How a murky foreign outfit attempted to bankrupt PNG
Few will forget the Commission of Inquiry into Special Agricultural and Business Leases. It exposed grabbing of customary land on an epic scale.
Chief Commissioner John Numapo memorably remarked in 2013, “with corrupt government officials from implementing agencies riding shotgun for them, opportunistic loggers masquerading as agro-forestry developers are prowling our countryside, scoping opportunities to take advantage of gullible landowners and desperate for cash clan leaders”.
Independent Timbers & Stevedoring Limited (IT&S) became one of the public faces of the scandal after it was accused of illegally grabbing 2 million hectares of virgin forest, a claim the company denies.
Jemima Garrett reporting for the ABC sets the scene:
The IT&S project began life as a plan to build a road 600 kilometres from the Western Province town of Kiunga to the PNG capital Port Moresby and to pay for it by harvesting logs along a 40 metre road corridor. Landowners were keen for the opportunities road access would bring and happy to lease a narrow passage through the forest. But the Commission found that by the time all the paperwork was finished Lands department officials and executives of landowner companies, had unwittingly signed approval for the leasing of more than two million hectares.
The ABC summarises the Commission’s core findings:
The largest of the land grabs involved four leases for more than two million hectares belonging to tens of thousands of people in PNG’s Western Province. It was orchestrated by a small PNG-registered, Queensland-led company called Independent Timbers and Stevedoring Limited (IT&S). The Commission report, which has just become public, found IT&S ‘manipulated’ the supposedly independent lease approval process to obtain control over four Special Agricultural and Business Leases, or SABLs. Commissioner Nicholas Mirou found documents prepared by the company were ‘deceptive and clearly fraudulent’ and recommended that further investigation be undertaken to establish if ‘international racketeering over land acquisition has been committed’.
IT&S has two current shareholders, Swiss Park Group Limited, registered in Hong Kong, and Greenpoint Resources LLC which appears to be incorporated in the US secrecy haven of Delaware.
Its Directors are Australian national Clifford Ian Fraser (2004-current), and US national John Mulcahy (2016-current).
Following the SABL inquiry, the national government refused to issue IT&S any further permits. This has led to a remarkable situation where IT&S is demanding K10 billion in compensation from the PNG state through arbitration proceedings in Singapore. This is a third of the national budget.
In today’s PNGi Investigates we look at how a company accused of being the most prolific land grabber in PNG’s history, has embarked upon legal action under the lead of wealthy foreign executives. If successful it will leave the country’s budget in pieces.
From 2 million ha project to international arbitration
So how did the nation’s largest alleged land grab, turn into one of the largest damage claims against the state in PNG’s history?
Back in 2011, the Australian directors of the then solely US owned Independent Timbers & Stevedoring Limited (IT&S), negotiated with the PNG state for a large logging and road project in Western Province.
In return for the logging rights to some 20,000 square km of forest IT&S promised to build a 600km Trans-Papua highway.
The money to finance negotiations with the State and landowners came from an Australian company, Hilo Investments, which advanced almost A$4m to IT&S in 2010 and 2011.
Six months before the Project Agreement was signed, IT&S was granted a forest clearance permit allowing it to clear a 40 metre wide road corridor through the forest but IT&S wanted this amended to allow logging of a 10km wide corridor which it claimed was necessary to make the project financially viable.
As a 10km wide corridor cannot lawfully be approved under the Forestry Act, IT&S instead negotiated with local landowner representatives for a series of agriculture leases to be issued covering over 2 million hectares of forest. These leases, according to the 2013 Commission of Inquiry , were unlawful and fraudulently obtained by IT&S. The inquiry also found the whole highway project agreement was signed in dubious circumstances.
Armed with these findings the government refused to grant IT&S any further logging permit and the project stalled.
In June 2014 the US parent sold its shares in IT&S to the Hong Kong registered Swiss Park Group Limited for K12m.
Two months later IT&S unilaterally issued a claim in an arbitration court in Singapore seeking damages of US$1.4 billion for breach of the project agreement. By 2019, that claim had blown out to $3 billion, roughly one-third of the national government’s annual budget.
IT&S claims it is a bona fide investor who has suffered significant loss. The SABL Commission of Inquiry paints a different picture.
"Fraudulent" land deals
At the heart of IT&S’ plans in PNG lie the vast untouched rainforests of Western Province.
Rapacious logging companies have long dreamed of ripping the valuable timber from this virgin wilderness.
But the very size of the area, its remoteness and the difficulties in accessing its disparate communities have proved difficult barriers to cross.
Two logging companies made strenuous efforts to circumvent the law and force their way into the area in the 1990s. Rimbunan Hijau, by extending the geographical area of their existing, but much smaller, Wawoi Guavi Timber Permit and Concord Pacific, by exploiting the weaknesses of the legislation around road-line clearances and the lack of proper government oversight.
Both were ultimately blocked by a combination of community resistance, legal actions and judicial investigations.
IT&S used a new approach – Special Agriculture and Business Leases.
These leases were originally intended for landowners to set up small agriculture projects on their land in partnership with private companies. Because SABL leases could be used to apply for a Forest Clearance Authority (FCA), which allows an area of forest to be cleared for agricultural planting, logging companies saw an opportunity to by-pass the usual vigorous requirements of the Forestry Act for large-scale logging operations. The logging companies started setting up bogus or unrepresentative landowner groups to apply for huge SABL leases over vast tracts of forest. They would then apply for an FCA under the guise of clearing the forest for an agriculture project.
IT&S appears to have spied an opportunity. According to the SABL Commission of Inquiry the company manipulated landowners and government officials to engineer the granting of four large SABL leases covering just over 2 million hectares or 20,000 square kilometres of forest. It would be Papua New Guinea’s largest ever logging concession.
The process for establishing and granting the four leases was examined in detail during the Commission of Inquiry into the SABL land grab scandal. Oral evidence was given by landowners, government officials and IT&S staff. Commissioner Nicholas Mirou devoted 140 pages in his final report to laying out in painstaking detail what the Commission found.
IT&SL manipulated the landowners companies… to acquire customary land under the SABL process, a hallmark tainted with corruption involving DLPP, Department of Western Province and the executives of the umbrella landowner companies… [p429]
There were “serious defects in the process” that were ”fraudulent and corruptible” [p505].
The[re] is evidence that all the executives of the landowner company expressed concern that they did not know what they were signing and that no copy of the agreement was provided [p396]
“Proper tender process was not followed” [p393] and relevant State agencies abrogated their responsibilities and their conduct bordered “on gross negligence”.
The Commission ordered the SABLs be revoked and the Forest Clearance Authority be cancelled. [p509]
The Commission recommended further investigation of Messrs Paul Japhlom, Neville Harsley and John Mulcahy “to establish if an international racketeering over land acquisition has been committed by the company(s)” [p402].
The Commission of Inquiry also examined the Project Agreement between IT&S and the State, which underpinned the proposed logging operation. The Commission concluded the agreement was “not binding and enforceable because it fails to meet necessary statutory requirements” [p404] and it breached parts of the Fairness of Transactions Act [p396] and the Forestry Act [p397].
Attention will now turn to the complex corporate history of IT&S, and its offshore tentacles.
Download the extract of the SABL COI Report dealing with IT&S and the four Western province SABLs – Mirou SABL Final Report Extract
IT&S shareholders, management, loans and lawyers
Independent Timbers & Stevedoring Limited was first registered as a PNG company in 2003.
The company’s shareholders and directors were Winnie and Paul Michael Japhlom.
‘Forestry’ was listed as the company’s principal business and its registered address was Room 1001, 10th Floor, Pacific View Apartments, Korobosea.
In January 2004 the Japhlom’s were joined on the Board by the Australians Paul Soden and Michael Purcell.
Purcell only remained for a few weeks before being replaced by another Australian, Neville Harsley. A month later a third Australian, Clifford Fraser, also joined the Board.
On 8 March 2006, Paul Sodden was removed from the Board. Four weeks later, on 5 April 2006, Independent Timbers And Stevedoring USA Inc, registered in the US tax/secrecy haven of Delaware, purchased the PNG registered IT&S from Winnie and Paul Japhlom.
Independent Timbers And Stevedoring USA Inc had only been registered in the United States three weeks earlier (on 16 March).
Following the change in ownership, in June 2006, Winnie Japhlon was removed from the Board. Neville Harsley became the sole signatory on the company’s ANZ bank account.
In the same month the company moved its registered address to the offices of the law firm Blake Dawson Waldron.
Three months later, in September 2006, Paul Japhlom was replaced as a Director by Kapa Vuatha
The board now consisted of Fraser, Harsley and Vuatha.
In January 2008, IT&S borrowed A$3,160,000 from the Australian company Hilo Investments Pty. Ltd at an interest rate of 10% per annum. The whole sum was to be repaid by 22 December 2010. The loan contract and Fixed and Floating Charge over the company’s assets were both signed by Clifford Fraser, the IT&S director, on behalf of Hilo.
In June 2008, after two years with Blake Dawson, IT&S was on the move again, transferring its registered address to the offices of Gadens lawyers.
In April 2010, 7 million shares in IT&S were issued to Hilo Investments for K210,000. The creation of these shares gave Hilo a 36% stake in the company.
Vuatha was ‘terminated’ as a Director in October 2010, ‘in accordance with instructions received from Independent Timbers & Stevedoring USA Inc’ according to the Board minutes. In the same month IT&S relocated its registered office from Gadens lawyers back to Room 1001, 10th Floor, Pacific View Apartments in Korobosea.
In January 2011, Hilo Investments loaned a further A$525,000 to IT&S.
In May 2011, the 7 million shares issued to Hilo Investments 13 months earlier were redeemed. A month later a new tranche of 7 million shares were issued to Independent Timbers And Stevedoring USA Inc.
These two transactions were effectively reversed in July 2012; Independent Timbers And Stevedoring USA Inc. redeemed 7 million shares and Hilo was again issued with 7 million shares in the PNG IT&S.
Less than two months later, on 31 August 2012, the 7 million shares held by Hilo were transferred to Independent Timbers And Stevedoring USA Inc for the consideration of K7 million cash.
In June 2014, Independent Timbers And Stevedoring USA Inc transferred all it 19,242,603 shares in IT&S to the Hong Kong Registered Swiss Park Group Limited for K12 million.
Swiss Park had been registered as a private company just four months earlier, in February 2014.
In May 2015, notices were filed declaring the earlier charges given to Hilo Investments over the assets of the company had been fully discharged.
In January 2016 the long-serving Neville Harsley resigned as a Director and was replaced on the Board by the American John Mulcahy. As we will see later, this was not the end though of Harsley’s involvement with IT&S.
In June 2016, IT&S was taken under the wing of yet another prominent law firm and the company’s registered address was transferred to Lewin Lowing Sullivan Lawyers.
On 29 Oct 2019 Greenpoint Resources LLC ‘of Washington DC’ in the United States acquired 15,394,083 shares in IT&S from Swiss Park Group Limited who retained a minority 20% stake.
Is Swiss Park really Chinese?
Swiss Park Group Limited is a private company registered in the Chinese Administered Special Region of Hong Kong.
The company was registered on 28 February 2014 with a paid up share capital of just HK$2.
Three months later it acquired ownership of IT&S in PNG, paying K12 million.
Why was this newly formed Chinese company interested in acquiring IT&S in PNG?
The answer becomes clearer when we dig a little deeper.
Swiss Park Group Limited was owned by none other than the two Australian Board members of IT&S, Clifford Fraser and Neville Harsley.
Then, as we have already observed, Swiss Park’s interest in IT&S was diluted in October 2019 when, while awaiting the outcome of the Supreme Court case on its US$3 billion arbitration, 80% of the shares were transferred to the US registered Greenpoint Resources LLC.
By this time the ownership of Swiss Park Group had also undergone a complete transformation. The owners were now two Queensland companies, Global Forest Resources Pty Ltd and Ushuaia Investments Pty (each with 40% of the shares) and the US registered Duncan Consulting Group LLC (with 20%).
Ushuaia Investments shared an address at 22 Walker Street, Townsville with Hilo Investments Pty Ltd, until March 2018 when Ushuaia moved to Brisbane. The Townsville address was also home to the accountancy firm WHK-TCM Smith, although their website is currently non-operational and their name does not currently appear on the building directory.
Ushuaia’s new Brisbane address is the same as that used by Clifford Fraser, a link we will explore further below.
So who owns IT&S now?
Independent Timbers & Stevedoring Limited is currently owned by two off-shore companies; one registered in the US secrecy haven of Delaware and the other in the Chinese Administered region of Hong Kong.
Greenpoint Resources LLC owns 80% of the shares in IT&S.
The company does have a website. It proudly proclaims the Trans Papua Highway as an ongoing project, touts the completion of several road construction contracts in Port Moresby, and contracts for AusAID and Ok Tedi mine. The ownership of the company, however, remains shrouded in mystery.
According to Investment Promotion Authority records the company’s registered office and postal address are ‘1050 Connecticut Avenue, NW, Suite 600, Washington, DC, Washington, United States’. PNGi has though been unable to find any trace of a Greenpoint Resources LLC registered in Washington DC.
There is, however, a Greenpoint Resources LLC registered in the US State of Delaware. That company shares a registered address with Duncan Consulting Group LLC which, as we have already seen, owns a 20% stake in Swiss Park Group Limited.
The address that is used by both Greenpoint Resources LLC and Duncan Consulting is the home of a company called incserv, a corporate service company.
Greenpoint Resources has not responded to requests from PNGi for more information about its ownership.
The other 20% of the shares in IT&S are still owned by the Hong Kong registered company, Swiss Park Group Limited. As we have seen, Swiss Park is currently owned by two Australian companies, Global Forest Resources Pty Ltd and Ushuaia Investments Pty (each with 40% of the shares) and the US registered Duncan Consulting Group LLC (with 20%).
Global Forest Resources is owned by Neville Harsley, giving him in effect a 5% stake in IT&S. Meanwhile Ushuaia Investments is, in turn, owned by another Australian company, Yandan Investements Pty. Yandan is jointly owned by IT&S director Clifford Fraser and a Kathryn Lee Coggins who, in ASIC records, shares an address with Fraser.
IT&S financial performance
By examining the annual returns filed by IT&S we can get a glimpse of its financial performance.
The company’s assets made a marked jump in 2007, up from K2m to over K11.5 and for the next five years the company maintained a healthy balance with assets always exceeding liabilities by at least 100%.
This changed in 2014. The company’s liabilities ballooned from K12m to K75m, exceeding the assets by K43m. This was the year when ownership was transferred from Independent Timbers And Stevedoring USA Inc to the Swiss Park Group in Hong Kong.
Since then, the differential between liabilities and assets climbed further, reaching just shy of K70m in 2017, the last year for which records are available.
IT&S annual returns
Clifford Fraser’s fingerprints
Clifford Fraser fingerprints can be found all over the Trans-Papua highway logging project.
In 2004 Clifford Fraser joined the Board of IT&S Limited, where he still sits today
In January 2008 Fraser’s Australian registered company Hilo Investments Pty Ltd loaned IT&S $3,160,00.
April 2010, Hilo Investments was issued 7 million shares in IT&S for K210,000, giving Hilo a 36% stake in the PNG registered company.
In January 2011 Fraser’s Hilo Investments loaned a further $525,000 to IT&S
In May 2011, Hilo’s 7 million shares in IT&S were redeemed but a little over twelve months later, in July 2012, Hilo was issued with a further 7 million shares.
Two months later Hilo’s shares were transferred to Independent Timbers And Stevedoring USA Inc for the consideration of K7 million cash.
In June 2014, Independent Timbers And Stevedoring USA Inc transferred all its shares in IT&S Limited to the Hong Kong registered Swiss Park Group for K12 million.
Swiss Park was then 50% owned by Clifford Fraser.
Swiss Park later transferred its ownership of IT&S to three companies including Ushuaia Investments Pty Ltd. Ushuaia is wholly owned by Yandin Investments Pty Ltd – which is 50% owned by Clifford Fraser.
Clifford Fraser is also the CEO of Greenpoint Resources the US based company that now owns80% of IT&S Limited.
Clifford Frasers fingerprints
More conflicts of interest
The SABL COI report makes special mention of the role played in negotiations for the Trans-Papua highway by the Papua New Guinea Agency for International Development (PNGAID).
This grand sounding institution was supposedly providing assistance to the four landowner companies to find funding for the road project and their other ‘humanitarian needs’. It was PNGAID who, says the SABL COI, negotiated for IT&S to provide all the funding for the road in return for logging rights.
PNGAID played a pivotal role in acting as the middleman agency for the landowner companies, IT&SL and the State from the inception of the project to the signing of the project agreement [p400]
PNGAID’s Managing Director was Paul Japhlom, who registered the Agency as an Incorporated Association in 2004. He also happens to be the person who established IT&S Limited and who together with Winnie Japhlom owned the company until 2006.
The Commission finds that IT&SL became involved with the Trans Papuan Road project as early as 2003, the time Mr & Mrs Japhlom were Shareholders, Directors and Secretary of IT&SL. The Commission conclude as a matter of fact that a potential conflict of interest on the part of Mr Japhlom existed when he established PNGAID to forge investment on behalf of the landowners, the State and IT&SL of which he was a previous active corporate member. [p401]
The COI also noted that the Project Agreement was signed on behalf of PNGAID by its Managing Director, John Mulcahy. Mulcahy was also an ‘active director/employee of IT&SL’.
But Mulcahy’s involvement didn’t end there. He was also the Managing Director of Meridian Capital Group, a US based company that describes itself as a Merchant Bank sourcing capital for international humanitarian and infrastructure projects.
According to the Commission of Inquiry report, Meridian had written to the government stating it was ‘acting as an intermediary in regards to Trans Papuan Highway Project’.
As already noted, the Commission recommended further investigation of the involvement of Japhlom, Harsley and Mulcahy in potential ‘international racketeering over land acquisition’.
That recommendation has seemingly not impacted John Mulcahy’s continued involvement in the project.
In March 2016 Mulcahy reappeared as a newly appointed Director of IT&S in Papua New Guinea. He also popped up as a Director of the Hong Kong registered Swiss Park Group Limited (which acquired IT&S in 2014) and he is a Director and Chief Financial Officer of Greenpoint Resources (which acquired 80% of IT&S in October 2019).
The K10 Billion Showdown
Facing a payout that would in effect paralyse the national economy, the national government has challenged the legitimacy of the Singapore proceedings initiated by IT&S.
The State challenged the validity of the arbitration claim through the PNG courts.
In October 2018 the National Court ruled in favour of IT&S. It refused the State’s application to have the arbitration stopped. The Court effectively ruled that the original project agreement was valid and the Singapore arbitration was the correct dispute resolution process.
The State appealed and in April 2019 the case was heard in the Supreme Court.
Six months later, in October 2019, with the Supreme Court decision still pending, there was a further change in the ownership of IT&S. The US registered company Greenpoint Resources bought an 80% stake for an undisclosed amount.
In February 2020 the Supreme Court published its decision overturning the earlier National Court ruling.
The Supreme Court found both the arbitration process and the original project agreement were invalid. It ordered all costs of the arbitration and National and Supreme court cases be paid by IT&S.
Global law firm Dentons , which acted for the State, claimed a significant victory based on the damage an arbitration award of K10 billion would have caused to government finances.
The decade long saga of Independent Timbers & Stevedoring Limited and its attempts to log the heart out of the forests of Western Provinces displays many of the features that we have found common to many large-scale scams in Papua New Guinea.
A general lack of transparency as evidenced by hidden company ownerships and beneficial interests, overseas shareholdings and cross ownerships across multiple legal jurisdictions and tax havens.
Conflicts of interests with key individuals holding multiple roles across a number of actors, often hidden behind corporate facades.
Weak government processes and according to the CoI, easily corrupted government officials.
Fraudulent land deals and bogus legal claims, as set out in the CoI findings.
And at the heart of it all, foreign business men who appear to enjoy the life of luxury in their own countries, while causing misery to PNG, and some of the nation’s most vulnerable rural communities.
 In 2016 Dentons, the worlds largest law firm, moved into the Australia Pacific region through a merger with the Sydney, Perth and and PNG offices of the law firm Gadens, which at that time had IT&S as one of its clients. When the State engaged Dentons to defend the claim against it by IT&S, IT&S unsuccessfully challenged that appointment, claiming Dentons had access to privileged and confidential information about the company.