The seeds of a bribery scandal in Indonesia - Excellent article in Asia Times
The seeds of a bribery scandal in Indonesia
By Bill Guerin
Asia Times, Jan 20, 2005
JAKARTA - Though a battle between big business and environmental concerns in Indonesia has led to a monetary loss for publicly listed US agrochemical giant Monsanto for breaking US anti-corruption laws, there has been no loss of liberty for any of the company's US nationals involved in the corruption. The Foreign Corrupt Practices Act prohibits bribing foreign officials and can lead to a maximum fine of $2 million per violation and up to five years' imprisonment.
St Louis-based Monsanto has been forced to pay $1.5 million in fines after owning up to spending more than $700,000 on bribes in a country where it has been losing money for the past few years, and one which has long been ranked one of the most corrupt in the world. The Department of Justice and the Securities & Exchange Commission (SEC) charged Monsanto with violating the Foreign Corrupt Practices Act by bribing an Indonesian government official to waive a strict environmental requirement needed to plant the controversial genetically modified (GM) cotton seeds in Indonesian soil.
The investigation was sparked by Monsanto itself. The bribes were financed, at least in part, through unauthorized, improperly documented and inflated sales of Monsanto's pesticide products in Indonesia, the company admitted. Unlike previous toothless anti-graft bodies, Indonesia's Anti Corruption Commission (KPK) has the power to prosecute - a power that was previously in the hands of the Attorney-General's office and the police. In May, the KPK began its own investigation into the allegations. Last Thursday, as Monsanto shares rose 4.5% to close at $53.30 on the New York Stock Exchange, Indonesian investigators were starting to pull in for questioning those alleged to have been involved in the graft.
According to the US authorities, Monsanto made some $700,000 in illicit payments to at least 140 current and former Indonesian government officials and their family members, from 1997 to 2002. The biggest outlay, $373,990, was to buy land and build a house in the name of a wife of a senior Ministry of Agriculture official. Soleh Solahudin, who was agriculture minister from 1998 to 1999 and visited the company's US headquarters at its invitation, confirmed after a meeting with the KPK that both Monsanto and its local subsidiary, PT Monagro Kimia, had lobbied him to allow the cultivation of GM crops in Indonesia.
In September 2000, amid pressure from the public and non-government organizations, a planned agreement between the government and Monsanto to develop 20,000 hectares (49,400 acres) of GM cotton plants in South Sulawesi was postponed by Coordinating Minister for the Economy, Rizal Ramli, hours before it was due to be signed. Sonny Keraf, Minister of Environment at the time, told reporters the next day that he would send a warning letter to PT Monagro Kimia to stop production as earlier government regulations 51/1994 and 27/1999, still in force, stated that the distribution of certain agricultural products, including Monsanto cotton, needed an environmental impact assessment (AMDAL).
Five months later, to the surprise and chagrin of environmentalists, and despite the controversy over the products, Minister of Agriculture Bungaran Saragih signed a decree that gave approval for the limited sale of transgenic cotton Bt DP 5690B in an experimental project at plantations in Sulawesi, as "quality crop varieties" under the Monsanto brand name of Nucotn 35 B or Bolgard.
According to SEC documents, Monsanto had retained Jakarta-based consulting company, PT Harvest International Indonesia, to assist it with obtaining the various government approvals and licenses necessary to sell its products there. Lobbying, per se, is perfectly legal and was common practice by multinationals during the Suharto era. A Monsanto manager and the "lobbyist" got Indonesia to approve "Monsanto's Bollgard Cotton, a GM crop," in South Sulawesi, the SEC stated simply.
Saragih denied last week that Monsanto had offered bribes in exchange for this approval. After being grilled by the KPK, he admitted to reporters that representatives from Monsanto, PT Monagro Kimia and Harvest International Indonesia had indeed lobbied him to get permits for cultivation of GM crops, but neither he nor any ministry officials received any bribes in return. He challenged the US government to publish the name of officials who had been bribed by Monsanto. Officials at the South Sulawesi office of the agriculture ministry also received approximately $29,500 from Monsanto, US regulators claimed.
Saragih also argues that accusations of corruption over his approval are illogical because the limited release condition meant Monsanto would lose money as it only permitted GM crops in South Sulawesi. Monsanto had originally applied for permission to grow GM cotton throughout Indonesia, where, according to the Ministry of Agriculture, there are 100,000 hectares of potential land for growing cotton.
Local cotton output meets less than 1% of total annual demand of around 1.5 million tons or the equivalent of 500,000 tons of cotton fiber. It has a yield of only 401 kilograms per hectare while the Monsanto cotton was said to have a yield of two to three tons per hectare.
In June 2001, a massive coalition of 72 NGOs launched a suit against Saragih's decree. They lost the first and second round of the legal battle and then appealed, unsuccessfully, to the Supreme Court in March 2002. The coalition's lawyers said the decree had been issued by the minister as a way of legitimizing past violations by the seed distributors, PT Monagro Kimia. The subsidiary had already supplied farmers in plantations in seven regencies (districts) in South Sulawesi (Takalar, Gowa, Bantaeng, Bulukumba, Bone, Soppeng and Wajo) with transgenically modified Bt cotton or Bollgard cottonseeds for planting in a 500-hectare area.
It was reported that only days after the decree was announced, a consignment of 40 tons of the GM cotton seeds arrived in South Sulawesi from South Africa and was driven under armed guard from the airport in Makassar in trucks marked "rice delivery".
Just as the lawyers were arguing their case in court in Jakarta, Monsanto's GM cotton, which PT Monagro Kimia had said was resistant to the pest Helicoverpa armigera, was being attacked by the very same pest. One report claimed that hundreds of hectares of GM cotton fields in Bulukumba district had been destroyed by the pests by late June but the remaining crops were harvested. Some of the cotton was exported and some distributed in local markets.
But later that year, after a change of government, the Ministry of Environment issued a decree that specifically stated the requirement for an AMDAL for such projects. Monsanto sought repeal of the new law, and when lobbying didn't work, it resorted to bribery, the SEC says. "When it became clear that the lobbying efforts were having no effect on the Senior Environment Official, the Senior Monsanto Manager told the Consulting Firm Employee to 'incentivize' the official with a cash payment of $50,000," the SEC suit against Monsanto says.
Sometime in February 2002, an employee of the consulting firm visited the senior official at his home and gave him an envelope containing $50,000 in $100 bills. The official took the money but said he couldn't promise he could get the law repealed, the SEC claimed. "This decree was likely to have an adverse effect on Monsanto's business interests in Indonesia," the SEC said. The Monsanto manager then concocted a scheme "involving false invoices" to hide the bribe. This involved a $66,000 payment to the consulting company to cover the bribe plus the taxes it would have to pay on its falsely reported income. The repeal of the environmental impact study requirement was never authorized.
Harvest's president-director, US national Harvey Goldstein, has denied that his company had a hand in any bribery. "No, never...Harvest has never been involved in corruption whatsoever," he told reporters after meeting members of the commission. Environment Minister Nabiel Makarim, who had issued the decree, admitted earlier this month that Monsanto lobbied him to facilitate its business in Indonesia though he denied any wrongdoing. "There was lobbying, but it was in line with the law. It's something common," Makarim said after a meeting with the KPK. "No money was offered or requested," he claimed.
Makarim admitted that he had a close relationship with Goldstein, but claims that he has no knowledge of Monsanto paying bribes to employees of the environment ministry. Goldstein agrees that he knew both Saragih and Makarim personally, which is hardly surprising, given the nature of his consultancy business.
The rise and fall of Monsanto's biologically engineered products in a market that generates less than 1% of the company's global annual revenue came to an end in 2003 when the company closed down its biotech cotton sales operations, confining its remaining business in Indonesia to sales of the "Roundup" brand of herbicide and conventional corn seeds.
Farmers who had bought the experimental seeds on credit ended up indebted to Monsanto. Friends of the Earth International quoted a Sulawesi farmer, Santi, as saying, "The company didn't give the farmers any choice, they never intended to improve our well-being, they just put us in a debt circle, took away our independence and made us their slave forever. They try to monopolize everything, the seeds, the fertilizer, the marketing channel and even our life."
Asia's key biotech research agency, ISAAA, says GM corn, peanut, soybean, potato and rice are still under development in Indonesia and limited field testing has been done on herbicide-resistant corn, cotton and soybean as well as insect-resistant corn, cotton and potato. In March 2004, the coalition of environmentalists urged the Supreme Court to rule against the government's continued policy of allowing genetically modified organisms (GMOs) to be planted
Long after he left government, Keraf staunchly supported the environmental angle, particularly in recent controversial cases involving foreign investors, like the government's decision last year to grant 15 mining companies access to 11.4 million hectares of protected forest areas and the controversy over Submarine Tailings Disposal that saw US-based Newmont in hot water over alleged pollution of Sulawesi's Buyat Bay
He said recently that safety of transgenic crops and their effect on the environment was still a major concern and it would be advisable for agreements on the cultivation of the crops to be postponed. Indonesia had signed the Cartagena Protocol on biosafety, so the government had to stick with the precautionary principles over transgenic matters, he argued. He contended that the issue of transgenic crops in Sulawesi was merely "trade politics".
The NGOs want the government to do more to protect farmers and consumers from the risks of genetically modified crops. Their efforts are taking a long time to bear fruit. The House of Representatives began the process to ratify the Cartagena Protocol on Biosafety in July 2004 but it was left in the pending tray, as electioneering got well under way. The protocol came into force in September 2003 and commits parties to ensuring that "the development, handling, transport, use, transfer and release of any living modified organisms are undertaken in a manner that prevents or reduces the risks to biological diversity, taking also into account risks to human health".
Environmentalists hope that after ratifying the protocol, Jakarta will consult the public to draft regulations on GMOs and strengthen the agencies involved in regulating GMO research and use. But all eyes in Jakarta are now on the graft probe rather than the industrialization of agriculture. President Susilo Bambang Yudhyono has pledged to tackle head-on the pervasive problem of corruption, which exists at all levels of politics, business and society, and has been a major detriment to urgently needed foreign investment. International donors had put pressure on the government to establish the anti-graft commission as the judiciary was widely seen as crooked, incompetent and unwilling to deal with corruption.
In June last year, the attorney-general's office, using figures from known cases investigated by the authorities, claimed Indonesia had lost $2.35 billion in the previous two years to corruption. None of those cases are thought to have involved foreign enterprises. The commission has written to the US Department of Justice and the SEC, seeking more information. Representatives from PT Monagro Kimia as well as former Harvest Vice President Michael Villareal are expected to face questioning soon, along with several government officials. Deputy KPK chairman Erry Riyana Hardjapamekas warned: "We consider the case serious as it must serve as a warning to other publicly listed companies not to bribe state officials."
Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has worked in Indonesia for 19 years in journalism and editorial positions. He has been published by the BBC on East Timor and specializes in business/economic and political analysis.