Fraud allegations against Indonesian palm oil giant widen, tarnishing auditors and sustainable palm oil initiative
20 August 2010
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 productions. 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) |
"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 |
"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. |
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", 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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