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Paradise Papers pulp giant faces profit-shifting accusations

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Controversial Indonesian paper giant APRIL may have misreported its wood pulp exports while shifting large profits overseas, enabling it to avoid tax, a new report by a consortium of 25 organizations claims. 

One of the world’s largest paper and pulp producers, APRIL, or Asia Pacific Resources International Holdings Ltd, and its affiliates have been involved in past conflicts with local communities over forest and peatland clearing on the islands of Sumatra and Borneo. 

The report by the Tax Justice Forum alleges that, from 2016 to 2018, APRIL classified exports of dissolving pulp ー typically used to manufacture viscose fiber for textiles ー as paper-grade pulp, a less valuable type used to make tissues and packaging.

According to the report’s authors, who noted that companies may have legitimate reasons to practice profit shifting, the scheme could have allowed APRIL to understate its revenues by as much as $242 million and to reduce its tax bill.

“This is a double loss for Indonesians,” said Mouna Wasef, one of the researchers with the coalition, originally named Forum Pajak Berkeadilan. “They are missing out on the full tax benefits that the government should be getting from natural resource industries while at the same time, they are losing the underlying natural resources on which these industries are based.”

The 82-page report, titled The Macao Money Machine, is designed to provide the Indonesian government and others with an analysis of profit shifting and discrepancies in the nation’s pulp trade with China. 

APRIL rejected the profit-shifting allegations and said that “all export activities and tax arrangements comply with national and international laws and regulations,” Charles Hogan, the company’s head of international communications, wrote in an email to the International Consortium of Investigative Journalists. 

He added that, as a privately held company, APRIL “does not disclose financial or commercially sensitive information.” 

In 2017, ICIJ found that APRIL ー a member of the Singapore-based Royal Eagle Group controlled by Indonesian billionaire Sukanto Tanoto ー had shuffled billions of dollars through a web of offshore companies and used its subsidiaries to obtain bank loans. 

The Paradise Papers investigation showed that some of those loans financed APRIL’s subsidiaries that local communities have accused of destroying their livelihoods and felling trees in fire-prone areas, contributing to climate change.

Last month, a group of researchers under the name of Anti-Forest Mafia Coalition reported that one of APRIL’s wood suppliers cleared peatland forest in Borneo, another vulnerable region, despite the company’s 2015 “no deforestation” pledge. 

APRIL denied the deforestation allegations. 

Data mismatch

APRIL began producing textile-grade pulp at its Sumatra mill in 2016. It sells it to China-based Sateri, another member of Tanoto’s Royal Eagle Group, which reportedly processes the cellulose into viscose fiber for clients such as Zara and H&M.

In a recent report by Canopy, an organization that grades viscose-manufacturers according to their sustainability policies and other criteria, Sateri was considered “high risk” because of “sourcing from ancient & endangered forests and other controversial sources.” 

Sateri “adheres to a strict pulp sourcing policy which upholds the principle of No Deforestation and Exploitation,” the company’s sustainability vice president Sharon Chong wrote in an email to ICIJ. Chong added that Canopy’s assessment “is not based on any factual, objective assessment.”

Between 2016 and 2018, APRIL produced more than 800,000 tons of textile-grade pulp, according to a letter by the company’s sustainability director to six nongovernmental organizations cited in the report. 

However, those numbers are not reflected in Indonesian trade data, the Tax Justice Forum researchers found.

When [companies] go through these third countries, it gets very complicated to track down who really paid for what, or who paid how much for what … It’s very difficult for investigators to peel away the layers of the onion
— Rick Rowden, Global Financial Integrity

“This omission in the export data raises the question of whether APRIL also adopted the practice of reporting and apparently valuing dissolving pulp as paper-grade pulp,” their report said. 

APRIL’s spokesman said that, between 2016 and 2018, the company reported exporting its product as paper-grade pulp because it was developing a new type of cellulose and was evaluating whether that could be used to make viscose fiber for textiles.  

“Our export price reflected the fact that this was an experimental product and did not yet meet the full technical specifications of Dissolving Pulp,” Hogan wrote in his response to ICIJ.

Sateri confirmed that the company collaborated with APRIL’s operating unit in the trial and “obtained a small quantity (relative to our total production needs) of [their modified] pulp for trial purposes.”

The companies didn’t disclose the price for the experimental pulp they traded. 

The price may vary according to market conditions but dissolving pulp, used to make textile fibers, was valued $150 to $300 per ton more than paper pulp during the three years examined in the report.

The researchers’ findings indicate that APRIL may have used its marketing affiliates in tax havens such as Macao to under-invoice its pulp exports and reduce its tax bill in Indonesia by $60 million. 

By reselling the product at the market price for textile pulp, the more expensive kind, those offshore affiliates were able to capture “quite substantial spreads,” the report said.

APRIL didn’t comment on the alleged use of an  affiliate to reduce its tax bill but said it works with market affiliates when it requires expertise beyond its capabilities as manufacturer. 

“Product pricing in any given period is set in accordance with market prices in the respective export destinations,” APRIL spokesman said.

Profit shifting and trade misinvoicing are two major contributors to governments’ revenue losses, according to a study by Global Financial Integrity, an organization specialized in researching illicit money flows.

In 2016 alone, Indonesia lost $3.9 billion in uncollected corporate income tax and royalties due to export under-invoicing, GFI study says. 

“Indonesia has this leakage problem at customs,” Rick Rowden, the report’s author, told ICIJ. “The revenue that Indonesia should be getting for a huge amount of this trade, which is not being taxed properly, constitutes a loss for the Indonesian people. That’s money that could have gone to education, or health, or development, public investment in some way. And now it’s not going there.” 

From Indonesia to China, passing through Macao

Before APRIL, another company linked to Tanoto, PT Toba Pulp Lestari Tbk, was accused of shifting its profits offshore too.

Like APRIL, Toba Pulp has often been at the center of conflicts with indigenous populations over land rights and alleged human rights abuses. 

In a complaint filed to the International Labour Organization last year, the Ompu Ronggur community living near Toba Lake in northern Sumatra claims that, since 2004, the company has been damaging their livelihood and resin forests, and that the government has failed to protect their traditional occupations. The case is pending, and Toba Pulp spokeswoman told ICIJ that the company “respects local and indigenous community’s rights.”

Two members of the community were sentenced to nine months in prison in February of this year after they protested company representatives’ order to stop farming, Mongabay reported. 

That month, Toba Pulp’s export practices became the subject of a journalistic investigation by Indonesialeaks, a collective of Indonesian media organizations including Tempo, an ICIJ partner.

Their investigation began in Belawan, one of Indonesia’s busiest ports, where trucks travelling hundreds of miles from the company’s Sumatra plant carry the wood pulp that’s shipped overseas. 

“Every day these heavily-loaded long haul trucks are the key links in a chain that connects Toba Pulp’s products to offshore export activities,” Tempo’s report said.

The reporters documented a decade-long series of alleged financial irregularities by Toba Pulp and its trading partners: DP Marketing International, based in Macao, and Sateri, the same China-based viscose manufacturer that trades with APRIL.

Toba Pulp’s alleged scheme is similar to the one identified by Tax Justice Forum researchers for APRIL.

From 2007 to 2016, Indonesia exported only 150,000 tons of textile-grade pulp, the more expensive type of wood pulp, according to their analysis. China, on the other hand, reported more than 1.1 million tons of that material imported from Indonesia.

“This sizeable gap,” the researchers concluded, “would appear to hold significant implications for Toba Pulp, as the company was the only reported producer of dissolving pulp in Indonesia until 2016.”

The product misclassification “appear[s] to have resulted in the movement of substantial taxable profits generated within Indonesia to at least one offshore tax haven,” they wrote.

Toba Pulp spokeswoman Norma Hutajulu said the company is “fully committed to complying with the laws and regulations in all locations where we operate and would strongly reject any suggestion that PT Toba Pulp Lestari Tbk has understated its revenue.”

In an emailed response to ICIJ, she added that “product pricing in any given period is set in accordance with market prices in the respective export destinations.”

According to Tax Justice Forum’s analysis of trade data and corporate records, Toba Pulp allegedly shifted its profits offshore, to the affiliate in Macao, a low tax rate jurisdiction. As a result, the company understated its revenue by approximately $426 million from 2007 to 2016, the report said. 

Toba Pulp’s Hutajulu said the company “work[s] with market affiliates, along with a range of other service providers, where we require access to access to market and international networks so that the company can focus on manufacturing best quality of pulp products.”

In a statement released to the Indonesian Stock Exchange after the Tempo exposé in February, Toba Pulp corporate secretary Anwar Lawden said that the company sells its products through its Macao affiliate because it “has more control over the market share.” 

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But experts warn that the use of entities in secrecy jurisdictions makes it difficult for authorities and the public to scrutinize companies’ operations.

“When [companies] go through these third countries, it gets very complicated to track down who really paid for what, or who paid how much for what,” Rowden said. 

“It’s very difficult for investigators to peel away the layers of the onion… so [companies] can hide their transfer mispricing activity very, very well,” he said. 

Toba Pulp’s spokeswoman Hutajulu told ICIJ that “as a public listed company, we subject ourselves to independent financial audits and various other forms of business scrutiny, internally and externally, as part of a strong good governance practice.”  

The Organisation for Economic Co-operation and Development considers Indonesia’s tax revenues low compared to other developing countries but, in the past few years, the country has taken several measures to curb illicit flows, tax evasion and corporate tax avoidance, including the establishment of a beneficial ownership registry.

Fixing the profit-shifting and trade misinvoicing problems should be on the list too, GFI’s Rowden said.

To do that, “there has to be the political will, from the highest levels of the government,” he told ICIJ. “You have to be willing to anger your entrenched, powerful business establishments who have used this mechanism for years. And they know that it means they’re going to have to pay more tax revenue.” 

 

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Election Integrity

Analyzing the Case for Election Fraud

Despite the overwhelming pressure, if you can’t help but feel that tingling sense of knowing that is telling you there’s more to the story, you are not alone. In fact, according to a new Rassmussen poll, nearly 50% of voters believe the election had issues. A quick look at the data blatantly shows that indeed, shenanigans abound (how can a state have 1+ million more mail-in ballots tallied than they sent out?). But was it fraud or masterful gamesmanship?

Adryenn Ashley

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The world, or at least the global media, has spoken: Biden won the 2020 Election.

UPDATED FREQUENTLY WITH NEW INFORMATION – Last update 12/21/2020

A quick Google search reveals pages upon pages of reports of why the Trump team’s assertions of vote fraud and election fraud and vote flipping are flat out fallacies. YouTube has announced a ban on any videos questioning the election results. And now on Monday all 538 electors have voted, formalizing Biden’s 306-232 win. And while there is still Congress to get through, and the inauguration, based on social media and television news and practically every other point of information bombarding society today, Biden is now the President-elect.

But why now, after Government officials confirmed during Senate testimony that a foreign adversary, Russia, attempted to interfere in the 2016 United States Presidential Election via “a multi-faceted approach intended to undermine confidence in our democratic process.” According to U.S. intelligence official reports, Russia targeted voter registration databases in at least 21 states and sought to infiltrate the networks of voting equipment vendors, political parties, and at least one local election board. And if their purpose was not so much to “hack” the election but create chaos and sow seeds of uncertainty around our election process, I would say they have won. But what if this cycle, it was Russia who somehow manipulated extra ballots and placed the blame on the Democrats? What if…?

Russian Experience With Voter Fraud

The 2004 presidential election in Ukraine saw suspiciously high turnout rates that “even Stalinist North Korea would envy,” the State Department declared!

Back then, the U.S. government decried as corrupt an earlier election where special voting boxes were created to help citizens vote from home, election observers were expelled from vote counts, pre-election polls were wildly off, and voter turnout in certain communities exceeded 90%.

But the story of that Ukrainian election as recounted by then-Ambassador John Tefft to a Senate committee in December 2004 raises a tantalizing question for voters distrustful of the Nov. 3 elections results in our own 2020 Presidential Election: If tactics and outcomes in the Ukrainian election back then were enough to cry foul, why can’t Americans debate similar concerns here?

Tefft’s testimony raises an important question: Should America, the greatest democracy in the world, share any of the fraudulent attributes of a Ukrainian election? The answer for most Americans is hopefully resounding “No.”

And despite continued and repeated headlines that there was no fraud, according to the Harvard Kenney School report on Election Integrity this cycle, expert assessments indicate that compared with 2016, the performance of this contest displays several warning flags, namely worsening confidence in the integrity of American elections and falling public trust, challenges to legitimacy arising from threats of campaign violence,legal disputes about the process and results, and public protests about the outcome, as well as growing attempts at voter suppression. 

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Investigations

Advocates celebrate major US anti-money laundering victory

Landmark laws to thwart the use of U.S. shell companies by terrorists, human traffickers, arms dealers and kleptocrats are set to be enacted after more than a decade of lobbying and politicking with rare bipartisan support.

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Advocates celebrate major US anti-money laundering victory

The sweeping anti-money laundering reforms hitched a lift in the annual defense spending bill that passed the Senate 84-13 today, and was approved by the House 355-78 earlier this week.

The Corporate Transparency Act requires U.S. companies to report their true owners to the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN — largely ending anonymous shell companies in the country.

The International Consortium of Investigative Journalists has repeatedly documented how the rich, the powerful and the criminal have used anonymous entities to hide their wealth, including in the 2016 Panama Papers and the 2020 FinCEN Files investigations.

Welcoming the clampdown, Transparency International’s U.S. director Gary Kalman said, “It is rare for such a simple measure to promise such an enormous impact.” Kalman added that the long sought anti-corruption reforms would “move us into a new era of enforcement.”

The new legislation will allow law enforcement agencies and financial institutions to request company ownership information from FinCEN. The data will not be publicly available.

FinCEN Files was based on a trove of suspicious activity reports filed by banks and other financial institutions to FinCEN. BuzzFeed News obtained the secret documents and shared them with ICIJ and more than 100 other media organizations.

The global investigation exposed how a broken U.S.-led enforcement system allows banks to continue to profit from moving dirty money tied to drug cartels, trafficking rings fueling the opioid crisis, fraud, organized crime, sanctions evasion, ruinous real estate schemes, and terrorism.

“Too many times, people … think money laundering is a federal, victimless crime. It is certainly not that,” Sen. Sherrod Brown of Ohio, the top Democrat on the Senate banking committee, told reporters on a call organized by the advocacy group the FACT Coalition. “Sinaloa cartel actors, fentanyl traffickers have been destroying thousands of families in my state and across the country.”

Earlier this year, Brown credited FinCEN Files for revealing the lack of forceful enforcement against banks that repeatedly violate the law. Advocates said a number of proposed bipartisan bills, including one co-sponsored by Brown, were instrumental in generating the support needed to attach the reforms to the spending bill.

“This is a really big deal to get this passed,” Brown said Thursday. “No more hiding these abuses in anonymous shell companies. It also cracks down on bank officials who look the other way or actively aid money laundering.”

A long time coming

ICIJ has shown how offshore shell companies have been used for dubious financial dealings and tax avoidance through a series of global exposés, including the Secrecy for Sale investigation, Panama Papers and Paradise Papers. U.S. lawmakers have repeatedly cited the investigations in proposing reforms over the years.

Countries like the United Kingdom, Indonesia and members of the European Union also took steps toward ending anonymous shell companies in response to ICIJ reporting.

“When the Panama Papers leaked, there was a huge flurry of interest because there’s all of a sudden this recognition that it was kleptocrats, money launderers, corrupt officials the world over, as well as criminals, were all using a very common structure to help evade law enforcement, which was setting up an anonymous company,” Lakshmi Kumar, policy director of Global Financial Integrity, said.

The phenomenon is not limited to the exotic offshore tax havens of popular imagination. U.S. jurisdictions like Delaware, Wyoming and Nevada are among the world’s top locations to set up anonymous companies. Legislation to require corporations to disclose their true owners was first proposed in the U.S. over a decade ago, co-sponsored by then-senator Barack Obama, and similar bills have been introduced over the years.

Advocates credit years of lobbying a broad coalition of stakeholders, including the U.S. Chamber of Commerce which had previously been a leading opponent, in getting the reforms across the finish line this year.

“What’s changed now is a growing understanding among various constituencies about the harms that anonymous companies pose, and the threats that they pose for our financial system, to our businesses,” Clark Gascoigne, senior policy advisor at FACT Coalition, said.

But it’s not a done deal quite yet.

Although the anti-money laundering proposals have had the support of the administration, President Donald Trump has repeatedly threatened to veto the National Defense Authorization Act over provisions unrelated to financial secrecy.

Both the House and the Senate votes surpassed the two-thirds margin that would be needed to override a veto, although some Republicans have indicated that they would not support what would be the first veto override of the Trump presidency.

But the NDAA has been reliably passed by Congress every year for six decades and advocates are confident that the time has come for the landmark financial transparency measure that’s included in the omnibus bill.

“It’s one of the few areas where the outgoing Trump administration agrees with the incoming Biden administration,” Gascoigne said. “It may be the first bill in the history of Congress that has the support of both Dow Chemical and Friends of the Earth. Heck, the state of Delaware even supports reform.”

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Investigations

Muslim Brotherhood suspect and Saudi billionaire linked to same offshore companies, Austrian report says

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One of 30 people in Austria suspected to be members of the Islamic fundamentalist group Muslim Brotherhood was the director of offshore companies linked to a Saudi billionaire, according to an investigation by Austrian media outlets profil and Ö1.

The man, described as a 37-year-old Viennese entrepreneur with Iraqi roots, is suspected of “participating in a terrorist, subversive and criminal organization” and was a target of the police investigation into the group and the Palestinian extremist organization Hamas, the report said

The inquiry, which led 930 officers to raid 60 apartments, shops and clubs in four federal states last month, had no connection to the Vienna terror attack that killed four and injured 23 on November 2, according to officials cited by Deutsche Welle.

The Austrian report ー based on police records ー does not name the suspect, nor the Saudi businessman, for fear of hampering the ongoing probe into possible terror financing.

The pair’s link to shell companies in the British Virgin Islands and other offshore financial centers was revealed for the first time after the reporters’ examination of Paradise Papers, a trove of leaked documents obtained by Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists in 2017.

The 13.4 million files include incorporation documents, emails, contracts and other records from two offshore service providers and the company registries of some of the world’s most secretive countries.

The Austrian man was listed as the director of several companies in the BVI, Malta and the Bahamas, the media report said. His address on the documents referred to an apartment in Vienna that belongs to the wife of one of the main suspects in the police investigation, according to a review of Austria’s land registry records.

By cross-checking the confidential files with property records, the reporters also found that the shell companies owned properties in the U.K., including two office buildings, a commercial property and a retail park, worth about $73 million in total.

The documents show that a Liechtenstein trust owned by the Saudi businessman was behind those companies. The man is also known as a philanthropist who has financed Islamic studies at various European universities in recent years, including in Austria, the report added.

The complex offshore structure identified by the journalists is legal, the report said, but “can be used to disguise the flow of money and the identity of the true economic beneficiaries.”

Profil and Ö1, two ICIJ media partners in Austria, asked the Viennese suspect about the purpose of the offshore company network and his link with the Saudi billionaire. A lawyer representing him declined to comment.

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