WALHI Kalimantan Selatan, Community Alliance for Pulp and Paper Advocacy (CAPPA), PADI-Indonesia, NADI, Environmental Defense
IFC, MIGA, Merrill Lynch and ANZ Bank urged to reject United Fiber Systems and Kiani Kertas projects
Groups call for strict environmental standards and enforcement of anti-money laundering laws
September 16, 2006. Batam. Civil society organizations gathered in Batam, Indonesia, during the World Bank/IMF annual meeting – call upon international investors and financial institutions to cancel plans for support of the troubled US$1.2 billion United Fiber Systems pulp and chip mills and Kiani Kertas pulp project which pose a significant threat to the forests, near-shore waters and resource-dependent peoples of Indonesian Borneo. The groups are targeting the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), which has been considering support for the project; the International Finance Corporation (IFC), which has utilized a “small business” fund to launch a certification effort for the Inhutani II government plantation supplying the large-scale UFS/KK mill; Merrill Lynch, currently involved in the UFS/Kiani acquisition process; and Australia’s ANZ Bank.
“The World Bank admits that forest loss and forest crime dominate the Indonesian forestry sector,” said Stephanie Fried of Environmental Defense, referring to the June 2006 World Bank Indonesian forestry strategy for 2006 – 2009. “Investment in high-risk Indonesian forest-based projects where there is significant potential for crimes such as illegal logging brings significant legal and reputational risks to public and private sector financial institutions.”
“Our field research has found that, in reality, the size of the timber plantations claimed by UFS is much greater then their actual plantations,” said Berry Nahdian Forqan, Executive Director, WALHI Kalimantan Selatan. “This project appears to be operating without the required government permits and has already generated serious problems for the local community, including illegal destruction of coral reefs and nearshore resources used by local fishers.”
“The World Bank, itself, finds that – throughout Indonesia – the logging of natural forests been the fastest growing source of Indonesia’s timber supply in recent years and is a major source of supply for pulp mills,” said Koesnadi WS from PADI Indonesia. “Given the vast overcapacity in Indonesia’s forestry sector, the likelihood of illegal logging for the timber supply for the proposed UFS and Kiani Kertas mills is extremely high.”
“With the tightening of anti-money laundering regulations in Europe, Indonesia, the U.S. and Singapore, it is clear that world’s financial institutions must now prioritize the implementation of strict new money-laundering laws,” said Novita Tantri of NADI. “Financial institutions must understand that support for companies engaged in illegal activities, including illegal logging, may have significant legal consequences for them.”
Regulations in Indonesia, Singapore, European Union and the United States now identify projects involving “politically exposed persons” – that is, former or current government and military officials, their families or associates as especially high risk projects, requiring extraordinary levels of due diligence. The new range of international anti-money laundering laws now target those who, while in power, illegally amassed large fortunes by looting their country’s funds, diverting international aid payments, disproportionately benefiting from the proceeds of privatizations, or taking bribes in return for arranging favorable decisions, contracts or job appointments.
The effort by UFS to purchase the troubled Kiani Kertas mill in East Kalimantan features substantial involvement of “politically exposed persons” including relatives and close associates of Indonesia’s former strongman, General Suharto, convicted felons, and Indonesian and European shell companies registered in the British Virgin Islands and Mauritius. “Not only is this project an environmental disaster in the making, but it is a poster-child for the strict application of anti-money laundering laws,” said Rivani Noor, Facilitator of CAPPA.