[Kabar-indonesia] 4 of 11: HRW: Indonesian Military's Economic Activities

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HRW: Indonesian Military's Economic Activities 
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A Pattern Repeats

By mid-2004, a new regent complained publicly that
authorities in the region had granted logging permits
too readily to unnamed forestry companies that
promised to invest in oil palm plantations but instead
only cut trees for export to Malaysia.169 He accused
these companies of destroying some twenty-five
thousand hectares of forests in Nunukan and
contributing to the problem of illegal logging.170 The
regent also pointed to a social cost. According to
him, the episode sparked tensions and social unrest as
people grew frustrated over promised plantation jobs
that never materialized.171

The events that followed indicate the regent was
referring to ABK. The contractor working for ABK was
unable to renew its timber license after April
2004.172 The parent company in Malaysia, BOT, did not
respond to questions from Human Rights Watch, but
according to its joint-venture partner, Inkopad, ABK
ceased operations on July 9, 2004, and subsequently
lost its permits.173  In August 2004, regional
authorities said they would investigate the regent's
allegations before taking action against any
company.174 In December 2004, NGOs have reported, an
official Department of Interior investigation
concluded that ABK had engaged in extensive illegal
logging and cross-border timber sales.175 That same
month, the public record shows, the Indonesian
Department of Forestry withdrew ABK's permit.176

In an echo of the Yamaker experience years earlier, a
military-linked company once again had been accused of
breaking the law, causing environmental destruction,
and contributing to social upheaval, and the only
penalty was eventual loss of its concession rights. To
Human Rights Watch's knowledge, the military entities
were not otherwise punished for their involvement in
illegal activity, the individuals involved did not
face prosecution, and the local community was not
compensated for the damage done to the land.177
Inkopad told Human Rights Watch that it relinquished
its shares in ABK and returned them to the parent
company, BOT of Malaysia.178 The army cooperative
declined to address its role in logging activities,
land disputes, or environmental concerns associated
with its business investment in Nunukan. On this
point, its written response to Human Rights Watch
stated, "Inkopad is no longer connected to problems
related to [the planned] palm oil plantation in
Simenggaris [area], Nunukan regency, East
Kalimantan."179

The issue was unlikely to end there, however. In 2005,
the Indonesian government announced a plan to develop
the largest oil palm plantation in the world along the
Malaysia-Kalimantan border area.180 Nunukan was one of
several regencies anticipated to host the massive
plantation.181 Environmentalists, international
officials, and even the palm oil producers association
lined up against the project.182 In response to
critics, the Indonesian government announced that it
would reduce the size of the planned plantation, and
avoid placing it on land designated for an
international conservation initiative to preserve the
area's biodiversity, but that it still intended to
move forward with the project in the Kalimantan border
area.183 There was also controversy over the prospect
that the project would provide a new excuse for the
military to engage in forestry activities under the
pretext of security.184 Human Rights Watch learned
independently that the military had a stake in several
forest concession areas elsewhere in Kalimantan that
were slated for conversion to oil palm.185

Military Collaboration with Private Businesses

Alliances with corporations or private entrepreneurs
account for a vast part of the TNI's extensive
business interests. Often the military partners with
foreign investors. Private businesspeople, whether
domestic or foreign, have different reasons to enter
into an alliance with the military. They may seek, for
example, to curry favor with powerful individuals who
can advance their business. The military's ability to
arrange government licenses or block competition has
diminished in recent years, but particularly at the
local level, military officers retain the role of
gatekeeper. Businesspeople also choose to align
themselves with the military to gain access to goods
and services. For example, the military provides
transport services on military vehicles for a fee,
leases out land, and trades in items such as fuel,
timber, and coffee.

In an example described to Human Rights Watch, in 2004
a private business operated on military-owned land in
Jakarta, for which the owner paid a monthly fee of Rp.
30 million ($3,300) directly to the unit. When he
refused a demand by a military unit to raise the
monthly fee, the unit shut down his business until a
compromise was reached. The monthly payments went
directly to the unit without being reported to public
accounts.186

"Acquaintance Funds": Private Contributions to the
Military

The military's alliances with business also can
involve solicitation for contributions. Businesses
raise money for the military for operations and
provide in-kind support, such as vehicles or office
equipment.187 In one example that was publicly
reported, a developer provided land and buildings
worth Rp. 18.5 billion ($1.95 million) to locate an
army base inside a West Java industrial zone known as
Jababeka. The donation made good business sense, an
official of the industrial zone argued, since the
presence of military personnel "can deter people from
carrying out crimes here."188

In other cases, an analyst explained, "[t]he local
military commander just picks up a phone to get money
[from business patrons]."189 The proceeds from these
informal arrangements are sometimes referred to as
"acquaintance funds" or "help from friends." Lt. Gen.
(ret.) Agus Widjojo acknowledged to Human Rights Watch
that "it happens that business people make
contributions" but stated that such arrangements have
become less common than since the late 1990s: "Then it
was easy [for a military officer] to approach a
business to say what you need. Not now. The police are
taking over the roles outside of defense."190

Payments for Security Services

The Indonesian military makes itself available to
provide security services for private interests.
Different military units earn money by forming private
security companies, and individual commanders charge a
fee to loan out their troops as private guards.191
Some military officers who arrange such security
services are later hired on by the companies they
protected, to serve as security managers for company
facilities.192  More famously, the TNI provides
security to large multinational companies. In
Indonesia, companies that operate facilities that the
government has declared to be "vital national assets"
are required to have protection. In practice, it has
usually been the TNI that fills this role, despite a
2004 presidential decree that officially shifted the
responsibility to guard such facilities to the
police.193 For example, Indonesian authorities
certified in January 2006 that the TNI would guard the
facilities of three companies because neither the
company nor the police could ensure adequate
security.194 The reliance of major companies,
particularly in the extractive sector, on state
security forces (military and/or police) to protect
their installations in remote and dangerous locations
around the world can be rife with problems if the
arrangements are not carefully managed.195 In
Indonesia, questions surrounding company payments for
military security are acute because of the armed
forces' record of corruption and human rights
violations.

Companies can come under strong pressure to underwrite
the expenses of military forces assigned to protect
their facilities, so they do not always feel they have
a choice. A former international executive commented
to Human Rights Watch in frustration: "The way
Indonesia sets up funding of the police and military
is one grand national extortion racket."196 A former
employee of a multinational company offered this view
to a researcher:

It is true that the Indonesian military is underpaid
and under-equipped, and the housing they are provided
is terrible. But is it the company's place to
subsidize the Indonesian military?197

This same person referred more directly to financial
demands made by the military:

The problem was never with Jakarta as such, not with
the military hierarchy there. The biggest problem has
always been with the local military. Basically once we
started to pay we were backed into a corner. The
demands always came in for more money.198

Moreover, Indonesian troops often are accused of using
intimidation and violence in the course of
"protecting" private companies. (See "Freeport's
Security Arrangements," below.) In one example, a
pending 2001 lawsuit accuses ExxonMobil of complicity
in gross abuses allegedly carried out by Indonesian
security forces in and near the site of the company's
operations in Aceh, while the company strongly
disputes the claim that it bears any
responsibility.199 A coalition of environmental and
indigenous rights groups described an incident in
North Maluku in late 2003 in which they alleged that
armed soldiers paid by a mining company delivered
written notice threatening protesters with arrest if
they did not leave that company's mine site. 200

Freeport's Security Arrangements

A well-known case of security arrangements involving
the Indonesian military and police is that of
U.S.-based mining giant Freeport-McMoRan Copper & Gold
Inc., which has extensive operations in Papua through
its subsidiary, PT Freeport Indonesia.201 The TNI has
had a presence alongside Freeport for decades,202 but
the security presence has expanded considerably over
time: as of 2005, more than 2,400 government security
personnel (military and police) were located in the
general area of Freeport's operations.203

Security-Related Controversies

Freeport's security arrangements have been
controversial in a number of respects. First,
Freeport's ties to the military have led to
accusations of complicity in human rights abuses by
these forces. In the mid-1990s, troops at the mine
site allegedly used company vehicles, offices, and
shipping containers to transport and detain people
they then tortured or killed.204 The company said it
bore no responsibility for how its equipment was used
by the military.205 Freeport's human rights policy,
adopted years after these events, explicitly
recognizes the risk that military or police personnel
may misuse company equipment and facilities to commit
abuses.206

Second, there has been widespread speculation that the
military intimidated Freeport into providing financial
support at its Grasberg mine in Papua.207 The New York
Times has repeated claims that the August 2002
killings of three Freeport employees in an ambush near
the town of Timika may have been carried out by
soldiers to ensure the continuation of paid security
arrangements, as initially suspected by police.208 The
TNI has disputed such claims in the strongest
terms,209 Freeport has said it has no independent
knowledge of who perpetrated the ambush,210 and a
joint investigation by the U.S. Federal Bureau of
Investigation (FBI) and the Indonesian police did not
find evidence of military involvement.  The allegation
resurfaced after the FBI's prime suspect was arrested,
together with several other Papuans, in January
2006.211 The suspect confessed to firing on the convoy
of Freeport vehicles but also sought to implicate the
military in the crime. According to his lawyer, a
soldier provided the bullets used in the ambush and
three men in military uniform also took part in the
ambush.212

Third, serious questions have been raised regarding
the financial ties between the company and the
Indonesian security forces. Following the Timika
killings, investors concerned about the company's
links to the military in Indonesia successfully
pressured Freeport to reveal its spending on security.
The company first publicly disclosed this information
in 2003 and has reported annually since then.213 By
the end of 2005, the company's total spending on the
military and police had topped $66 million.214 Much of
the company's support was provided in-kind, in the
form of barracks, transport, food, and other such
items, but Freeport also provided financial support.
In explaining these payments, Freeport has said, "At
the [Indonesian] Government's request, we provide
financial support to ensure that [its] security
personnel (the military and police) have the necessary
and appropriate resources to provide security for our
operations."215 The company, however, has not
responded to queries seeking to establish to whom it
made the payments and whether the payments went to
government accounts.216 When it first disclosed its
security payments, in 2003, a spokesperson for
Freeport's Indonesia subsidiary stated:

Many were shocked when they found out that we
allocated millions of U.S. dollars to security
personnel to guard the company, because they thought
that we gave it in cash. But it is not like that
because we allocated the funds to several posts, of
which only a small amount was given to soldiers in
cash as allowances.217

Investigative reports published in 2005 by the NGO
Global Witness and the New York Times, by contrast,
suggested that Freeport directed a large portion of
its security payments to individuals.218 These reports
alleged that the company had made large, direct
payments to individual Indonesian military and police
officers, as well as to units in the field. The New
York Times, citing company documents it obtained and
verified as authentic, said such payments totaled
about $20 million from 1998 to 2004.219 The Times
reported that the company doled out large sums of
money that it recorded under accounting categories
such as "food costs" and "monthly supplement," but the
bulk of the funds in fact were at the personal
disposal of the commanders.220 Freeport asserted that
the Times "mischaracterized the support we provide for
Indonesian security forces and ignored the
practicalities of conducting business in a remote
area."221

Indonesian military officials acknowledged that the
company had provided assistance and confirmed that it
was circulated to units in the field and did not go to
the armed forces "as an institution."222 The TNI has
argued that the deployment of soldiers at the Grasberg
mine and other designated vital facilities was in
keeping with the duty of the TNI and took place upon
the request of the companies involved, the regional
governments, and the national police.223 Officials
also have maintained that the government covers the
essential costs associated with troop deployments, and
Freeport provides additional support "without
obligation."224 Regarding Freeport's financial
arrangements with the military, the TNI has stated
that "institutionally the TNI has never received
security money from Freeport but our members who were
assigned there did receive money from the company as
logistics funds."225

Such admissions helped propel the call by Global
Witness for an investigation into possible
bribery-related charges against Freeport under the
U.S. Foreign Corrupt Practices Act.226 After
Indonesian officials indicated that direct payments to
officers and soldiers could constitute corruption
under Indonesian law, in early 2006 U.S. authorities
initiated "informal inquiries."227 Freeport staunchly
defended the legality of its security arrangements and
said it was cooperating with these inquiries.228 The
Indonesian defense minister also indicated that he
would ask the armed forces inspector general to open
an inquiry.229

Freeport's payments to the police have received less
attention but raise similar issues. Global Witness and
the New York Times cited examples of cash payments to
senior police officials in Papua. Earlier published
accounts suggest that the company did not find it
unusual to be solicited for funds. According to a 2001
press account, a member of Freeport Indonesia's board
of directors, Prihadi Santoso, received a request for
a Rp. 100 million ($10,000) loan from a person falsely
claiming to be the then Papua police chief. Prihadi
reportedly acted to authorize the requested bank
transfer but later cancelled the remittance after the
police chief's office denied having issued the
request.230 Freeport declined to respond to a question
from Human Rights Watch about the incident.231 Company
payments to the police are likely to receive greater
scrutiny if the TNI withdraws from the Freeport mine
area, as it has said it intends to do, and the police
increase their presence.232
Freeport's Perspective

Freeport has had little to say publicly, but a
spokesperson has denied that it made inappropriate
payments:

We don't bribe. We do give assistance to the military,
not in cash, but in the form of field equipment such
as hand talky [portable two-way radio], cars,
food….All payments are transparent and reported to the
New York Stock Exchange. And assisting security
personnel on duty is just normal. If you give some
food to your starving guard, that is normal, right?233

A former Freeport executive familiar with security
arrangements in Indonesia told Human Rights Watch that
cash disbursements, made by bank transfer or check,
accounted for about 15 percent of the total funds
Freeport spent on the Indonesian security forces (the
rest being used for in-kind goods and services).234
According to this source, the money was used for three
purposes:

    * "Small per diem payments" to supplement troop
salaries. For a time, the payments were made to local
commanders, but after the company insisted that the
units establish bank accounts Freeport subsequently
transferred funds to those accounts. Due to an
"administrative mislabeling" some of these cash
payments were listed as food costs in the company's
accounts until this practice was corrected.
    * Reimbursements for administrative and logistical
costs incurred by the military units in the field,
such as for communications or use of helicopters, that
the company provided in view of its assessment that
"the [budgeted] money out of Jakarta is not enough for
normal operations." The company's payments for this
purpose amounted to approximately $1000 to $1500 per
month for the regional military command (Kodam).
    * Financing for individual "development" projects
requested by the military, such as for hospital
renovations. The company performed spot checks on
about one-in-five of the projects.235

The former Freeport executive also maintained that the
flow of funds to the military was governed by
procedures outlined in a "written support agreement,"
or, as other Freeport executives described it, "a
contract with the military of the [security]
relationship."236 That document was submitted to the
military commander in Jayapura, capital of Papua
province, as well as to his police counterpart, the
executives said, but was returned unsigned.237 The
former executive maintained that the provisions of the
unsigned agreement were nevertheless in effect and had
been adhered to by both sides.238

The former executive defended the decision to bypass
military headquarters in Jakarta by stating that
corruption in the chain of command would prevent the
funds from reaching the troops. Making the payments
through commanders in Papua, he argued, "helped us and
it helped them. We could avoid the extortion and
extracurricular activities [by the military] and they
could close the gap between what they needed and the
available funds."239 Asked why the company withheld
details about its payments to individuals by only
reporting aggregate amounts, this person said he could
not be sure but thought that Freeport's top management
did not want to draw additional attention to an issue
that already was "a magnet for controversy."240

The former executive stated that the company made its
security arrangements bilaterally, through a direct
relationship with the military on the ground rather
than through civilian government structures, because
there was no government regulatory authority to fill
that coordination role for the mining industry.241 He
also repeated company claims that Freeport's financial
support to the military (and police) was a requirement
of its Contract of Work (CoW) signed with the
Indonesian government. Freeport's spokesman, Greg
Probst, explained the company's rationale in 1999:

The original CoW [from 1967] was less specific in
these areas [related to the relationship with the
military] than the 1991 CoW. However, in a review of
this issue, our Indonesian outside counsel found that
the provisions of our [1967] CoW must be read in
context with Indonesian law and that the two together
provide a clear obligation on the part of [Freeport]
to provide logistical and infrastructure support to
the Government, including both military and civilian
personnel, in all areas in which the government cannot
supply such services.242

 This issue has been under dispute. The author of a
book on Freeport as well as the New York Times
reported that the CoW has no language that requires
security payments.243 Human Rights Watch's
understanding is that the CoW, as updated in 1991,
contains only a general reference that the company
"has been and will continue to be required to develop
special facilities and carry out special functions for
the fulfillment" of the CoW.244
Conclusion

Freeport has said it wishes to avoid controversy but
it instead appears to invite it by what it says and
declines to say publicly. On key issues related to its
security arrangements in Indonesia, the company has
offered public explanations that are open to question.
The company has maintained that it is required to
provide financial support to Indonesian security
forces but has not provided sufficient evidence to
bolster that claim, even when directly asked.245
Government officials, meanwhile, insist that the
company's support is entirely voluntary.246 It is also
difficult to reconcile the company's position that its
support is fully compliant with the Voluntary
Principles on Security and Human Rights, a set of
international guidelines designed to ensure that
company security arrangements respect human rights.247
The Voluntary Principles presume maximum transparency
for security arrangements, including any payments,
subject only to overriding safety considerations or
security situations.248

Moreover, if Freeport's decision to make payments at
the local level and to seek to avoid scrutiny by
withholding details about those payments was intended
as a way to avoid corruption and also the glare of
publicity, then it failed on both fronts. Payments to
commanders and units in the field, which the former
executive maintained were designed to avoid
centralized corruption, served instead to raise
allegations of local-level corruption by Freeport. By
the same token, the company's unwillingness to fully
disclose its payments at the outset, and when asked
subsequently, has encouraged suspicion that it has
something to hide. The misidentification of payments,
as food costs rather than cash transfers, also lends
itself to the implication that employees had sought to
cover up the company's financial support. In short,
Freeport's actions were insufficient to avoid the
potential problems it identified and instead created
vexing new ones.

The wave of negative publicity surrounding the
military's ties to Freeport led Indonesian Defense
Minister Juwono Sudarsono in early 2006 to offer to
prepare official guidelines on companies' security
arrangements, including associated payments.249 An
alliance of Indonesian civil society groups, however,
strongly challenged the assumption that it was
appropriate for companies to directly underwrite the
military. They pointed out that such arrangements give
the military an economic stake in internal security
tasks for which the police have primary
responsibility.250 The groups added that company
payments compromise the country's security forces,
since they could cause these forces to put the
interest of companies ahead of their duties to the
public. Another criticism that often has been made,
including by civil society groups, is that financial
arrangements with companies provide a platform for
military corruption and serve to undermine civilian
control. It also often has been suggested, as in the
Freeport case, that paid security arrangements create
incentives for the military in the area to cause
security disturbances so they can reap the financial
benefits when they are called in to assist.251 In
short, the military is in a position to create and
sustain demand for its services. Concern over the
potential for human rights abuse, as noted above,
provides another reason for opposition to the
military's role in providing security to companies. A
case described in detail below shows how troops from a
military cooperative, brought in at the request of a
mining company, used abusive tactics to keep
unlicensed miners in line.

-end 4 of 11... continues...

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Joyo Indonesia News Service
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