Fraud allegations against Indonesian palm oil giant widen, tarnishing auditors and sustainable palm oil initiative

/ Rhett Butler

Sinar Mas, an Indonesian conglomerate whose holdings include Asia Pulp and Paper, a paper products brand, and PT Smart, a palm oil producer, was sharply rebuked Wednesday over a recent report where it claimed not to have engaged in destruction of forests and peatlands. At least one of its companies, Golden Agri Resources, may now face an investigation for deliberately misleading shareholders in its corporate filings.

Sinar Mas faces backlash from false claims made in response to environmental campaign against deforestation.

Sinar Mas, an Indonesian conglomerate whose holdings include Asia Pulp and Paper, a paper products brand, and PT Smart, a palm oil producer, was sharply rebuked Wednesday over a recent report where it claimed not to have engaged in destruction of forests and peatlands. At least one of its companies, Golden Agri Resources, may now face an investigation for deliberately misleading shareholders in its corporate filings.

In the report, released last week, Sinar Mas claimed auditors had cleared its subsidiaries of any wrongdoing under Indonesian law and the Roundtable on Sustainable Palm Oil (RSPO), a certification standard for palm oil production. It accused Greenpeace, an environmental group whose campaigns against PT Smart have led major buyers to drop it as a palm oil supplier, of exaggerating its case against the company’s palm oil.

But Wednesday BSI and Control Union, the auditor, released a statement distancing itself from Sinar Mas’s claims, noting that PT Smart had indeed engaged in clearing of forests and peatlands in violation of Indonesian law.

Cleared peatland – as shown here in PT Kartika Prima Cipta’s palm oil concession close to Lake Sentarum National Park, West Kalimantan. © Rante/Greenpeace
This rainforest area is also an important habitat for orang-utans, a species being driven closer to the brink of extinction in the wild. (PT Bangun Nusa Mandiri, 5 July 2010, © Rante/Greenpeace)

“It has come to the attention of BSI Group (BSI) that following the publication of the report ‘BSI-CUC Verifying Greenpeace Claims Case: PT SMART Tbk’ on 10 August 2010, there have been elements of the report that have been misreported as it has been published and presented,” read the statement, which went on to point out specific transgressions by PT Smart.

“There was planting on deep peat (> 3 m) in two estates from 2005 – 2008 which is in breach of the Presidential Decree with regards to deep peat issued in 1990. This also contravened SMART’s own operating instructions,” it said.

“In Central Kalimantan, all concessions examined were found to have carried out land clearance before the environmental impact assessment was approved.”

In the statement, BSI warned that RSPO membership rules do not sufficiently protect against organizations that have multiple subsidiaries, some of which may be certified and some of which may not, from misusing the RSPO label. BSI also said that contrary to Sinar Mas’s press releases and report, “Greenpeace reports had not stated that the Sinar Mas group destroyed primary forests.” Greenpeace only alleged that Sinar Mas companies had converted “rainforest” and “peatlands”.

BSI’s clarification was welcomed by Greenpeace.

PT Bangun Nusa Mandiri concession on 5 July 2010. © Rante/Greenpeace

“Today’s announcement shows that Sinar Mas has manipulated the audit’s findings to try to convince shareholders and customers that they are a responsible and sustainable company. Now the truth is out. The audit shows that Sinar Mas repeatedly broke Indonesian law, RSPO rules and its own sustainability commitments,” said Bustar Maitar, Greenpeace South East Asia Forest Team Leader, adding BSI’s work shows that in eight out of 11 concessions audited, forest clearance was conducted without the necessary environmental permits.

“Not only did Sinar Mas need to backtrack on its false claims about Greenpeace reports, but this statement confirms that it broke Indonesian law and cleared many forest areas before assessing their conservation value, including potential orang-utan habitat.”

In failing to commission independent assessments to determine whether areas should be classified as being of high conservation value, PT Smart also broke RSPO rules. PR Smart is an RSPO member, which it hoped would make its palm oil more attractive to buyers concerned about environmental performance.

In light of the disclosure, Greenpeace says it has now filed complaints with the Singapore and Indonesia stock exchanges that Golden Agri Resources deliberately misled investors in recent corporate filings.

As one of Sinar Mas’ pulpwood companies, PT Bina Duta Laksana, clears this area of peatland forest, it is destroying the habitat of the critically endangered Sumatran tiger. © Greenpeace

Asia Pulp & Paper, a brand long targeted by activists for its environmental record and misleading advertising campaigns, earlier this month denied recent allegations by Greenpeace that its owners are engaged in damaging logging practices. In issuing its report, titled “Getting the Facts Down on Paper” [PDF], Asia Pulp & Paper (APP) notes it does not directly own or manage any forest concessions but that its products are produced by several pulp and paper companies in Indonesia including PT. Indah Kiat Pulp & Paper Tbk, PT. Pindo Deli Pulp and Paper Mills, PT. Pabrik Kertas Tjiwi Kimia Tbk, PT. Lontar Papyrus Pulp & Paper Industries, PT. Ekamas Fortuna and PT The Univenus. The report goes on to state there “is no legal entity named Sinarmas Group”, apparently aiming to distinguish itself from Sinar Mas, the Indonesian conglomerate that lists APP on its own home page.

“Sinar Mas group of companies have been misleading their own shareholders as well as traders and analysts,” said Greenpeace in a blog posting. “That’s a pretty serious charge, and surely making announcements like that which knowingly mislead the stock exchange is likely to get them in very hot water.”

If the damage from the PT Smart episode weren’t enough, Sinar Mas is also facing criticism for its claims revolving around an audit of Asia Pulp & Paper (APP) — a paper products brand supplied by five companies — that has long been a target of green groups for its logging practices. Earlier this month APP released a report, “Getting the Facts Down on Paper” PDF], Asia Pulp & Paper (APP) notes it does not directly own or manage any forest concessions but that its products are produced by several pulp and paper companies in Indonesia including PT. Indah Kiat, it said cleared it of environmental misconduct alleged by NGOs. APP said Mazars, an international accounting and auditing firm, signed off on the validity of statements in the report. The apparent audit hasn’t been released but in a cover letter accompanying APP’s report, Mazars appears to distance itself from the document:

    The Board of Directors of the [Asia Pulp & Paper brand] Companies are responsible for both the subject matter and the evaluation criteria.

    Our responsibility is to report on the existence of external documentation that supports the accuracy of verifiability of the subject matter. Currently there are no statutory requirements or generally accepted verification standards in Indonesia that related to the reparation, presentation, and verification of the Report prepared by the Companies.

WWF Indonesia, one of the groups that has campaigned against APP after initially working with the brand to improve its environmental performance, said “the public is thus provided with nothing but a cover letter on an unpublished ‘assurance report’ about documents that are not made available to public.”

“We have no doubt, paper SMG/APP produces in its mills contains Sumatra’s timber from dense tropical rainforest,” Aditya Bayunanda WWF’s Pulp & Paper Coordinator for Indonesia said in a statement. “After pulping more than a million hectares of Indonesia’s forests since it first opened its Indah Kiat mill in Riau, Sumatra, APP applied for and plans to clear yet another 100,000 hectares of natural forest in 2009 and 2010.”

“These areas and the forests that were once there have been verified on satellite images, through aerial surveys and field visits many times.”

Logging of Sumatra’s forests by APP was most recently documented in Greenpeace’s “How Sinar Mas is Pulping the Planet,” which was released in July.

Environmental concerns have led Staples, Woolworths, Gucci Group, and Office Depot to drop APP products from their stores and supply chains. Carrefour, Tesco, and Kraft are reported to be in the process of phasing out APP products, while the Forest Stewardship Council (FSC), a standards setting organization for forest products, has revoked APP’s right to use “FSC-certified” labels on its products.

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