informe de eia: "london stock exchange financing for illegal deforestation in peru via aim-listed...

8/17/2019 Informe de EIA: "London Stock Exchange Financing for Illegal Deforestation in Peru via AIM-listed United Cacao Ltd…

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ondon Stock Exchange Financing for Illegal Deforestation in Peru via

AIM-listed United Cacao td SE!C

May 4, 2016

"a#le of Contents

Introduction ............................................................................................................................................ 2

Section 1. Overview of Disclosure Probles .......................................................................................... !

Misleadin" t#e ar$ets re"ardin" on"oin" le"al %roceedin"s and environental daa"e ............. !

Orders to cease o%erations ................................................................................................................. 4

&lear cor%orate connections ............................................................................................................... '

Disclosin" selective and incorrect inforation ................................................................................... (

)#e Probles wit# *e%ort 1!+6 Informe 1376) .......................................................................... 11

Su%ree &ourt *ulin" ................................................................................................................... 14

)#e -asis for ction by IM .............................................................................................................. 1'

Section 2/ ailure to consider ris$s/ Peruvian &oitents to orest &onservation and &liate

an"e Miti"ation ................................................................................................................................. 1(International coitents to cobat cliate c#an"e ................................................................... 1(

)rade "reeents............................................................................................................................. 1

Doestic %olitical contet ................................................................................................................ 1

Section !/ IM Policy Matters ............................................................................................................... 21

ddin" subsidiaries after launc# date............................................................................................... 21

3e"itiacy for ot#er ar$ets ............................................................................................................ 22

)#e Si"nificance of nited &acao .................................................................................................. 2!

&onclusion ............................................................................................................................................. 24

Section 4/ 5vidence )able ..................................................................................................................... 26

Section '/ nnees ................................................................................................................................ 2+


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Introduction)#is docuent suaries and %rovides evidence about t#e activities and stateents of IM7listed

nited &acao 3iited S58&, as well as its subsidiaries and related co%anies in Peru, in order to set

t#e record strai"#t about t#is networ$ of co%anies9 i%acts on #uan ri"#ts, tro%ical rainforests,

t#e "lobal cliate, and rule of law. )o"et#er, t#is networ$ of co%anies is res%onsible for over

11,100 #ectares of deforestation, accordin" to t#e Peruvian "overnent,1,2,! includin" over lands

claied by indi"enous counities native to t#e Peruvian aon, 4 and accordin" to t#is analysis,

#as bro$en IM *ules for &o%anies'

nited &acao 3iited S58& #ereinafter, nited &acao: is re"istered in t#e &ayan Islands, but its

subsidiaries, &acao del Peru ;orte S& and &oo%erativa de &acao Peruano S&, o%erate wit#in t#e

Peruvian aon re"ion of 3oreto. )#e dission Docuent t#rou"# w#ic# nited &acao re"istered

to %artici%ate on IM refers to nited &acao, its two Peruvian subsidiaries, as well as anot#er

subsidiary in t#e -ritis#


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develo%ent necessitated clearance of dense rainforest. )#erefore, w#en nited &acao9s

subsidiaries and related co%anies in Peru deforested wit#out obtainin" %ro%er "overnental

a%%roval11 w#ile a$in" isleadin" stateents re"ardin" t#e law and t#eir co%liance wit# it in

Peru, as outlined below, t#e co%any was de%endin" on its ille"al forest7clearin" activities

reainin" un$nown and un%unis#ed.

nited &acao9s ani%ulation of inforation about its o%erations in Peru #as been wides%read, ast#is docuent will outline below. In Bust one of t#e on"oin" le"al cases in Peru, eac# of t#e four

cries of w#ic# t#e co%any9s subsidiary and its %ersonnel stand accused carry between two and

ei"#t years in %rison, as well as substantial fines, for eac# %erson found "uilty.12 nited &acao clais

t#e Su%ree &ourt #as conclusively ruled in t#eir favor on t#ese cries,1! but t#e case #as not been

finalied and continues to be %rosecuted in Peruvian courts.14 If nited &acao is allowed to continue

to trade on IM, des%ite breac#es of IM *ules, docuented ille"al deforestation financed wit#

oney raised on IM, as well as t#e on"oin" criinal %rosecution in Peru, IM9s re%utation will be

severely daa"ed and could attract ot#er criinal enter%rises loo$in" for ways to finance t#eir

ille"al o%erations.

Section $ %vervie& of Disclosure Pro#le's

Misleading the 'arkets regarding ongoing legal (roceedings and environ'ental

da'age

nited &acao oitted and isre%resented evidence about t#e ille"al, and t#us #i"#7ris$ nature of its

business in Peru, seriously isleadin" investors, t#e ar$et, and t#e %ublic, bot# in its dission

Docuent and in subseJuent stateents. nited &acao9s incorrect and selective stateents to t#e

%ress #as led to contradictory news re%orts.1'161+ lac$ of inde%endent inforation about t#e in7

country o%erations of t#e co%any #as allowed confusion to %ersist, des%ite t#e solid evidence

"at#ered by t#e Peruvian "overnent a"ainst nited &acao9s subsidiaries and re%resentatives.

Priary evidence contradicts nited &acao9s stateents. )#e co%any9s isleadin" stateents and

aterial oissions brea$ IM9s *ules for &o%anies t#at reJuire >KaLn IM co%any KtoL ta$e

reasonable care to ensure t#at any inforation it notifies is not isleadin", false or dece%tive and

does not oit anyt#in" li$ely to affect t#e i%ort of suc# inforation.?1( urt#er reJuireents are

set out for t#e dission Docuent subitted to IM, w#ic# ust be >in accordance wit# t#e facts

11 See Section/ >On"oin" 3e"al Proceedin"s?12 &uarto u"ado Penal de Investi"acin. Pre%aratoria F Sede &entral, &orte Su%erior de usticia de 3oreto.

2014, Se%teber !0:. 5%ediente 00+40720147+'710!7*7P5704. uto de 5ce%cin de I%rocedencia de

ccin/ *esolucion +. % 172. IJuitos, Peru.1! nited &acao 3iited S58&. 2016, ebruary 1':. 3iti"ation Settleent *esults. 3ondon.14 Poder udicial del Peru. &onsulta de 5%edientes udiciales7Su%reo. *etrieved 2016, ebruary 2 fro

#tt%/NNceB.%B."ob.%eNceBNforsNbusJuedafor.#tl1' &annon, . 201', anuary 20:. &o%any o%s Down *ainforest to Produce Sustainable ocolate.

ongaa+ *etrieved fro #tt%/NNnews.on"abay.coN201'N01Nco%any7c#o%s7down7rainforest7to7

%roduce7sustainable7c#ocolateN16 &annon, . 201', ebruary 1!:. Sustainable9 &acao &o%any lle"edly Defies =overnent9s &all to Aalt

Plantation Develo%ent. ongaa+ . *etrieved fro #tt%/NNnews.on"abay.coN201'N02Nsustainable7cacao7

co%any7alle"edly7defies7"overnents7call7to7#alt7%lantation7develo%entN 1+ &annon, . 201', %ril 16:. &ourt *ules Deforestation of Peruvian *ainforest for ocolate was 3e"al.

ongaa+ . *etrieved fro #tt%/NNnews.on"abay.coN201'N04Ncourt7rules7deforestation7of7%eruvian7

rainforest7for7c#ocolate7was7le"alN1( 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule 10:. 3ondon. %. !6.


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and KcontainL no oission li$ely to affect t#e i%ort of suc# inforation.?1 IM rules s%ecifically

ention t#e reJuireent to subit u%dates about c#an"es to inforation in t#e dission

Docuent, if c#an"es #a%%en after t#e dission Docuent is drafted and subitted to IM, but

before tradin" be"ins.20 5vidence suaried in t#is docuent consistently deonstrates t#at

stateents ade by nited &acao, in its dission Docuent contain isre%resentations and

aterial oissions. )#e in7de%t#, %riary inforation about alle"ed violations of Peruvian law also

deonstrates t#at nited &acao failed to u%date its %revious subissions w#ere c#an"es #aveoccurred since t#e initial subission.

%rders to cease o(erations

=overnental on7site ins%ections for nited &acao9s fully7owned subsidiary &acao del Peru

;orte,21,22,2! and related co%any Plantaciones de cayali,24,2',26 occurred in Se%teber and

;oveber 2014, before nited &acao9s adission to tradin" on Deceber 2, 2014. )#e results of

t#ese ins%ections docuented etensive environental daa"e and lac$ of co%liance wit#

Peruvian laws. Aowever, t#e fact t#at t#ese "overnental ins%ections occurred, and t#e results of

t#e ins%ections, were not disclosed in nited &acao9s dission Docuent. )#e lac$ of disclosure of

t#ese on"oin" %rocesses investi"atin" &acao del Peru ;orte9s co%liance wit# Peruvian law, and

t#eir %otential i%act on t#e co%any9s o%erations, success, and t#us tradin" %osition, are Bustsoe of t#e aterial oissions in nited &acao9s subissions.

)#e subseJuent lac$ of disclosure t#at &acao del Peru ;orte2+ and Plantaciones de cayali2( #ad

been ordered to #alt o%erations due to lac$ of co%liance wit# Peruvian law, in Deceber 2014

and t#at later, in Se%teber 201', a siilar cease order was received by t#e related co%any,

Plantaciones de Pucall%a,2 violated IM9s on"oin" disclosure reJuireents, w#ic# state t#at/ >n

IM co%any ust issue notification wit#out delay of any new develo%ents w#ic# are not %ublic

$nowled"e w#ic#, if ade %ublic, would be li$ely to lead to a si"nificant oveent in t#e %rice of its

IM securities.?!0 )#e %rocess of trac$in", reJuestin", and analyin" docuents t#at nited &acao

did not a$e %ublic in its IM subissions too$ any ont#s by eternal researc#ers.

1 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule !:. 3ondon. %. 4.20 Ibid.21 Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 2014, Se%teber

2!:. Infore '!7147MI;=*I7D


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In addition to t#ese t#ree cease orders, Peruvian "overnent res%onses to inforation reJuests!1

#ave revealed at least four ot#er on"oin" le"al cases in Peru9s Budicial syste a"ainst t#ree

co%anies financed via nited &acao, includin" its direct subsidiary, &acao del Peru ;orte, and

related co%anies Plantaciones de cayali and Plantaciones de Pucall%a, !2 as well as an additional

nine ot#er co%anies related to t#e cor%orate "rou% in Peru.!!!4 5ac# of t#ese four cases includes

nited &acao &5O9s Dennis Mel$a #iself, as a defendant.!' )#ese cases also nae %ublic officials in

Peru and ot#er e%loyees of t#e =rou% and its related co%anies as defendants in cases of ille"altiber traffic$in", irre"ular land accuulation, deforestation wit#out aut#oriation, and obstruction

of Bustice.!6 nited &acao #as disclosed only one of t#ese cases in subissions to IM, at all, and in

disclosures referencin" t#is case, nited &acao9s stateents contained isleadin", selective, and

incorrect inforation.!+,!(,!,40 ll cases docuented are on"oin", and are described below.

Clear cor(orate connections

nited &acao lists two direct, fully owned subsidiaries in Peru in its dission Docuent/ &acao del

Peru ;orte S..&. %reviously Plantaciones de 3oreto Sur S..&.:41 and &oo%erativa de &acao Peruano

S..&. %reviously Plantaciones de 3oreto ;orte S..&.:.42 nited &acao9s IM dission Docuent

refers to t#e &ayan Islands7re"istered co%any, its two Peruvian subsidiaries, as well as anot#er

subsidiary in t#e -ritis#


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&acao, but rat#er lists several coon Peruvian individuals as s#are#olders.4' Aowever, nited

&acao9s &5O Dennis Mel$a is listed as t#e le"al re%resentative for Plantaciones de Pucall%a,

Plantaciones de cayali, and ot#er related Peruvian co%anies described below, w#ic# derive

si"nificant finance fro "lobal financial ar$ets t#rou"# related %arty transactions wit#out t#e

scrutiny of financial re%ortin" reJuired for co%anies officially owned by t#e IM7listed, &ayan

Islands7based %arent co%any.

Plantaciones de Pucall%a and Plantaciones de cayali, t#e two related co%anies receivin" t#e ost

financin" accordin" to nited &acao9s cor%orate accounts,46 are oil %al %lantation co%anies

o%eratin" in cayali and res%onsible for ille"al deforestation on an even lar"er scale t#an nited

4' 5nvironental Investi"ation "ency. 201':. eforestation + efinition he Peru4ian go4ernment fails to

define forests as forests, 'hile palm oil epansion and the ala+sian influence threaten the &maon

Cas#in"ton, D&. %. 2272!.46 nited &acao 3iited S58&. 201', une:. uilding Communities -ro'ing Cacao &nnual eport 2018. % 42.

O%eratin" cas# "rantedNcollected: 2014 201!

SR SR

Plantaciones de Pucall%a S..&. 1,+(0,(+1 1+0,20

Plantaciones de cayali S..&. 1,!+,'2 1(4,+(!

Servicios *i%io S..& 262,160 7

=ru%o Palas del Peru S..&. (+,21 !,(6

Industrias de Pala ceitera S..&. '1,2'' 7

Plantaciones del Peru 5ste S..&. 10,+0 1(,116

Plantaciones de San rancisco S..&. 10,064 7

Plantaciones de Masisea S..& 1,006 7

Plantaciones de 3oreto S..&. '24 7

&acao de *eJuena 5ste S..&. 60 7

&acao de *eJuena Oeste S..&. 60 7

Plantaciones de ;a%o ;orte S..&. 60 7

Plantaciones de ;a%o S..&. 60 7

Plantaciones de ;a%o Sur S..&. 60 7

Plantaciones de Marin S..&. 42 7

Plantaciones de 3oreto 5ste S..&. ( 7

&as# collected fro related %arties !,'(4,110: !++,1+':


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&acao9s direct subsidiaries/ at least ,1+4 #ectares cleared as of Se%teber 201'. 4+,4(,4 )#e

inforation fro t#e audited stateent, above, s#ows t#ese related oil %al %lantation co%anies

%aid bac$ t#e advances t#ey received fro nited &acao,'0 w#ic# raises Juestions about t#e

%rovenance of t#e %aid7bac$ funds, "iven t#at, at less t#an five years fro %lantin", t#e %lantation

was too youn" to be %roducin" and "eneratin" revenues fro oil %al. dditionally, Peruvian

"overnent records, '1,'2,'! as well as satellite ia"ery'4 and %#oto evidence,'' s#ow t#at t#ousands

of #ectares of forest, and t#us %otentially valuable tiber, #as been reoved fro t#e %lantationareas. Since no aut#oriation was "iven to cut trees, nor to trans%ort or sell wood fro t#e

%lantation areas o%erated by &acao del Peru ;orte,'6,'+,'(,',60 Plantaciones de cayali,61,62,6!,64 or

Plantaciones de Pucall%a,6' nited &acao9s subsidiary and related co%anies acted in violation of t#e

4+ Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 201', Se%teber 2:.

*esolucin de Direccin =eneral ;E 2+07201'7MI;=*I7D2013 ?photograph@ Cas#in"ton, D.&./ nne 24.

5nvironental Investi"ation "ency. 201', Marc#:. 9nited Cacao:s related compan+, Plantaciones de 9ca+ali,

has een operating in =ue4a eAuena since Bul+ 2012, allo'ing the compan+ ample time to create its o'ninfrastructure and plantations ?photograph@ Cas#in"ton, D.&./ nne 2'.

5nvironental Investi"ation "ency. 201', Marc#:. Illegal sa' mill on 9nited Cacao:s propert+ cuts timer

near amshi+acu, Peru ?photograph@. Cas#in"ton, D.&./ nne 26.'6 Oficina de sesoria uridica, =obierno *e"ional de 3oreto. 2014, u"ust 2':. Infore 3e"al +6720147=*37

==*7P*M*S7D5NO. IJuitos, Peru.'+ Servicio ;acional orestal y de auna Silvestre, Ministerio de "ricultura y *ie"o. 2014, Se%teber !:.

Oficio 14720147S5*O*7D5. 3ia, Peru.'( Oficina de sesoria uridica, Ministerio de "ricultura y *ie"o. 2014, Se%teber 24:. Infore 11(2720147

MI;=*I7O=. Se%t. 24, 2014. 3ia, Peru.' Oficina de sesoria uridica, Ministerio de "ricultura y *ie"o. 2014, Se%teber 10:. Infore 1066720147

MI;=*I7O=. 3ia, Peru.60 Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 2014, October 1!:.

Infore 100(7147MI;=*I7D


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forestry laws and re"ulatory fraewor$, accordin" to ulti%le official le"al re%orts fro t#e

Peruvian "overnent. dditionally, at least t#ree flyovers of t#e &acao del Peru ;orte %lantation

between Marc# and October 201' docuented an ille"al sawill on t#e %ro%erty.66,6+,6( )#is

evidence underines stateents by nited &acao in its IM docuent t#at >t#e =rou% #as

notreoved any tiber fro its %roBect sites.?6 )#e dission Docuent does reference >seven

inde%endent contractors on site? at its &acao del Peru ;orte %lantation,+0 but if t#ese contractors

were res%onsible for reovin" or sellin" tiber fro t#e area, t#e res%onsibility still rests wit# t#e=rou% for t#ese violations of Peruvian law.+1+2

Disclosing selective and incorrect infor'ation

nited &acao9s dission Docuent to IM refers to Bust one of t#e on"oin" le"al cases related to

co%liance wit# environental i%act ana"eent and land use c#an"e aut#oriation %rocedures

in Peru. nderstandin" t#e le"al contet in Peru is critical for identifyin" t#e isre%resentations and

oissions in nited &acao9s stateents wit# re"ard to t#e on"oin" case disclosed. )#e %ara"ra%#s

below analye t#e stateents ade by nited &acao, and s#ow clearly t#at t#ey are not consistent

wit# Peruvian le"al rulin"s t#at were ade bot# before t#e dission Docuent was filed and after

t#e co%any9s adission to tradin" on IM.

s stated in nited &acao9s dission Docuent, t#e "rou%9s subsidiary, &acao del Peru ;orte

forerly Plantaciones de 3oreto Sur:, in 3oreto acJuired land fro %rivate owners, w#o #ad

received sall %lots under a law+! w#ic# was intended to #el% %rovide land to internally dis%laced

victis of terrorist violence.+4 )#e co%any ar"ues in its dission Docuent t#at t#is law, Decreto

3e"islativo (!( D3 (!(:, autoatically i%lies t#at t#e best land use ca%acity F a tec#nical le"al

classification w#ic# inter%rets t#e >natural ability? of >a "iven "eo"ra%#ic areato %roduce

66 Sociedad Peruana de 5codesarrollo. 201':. &ontinGa Deforestacin en )as#iyacu y ManitTU*e"in 3oreto

KDeforestation &ontinues in )as#iyacu and ManitT in t#e *e"ion of 3oretoL. KPress *eleaseL. *etrieved fro

#tt%/NNwww.biofuelobservatory.or"Nnota7de7%rensa70027201'7s%de.#tl6+ 5nvironental Investi"ation "ency. 201', Marc#:. Illegal sa' mill on 9nited Cacao:s propert+ cuts timer

near amshi+acu, Peru ?photograph@. Cas#in"ton, D.&./ nne 26.6( Juise, S. P#oto"ra%#er:. 201', October !1:. &maon!a &rrasada l -rupo el#a + la eforestaci.n por

Palma &ceitera + Cacao en el Per. &onvoca, Ofa, @enH/ 3ia, Peru. %. 4+. *etrieved fro

#tt%/NNwww.$eneaaon.netNDocuentsNPublicationsNaonia7rrasada.%df6 Strand Aanson 3iited,


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consistently under continuous treatent and for s%ecific uses?+' F is a"ricultural.+6 nited &acao

t#en ar"ues t#at t#e land9s classification as a"ricultural obviates t#e need for a land use c#an"e

aut#oriation to reove forest cover.++ nited &acao9s re%resentatives in Peru also clai t#at t#e

%revious landowners #ad carried out a"ricultural activities since 1+, and ar"ued t#at t#is eant

t#ey did not #ave to co%ly wit# laws reJuirin" a land use c#an"e aut#oriation.+(

Aowever, t#is inter%retation of D3 (!( was incorrect, as it was not issued by t#e %ro%er le"alaut#ority wit#in t#e Ministry of "riculture and Irri"ation #ereinafter referred to as MI;=*I:, and

was subseJuently corrected %rior to nited &acao9s subission to and listin" on IM.+ )#e

inter%retation did not ta$e into account t#e orest and Cildlife 3aw 2+!0( or res%ect t#e %ro%er

%rocedure for desi"nin" and i%leentin" an environental ana"eent tool for t#e %roBect.(0

Official le"al re%orts %ublis#ed in Se%teber(1,(2 and October(! 2014 clarify t#at D3 (!(/

1: Did not i%ly any desi"nation of best land use ca%acity of t#e

land allocated under D3 (!(

2: Did not #ave any bearin" on t#e reJuireent establis#ed in t#e

orest 3aw(4 t#at all landowners reJuest and "et a%%roval for land

use c#an"e to convert land wit# forest cover to a"ricultural use.

('

&itin" t#at t#e orest 3aw and ot#er environental %rotections in Peru were enacted to %rotect t#e

resource ri"#ts of all Peruvians, t#e le"al assessent office fro MI;=*I issued re%orts correctin"

t#e inter%retation t#at D3 (!( sus%ended t#e reJuireent to obtain aut#oriation for land use

c#an"e, statin" t#at t#e %rior inter%retation would be contrary to t#e "eneral %ublic interest and

t#at nited &acao9s subsidiaries and related co%anies would #ave to obtain land use c#an"e

aut#oriation in order to cut down forests.(6

urt#erore, satellite ia"ery s#ows t#at t#e land "iven to t#e %revious landowners reained

ostly %riary forest fro as early as 1(, (+ until &acao del Peru ;orte9s be"an o%erations, by

+'

ernandini, P. C. Sousa, *. . 201':. he istriution of Po'er and esponsiilities &ffecting Dorests, Eand9se, and F &cross Ee4els and $ectors in Peru & Eegal $tud+ . &IO*/ -o"or, Indonesia.+6 Strand Aanson 3iited,


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10

id7May 201!.(( )#e %resence of ostly %riary forest indicates t#at t#ere were not si"nificant

a"ricultural activities conducted by %revious owners, a direct contradiction of clais ade by nited

&acao in t#eir dission Docuent.( )#e lac$ of %revious a"ricultural activities furt#er wea$ens t#e

co%any9s ar"uent t#at it did not need to reJuest and receive land use c#an"e aut#oriation

before %roceedin" to deforest t#is land.

)#e Se%teber0,1

and October 20142

"overnent re%orts also confir t#at t#e %revious owners9lac$ of aut#oriation for land use c#an"e does not create any %recedent t#at would ee%t t#e

subseJuent owner, &acao del Peru ;orte, fro t#e reJuireent under t#e orest 3aw to obtain

aut#oriation for land use c#an"e and t#us, forest cover reoval.

)#ou"# t#e atter #as been clarified le"ally for over a year, nited &acao continues to ar"ue t#at its

subsidiary, &acao del Peru ;orte, did not reJuire a land use c#an"e aut#oriation to destroy t#e

forest and re%lace it wit# a %lantation.!,4,',6 )#e basis of t#e co%any9s ar"uent lies in a re%ort

titled Infore 1!+671!7MI;=*I7D=7D=N*571141271! #ereinafter, >*e%ort 1!+6?:,+

w#ic# was not issued by t#e correct le"al aut#ority wit#in MI;=*I.(,,100 )#is re%ort said t#e

co%any did not need land use c#an"e aut#oriation,101 based on an incorrect inter%retation of D3

(!(,102,10!,104 and acce%ted &acao del Peru ;orte9s clais t#at it #ad si%ly continued a"ricultural

(( Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 2014, Deceber ':.

Infore 1206720147MI;=*I7D


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activities initiated by local farers.10' )#e detailed evidence w#ic# contradicts, and corrects *e%ort

1!+6 Informe 1376:, is suaried, below.

"he Pro#le's &ith )e(ort $*+, -Informe1376)

Land Use Change Requirements

In order to re"ulate t#e conversion of t#e aon rainforest for a"ricultural %ur%oses, t#e Peruvian

orest and Cildlife 3aw 2+!0(106 reJuires t#e re"ional forest aut#ority to a%%rove land use c#an"e

reJuests for land wit# forest cover.10+ )o deterine w#et#er to "rant t#is a%%roval, t#e re"ional

forest aut#ority ust obtain a classification of best land use ca%acity deterined by t#e national7

level Ministry of "riculture D=:, w#ic# evaluates w#et#er t#e land9s best ca%acity is for

a"riculture, as standin" forest, or ot#erwise.10(

Infore 100(7147MI;=*I7D*e%ort 100(?:, issued by

t#e =eneral Office for 3e"al ssessent on October 1!, 2014 O=, for its S%anis# acrony:,

confirs t#at *e%ort 1!+6, and t#e %recedents cited t#erein, did not adeJuately ta$e into account

t#e orest 3aw w#en issuin" an o%inion about w#et#er &acao del Peru ;orte9s land reJuires an

aut#oriation for land use c#an"e.10

&orrections to *e%ort 1!+6 were finalied and %ublis#ed on Oct. 1!, 2014,110 alost two ont#s

before nited &acao9s adission to IM. Yet, in t#e co%any9s dission Docuent, %ublis#ed on

;oveber 26, 2014, t#e co%any continued to refer to t#e %revious, incorrect inter%retation

contained in *e%ort 1!+6.111

Authority

*e%ort 1!+6 contradicted112 t#e ori"inal re%ort received by &acao del Peru ;orte, *e%ort 10(1,11!

co%osed by a different D= e%loyee, on Oct. 4, 201!, w#ic# stated t#at t#e co%any was in

fact reJuired to obtain an aut#oriation for land use c#an"e in accordance wit# t#e orest and

Cildlife 3aw.114

In res%onse to *e%ort 10(1, w#ic# reJuired t#e co%any to obtain aut#oriation for land use c#an"efro t#e re"ional "overnent after co%letin" an environental ana"eent %lan,11' &acao del

Peru ;orte sent a written reJuest to t#e D= on ;oveber 1, 201! w#ic# a%%ears to #ave

10' Strand Aanson 3iited,


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12

ori"inally su""ested t#e incorrect inter%retation of D3 (!( F t#at was incor%orated later in *e%ort

1!+6 F and ar"ued t#e land use c#an"e aut#oriation reJuireent s#ould be waived.116

In res%onse to t#e co%any9s letter, *e%ort 1!+6 cites t#e o%inion of a D= lawyer a"reein" wit#

t#e inter%retation of D3 (!( as %ro%osed by t#e co%any, contained in *e%ort ;o. 00720167

D=N);D38 #ereinafter, >*e%ort 00?: issued on Dec. 2, 201!, four days %rior to t#e issuance

of *e%ort 1!+6.11+

)#us, *e%ort 00 and *e%ort 1!+6 reversed of t#e ori"inal D= o%inioncontained in *e%ort 10(1.

)#e incorrect inter%retation of D3 (!( was and continues to be %ro%a"ated bot# by &acao del Peru

;orte9s lawyer and by nited &acao9s stateents contained in its dission Docuent ;oveber

26, 2014:,11( nnual *e%ort on 2014,11 Mid7Year *e%ort on 201',120 and *e"ulatory ;ews Service

*;S: stateents,121 lon" after t#is inter%retation was officially corrected on October 1!, 2014 by

*e%ort 100(.

S%ecifically, in *e%ort 100(, t#e O= corrects *e%ort 1!+6, statin" t#at t#e D= ay not eit its

own le"al o%inions, as it did in *e%orts 00 and 1!+6, and citin" t#e relevant laws t#at establis# t#e

aut#ority of O= to issue official le"al o%inions for MI;=*I.122

t t#e re"ional "overnent level, *e%ort 3e"al no. 0+6 fro u"ust 2', 2014 confired t#e

reJuireent for aut#oriation of land use c#an"e, and confired t#at &acao del Peru ;orte bro$e

t#e orest 3aw,12! directly nullifyin" *e%ort ;o. 040 fro Marc# !1, 2014 w#ic# said t#e co%any

did not need land use c#an"e based on MI;=*I9s %revious inter%retation.124

;one of t#ese corrections fro t#e national or re"ional co%etent aut#orities were disclosed in t#e

dission Docuent, %articularly in t#e ris$s section, w#ic# noted t#at t#e inter%retation fro t#e

"overnent could c#an"e, 12' rat#er t#an statin" t#at t#e inter%retation #ad already been c#an"ed

and t#e o%inion cited in t#e section #ad already been corrected. )#e continual use of t#e incorrect

inter%retation of D3 (!( by nited &acao and its re%resentatives, and citin" *e%ort 1!+6 after it #ad

lon" been corrected, is a serious and continued isre%resentation of bot# aterial ris$s and facts.

PAMA vs. Environmental Impact Assessment

116 &acao del Peru ;orte. 201!, ;oveber 1:. Suilla/ dBunto docuentos de %redios adJuiridos %ara

eBecutar %royecto a"rTcola de siebra de cacao KSuary/ ttac#ed docuents of %ro%erties acJuired to run

a"ricultural cacao %lantin" %roBectL.11+ Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 201!, Deceber 2:.

Infore 007201!7D=N)C. 3ia, Peru11( Strand Aanson 3iited,


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1!

Since 2001,126 Peru #as been in t#e %rocess of u%datin" its environental i%act assessent rules

and re"ulations,12+ wit# substantial su%%ort fro international donors.12( )#e Su%ree Decree

issued on environental i%act assessents issued by MI;=*I in ;oveber 2012 c#an"ed

re"ulations "overnin" forests in Peru.12 It said t#at any ne"ative environental i%acts w#ic# #ad

occurred %rior to ;ov. 1', 2012 could be docuented via a PM Programa de &decuaci.n +

ane(o &miental :, for si"nificant activities already underway, or a D& eclaraci.n &miental

para &cti4idades en Curso: for less si"nificant activities already underway.1!0 ll %roBects involvin"

new deforestation in Peru after ;ov. 1', 2012 are reJuired to subit an 5nvironental I%act

ssessent in accordance wit# t#e new re"ulation, %rior to initiatin" deforestin" activities.1!1

)#e nited &acao dission Docuent cites *e%ort 1!+6, ar"uin" ulti%le ties t#at it s#ould

a%%ly t#e rules for t#e ne"ative environental i%acts F includin" deforestation F before ;oveber

2012 because t#e land #ad already been deforested %rior to its arrival, and t#us claiin" t#at any

activities were essentially a continuation of t#e %revious land#olders9 intervention.1!2 Aowever,

satellite ia"ery1!!,1!4 and official "overnent ins%ection re%orts docuent t#at t#e land #ad not

been deforested %rior to ;oveber 2012.1!' nited &acao9s own dission Docuent states t#at

t#e co%any be"an o%erations in t#e area in May 201!.1!6 )#erefore, nited &acao9s subsidiary

%roBect at &acao del Peru ;orte s#ould #ave conducted an 5nvironental I%act ssessent to

co%ly wit# t#e law.1!+

%ublic %resentation by t#e Minister of "riculture to t#e Peruvian &on"ress in October 2014, %rior

to nited &acao9s listin", lays out t#e %ro%er %rocedure w#ic# &acao del Peru ;orte and related

126 Startin" wit# 3ey del Sistea ;acional de 5valuacin de I%acto biental/ ;o. 2+446 K5nvironental

I%act ssesent ;ational Syste 3aw/ ;o. 2+446L. 2001:. 5l Peruano, Diario Oficial.12+ 3ey =eneral del biente ;o. 2(611 K=eneral 5nvironent 3aw/ ;o. 2(611L. 200'. 5l Peruano, Diario

Oficial.12( Peru received at least SR20 illion in loans fro t#e Corld -an$ to i%leent t#ese %olicies. Corld -an$.

200, ebruary 1+:. Peru irst Pro"raatic 5nvironental Develo%ent Policy 3oan NDDO P1014+1:.

*etrieved fro/ #tt%/NNwww7

wds.worldban$.or"NeternalNdefaultNCDS&ontentServerNCDSPN3&*N201'N0N0(N00224b0(!0c4+4N1Q0N*enderedNPDNPeru000Peru0i0*e%ort000SeJuence010.%df12 Decreto Su%reo 01720127=. 2012, ;oveber 12:. 5l Peruano, Diario Oficial.1!0 Decreto Su%reo 01720127=, )itulo III. rticulo .4. 2012, ;oveber 12:. 5l Peruano, Diario Oficial.1!1 Decreto Su%reo 01720127=, &a%itulo IInvitacin a

Sesin 5traordinaria &oisin de iscaliacin y &ontralorTa &on"reso de la *e%Gblica? KInvitiation to

&on"ressional 5traordinary Session of t#e &oission of uditin" and &o%troller. Slides (71'. *etrieved

fro

#tt%/NNwww2.con"reso."ob.%eNsicrNcoisionesN2014Nco2014fiscon.nsfNN%ubwebND-&000-4-(!40'2'+

D('00+'0D4&NRI35NM=*I&3)241014.PD


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14

co%any Plantaciones de cayali s#ould #ave followed, to obtain aut#oriation for land use c#an"e

and co%ly wit# environental laws. )#is %resentation details #ow t#e co%anies] actions did not

co%ly wit# t#e %ro%er %rocedure establis#ed in Peruvian law. )#e inister9s %resentation states

t#at t#e a%%ro%riate environental ana"eent instruent for &acao del Peru ;orte was an

5nvironental I%act ssessent, not a PM. It states ore "enerally t#at Plantaciones de

cayali did not #ave t#e %ro%er environental certification before it %roceeded wit#

deforestation.1!(

orest carbon e%erts #ave wei"#ed in on t#e issue in news re%orts, statin" t#at t#e area deforested

by &acao del Peru ;orte %reviously contained carbon aounts only found in intact, tro%ical

forests.1!

review of nited &acao9s stateents, bot# before listin", in its dission Docuent, and

subseJuently, reveals no record or reference to t#e Minister9s %resentation, its contents, or any

ot#er re%orts t#at described t#at t#e deforestation was t#e res%onsibility of &acao del Peru ;orte

and was ille"al.

Su(re'e Court )uling

nited &acao stated in ebruary 2016 t#at t#e land use onin" and environental a%%rovals for its&acao del Peru ;orte %lantation #ad been confired by t#e Su%ree &ourt of Peru in anuary

2016.140 In fact, t#e case referred to in Su%ree &ourt rulin"s is on"oin", after bein" delayed on

%rocedural "rounds.141 )#ere are nuerous %rocedural atters currently bein" decided as %art of

t#is case, and accordin" to Peruvian law, t#e resolution of any %rocedural atters related to t#e

case does not deterine w#et#er a crie was coitted by t#e defendants, w#ic# include &acao

del Peru ;orte and nited &acao9s &5O, Dennis Mel$a.142 In order for t#is decision to ta$e %lace, t#e

%rocedural atters ust be concluded. ll %ublicly available docuents relate to only t#ese

%rocedural decisions, and do not confir nited &acao9s stateents t#at it now #as a%%roval for t#e

&acao del Peru ;orte %roBect.14!

dditionally, in res%onse to inforation reJuests, MI;=*I confired on ebruary 22, 2016 and

a"ain on %ril 20, 2016 t#at t#e environental a%%rovals for &acao del Peru ;orte are not in%lace,14414' furt#er dis%rovin" nited &acao9s announceent fro ebruary.

1!( Ibid.1! 122 etric tons %er #ectare, as Juoted by =re" sner in/ &annon, . 201', anuary 20:. &o%any o%s

Down *ainforest to Produce Sustainable ocolate. ongaa+ *etrieved fro

#tt%/NNnews.on"abay.coN201'N01Nco%any7c#o%s7down7rainforest7to7%roduce7sustainable7c#ocolateN140 nited &acao 3iited S58&. 2016, ebruary 1':. 3iti"ation Settleent *esults in avour of t#e &o%any.

KPress releaseL. 3ondon Stoc$ 5c#an"e. 3ondon. *etrieved fro

#tt%/NNwww.londonstoc$ec#an"e.coNec#an"eNnewsNar$et7newsNar$et7news7

detailN&AO&N126(+46.#tl141 Poder udicial del Peru. &onsulta de 5%edientes udiciales7Su%reo. *etrieved 2016, ebruary 2 fro

#tt%/NNceB.%B."ob.%eNceBNforsNbusJuedafor.#tl142 &orta Su%rea de Peru/ Sala Penal Peranente. 201', ;oveber 2:. &asacin ;o, 4(+ 201'. 3oreto, Peru.14! &orta Su%rea de Peru/ Sala Penal Peranente. 201', uly 6:. [ueBa ;&PP ;o. 14'7201'. 3oreto, Peru.

&orta Su%rea de Peru/ Sala Penal Peranente. 201', uly 6:. [ueBa ;&PP ;o. 1467201'. 3oreto, Peru.

&orta Su%rea de Peru/ Sala Penal Peranente. 201', ;oveber 2:. &asacin ;o, 4(+ 201'. 3oreto, Peru.

144 Direccion =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 2016, ebruary 22:.

Meorando ;o. 11+720167MI;=*I7D


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1'

)#e ori"inal case accuses &acao del Peru ;orte staff =iovanni &ubas *aire, *uben ntonio

5s%inoa, and 5rnesto


16/28

16

I=*5 1/ &acao del Peru ;orte and *elated &o%any On"oin" 3e"al and dinistrative

Proceedin"s

=eneral Directorate of "ricultural

5nvironental ffairs 7 Ministry of "riculture

and Irri"ation Direccin =eneral de suntos

bientales "rarios, Ministerio de

"ricultura y *ie"o 7 MI;=*I:

Public Prosecutor S%ecialied in 5nvrionental

&ries, Ministry of 5nvironent

ProcuradurTa PGblica 5s%ecialiada en Delitos

bientales, Ministerio del biente 7 MI;M:

D i r e c t S u b s i d i a r i e s

Cacao del Perú orte !.A.C. and listed as a defendant in a se%arate case under its %revious nae,

Plantaciones de Loreto !ur !.A.C.:

Ordered to cease o%erations Deceber ,

2014, based on evidence of 1,44 #ectares of

ille"al deforestation.1'2

1: ccused of deforestation of 1,00 #ectares of

forest in )as#iyacu area, w#ic# constitutes a crie

a"ainst t#e forest and forest forations, for ille"al

traffic$in" in wood %roducts, and obstruction of

Bustice. Dennis Mel$a, &5O of nited &acao 3td., is a

defendant. 1'!

2: 46,000 #ectares reJuested in Peranent

Production orest, borderin" a national %rotected

area, l%a#uayo7Mis#ana *eserva ;acional, and

indi"enous counity lands: and 20,000 #ectaresreJuested over %riary forest in t#e Maniti *iver

basin. Dennis Mel$a, &5O of nited &acao 3td., is a

defendant. 1'4

Plantaciones de Loreto !.A.C. listed as defendant in case under %revious nae, now called

Cooperativa del Cacao Peruano !.A.C.:

46,000 #ectares reJuested in Peranent Production

orest, borderin" a national %rotected area,

l%a#uayo7Mis#ana *eserva ;acional, and

indi"enous counity lands: and 20,000 #ectares

reJuested over %riary forest in t#e Maniti *iver

basin.1''

* e l a t e d & o % a n i e s

f u n d e d v i a 4 n i t e d & a c

a o

3 t d . 1

' 6

Plantaciones de Ucayali !.A.C

Ordered to cease o%erations Deceber ,2014, based on evidence of !,11 #ectares of

ille"al deforestation.1'+

Deforestation or intervention in an area ofa%%roiately 4+' #ectares. Investi"ation is bein"

reinstated after soe le"al delays brou"#t by t#e

co%any, w#ic# were eventually overturned.

Dennis Mel$a, &5O of nited &acao 3td., is a

defendant. 1'(

Plantaciones de Pucallpa !.A.C.

1'2 Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 2014, Deceber :.

*esolucin de Direccin =eneral ;E 462720147MI;=*I7D


17/28

1+

Ordered to cease o%erations Se%teber 2,

201', based on evidence of ',26! #ectares of

ille"al deforestation.1'

t least '00 #ectares of deforestation crie a"ainst

t#e forests: in t#e area of t#e ;ative &ounity

Santa &lara de c#unya wit#out %erission or

environental certification. May 2, 201'. Dennis

Mel$a, &5O of nited &acao 3td., is a defendant. 160

Plantaciones del Peru Este !.A.C., Plantaciones de Loreto Este !.A.C." Plantaciones de !an #rancisco

!.A.C." Plantaciones de Mar$n !.A.C.

46,000 #ectares reJuested in Peranent Productionorest, borderin" a national %rotected area,

l%a#uayo7Mis#ana *eserva ;acional, and

indi"enous counity lands: and 20,000 #ectares



defendant. 161

O t # e r c o % a n i e s l i n $ e d t o

t # e " r o u % i n

P e r u

Plantaciones de Lima !.A.C." Plantaciones de Iquitos !.A.C." Plantaciones de auta !.A.C. %listed as a

defendant under %revious nae, now called East Paci&ic Capital Peru !.A.C.'" Plantaciones de

(amshiyacu !.A.C. listed as a defendant under %revious nae, now called Plantaciones de Inahuaya

!.A.C.:,

46,000 #ectares reJuested in Peranent Production

orest, borderin" a national %rotected area,

l%a#uayo7Mis#ana *eserva ;acional, andindi"enous counity lands: and 20,000 #ectares



defendant. 162

1' Direccin =eneral de suntos bientales "rarios, Ministerio de "ricultura y *ie"o. 201', Se%teber 2:.

*esolucin de Direccin =eneral ;E 2+07201'7MI;=*I7D


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1(

Section 01 Failure to consider risks1 Peruvian Co''it'ents to Forest

Conservation and Cli'ate Change Mitigation

International co''it'ents to co'#at cli'ate change

In t#e last several years, Peru #as s#own leaders#i% in Boinin" i%ortant international a"reeents to

%rotect forests in t#e "lobal contet of serious concern over cliate c#an"e and its i%acts, bot# in

Peru and across t#e world. In 2010, t#e Peruvian "overnent announced its coitent to reduce

to a net rate of ero deforestation by t#e year 2020, a 4'\ reduction below year 2000 levels, as %art

of its contribution to wit#in t#e nited ;ations raewor$ &onvention on &liate an"e

;&&&:.16! SubseJuent stateents by Peruvian %olitical officials, as well as t#e %olicies and rules

ado%ted in recent years #ave trended toward t#e sae focus of reducin" deforestation, as described

below.

)#ese coitents are bein" converted into national strate"ies wit# t#e su%%ort of &oo%eration

"reeents for forest conservation in t#e fraewor$ of *educin" 5issions fro Deforestation and

De"radation *5DD: as well as t#e orest Investent Pro"ra IP: and t#e orest &arbon

Partners#i% acility &P: adinistered by t#e Corld -an$ C-: and t#e Inter7erican

Develo%ent -an$ ID-:.164

In Se%teber 2014, Peru launc#ed a %artners#i% wit# =erany and;orway intended to a$e t#e forest and a"riculture sectors carbon neutral by 2021, wit# %ayents

to Peru fro ;orway de%endent on verified carbon reductions.16' inally, Peru9s role in #ostin" t#e

20t# &onference of t#e %arties &OP: of t#e ;&&& in Deceber 2014 was a clear and si"nificant

deonstration of t#e %olitical will to eet t#e international coitents w#ic# Peru #as ta$en on

to %rotect forests and effectively reduce deforestation.

In addition to creatin" #u"e carbon eissions, t#e re%laceent of natural forest wit# onoculture

%lantations effects a radical and irre%arable loss of biodiversity,166 at a tie w#en Peru is %rootin"

itself as a country %roud and res%ectful of its #i"# biodiversity. on" t#e ost #eralded

international and national coitents ade by Peru are t#e ;ational Strate"y on -iolo"ical

Diversity strategia =acional sore i4ersidad iol.gica:16+ and Peru9s %artici%ation in t#e nited

;ations &onvention on -iolo"ical Diversity &-D:.16(

3ar"e7scale, a"ro industrial onoculture %roBects w#ic# involve or %ro%ose deforestation of

t#ousands of #ectares of %riary forests stand in star$ contrast to t#e international coitents

t#at t#e Peruvian "overnent #as ade a"ainst deforestation, cliate c#an"e, and biodiversity loss.

)#e assive deforestation coitted by nited &acao9s subsidiaries and related co%anies

16! Ministerio del biente. 2011, uly 2':. &arta ;o. 0''720117D


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1

contributed lar"e aounts of carbon dioide eissions fro land use c#an"e w#en t#ey reoved

fro over 11,110 #ectares of aon land enou"# tiber as to fill 21( Oly%ic swiin" %ools.16

)#e forest and land use sector is res%onsible for +1 illion tons of &O2 eac# year in Peru.1+0 *elyin"

on t#e Peruvian "overnent to fail to i%leent any of t#ese a"reeents is not a viable or et#ical

business %lan, nor is failin" to disclose t#e enforceent or future %olicy ris$s t#at t#ese a"reeents

%ose for nited &acao9s unlawful and unsustainable activities in Peru. ltiately, t#e failure to

identify t#ese ris$s also brea$s IM rules.

"rade Agree'ents

t t#e sae tie, t#e ree )rade "reeent between Peru and t#e nited States, t#e )rade

"reeent wit# t#e 5uro%ean nion, and t#e )rans Pacific Partners#i% a"reeent )PP: F currently

awaitin" a%%roval by Peru and 10 ot#er P5& countries F are soe of t#e trade fora in w#ic# Peru

#as e%ressed and reiterated t#e i%ortance of %riary forests and coitted to conservin" t#e.

)#e .S.7Peru trade %act includes a bindin" orest =overnance nne, w#ic# ais to a$e

trans%arent and accountable forest "overnance a condition of trade wit# t#e nited States.

)#e volue of tiber reoved fro nited &acao9s subsidiary and related co%any %lantations

would #ave filled 21( Oly%ic %ools.1+1 s stated above, since t#e co%anies were never aut#oried

to reove t#e forest, no tiber fro t#ese areas could #ave been le"ally %eritted to be

trans%orted or traded, w#ic# eans t#at any obiliation or trade in t#e tiber would #ave

reJuired falsified %a%erwor$, a coon ec#anis for launderin" tiber of ille"al ori"in in Peru.1+2

Satellite ia"es do not s#ow si"ns of burnin" or ot#erwise destroyin" t#e tiber1+! and at least one

ille"al sawill was docuented to be on co%any %ro%erty for ont#s in early 201'.1+4 )#e fact

t#at t#e satellite ia"ery s#ows dense forest cover before t#e co%any arrived, and recent flyovers

s#ow a clear7cut area wit# no tiber %iled u%, also underine t#e co%any9s assertion t#at >t#e

=rou% #as notreoved any tiber fro its %roBect sites.?1+' I%lication in ille"al tiber traffic$in"

re%resents a treendous ris$ incurred by Peruvian co%anies controlled and financed by nited

&acao in brea$in" Peruvian law, and %otentially also in violation of international trade %acts, and

s#ould #ave been disclosed to IM.

Do'estic (olitical context

;ational level le"al fraewor$s in Peru #ave also trended toward conservation and enforceent

a"ainst ille"al lo""in" and deforestation in recent years. or ea%le, t#e country #as elevated

environental concerns to t#e inisterial level, wit# t#e creation of a Ministry of 5nvironent

165nvironental Investi"ation "ency. 201':.


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20

MI;M: in 200(.1+6 restructurin" of t#e forest sector, wit# t#e creation of t#e ;ational orest

Service S5*O*:1++ alon"side a new inde%endent forest oversi"#t body OSI;O*:1+( furt#er

develo%ed Peru9s le"al fraewor$s for cobattin" ille"al lo""in" and deforestation.

)wo national level o%erations Kperaci.n &maonas 2018 and 2015: #ave connected fraud in forest

concessions to e%orts fro Peruvian %orts by levera"in" t#e ca%acities of OSI;O*, t#e )a and

&ustos ut#ority S;):, Inter%ol, and t#e Corld &ustos Or"aniation.1+

Kperaci.n &maonas2015 resulted in t#e lar"est seiure of ille"al tiber in Peru9s #istory in ;oveber 201'.1(0 )#ese

o%erations are desi"ned to crac$ down on t#e sae launderin" ec#aniss t#at would #ave been

needed to sell t#e tiber ille"ally reoved fro t#e &acao del Peru ;orte %lantation land, w#ic#

would reJuire usin" false %a%erwor$ to e%ort Peruvian tiber to destinations around t#e world.1(1

In %arallel, t#e country #as underta$en a years7lon" revision of its orest and Cildlife 3aw and

corres%ondin" re"ulations, w#ic# were finally %ublis#ed in Se%teber 201'.1(2.

nited &acao #as re%eatedly isre%resented and oitted disclosure1(! of its involveent in carryin"

out and financin" deforestation in t#e Peruvian aon.1(4 =iven t#at Peru is in t#e idst of various

forest refor %rocesses at t#e national level, t#e enforceent of w#ic# could t#reaten or

co%letely s#ut down t#e co%anies9 o%erations, t#ese isre%resentations and oissions ust be

considered of a aterial nature, and s#ould be considered a violation of IM rules for disclosure.1('

1+6 Decreto 3e"islativo ;o. 101!7200(/ Decreto 3e"islativo Jue a%ruebe la 3ey de &reacin, Or"aniacin y

unciones del Ministerio del biente K3e"islative Decree ;o. 101!7200(/ 3e"islative Decree a%%rovin" t#e

3aw of &reation, Or"aniation, and unctions of t#e Ministry of 5nvironentL. 200(, May 14:. 5l Peruano,

Diario Oficial.1++ 3ey ;^ 2+6!/ 3ey orestal y de auna Silvestre K3ey ;o. 2+6!/ orest and Cildlife 3awL. 2011, uly 22:. 5l

Peruano, Diario Oficial.1+( Decreto 3e"islativo 10('7200(/ 3ey Jue crea el Or"aniso de Su%ervisin de los *ecursos orestales y de

auna Silvestre K3e"islative Decree 10('7200(/ 3aw creatin" t#e Monitorin" Insitution of orest *esources and

CildlifeL. 2010, May:. 5l Peruano, Diario Oficial. 1+ ;avarro =e, *. 2014:. Contriuci.n del K$I=DK al Comercio Eegal de adera LKperaci.n &maonas

2018: ?K$I=DK:s Contriution to the Eegal imer rade MKperation &maonas 2018@. Or"aniso de

Su%ervisin de los *ecursos orestales y de auna Silvestre.1(0 3una ancio, ;. 201':. O%eracin aonas/ 3a Aistoria de la Mayor Decoiso de Madera de Ori"in

Ile"al. K(o Plico. *etrieved fro #tt%/NNoBo7%ublico.coN1!2No%eracion7aaonas7la7ayor7incautacion7de7

adera7de7ori"en7ile"al1(1 5nvironental Investi"ation "ency. 2012:. he Eaundering achine Go' Draud and Corruption in PeruJs

Concession $+stem are estro+ing the Duture of its Dorests. Cas#in"ton, D.&.1(2 3ey ;^ 2+6!/ 3ey orestal y de auna Silvestre K3ay ;o. 2+6!/ orest and Cildlife 3awL. 2011, uly 22:. 5l

Peruano, Diario Oficial.1(! See S5&)IO; 4/ *;S nnounceents w#ic# oitted reference to le"al %roceedin"s and deforestation.1(4 Strand Aanson 3iited,


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Section *1 AIM Polic/ Matters5vidence suaried in t#is docuent indicates t#at t#e activities of nited &acao #ave bro$en IM

rules, and in addition, e%oses be#aviors t#at are currently not re"ulated by IM w#ic# #ave been

e%loited. Detailed analysis of t#e rules w#ic# evidence indicates nited &acao #as bro$en,

warrantin" investi"ation by IM, can be found above, includin"/

•

*ule 2 >Pre7dission Docuent?

• *ule ! >dission Docuent?

•

*ule 10 >Princi%les of Disclosure?

• *ule 11 >=eneral Disclosure of Price Sensitive Inforation? and

• *ule 1+ >Disclosure of iscellaneous inforation,? s%ecifically, >any aterial c#an"e

between its actual tradin" %erforance or financial condition and any %rofit forecast,

estiate or %roBection included in t#e adission docuent or ot#erwise ade %ublic on its

be#alf.?1(6

IM #as several %otential courses of action for investi"atin" and sanctionin" t#e co%any. IM ust

coo%erate wit# law enforceent in Peru to %rovide inforation about nited &acao, its financin",

and beneficial owners#i%.1(+

=iven t#e "rou%9s on"oin" non7co%liance wit# cease orders froPeruvian aut#orities, as discussed in Section 1, above, effectin" a cancellation1(( of tradin" by nited

&acao is a necessary easure to su%%ort law enforceent actions in Peru and avoid furt#er ne"ative

i%acts on t#e 5c#an"e9s re%utation and inte"rity. 1(

IM *ule 42 lays out t#e %otential for t#e ec#an"e to ta$e disci%linary action a"ainst listed

co%anies, includin" t#e cancellation of tradin" on t#e ar$et.10 =iven t#e severity of t#e cries of

w#ic# nited &acao is accused, t#is case s#ould be referred to t#e IM Disci%linary &oittee, to

enable t#e subseJuent %ublication of investi"ative results11 "iven t#e severity of nited &acao9s

continued false stateents and financin" of ille"al activities, includin" assive deforestation

t#rou"# subsidiary and related co%anies.

S#ould IM fail to underta$e and %ublis# results of an investi"ation of nited &acao, as well as itssubsidiaries and related co%anies in Peru, it will be sendin" a essa"e t#at t#e 5c#an"e favors

o%acity rat#er t#an trans%arency as a way to aintain orderly ar$ets, wit# undisclosed ris$s and

violations out of %ublic si"#t. n investi"ation and %ublic res%onse by IM to t#e actions of nited

&acao, its subsidiaries, and related co%anies, would serve as a %ositive si"n for res%onsible

investors w#o wis# to avoid financin" ille"al acts, and for res%onsible co%anies t#at wis# to

aintain a %ositive re%utation and continue involveent in IM in t#e future.

Adding su#sidiaries after launch date

In addition to violations of IM rules, nited &acao9s structure and odes of o%eratin" a%%ear to

e%loit critical loo%#oles in IM rules.

1(6 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. % (.1(+ 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule 2!:. %. 10.1(( 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule 40, 41:. %. 1!.1( 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule 40:. %. 1!.10 3ondon Stoc$ 5c#an"e. 2016, anuary 1:. IM *ules for &o%anies. *ule 42:. %.1!.11 3ondon Stoc$ 5c#an"e. 2014, May 1!:. i Disci%linary Procedures and %%eals Aandboo$UMay 2014.

&1'.1 and &1'.2:. % (.


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22

nited &acao9s dission Docuent notes related co%any o%erations12 and t#e %otential for

furt#er land acJuisitions in Peru.1! Indeed, t#e co%any9s subsidiaries and related co%anies #ave

continued to acJuire and trade in rural land since its dission to IM.14 Aowever, IM9s lac$ of

on"oin" disclosure reJuireents for acJuisitions w#et#er of land7ownin" co%anies or of land

itself: eans t#at financial and le"al inforation about new %ro%erties will not #ave to be disclosed.

)#is loo%#ole allows land associated wit# deforestation,1' or irre"ular16 and %otentially unfair

acJuisition %ractices, to increase t#e assets on balance s#eets of co%anies traded on IM, wit#

little to no scrutiny.

)#is loo%#ole creates an incentive for unscru%ulous IM co%anies to delay official acJuisition of

ris$y or ille"al ventures or %ro%erties wit# Juestionable land tenure situations until after t#eir

adission to t#e ec#an"e. In t#e case of nited &acao, funds raised on IM a%%ear to #ave

contributed to a lar"e "rou% of %lantation co%anies in Peru.1+ siilar %attern occurred in

Sin"a%ore7based sian Plantations 3td., w#ic# was also founded by nited &acao9s &5O Dennis

Mel$a, and went on to obtain several land7#oldin" subsidiaries in Sarawa$, Malaysia, after its launc#

date.1( IM ust %revent co%anies fro e%loitin" t#is loo%#ole by etendin" disclosures

reJuired at dission to subseJuent acJuisitions.

Legiti'ac/ for other 'arketslt#ou"# IM o%enly welcoes co%anies wit# %erceived #i"#er7ris$ t#an non7alternative

ec#an"es, t#e finer %oints of IM rules atter, because a listin" in 3ondon creates le"itiacy for

co%anies o%eratin" in ot#er ar$ets.

)#e benefits of a listin" in 3ondon are clearly described by Dennis Mel$a in %resentations to

investors fro its earliest days of tradin". )#e dission Docuent itself cites >re%utation? as a $ey

otivation for listin" t#e co%any on IM.1 In an interview wit# online tradin" investent news,

I= @, u%on launc# of nited &acao, Mr. Mel$a said/ >)#e reason w#y in 3ondon is/ we #ad a very

%ositive e%erience #ere. Ce built u% a siilar %lantation co%any in t#e %al oil industry Ksian

12

Strand Aanson 3iited,


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2!

Plantations 3td.L. )#e tic$er was P3M. Ce listed t#at co%any in 200 at +'%, we eited last ont#

7 a full eit for all s#are#olders 7 at 220% %er s#are.?200 urt#er %resentations to investors #i"#li"#t

t#at t#e co%any is >based in t#e @?201 notin" its &ayan Islands re"istration, even w#ile it #ad

clarified in t#e dission Docuent t#at >KlLaw and %ractice in t#e &ayan Islands relatin" to

co%anies is not t#e sae as 5n"lis# law a%%licable to %ublic liited co%anies, or t#at w#ic# is

a%%licable to t#e Subsidiaries.?202

)#ese stateents serve to %roBect an ia"e of a co%any followin" @ laws. In fact, nited &acao

benefits fro funds raised in t#e @, but avoids re"ulations in %lace for @ co%anies,20! w#ic#

could %rotect investors, t#e environent, or even local counity ri"#ts in Peru.

"he Significance of United Cacao

Cit# =-P 21.'+ illion in ar$et ca%italiation, nited &acao is t#e bi""est of four IM7listed

co%anies o%eratin" in Peru.204 )#e net lar"est co%any #as a ar$et ca%italiation of =-P '.2!

illion.20' nited &acao is t#e only &ayan Islands7re"istered co%any listed on IM w#ic# is

o%eratin" in 3atin erica, and it is also t#e only co%any wit#in t#e arin" and is#in" subsector

o%eratin" in 3atin erica. Aowever, a broader loo$ across IM9s currently7listed arin" and

is#in" subsector co%anies reveals t#at all co%anies o%eratin" in t#e develo%in" world are

re"istered in Burisdictions considered ta #avens.206,20+

In essence, t#is structure allows nited &acao and its "rou% of subsidiaries and related co%anies to

raise funds in one of t#e ric#est countries in t#e world, w#ile benefittin" fro ta incentives in one

of t#e ost ar"inalied areas on t#e %lanet, t#e Peruvian aon. )#e co%any9s re"istration in

t#e &ayan Islands, eanw#ile, serves little %ur%ose but to deter le"al action a"ainst t#e co%any

itself, "iven t#at 1: &ayan Islands law reJuires inial disclosure of records li$e cor%orate

accounts20( and 2: &ayan Islands is listed as a territory wit# low or no taes F also $nown as ta

#avens F by Peruvian )a and &ustos ut#ority, S;).20

)#is structure also sets a %recedent/ local news fro t#e &ayan Islands followin" co%any9s launc#

on IM re%orted it was t#e first to bot# be listed on t#e 3ondon Stoc$ 5c#an"e and receive

ece%tional discretionary ta and le"al benefits fro t#e "overnent in t#e &ayans as a >S%ecial

200 I= @. 2014, Deceber 2:. nited &acao IPOs to 5%and Peruvian Plantations. Minute/ !/44 retrieved fro

#tt%s/NNwww.youtube.coNwatc#WvXyCO=Y)64201 -eaufort Securities. 201', ebruary ':. nited &acao Investor Presentation 7 -eaufort Investor 5venin", 't#

ebruary 201'. Minute 0/!' retrieved fro #tt%s/NNvieo.coN11''4+64 202 Strand Aanson 3iited,


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24

5conoic 8one &o%any.?210 Peru is stru""lin" to control ille"al lo""in" and cobat deforestation,

but aut#orities in t#e country are facin" a tri%le t#reat of international finance, offs#ore ta benefits,

and local ta #olidays,211 all bein" e%loited by nited &acao, as t#e "rou% ille"ally deforests assive

tracts of aon rainforest.

Cit# over #alf 4 of +: IM7listed a"ricultural o%erators in t#e develo%in" world #avin" listin" dates

since 201!, and all since 2002,212

it could be concluded t#at IM is increasin" in %o%ularity as afundin" strate"y for develo%in" world a"ricultural o%erations w#ose %arent co%anies are located in

ta #avens. )#is trend is a concern "iven t#at develo%in" countries often rely on land and natural

resource7based develo%ent and subsistence strate"ies, and investent for t#ese %ur%oses s#ould

include taes on %rofits at t#e local and national levels, in addition to %rovidin" Bobs. ris$s? eans t#at t#e success of

210 @lein, M. 201', anuary +:. &ayan &o%ass. irst S%ecial 5conoic 8one &o%any 3isted on 3S5. Ca+man

Compass. *etrieved fro #tt%/NNwww.co%asscayan.coNcayco%assN201'N01N0+Nirst7s%ecial7econoic7

one7co%any7listed7on73S5N211 3ey 2+0!+/ 3ey de Proocin de la Inversin en la aonTa K3aw 2+0!+/ 3aw Prootin" Investent in t#e

aonL. 1(, Deceber !0:. 5l Peruano, Diario Oficial.212 3ondon Stoc$ 5c#an"e. 2016, Marc#:. &I Countr+ of Primar+ usiness arch 2016 KData fileL. *etrieved

fro #tt%/NNwww.londonstoc$ec#an"e.coNstatisticsN#istoricNai7country7of7o%eration7and7

incor%orationNai7co%anies7country7of7o%eration.#t21! 5nvironental Investi"ation "ency. 201':. eforestation + efinition he Peru4ian go4ernment fails to

define forests as forests, 'hile palm oil epansion and the ala+sian influence threaten the &maon

Cas#in"ton, D&. %. 44.


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2'

"lobal finance #in"es u%on on t#e failure of t#e rule of law and t#e lac$ of res%ect for counity

ri"#ts.

&o%anies res%onsible for ille"al activities in countries w#ere t#ey o%erate s#ould be barred fro

tradin" on IM. IM ust also underta$e and %ublis# t#e results of its t#orou"# investi"ation into

t#e nited &acao9s breac# of IM rules, includin" inforation about beneficial owners#i% of nited

&acao, related co%anies in Peru, as well as any lin$s to ot#er %lantation, a"ro7coodity tradin", orretail co%anies.

inally, IM ust close t#e loo%#oles in its current rules. SubseJuent acJuisitions by co%anies

tradin" on IM s#ould be subBect to t#e sae disclosure reJuireents for ris$s, %ublication of

audited financial accounts, and due dili"ence as t#ose subsidiaries w#ic# t#e co%any owns w#en it

lists. Preventin" aditted co%anies fro %#asin" in Juestionable subsidiaries and land assets by

increasin" disclosure reJuireents would be a coon sense ove by any ar$et t#at wis#es to

aintain credibility in t#e "lobal ar$et%lace.


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26

Section 21 Evidence "a#lePlease see attac#ed docuent.


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2+

Section 31 AnnexesPlease see attac#ed docuents.

)ocuments )ate

%MM*))*++'

Page

01.

&reacin de =ru%o de %oderado y Modificacin de *H"ien de Poderes 06N2(N12 4

02.

Inforacin Aistrica de 20'2(401!!U&acao del Peru ;orte S..&. 04N2'N1! +0!.

Infore 10(171!7MI;=*I7D=7D=N*571141271! 10N04N1!

04. Suilla/ dBunto docuentos de %redios adJuiridos %ara eBecutar

%royecto a"rTcola de siebra de cacao

11N1N1!

received:

1!

0'. Infore 007201!7D=N)C 12N02N1! 21

06. Infore 1!+671!7MI;=*I7D=7D=N*571141271! 12N06N1! 26

0+.

Oficio 024720147MI;=*I7DM

Official ;ote 024720147MI;=*I7DM 5n"lis# )ranslation:

01N21N14

01N21N14

!1

!4

0(. Oficio 026720147MI;=*I7DM

Official ;ote 026720147MI;=*I7DM 5n"lis# )ranslation:

01N21N14

01N21N04

!+

40

0.

Infore 2+67147MI;=*I7D=7D=N)C714('!+71! 0!N12N14 4!

10.

*esolucin Directoral 5Becutiva 20720147=*7P7==*7=*D57D5S7 0+N21N14 '111. Infore 3e"al +6720147=*37==*7P*M*S7D5NO 0(N2'N14 ''

12. Oficio 14720147S5*O*7D5 0N0!N14 6!

1!. Infore )Hcnico 001720147=*7P7==*7=*D57D5S7)IQ&*) 0N0'N14 6'

14.

Infore 1066720147MI;=*I7O= 0N10N14 +'

1'.

*esolucin =erencial *e"ional 010720147=*7P7==*7=*D5 0N16N14 (4

16. Infore 0'!7147MI;=*I7D


28/28

&o%laint ;&PP 14'7201' 5n"lis# )ranslation: 0+N06N1' !21

!2. [ueBa ;.&.P.P.: 1467201'

&o%laint ;.&.P.P.: 1467201' 5n"lis# )ranslation:

0+N06N1'

0+N06N1'

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*esolucin 5Becutiva *e"ional ;o. 0+107201'7=*7=* 0(N26N1' !!2

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informe de eia: "london stock exchange financing for illegal deforestation in peru via aim-listed...

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