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Freeport shareholders on the war path
By Tim Shorrock

Freeport McMoRan Copper & Gold Inc, the New Orleans corporation operating the world's largest copper and gold mine in the Papua region of Indonesia, is facing a wave of shareholder opposition to its relationship with the Indonesian military, known as the TNI.

Owners of Freeport stock are demanding the company withhold its annual multi-million dollar payments to the TNI until the Federal Bureau of Investigation (FBI) completes an investigation into a deadly ambush on Freeport property in 2002 that left two Americans and one Indonesian dead. The victims were teachers working at an international school for Freeport's expatriate staff.

Sources familiar with the investigation into the shooting in Timika say there is credible evidence that the intended targets were two Freeport executives who drove down the road moments before the teachers in two sport utility vehicles clearly marked with Freeport insignia.

Some US diplomats and lawmakers are convinced that the TNI, who provide security for Freeport's vast holdings near the town of Timika, organized the ambush. The Papuan police initially raised their suspicions, saying evidence pointed to the TNI.

The Indonesian government has strongly denied the army's involvement, but Congress has nonetheless withheld funding for a US military training program for TNI officers until the case is resolved.

During Freeport's annual meeting in May, 8% of the company's shareholders supported a resolution to suspend Freeport's payments to the TNI. That was more than enough to place the measure before next year's meeting, and activists involved said they plan to return to the 2005 meeting.

"The company knows we'll be around for some time on this," Patrick Doherty, a manager at the New York City Office of the Comptroller, told Asia Times Online. The comptroller's office manages investments for the New York City Employees' Retirement System, which includes New York's police and fire departments, as well as the New York City Teachers' Retirement System.

The New York City and teachers' funds collectively own 530,000 shares of Freeport stock worth $21 million, which Doherty labelled "a significant holding".

Through shareholder votes, the New York funds have previously challenged management decisions at Conoco-Phillips, Halliburton, General Electric and Disney, on issues ranging from Third World sweatshops to sexual orientation discrimination.

Freeport has been mining in Papua since the 1960s and is the largest private employer in West Papua. Its annual taxes, totaling $329 million in 2003 alone, make Freeport a major contributor to Indonesia's budget.

With close ties to the Indonesian military and the old Suharto regime, however, Freeport has long been a target of human rights activists. The company's mining on land appropriated from indigenous people and its poor environmental record in the Papua region have also drawn criticism. Shareholders began filing resolutions challenging this record in 1994.

Freeport has built a network of powerful friends linked to Suharto. Former Louisiana Senator J Bennett Johnson, one of Suharto's most vocal supporters in Washington during the 1980s and 1990s, is a current Freeport director. Henry Kissinger, another Suharto ally who gave the green light to Indonesia's invasion of East Timor during a 1975 visit to Jakarta, is also a former member of Freeport's board and is now listed as a "director emeritus". Likewise, J Stapleton Roy, one of Kissinger's partners at Kissinger Associates Inc, retired in May as a director and is currently a senior adviser to Freeport.

The New York retirement funds first filed a shareholder resolution in 2002, calling on Freeport to disclose how much it pays the TNI. Freeport opposed the resolution and successfully challenged it before the Securities and Exchange Commission (SEC). In a filing to the SEC, however, the company disclosed it paid the Indonesian military $5.6 million in 2002 and $4.7 million in 2001.

The latest resolution to suspend funds to the TNI was triggered by the ambush in Timika and the subsequent press reports of possible involvement by the Indonesian military.

Specifically, the resolution urged management "to halt all payments to the Indonesian military and security forces, until the government of Indonesia and the Indonesian armed forces take effective measures, including full cooperation with the US Federal Bureau of Investigation, in conducting a full investigation of the August, 2002 attacks against company employees, and to criminally prosecute the individuals responsible for those attacks."

The New York funds have met with non-governmental organizations and human rights groups concerned about the political and social situation in Papua, said Doherty. The fund trustees approved the Freeport resolution, he added.

Freeport's board of directors unanimously recommended a vote against the resolution. In a proxy statement filed with the SEC, the company said it was "fully cooperating with the Indonesian government and the FBI", and explained its relationship to the TNI.

"The Indonesian military and police provide security for our mining operations in a remote and logistically challenging area of Indonesia, and our longstanding view has been that such security is of utmost importance to the continuing safety of our workforce and the protection of our facilities," Freeport said.

Freeport described the shareholders' proposal as "misguided", adding it "suggests actions that would undermine our relationship with the Indonesian government".

Doherty said investors have a right to be concerned about Freeport actions that could "embarrass" the company and cause financial losses to shareholders.

When he addressed the shareholders' meeting, Doherty expressed concerns about Freeport's potential liability to the Alien Claims Torts Act, an obscure law that has been used by human rights groups in recent years to file lawsuits against US multinationals on behalf of people harmed by company practices abroad. By paying the TNI, Freeport "could share liability" with the military over human rights abuses under the law.

In addition, Doherty said his funds are concerned Freeport could face possible prosecution under the Foreign Corrupt Practices Act (FCPA), which prohibits bribery and extortion payments. Although the FCPA includes an exception for security payments, "I don't think the scale of Freeport's payments to the TNI were contemplated by the act," he said.

The May resolution was also supported by shareholders from several unions in the American Federation of Labor - Congress of Industrial Organizations (AFL-CIO) and a Mennonite church in Seattle. The Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF), an influential institutional investor, abstained from the vote. Ironically, all of the American schoolteachers who survived the 2002 shooting are TIAA-CREF investors. One of the survivors, Patsy Spier, lost her husband Rick in the attack, and wrote an open letter to TIAA-CREF urging a yes vote on the resolution.

"By voting 'yes,' you will be supporting the investigation and help stop such lawlessness from happening again," Spier wrote.

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Jun 23, 2004

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