Project Summary

CIFOR’s Financial Institutions and Forests project first phase focus its activities in five areas:

• IBRA debt resolution and forest industry restructuring
• Financial due diligence and risk assessment
• Money laundering and the financing of illegal activities
• Stengthening communications and data sharing with national partners
• Building a policy research network with regional partners

IBRA debt resolution and forest industry restructuring:

The project engaged actively in Indonesia-focused policy dialogues related to the resolution of forestry-related debt held by IBRA and the Ministry of Forestry’s efforts to restructure the country’s forest industries. This process built on existing efforts to facilitate more direct coordination between IBRA and the Ministry of Forestry and to contribute useful inputs to these two processes. It also involved efforts to broaden these dialogues to include other key government agencies, such as the Coordinating Ministry for Economic Affairs (Menko Ekuin), Financial Sector Policy Committee (FSPC), Ministry of Industry and Trade, among others. In addition, CIFOR worked with NGOs and other partners to raise the profile of these issues in the Indonesian and international press and to expand the level of civil society participation in the policy processes.

Financial due diligence, risk assessment, and reporting standards

CIFOR worked with partner both internationally and within Indonesia to launch a three-year initiative aimed at strengthening the due diligence practices used by investment banks and other financial institutions involved in funding forestry and plantation projects. Broadly speaking, the goal of the Forest Finance Due Diligence Project is to strengthen the capacity of banks and other financial institutions to evaluate the financial risks, social and environmental impacts, and legality concerns associated with investments in the forestry and plantation sectors worldwide. CIFOR worked with partners to document due diligence practices used by banks and other financial institutions; to identify cases where weak due diligence practices have led to inappropriate forestry and plantation investments; and to compile information on ‘best practices’ for evaluating the financial risks, social and environmental impacts, and legality concerns associated with forestry and plantation investments. While this project is ultimately global in scope, CIFOR worked closely with Indonesian partners to involve them actively in the international workshops, policy dialogues, and production of outputs in order to support a process of strengthening due diligence practices at the national level. In addition to focusing on voluntary standards for improved due diligence, the project also looked at how financial report standards maintained by government regulatory agencies can be strengthened for forestry and plantations companies.

Money laundering and financing illegal activities:

This portion of the project analyzes the manner and extent to which international laws, regulations, and conventions on money laundering and financial crime can be used to curtail investment flows to forestry and plantation companies engaged in illegal practices. This work is directly linked to the World Bank-sponsored Forest Law Enforcement, Governance, and Trade (FLEGT) initiative. It also supports the Indonesia-UK bilateral agreement to address the trade in illegally harvested logs and wood products.

Strengthening communications and data sharing:

To facilitate more effective collaboration among organizations working on issues related to forestry and plantations sector finance in Indonesia, CIFOR hired a consultant to coordinate communications and data sharing related to the forest finance work. While the position initially was hosted by CIFOR, the consultant liaised and worked closely with a number of Indonesian partners, including relevant government agencies, civil society organizations, and private sector institutions, and especially members of what is loosely being called the ‘Indonesia Working Group on Forest Finance’. Over time, consideration is given to ‘housing’ the position and/or the materials created (data bases, resource center, listservs, etc) at one of these partner organizations. In response to requests from Indonesian civil society organizations, CIFOR also assisted these groups to secure funds for a forest finance advocacy coordinator.

Building a policy action research network with regional partners

CIFOR collaborated with FORDA and regional partners in five provinces to form a policy action research network focusing on a range of issues related to decentralization and regional autonomy in Indonesia. This network is potentially quite valuable for CIFOR’s collaborative action research on financial institutions. On the one hand, many of these issues – i.e. fiscal balancing, forest sector revenue flows, formation of district timber regimes -- are of central concern to financial institutions and financial sector policymakers. On the other hand, the network of regional partners provides an excellent channel for sharing the results of CIFOR’s national and international research on financial institutions with provincial and district level actors.]

Events

2004

1. Research

1. 29 January 2004- presenting a paper on A roundtable discussion on "Financial Institutions, Illegal Logging and Associated Trade & Corruption" organized by the Foreign Service Institute and the Bureau of Oceans and International Environmental and Scientific Affairs of the USA State Department

2. 30 January 2004, conducting a dialogue with the anti-money laundering officers of Bank of New York at New York facilitated by PPATK.

3. 1-3 March 2004 - Presenting a paper and chair a day session in an international money laundering seminar in Jakarta organized by Foulds Ingham Financial Training of UK.

4. 12 April 2004 – Presenting a paper on a workshop using money laundering regime to curtail forestry crimes in Jakarta organized by IWGFF and the USAID NRM program. The seminar was attended by the representatives of the Indonesian national police, PPATK, and NGO.

5. 15 April 2004- meeting with Sari of CEPF to discuss CIFOR proposal to CEPF

6. 6 July 2004- help Daju to get information regarding DR policies from Director General of Financial Institutions of the Ministry of Finance.

7. 10 August 2004, with Chris Barr, presenting an overview of the CIFOR Forest Finance project to DFID MFP program

8. 11 August 2004, presenting a paper on illegal logging and money laundering in a workshop organized by PPATK in Batam. The workshop was attended by members of the Indonesian police, state prosecutors, judges, and the Indonesian financial community.

9. 6 September 2004, attending a workshop on decentralization organized by FORDA and CIFOR in Jakarta

10. 7-8 September 2004, presenting a paper on illegal logging and money laundering in a workshop organized by PPATK in Padang, West Sumatra. The workshop was attended by members of the Indonesian police, state prosecutors, judges, and the Indonesian financial community.

11. 5-6 October 2004, presenting a paper on illegal logging and money laundering in a workshop organized by the Asia Pacific Group Typologies Working Group in Brunei Darussalam. The workshop was attended by states officials from members of APG and multilateral organizations such as the World Bank

12. 7-8 October 2004, presenting a paper on illegal logging and money laundering in a seminar title “The Future of Forests in East Asia and China: New Markets for Ecosystem Services & Regional Trends in Forest Trade and Finance organized by Forest Trend and TropBio in Kuala Lumpur, Malaysia"

13. 9 November 2004, presenting a paper on illegal logging and money laundering workshop in Pontianak, West Kalimantan organized by IWGFF, Walhi West Kalimantan, and the West Kalimantan Police
    

2. Policy Dialogues

1. 28 February 2004- Attending the NGO and Political Party meeting organized by several individual NGO

2. 2 April 2004- met with a member of the Indonesia Anti- Corruption Committee (KPK) to discuss possible collaboration to curtail corruption in the forestry sector.

3. Regularly meet with the Head of PPATK and his staff

4. 14 October 2004- met with pak Nanang from the new APHI to discuss the collaboration between APHI and CIFOR

5. 6 October 2004, facilitate a dialog between PPATK and the World Bank in Brunei to work on money laundering and illegal logging. PPATK agrees to write a letter to the Word Bank to ask assistance in implementing the Indonesia anti money laundering regime and APG to curtail forestry crimes.

6. October 2004, help PPATK to draft a letter to the World Bank

7. 7 October 2004, attending a coordination meeting on money laundering organized by PPATK. The meeting was attended by representatives from banks, the police, state prosecutors, and PPATK

8. 11 October 2004, met with representatives of Rabobank International Indonesia (RII) to discuss a partnership between CIFOR and RII on developing a tool to assess oil palm industries

3. Media Outreach

1. 25 February 2004- Talk show in Radio 68H about Decentralization and forest industry organized by KPPOD

2. 29 October 2004- Talk show in Radio Trijaya about illegal logging and money laundering

3. 1 November 2004- Talk show in Radio RRI Pro 3 FM about illegal logging and money laundering

4. Capacity Building

1. 29 April 2004, meet with Telapak and Forest Watch Indonesia to develop capacity of the two NGOs for using money laundering regime to curtail illegal logging

2. 5 May 2004, organized focus group discussion on Illegal logging and money laundering in CIFOR for members of IWGFF

Publications

1. How Forestry Conglomerates Avoid Financial Obligations and Use Public Funds to Expand their Business Empires? Publication in progress: a Governance Program Series paper

2. Bob Hasan Group Debt Settlement - National Losses Reach US$990 Million or IDR 8.9 Trillion, CIFOR Working Paper

3. Implementing the anti money laundering regime: Promoting Prudent Banking and Sustainable Forest Management, and Curtailing Forestry Crimes
   CIFOR Occasional Paper No. in press

4. Kemudahan Apa Lagi untuk Konglomerat Kehutanan? Oleh Bambang Setiono dan EG Togu Manurung
   Suara Pembaruan, 1 Agustus 2002

5. More subsidies for forestry conglomerates? Bambang Setiono, Researcher, Center for International Forestry Research (CIFOR), Bogor, West Java and E.G. Togu Manurung, Director, Forest Watch Indonesia (FWI), Jakarta. Jakarta Post, September 26, 2002

6. Ketika Hutan Digadaikan
   Kompas, 2 November 2002

7. Hutan, BPPN, dan CGI
   Kompas, Sabtu 25 Januari 2003

8. BPPN Turut Andil atas Kerusakan Hutan
   Kompas, 16 Juli 2003

9. Can money-laundering law catch illegal loggers?
   Bambang Setiono, Policy and Financial Analyst, Center
   for International Forestry Research (CIFOR), Bogor
   The Jakarta Post, Jakarta, October 13, 2003

10. Banks can stop illegal logging if they want to (part 1 and part 2)
    Sukowaluyo Mintorahardjo, a legislator with the Indonesian Democratic Party of Struggle, is a member of Commission III of the House of Representatives (DPR), which oversees issues related to agriculture and forestry, among others. Bambang Setiono is a financial analyst at the Center for International Forestry Research (CIFOR). Jakarta Post Opinion and Editorial - August 14 and 15, 2003