Report: New investigation reveals oil palm industry’s use of shadow companies to circumvent social and environmental commitments in Indonesia
The use of ‘shadow companies’ is systemic within the oil palm industry. Forest Peoples Programme’s new investigation into one of the most notorious oil palm operators in Indonesia, First Resources Ltd., finds substantial evidence the group is disguising its interests in numerous companies whose beneficial owners are registered and hidden in a secrecy jurisdiction – the British Virgin Islands. The investigation also shows that these shadow companies are responsible for extensive deforestation, peat land clearance and human rights abuses.
First Resources Ltd. serves the sustainable oil palm market through its membership to the Roundtable of Sustainable Palm Oil (RSPO). All the while, First Resources owners - members of the Fangiono family - are also linked to tens of subsidiaries of two other oil palm groups - Fangiono Agro Plantation (FAP Agri) and Ciliandry Angky Abadi (CAA) – neither of which are accountable to RSPO.
The controlling shareholders of these two groups have historically exploited opaque ownership structures to muddy the ties with the RSPO member. In January 2021, however, the beneficial owners of FAP Agri were made public for the first time following the group’s Initial Public Offering on the Indonesian Stock Exchange. The revelation confirmed what NGOs and communities had long suspected: FAP Agri’s beneficial owner, Wirastuty Fangiono, was also one of the controlling shareholders of First Resources. The beneficial owners of CAA continue to be hidden behind entities registered in the British Virgin Islands at the time of writing.
Disguised ownership is widely deployed across the oil palm sector to circumvent legislation requiring compliance to social and environmental standards. The investigation by Forest Peoples Programme (FPP) highlights both the lengths groups will take to obfuscate their true owners, and the ability of firms to ‘game the system’ by having one arm servicing the sustainable market whilst the other is able to profit from the supply of commodities that haven’t been responsibly sourced.
The crux of the problem is the beneficial owners of RSPO members are also the suspected beneficiaries of companies outside of the RSPO system. These companies then engage in human rights abuses for which they are not held accountable. In First Resources case, we found Martias Fangiono, through his offspring, to be linked to numerous oil palm outfits operating across East and North Kalimantan. These same companies have been accused of triggering land conflicts with local indigenous peoples, violating workers’ rights, and/or engaging in corrupt practices.
Forest Loss data, provided by a third-party consultancy (TheTreeMap), paints an equally dire picture of FAP Agri and CAA affiliated subsidiaries. They have cleared swathes of forests – estimated to be over 60,000 hectares (ha), including over 6,500 ha of peat forest – in the same period that First Resources has enjoyed RSPO membership and signed up to No Deforestation, No Peat, No Exploitation policies.
In the case of First Resources, the investigation finds substantial evidence of joint familial, management and operational control across the three groups – that is to say, shared managerial positions, email addresses and contact details across companies in the supposedly distinct oil palm groups. The information compiled provides compelling evidence to consider FAP Agri and CAA as functionally part of the same group as First Resources.
Across oil palm companies operating in Indonesia, we see a pattern of different family members operating what appear to be separate groups as one whole, often under the suspected direction of the ‘family head’.
This loophole must be closed. FPP recommends that all companies that are functionally members of the same group as an RSPO member must disclose their beneficial ownership to RSPO. Thus, companies registered in secrecy jurisdictions would have to disclose their ownership if they are connected to an RSPO member for it to retain its membership and certification. Companies failing to adhere to this should have their membership suspended. This would greatly reduce the risk of rogue actors benefitting from the lack of oversight in the unsustainable market whilst also being connected to companies serving the sustainable arm of the oil palm industry.
Unsurprisingly, First Resources has distanced itself from both FAP Agri and CAA, aware of the potential reputational damage the actions of these groups could signal to the market. Allegations of human rights and environmental violations were found in almost all of the concessions investigated.
It is clear from this investigation that international standard-setting organisations such as RSPO must take a firmer stance on the use of opaque secrecy jurisdictions to disguise its members true beneficial owners. If swift action is not taken, it is likely that rogue actors, who routinely violate human rights and contribute to alarming rates of deforestation, will become a staple of the palm oil supply chain.
Overview
- Resource Type:
- Reports
- Publication date:
- 4 February 2021
- Region:
- Indonesia
- Programmes:
- Culture and Knowledge Territorial Governance Law and Policy Reform Supply Chains and Trade Conservation and human rights