Naked City

Inside Job

Now that former Indonesian dictator Suharto has been indicted on corruption charges in his country, it's time for American authorities to investigate Freeport-McMoRan's alleged payoffs to Suharto and his cronies, says at least one prominent Indonesian analyst. Jeffrey Winters, a professor at Northwestern University, told the Chronicle via e-mail from Jakarta that the Indonesian government's investigation of corruption by Freeport, which operates the world's richest gold mine in eastern Indonesia, "hasn't panned out thus far."

But that shouldn't prevent the Department of Justice from investigating Freeport's dealings with the corrupt dictator, says Winters. "There is no doubt in my mind that the case involving Freeport is strong enough to merit a full investigation on the U.S. side under the Foreign Corrupt Practices Act." Winters points out that several Indonesians close to Suharto were enriched by a deal the company worked out with a foundation controlled by Suharto and his cronies. The Indonesian government's case against Suharto over $550 million he allegedly pilfered revolves around several such foundations, some of which have links to Freeport.

According to Freeport's filings with the Securities and Exchange Commission, in 1997, the company guaranteed $254 million worth of loans that allowed PT Nusamba -- an Indonesian company, 80% of which is owned by foundations controlled by Suharto -- to buy a 4.8% stake in the Freeport mine from a third party. If the stock dividends don't cover all of Nusamba's loan payments, Freeport also "agreed to lend funds to PT Nusamba to service the interest cost on this debt," according to its 1998 annual report. In other words, Freeport agreed to take the risk on a deal that allows Suharto and his partners in Nusamba -- billionaire timber magnate Bob Hasan, and Suharto's son, Sigit Harjojudanto -- to gain an asset worth a quarter-billion dollars. In its latest annual report, Freeport told shareholders that it has to date lent Nusamba $43.7 million to cover the loan payments. It added that the value of the stock is "currently significantly below the $297.7 million aggregate principal amount of the loans."

Winters says such deals need to be scrutinized. "These Indonesians got their shares in Freeport without public tenders and had their stake in Freeport guaranteed financially by Freeport. These same Indonesian figures were in a key instrumental position to facilitate Freeport's contract, then under negotiation with the government. The result was a huge profit, with no competition and no risk, for politically connected Indonesians and a contract that was unusually beneficial to the Freeport side. It is a travesty that the U.S. government lacks the guts to investigate this case, and yet dares to wag its finger at the Indonesians for not cleaning up the country's rampant corruption."

Suharto has not been seen in public for months, and his lawyers have told federal investigators he is too ill to stand trial. Jim Bob Moffett, the flamboyant Freeport CEO, has also been keeping a low profile. For the past two years, he and the other Freeport directors have hidden in New Orleans while the shareholders' meeting has been conducted in a dingy basement in Wilmington, Delaware.

In 1998, a company executive, Adrianto Machribie, denied any wrongdoing on the Nusamba deal, saying the shares in Freeport were "acquired through a purely business transaction" from their previous holders, Bakrie Brothers. "It is a business deal that is commonly practiced around the world under which the loan is repaid out of the dividend system," he said in a statement.

Freeport spokesman Garland Robinette did not return phone calls from the Chronicle.

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Suharto, Indonesia, Freeport-McMoRan, Jeffrey Winters, Foreign Corrupt Practices Act, PTNusamba, Bob Hasan, Sigit Harjojudanto, Jim Bob Moffett, Adrianto Machribie, Bakrie Brothers, Garland Robinette

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