Sukanto Tanoto - Controversies

Controversies

• Legal disputes since 2001 relating to a claim brought by Beckkett Pte Ltd, a company which is indirectly 29% owned by Sukanto Tanoto, against, among others, Deutsche Bank. The claim relates to an alleged disposal by Deutsche Bank, without due process and at an undervalue, of the pledged shares owned directly or indirectly by Beckkett Pte Ltd in PT Swabara Mining and Energy, PT Asminco Bara Utama, PT Indonesia Bulk Terminal and PT Adaro Indonesia. In October 1997, Deutsche Bank agreed to provide a US$100 million loan to Sukanto Tanoto, through one of his companies, Asminco. The bank received the 40% share in PT Adaro Indonesia as collateral. In February 2002, the bank sold the Adaro stake to PT Dianlia Setyamukti (DSM) in a private deal following the failure of Asminco to repay its debt. After selling other collateral the bank was only able to retrieve $46 million. However, Sukanto Tanoto demanded the return of his shares, claiming the transaction between DSM and the bank was illegal. In 2007, The Singapore Court declared Deutsche Bank won against Beckett

• PT Inti Indorayon Utama a pulp mill setup by Sukanto Tanoto, which was built at a small village Porsea nearby Lake Toba of North Sumatra. The mill however did not run smoothly with the local people, who argued that it had polluted the area, performed major deforestation and injustice land grabbing. From the beginning, the Indonesia's first pulp mill was full of conflict history. The initial permit released contained land disputes, the quality of air and water around Asahan River degraded drastically, which was said to be responsible to certain skin diseases, reducing corp production and water contamination, was responsible for some landslide disasters in the area and released toxic chlorine gas during the 1993 boiler explosion. There are also claims brought against TPL (Toba Pulp Lestari) by its minority shareholders in 2002 alleging losses suffered by them as a result of the suspension of TPL’s plant operations.

• PT Unibank Tbk. Sukanto Tanoto took over the United City Bank from its previous owner, James Semaun, and changed its name to Unibank in 1990. At the time of the 1997 Asian financial crisis, he turned the bank into a publicly listed company with total assets of IDR 1.9 trillion. At the time of this transaction, he and his partner owned 25 percent of the bank’s shares. Unibank was considered healthy by the Bank Indonesia and Indonesian Bank Restructuring Agency in 1997 and did not enter the recapitalization program. Interestingly, only a year after going public Unibank started showing structural problems and was placed under the Bank Indonesia’s ‘close supervision’ category. It was later revealed that some 51% of Unibank's total assets were tied up in loans to companies linked directly or indirectly to Tanoto. By October 2000, Unibank had a capital-adequacy ratio of negative-221.43%, and its capital was Rp2.41 trillion in the red. On August 21, 2001, two months before its assets were legally frozen by government regulators, 73% of Unibank shares, or 2.47 billion shares valued at Rp61.8 billion, were sold in a shadowy transaction on the Jakarta Stock Exchange. Tanoto's securities house, PT Unisecurindo Abadi, was the most active trader that day, and Unibank notified regulators about the change in ownership only days before its state-ordered closure. That raised eyebrows with some stock-market analysts, who believed the move was engineered to protect Tanoto from his obligations as the controlling shareholder. Unibank was closed in 2001 with associated outstanding debts of US$230 million. Sukanto Tanoto successfully avoided being held liable for the costs of closing Unibank. By the time the Bank Indonesia finally closed it down, Tanoto was no longer the owner, and none of the shareholders owned more than five percent of its total shares. Tanoto had no liability to the government, despite the fact that Indonesian Bank Restructuring Agency had to repay customer deposits of IDR 3.1 trillion or about USD 442 million. As a result of Indonesian Bank Restructuring Agency’s own regulations it was forced to pay up to IDR 70 billion, or about USD 10 million, towards deposits owned by several subsidiaries of Tanoto’s RGM Group.

• The Forbes revelations that Sukanto Tanoto is worth more than $2.8 billion, but he is still one of Indonesia's largest corporate debtors. Sukanto Tanoto is being linked to a corruption scandal over alleged improper lending activities at the government's biggest financial institution, Bank Mandiri. The country's largest lender began operations in August 1999, formed from the merger of four state banks devastated by the 1997 financial crisis. Mandiri is 68% owned by the government, and its role in the purchase of distressed assets from companies controlled by businessmen linked to former president Suharto has come under new scrutiny. Mandiri Bank's former president director, vice president and corporate banking director were all tried over an $18.5 million lending scandal but were exonerated from all charges in South Jakarta District Court in February 2006. Together with state-owned Bank BNI, the country's second-largest, Bank Mandiri accounts for the bulk of the Rp27 trillion of outstanding non-performing loans in Indonesia's banking industry, which represent about half of the total assets in the banking system. Bank Mandiri's NPLs stand currently at a whopping 26.6%. Sukanto Tanoto's company APRIL had borrowed a total of $1 billion from a consortium of Mandiri, BNI, and Panin, Niaga, and Danamon banks to finance the development of its integrated paper-manufacturing plant known as Riau Complex.

• In May 2007, Indonesian officials hunted down the main players of Asian Agri Group, including Sukanto Tanoto, for tax embezzlement. It was estimated that the state of Indonesia had lost of a minimum of 786.3 billion rupiahs from this case. However, the group published a statement that the materials for the tax evasion case were obtained from a former Asian Agri employee, who was on the run after embezzling more than US$ 3 million from the company. In December 2012, The Indonesian Supreme Court verdicts Asian Agri Group to pay Rp 2.52 trillion ($260 million) in back taxes and fines for tax embezzlement.

• Illegal logging and rainforest clearing in Indonesia by PT Riau Andalan Pulp & Paper, and APRIL. A report produced by Eyes on the Forest stated that, despite being in business for 17 years and having access to pulpwood supply concessions covering more than 10% of Riau province’s landmass (940,000 hectares), APRIL has continued to rely on clearance of natural forest for its pulping business as late as 2012. At least 140,000 hectares of natural forest were lost in all APRIL supplier concessions between 2008/2009 and 2011 in Riau; equivalent to the loss of 5% of the natural forest remaining in 2008/2009 and 27% of the total forest lost between 2008/9 and 2011. APRIL knowingly pulped natural forest wood from concessions whose licenses were issued through corrupt practices. Ten of twelve APRIL wood suppliers operating in the company’s main wood supply area, Riau Province’s deep peat Kampar Peninsula, obtained their licenses from the heads of Siak and Pelalawan district. Both were convicted in high profile cases for corrupt practices in issuing these licenses and are currently in prison. APRIL suppliers also received annual cutting licenses from three Riau Forestry Agency chiefs who since then have been sentenced to prison terms for graft by the corruption court. APRIL lost its interim FSC Controlled Wood certificate for non compliance in 2010 after an audit by the Rainforest Alliance.

• Ownership and other disputes involving, and allegations of embezzlement made by, relatives of Sukanto Tanoto (wife and children of his brother Polar Yanto Tanoto) relating to shares in PT Indorayon Utama and RAPP controlled by Tanoto in 1997. A legal settlement was reached with his relatives in 2002 in respect of the claims relating to shares in certain companies controlled by Sukanto Tanoto in 1997. Notwithstanding this settlement, these relatives of Sukanto Tanoto have continued to make allegations in the media from time to time.