Concerns of Freeport corruption

Recent allegations of Freeport corruption are in regard to possible breaches of the US Foreign Corrupt Practices Act. In 2003 Freeport acknowledged it paid Indonesian military and police units and officials for protection. In 2005 and 2006, the New York Times disclosed in a series of articles that Freeport had paid US$20 million dollars between 1998 and 2004 for these services including paying one individual US$150,000 dollars, as well as payments using disguised accounting entries to a host of other commanders:

“The records received by The Times listed payments to individual military officers under headings such as “food cost,” “administrative services” and “monthly supplement.”

Current and former employees said that the accounting categories did not reflect what the money was actually used for and that it was likely that much of the money went into the officers’ pockets. The commanders who received the money did not have to sign receipts, said current and former employees.

The records list the commander of the troops in the Freeport-McMoRan area, Lieutenant Colonel Togap Gultom, as being the largest recipient of funds. He declined to be interviewed.

During six months in 2001, the records list him as being given just under $100,000 for “food costs,” and more than $150,000 the next year.

The records also list payments to at least 10 other commanders of a total of more than $350,000 for “food costs” in 2002.

By 2003, following the Enron scandal and passage of the Sarbanes-Oxley Act in the United States, which imposed more rigid accounting practices on companies, Freeport-McMoRan began making payments to military and police units instead of individual officers, according to records and current and former employees.” [1],[2]

There seems little doubt such payments would be considered illegal in Indonesia according to a former Indonesian attorney general Marsillam Simanjuntak, who said payments directly to individual military or police officials would be illegal under Indonesian law.[3]

Such payments look as if they were bribes paid directly to foreign officials, and would seem to be problematic for Freeport under U.S. law. Behaving like a quasi state entity, Freeport has revealed itself dependent on a brutal and unholy alliance, which for an ‘ordinary’ corporation would seem to qualify as an egregious breach of the US Foreign Corrupt Practices Act. But Freeport not only survives, it continues to thrive in this environment and has never been charged with violations of the Act, despite a number of high profile complaints. The company says the payments are within the law.

In 2005 the New York City comptroller who looks after the city’s 5 pension funds alleged Freeport McMoRan had made “false or misleading” statements about payments to the Indonesian military and requested the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) investigate the company. U.S. Senator Joseph Biden Jr., the ranking Democrat on the Foreign Relations Committee, also called for an investigation into the company’s payments. He said:

“Large payments by Freeport officials directly to individual Indonesian Army officers are highly irregular. It is time for the Justice Department and the Congress thoroughly to investigate Freeport’s business practices in Indonesia.”

Previously, Freeport told the SEC that payments to the Indonesian government were reimbursement for security services provided. However, the comptroller said “the statements amount to a knowingly misleading representation by Freeport,” as there was no mention of the large payments Freeport made directly into the bank accounts of multiple Indonesian officials.[4]

The New York City pension funds had raised the issue of direct payments with Freeport since at least 2002 when they requested the company disclose full details of all its payments to the military and police. The requests were rebuffed by Freeport.[5]

Further, in 2011 the United Steelworkers (USW) sent a letter to the DOJ that the company be investigated following recent disclosures by the Indonesian police of receiving direct payments from Freeport:

“The Indonesian police have recently been quoted in the Indonesian media admitting that they accepted millions of dollars from PT Freeport Indonesia to provide security for the miner’s operations in Papua, Indonesia, and the National Police Chief Gen. Timur Pradopo referred to the payments as ‘lunch money’ paid in addition to state allocated security funding, stating ‘It was operational funding given directly to the police personnel to help them make ends meet.’

It has also recently been reported in the Australian media that Indonesian human rights group Kontras obtained and released a letter from Papua police saying Freeport paid 1,250,000 rupiah a month [approximately $130] for about 635 police and military personnel, and that the payment would raise the salaries of the security forces by between a quarter and a half.

The Foreign Corrupt Practices Act bans companies from paying foreign officials to do or omit to do an act in violation of his or her lawful duty. We believe that it is reasonable to construe direct payments by PT Freeport Indonesia to police and military personnel providing security for its operations, amounting to a significant fraction of the personnel’s salaries, as a bribe intended to persuade the personnel to act in defense of Freeport-McMoRan’s interests even when those interests conflict with the police and military personnel’s lawful duty to protect Indonesian people, thereby violating the Foreign Corrupt Practices Act.”[6]

I emailed the USW to ask what response they had received from the DOJ. They replied:

“We received an initial response from the DOJ on April 27, 2012 saying that they reviewed the allegations, but ‘cannot comment publicly on whether we are pursuing a particular matter.’  The letters [from the DOJ] also encouraged us to bring the events of October 10, 2011 [disclosure of the Freeport payments], to the attention of appropriate authorities in Indonesia. That was the last we heard.”

Based on my experience with the DOJ that is the last anyone will hear on the matter. They will bury it. There have been no official responses from the DOJ or others concerning any of the above complaints.

I heard an impressive Harvard educated lawyer based in Washington DC speak at a mining conference in Cape Town in February 2013 on the topic of the US Foreign Corrupt Practices Act. A central aspect of his talk described how the DOJ aggressively investigates and prosecutes both domestic and foreign companies for breach of it. It aggressively establishes U.S. jurisdiction even where companies have no U.S. presence or personnel and was a stern warning to companies anywhere in the world to observe the legislation – especially mining companies, including those in Indonesia – that the US reserved the right to come after offenders no matter how minor. He gave the example of a Swiss company that had paid a bribe transacted in U.S. currency, which was considered sufficient grounds by the U.S. to claim jurisdiction of the matter.

The wilful killing and torture of indigenous people by the Indonesian military and police, where such government officials are directly funded by Freeport, would seem to pose a serious problem for Freeport under US law. When I asked the lawyer about this at the end of his presentation he fell quiet and like a guilty schoolboy, gave only a cryptic, wry smile.

Freeport defends the payments saying:

“There is no alternative to our reliance on the Indonesian military and police in this regard. The need for this security, the support provided for such security, and the procedures governing such support, as well as decisions regarding our relationships with the Indonesian government and its security institutions, are ordinary business activities.”[7]

But the military procedures seem far from business as usual! Octo Mote, an indigenous leader from West Papua and a visiting scholar in the genocide studies program at Yale University said:

“All West Papuans want accountability from Freeport about these payments [to the military]. … We don’t want Freeport to give money to our enemy so they can kill our leaders. That’s why we are so concerned about these relationships.”[8]

Indigenous leadership has been targeted for decades. Theys Eluay, a leading advocate of West Papuan independence was assassinated by Kopassus in 2001 in his car one evening, though only low level soldiers were prosecuted and they were given light prison sentences – 3 years or less. Indigenous leaders opposed to Indonesian rule frequently meet a violent end at the hands of the Indonesian military and Kopassus[9] – special forces, trained by Western advisers including from the US and Australia. Another, Kelly Kwalik, an OPM leader was killed in 2009; his brothers had been previously detained and ‘disappeared’.

There is also the corporate approach to commandeering opponents. Papuan leaders with a high profile in the West were targeted in a different way to the military approach. Certain leaders were brought ‘in’ and held close. They were given official positions and pay checks which tainted their credentials and clipped their influence with their people. One such example was Tom Beanal, the Amungme leader and Freeport litigant, who was recruited as an adviser to the company in 1999.

Author: John Wilson

 


[1] Jane Perlez and Raymond Bonner, 27 December 2005 Below a Mountain of Wealth, a River of Waste, The New York Times

[2] Jane Perlez and Raymond Bonner, 10 January 2006, Gold’s other price: Questionable moves, The New York Times.  http://www.nytimes.com/2005/12/27/health/27iht-gold28.html?pagewanted=print 10/10/2013

[3] Ibid.

[4] Jane Perlez and Raymond Bonner, 28 January 2006 New York Urges U.S. Inquiry in Mining Company’s Indonesia Payment, The New York Times

[5] Ibid.

[6] Letter, 1 November 2011 United Steel Workers to the U.S. Department of Justice. http://assets.usw.org/international/USW-FCPA-Freeport.pdf “The USW is the largest industrial union in North America and has 850,000 members in the United States, Canada, and the Caribbean. It represents workers employed in metals, rubber, chemicals, paper, oil refining, airlines, atomic energy and the service sector.”

[7] Jane Perlez and Raymond Bonner, 27 December 2005 Below a Mountain of Wealth, a River of Waste, The New York Times http://www.nytimes.com/2005/12/27/international/asia/27gold.html?pagewanted=all&_r=0

[8] Robert Bryce, 23 September 2005 Written in Stone, The Austin Chronicle.

[9] Robert Bryce, 23 September 2005 Written in Stone, The Austin Chronicle.

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About mininganalystnow

Former Wall Street Analyst (working for SBC Warburg – now part of UBS) targeted by US and Australian intelligence agencies (FBI and ASIO) after publishing report touching on US State Department investigation into allegations US copper/gold mining company Freeport McMoran was involved in the killing of indigenous protestors in West Papua, Indonesia.
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One Response to Concerns of Freeport corruption

  1. From a 25-year sufferer of US-agency blacklisting in relation to resistance to injustices to humans and all living beings: thank you for your documentation of how these things come about. Note that the initial “Five Eyes” later became “Twelve Eyes” and more.

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