Global Witness - Breaking the links between natural resources, conflict and corruption
Paying for Protection
Report – 25/07/2005
Global Witness has long been concerned by the lack of transparency in payments by oil and mining companies to many governments around the world, because lack of transparency can often hide corruption and other governance problems. There is a particular need for transparency in conflict regions, where state security forces may expect an extractive company to pay for protection against rebels or disgruntled local communities. The rule of law is typically weak or non-existent in conflict zones and in many cases, these same security forces may be corrupt or implicated in human rights abuses.
As a result, suspicions may arise that a company is complicit in corruption or human rights abuses, or being extorted by parties to the conflict. Without full transparency there is no way for the public, including the company’s own shareholders, to judge whether or not a company is behaving in a lawful and ethical way. One prominent mining company which has faced controversy for its relationship with state security forces in a conflict zone is Freeport McMoRan Copper & Gold Inc. This US company controls a gigantic mine in Indonesia which contains the largest gold reserves and the second largest copper reserves in the world. The Grasberg mine in Indonesia’s eastern region of Papua, formerly known as Irian Jaya, is run by a local subsidiary called PT Freeport Indonesia which is 90.64% owned by Freeport McMoRan and 9.36% owned by the Indonesian government. Freeport Indonesia has a joint venture with Rio Tinto, the global mining giant, which itself owned a minority shareholding in Freeport McMoRan until 2004. Indonesians, observers and company staff commonly refer to the US parent and the local subsidiary interchangeably as “Freeport”.
Freeport’s mining operations have been guarded since the 1970s by the Indonesian military, which has been fighting during this time to suppress a rebellion for Papuan independence. The Indonesian military has a history of atrocities against civilians and is known to have been involved in corruption and illegal business activities, as have the police. For this reason, there has long been controversy over the close relationship between the mine and the government security forces which guard it.
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