prosecuted for corporate tax evasion and it took a whistleblower to provide the key papers to prove wrongdoing.

In scenes reminiscent of a Hollywood thriller, Vincentius Amin Sutanto, AAG’s financial controller, was accused of embezzling $3.1m of company funds, but escaped to Singapore on a fake passport, taking with him documents which, he claimed, could prove illegal activities at the company. He was later convicted of embezzlement and sentenced to 11 years in prison in Indonesia.

The Asian Agri case, which continues to reverberate in Indonesia, has had repercussions across the world. The British government, which is implicated because of the involvement of British overseas territories, recently met Indonesian investigators and others and signed a memorandum of cooperation. It says it wants to push tax evasion and money laundering up the agenda of the G8. The European parliament has cited the case in arguments that timber imports from Indonesia must be shown to be free of tax evasion and money laundering.

But the case also raises questions about whether AAG’s tax evasion is a one-off or whether other south-east Asian forestry and palm conglomerates are also using British territories. Indonesia’s forests, the second biggest swath in the world after the Amazon, have been a wild west in the past 30 years, according to the World Bank and others. A few companies have together deforested tens of millions of square kilometres of virgin forest and built up a reputation for illegal felling, human rights abuses and ruthless land-grabbing.

According to a 2011 Interpol report written in conjunction with the World Bank, the Indonesian government “could be losing $2bn a year in unpaid taxes and charges … due to the activities of just 18 illegal logging syndicates”.

Data seen by the Observer suggests an investigation of the sector is needed. “Large-scale palm oil and paper and pulp companies active in Indonesia have shell companies in the BVI, making this jurisdiction one of the preferred choices of Indonesian forest conglomerates. Two other UK-linked jurisdictions, Bermuda and the Cayman Islands, are also used by forest conglomerates,” says one document.

“Due to a lack of transparency of these shell companies, it is difficult to document reasons for the use of these companies, including whether they are being used to reduce income and/or withholding taxes legitimately or otherwise,” it says.

“For some privately held companies, data is not available. For other companies, an examination of … the analysis of effective tax rates and/or return on sales showed patterns over a longer period which are difficult to understand and raise questions which merit further research and investigation,” says another document.

Back in the British Virgin Islands, fraud investigators say they are swamped by financial crime. “It is overwhelming how big the cases are getting,” said Martin Kenney, a Canadian tax lawyer, speaking in his Road Town office. “There’s more money in the world, and more structures mean more secrecy. The evidence suggests the frequency and the size of the frauds [taking place] is changing dramatically.”

In 22 years of working for governments and corporations, Kenney says he has traced around $3bn, including money stolen by the former Nigerian president Sani Abacha. “We look down the value train and see where the money has been taken [into] a labyrinth of legal structures, all designed to make our work unbearably complex and tricky,” he said.

The financial intelligence units of the UK and Indonesian governments met recently at Chatham House in London to explore ways to work together. “There is growing awareness of the scale of the problem, as well as some successful prosecutions – most notably, the recent case of Asian Agri,” said Alison Hoare, a Chatham House researcher.

“One problem has been a lack of understanding that the forestry sector is a high-risk sector for financial crime. The application of risk assessment by the regulatory authorities has not been sufficiently rigorous.”

Sukanto Tanoto’s companies use British Islands for tax dodging

Asian logging companies ‘use British islands for tax dodging’

Calls for crackdown as investigation finds huge Indonesian corporations evading tax through network of secret shell companies in British Virgin Islands and other tax havens

Giant Asian logging companies that make billions from destroying rainforests use a labyrinth of secret shell companies based in a UK overseas territory, the British Virgin Islands (BVI), which operate as a tax haven, according to documents seen by the Observer. The 13 companies own millions of acres in Indonesia, provide much of the world’s palm oil, timber and paper, and use complex legal and financial structures to keep their tax liabilities low.

An unpublished two-year investigation by anti-corruption experts, and seen by the Observer, says Britain should launch a major investigation into the use of the BVI and other tax havens by “high-risk” sectors such as Indonesian forestry. This follows a court case in Jakarta in which one of the world’s largest palm oil companies, owned by billionaire Sukanto Tanoto, was fined US$205m after being shown to have evaded taxes by using shell companies in the BVI and elsewhere. The company has agreed to pay the fines.

Documents arising from the case show that Tanoto’s company, Asian Agri, systematically produced fake invoices and fake hedging contracts to evade more than $100m of taxes.

According to evidence contained in more than 8,000 papers, the company, which employs 25,000 people in 14 subsidiaries and owns 165,000 hectares of plantations, was engaged in “routine and systematic fraudulent accounting and book-keeping practices” using British jurisdictions.

It is easy to set up shell companies in the BVI, and this makes them a favourite destination for Asian corporations and individuals. A cache of leaked documents obtained by the International Consortium of Investigative Journalists showed last year that nine of Indonesia’s 11 richest families had used tropical tax havens.

Although there are legitimate uses for offshore companies, critics say tax havens fuel corruption and allow corporations and individuals to dodge taxes. “Powerful forest and palm oil conglomerates have set up shell companies in the BVI, Cayman Islands and Bermuda, but lack of transparency – including public access to the names of the actual owners of shell companies – makes it difficult for governments to monitor the legality of their activities,” said Stephanie Fried of the Ulu Foundation, a US organisation that tracks international financial flows. “Clearly, a full international investigation is needed not only by Indonesian authorities, but also by those in the BVI, the UK and other jurisdictions.”

A government spokesperson said: “The government put tax and transparency at the heart of the UK’s G8 presidency. As a result, the UK’s overseas territories are consulting on establishing a central registry of beneficial ownership and on whether it should be publicly accessible. We believe a registry of this kind would provide the best outcome for sound corporate behaviour and for helping authorities, including those in developing countries,prevent misuse of companies for illicit purposes.”

Sukanto Tanoto’s pledge to clear Sumatran forest

The website of PaperOne features pictures of tropical forests and a claim that the copy paper company is “protecting high conservation values”.

On the ground in Sumatra, though, the chainsaws and excavators are rushing to mow down tropical forest on delicate peat swamp to feed fibre to its mills.

As consumer pressure built on companies to improve their environmental credentials, PaperOne’s maker, Indonesian company Asia Pacific Resources International Limited (APRIL), announced in January a commitment to stop logging “high conservation value” areas and peat swamp, to stop establishing plantations by the end of this year and to get all its fibre from plantations by 2020.

It formed a partnership with environmental group WWF and announced the endorsement of the Norwegian ambassador (whose country has pledged $1 billion towards ending deforestation in Indonesia).

On the fragile environment of Padang Island, off the east coast of Sumatra, though, the deadline has prompted a new effort to clear what is left.

“APRIL’s commitments mean nothing,” says Zul Fahmi, Greenpeace’s forest campaign leader for Indonesia. “It’s just confirmation that they still intend to destroy forests until 2019.”

The company’s big competitor, Asia Pulp and Paper, won plaudits last year for stopping the use of natural timber in its mills.

In January, APRIL, owned by Chinese-Indonesian businessman Sukanto Tanoto, responded with a new “sustainable forest management policy”. But, under the policy, it can keep cutting forest inside its concessions until the end of the year and still use mixed tropical hardwood – taken from natural forest – until 2020. APRIL has not said where it will source that wood except from “limited-term suppliers vetted by APRIL” to ensure compliance with their policy.

Campaigners fear that, by 2020, too much of the Sumatran forest, with its endangered orangutans, tigers, rhinoceros and elephants, will be gone.

Late in May, this reporter saw from the air a dozen or more heavy machines at work on peat swamp on the low-lying island off Sumatra’s fire and haze ravaged Riau region.

Canals, which are dug to drain the swamp, speared deep into forest, dividing the island into geometrical agricultural segments. Between the canals, every plant except individual ramin trees (which are protected) are cut to the ground, dragged into piles and loaded on barges.

Villagers say monkeys and wild pigs are starving and seeking food on their land, and that chemicals sprayed to kill weeds have also killed the fish in the river.

Hectares of uniform acacia plantation will replace the tropical rainforest.

Indonesian law is supposed to protect carbon-rich peat, but it does not. The peat on this island – 15 metres deep in some places and laid down over thousands of years – will drain, dry and decompose, releasing its millions of tonnes of carbon dioxide into the atmosphere. Dry peat is also susceptible to the burning that releases the toxic haze that has coated Singapore and Malaysia  in recent years.

In nearby APRIL concessions in Riau, it is clear from the air that extensive areas have been recently burnt, though there is no suggestion the company lit the fires.

Scientists believe it is also a medium-term investment, at best. As the peat on Padang Island decays, the land subsides, meaning that, in 50 years, the island is likely to be at or under sea level and useless for cultivation.

According to APRIL’s spokesman, all this work is legal and fully in accord with the company’s own commitments.

“We are currently developing our last new plantation in an area of Pulau Padang licensed by the Indonesian government,” the spokesman said. “Our policy mandates that the work will be completed by December . . . So if one of your questions is ‘are you violating your own policy?’, the answer is ‘no’.”

Trees and animals, though, are not the only thing at stake. Padang Island contains 13 villages, some of whose inhabitants have protested for years about the destruction of their forests and, with it, their livelihoods.

In 2011, residents went to Jakarta to protest against the politicians who issued the concessions – 28 villagers sewed their lips shut.

Until recently, APRIL observed a moratorium on levelling the trees in parts of their concession area because of local concerns. The  company spokesman said, however, that had recently ended because “the government subsequently gave the go-ahead to proceed”.

This was news to Budi Wardhana, the director of sustainability at WWF, which has joined the company’s stakeholder advisory committee to guide its new policy. Budi says APRIL’s policy is good, but “the implementation is different from the policy as it’s written”.

WWF has already drawn attention to what it sees as a breach in a high conservation value area in Borneo. It also intends to investigate the work on Padang Island, Budi said.  The company, according to him, is “still in the phase of learning by doing”.

On May 17, a group of locals went into the concession area to protest against that a disputed area of forest was being razed when there was supposed to have been more discussion. One villager, Ares Fadila, was punched in the head by police.

“The villagers asked [the concession holder] to stop their canal construction works, but the contractor said they couldn’t because they have a deadline to meet,” Zul said.

The deadline, obviously, is when the company will start living up to the pledge PaperOne spruiks on its green-tinged website.

But, for the forest inside its concession on Padang Island, that will already be too late.

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