INDONESIA: New York Urges U.S. Inquiry in Mining Company's Indonesia Payment

The New York City comptroller has charged that the American mining company Freeport-McMoRan knowingly made ''false or misleading'' statements about payments to the Indonesian military, and has asked the Securities and Exchange Commission and the Justice Department to investigate.

In separate letters to each agency, the comptroller, William C. Thompson Jr., who is the investment adviser to the city's five pension funds, said that he believed the company might have violated the Foreign Corrupt Practices Act, which forbids American companies to bribe foreign officials.

He also told the securities commission that Freeport-McMoRan Copper and Gold, which is based in New Orleans, might have filed false proxy statements in violation of the Securities Exchange Act.

Mr. Thompson said in the letters, dated Thursday, that he was asking for the investigations based on a report by The New York Times in December, which he said showed that Freeport had paid ''large sums of money directly into the personal bank accounts of a number of individual Indonesian Army officers.''

Global Witness, a nonprofit human rights organization, had made similar allegations, Mr. Thompson wrote.

Mr. Thompson's request came amid several other calls for investigations into Freeport's payments, including from Sen. Joseph R. Biden Jr., the ranking Democrat on the Foreign Relations Committee, who has long been concerned with corruption in the Indonesian military and its poor human rights record.

Freeport documents obtained by The Times show that from 1998 through 2004 Freeport paid nearly $20 million to individual military and police officers and units in remote Papua Province, where Freeport runs the world's largest gold mine.

More than two dozen commanders, most of them from the army and the police, but also from the navy and the air force, received payments, according to the documents. Some officers were given monthly payments. Some amounted to over $100,000 in a year in a country where a general's annual salary is less than $10,000.

Freeport says the payments were ''ordinary business activities'' and were within American and Indonesian laws. ''The support and assistance for the military and police in Papua includes mitigating living costs and hardship elements of posting in Papua, better ensuring that legitimate security needs are provided to the company,'' it said in a written response to questions from The Times in December.

The New York City pension funds have in the past challenged Freeport's payments. Mr. Thompson wrote that after the funds filed shareholder resolutions in 2004 and 2005 calling for the company to cease the payments, Freeport told the S.E.C. that the payments were made to the Indonesian government as reimbursement for security services.

In contending the money went to the government and not to individual officers, ''the statements amount to a knowingly misleading representation by Freeport,'' the comptroller said.

In a telephone interview from New York on Friday, Mr. Thompson said, ''We had filed shareholder resolutions over the last three years, trying to get the company to account for their actions in payments to the military.'' In response, he said, the company ''tried to prevent us from moving forward with our resolutions.''

In his letter to Attorney General Alberto Gonzales, Mr. Thompson said the funds were asking the department ''to undertake a formal review to determine if'' Freeport had violated the Foreign Corrupt Practices Act.

The funds, one of the largest public pension systems in the United States, own 590,350 shares of Freeport stock -- currently worth $37 million -- and the funds were concerned that ''possible illegal actions by company officials could have a negative impact on shareholder value,'' Mr. Thompson wrote.

Asked about the comptroller's letters, Stanley S. Arkin, a lawyer for Freeport, said that the company had nothing to add to what it had already said in its public disclosures. ''Our public findings are what our public findings are,'' he said. ''We do not comment on such things.''

After the December article, the company posted a letter on its Web site saying the article and a subsequent editorial contained ''disturbing and provocative misstatements'' about its operations and that the article had ''ignored the practicalities of conducting business in a remote area.''

The company acknowledged in a conference call with investors two weeks ago that it was under federal scrutiny regarding payments to the military. Executives said they were ''fully cooperating'' with ''informal inquiries from government agencies.''

In a statement Friday in Washington, Senator Biden said investigations of the company were needed. ''Large payments by Freeport officials directly to individual Indonesian Army officers are highly irregular,'' Mr. Biden said. ''It is time for the Justice Department and the Congress thoroughly to investigate Freeport's business practices in Indonesia.''

Mr. Biden said Freeport's conduct threatened to undermine the efforts of the Indonesian president, Susilo Bambang Yudhoyono, who is considered a reformer, to clean up the army.

In Indonesia, Juwono Sudarsono, the civilian defense minister, told the Dow Jones news service that he had asked the inspector general of the defense forces to look into the payments. It was illegal, he said, under Indonesian law for foreign companies to pay soldiers.

A leading Indonesian politician and former presidential candidate, Amien Rais, in speeches and interviews with reporters, has called for Parliament to change Freeport's contract so that the Indonesian government receives what he called a more equal share of the mine's profits.

With gold prices recently surging to a 25-year high of more than $550 an ounce, Freeport said that its profits had more than doubled last quarter and that it would pay the Indonesian government some $1 billion in taxes for 2005.

At the same time, by Freeport's own estimates, its mining operations will generate some six billion tons of waste in Papua before they are through, much of it dumped directly into what was once a pristine river system. Its waste disposal method, the company says, has been approved by provincial authorities.

''I saw where they had demolished a mountain forever, and instead left an ugly lake,'' Mr. Rais said in an interview of a visit he made to the mine. ''I felt humiliated as a son of Indonesia.''

In Parliament, members of two separate committees said they would ask Freeport executives to answer questions about the company's payments to the military, its tax payments and the environmental damage around the mine site.

A member of the environment committee, Alvin Lie, said his panel would hold hearings in February to look at the environmental consequences of the gold mine on one of the world's most diverse ecosystems.

A member of the finance committee, Drajad Wibowo, who holds a Ph.D. in economics from an Australian university and was instrumental in uncovering a major Indonesian banking scandal, said he would ask the Ministry of Finance to explain to the panel Freeport's tax and royalty payments.

He suspected, he said, that Freeport was not paying enough taxes. ''When a mining company works in its own country it works under very transparent rules,'' Mr. Drajad said. ''Here it is in secret.''

AMP Section Name:Natural Resources
  • 185 Corruption

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