In Malaysia, Sarawak Has a Cash Register on the Port

TONY CHAN
14 November 2007

Chief Minister Abdul Taib Mahmud's family continues to want its
"commission" on timber shipped to Japan

For weeks, as many as a dozen Japanese-registered log carriers have
been riding at anchor outside four Sarawak ports in Malaysia after
being refused entry to pick up timber for the Japanese market.
Several have left empty-handed while the owners negotiate with a
company called Achi Jaya Shipping of Sarawak.

The decision to shut out the Japanese vessels is because Achi Jaya is
demanding payment of "commissions" of US$2-3 per square meter of
timber. The shippers are refusing to pay because Japanese tax
authorities earlier ruled that the payments were kickbacks to the
family of Sarawak Chief Minister Abdul Taib Mahmud.

Despite the publicity in Japan, Taib Mahmud is hanging tough. Sources
say he is continuing to demand payment. When Japanese log carriers
turned up at Sarawak ports, in October, they were told they would not
be granted permission by Achi Jaya Shipping to pick up timber unless
they continued to pay the kickbacks.

With strong ties to the governing Barisan Nasional in Kuala Lumpur
and the ability to make local journalists toe the line, Taib has
denied allegations of illegality and forced two of Malaysia's
government-linked newspapers to apologize for airing reports on the
mess. Malaysiakini, the independent Internet-based publication, has
also been threatened with a lawsuit but has refused to retract its
story. When contacted by Asia Sentinel, a spokesman for Achi Jaya
Shipping declined to comment.

The picture painted by Japanese tax authorities is fairly daunting.
According to reports in Japan Times and Yomiuri Shimbun, the Tokyo
Regional Taxation Bureau determined that the payments were rebates,
not legitimate expenses, and it is likely to impose well over 400
million yen in back taxes and penalties against the shipping companies.

It is mandatory for all log carriers calling at Sarawak ports to
register with the chief minister's family-linked company, Dewan Niaga
Sarawak, as the sole agent for timber shipments out of the state and
to appoint Achi Jaya as their ship-handling agent.

The payments – at least RM32 million (US$9.67 million) - previously
were alleged to have been routed through a Hong Kong-based company
called Regent Star, according to Japanese tax authorities. Some 90
percent of Regent Star allegedly was owned by Taib Mahmud's brother
Onn until the company was abruptly wound up in June after it became
public that the tax authorities had gone after the ship-owners.

The tax authorities reportedly have ordered the Kansai Line to pay 50
million yen in back taxes and penalties for falsely reporting so-
called intermediation fees totalling 130 million yen to Regent Star
over a seven year period ending in December 2005, in its cost of
loading logs in ports in Sarawak, in an effort to hide the payments.

So long as their owners refuse to pay the commissions, permission to
pick up Sarawak logs and other timber products will be withheld, a
shipping company executive told Asia Sentinel. Several large
exporters have started making enquiries with other Malaysian-
registered shipping lines in Sarawak but they too would have to go
through Achi Jaya Shipping Agency as sub-agents.

The Japanese shipping cartel has made the payments since the early
1980s, reportedly on the order of the provincial government.
Although the Japanese tax authorities' limit on the time period
investigated kept the amount to RM32 million, payments made over the
last 20 years are said to amount to hundreds of millions of ringgit.
Sarawak's log and timber exports since 1970 have been valued at more
than US$25 billion, based on figures available at the Trade
Statistics Department in Sarawak.

In the Taib Mahmud empire's defense, the companies said these were
legitimate expenses as they were commissions paid to Regent Star in
Hong Kong on the directive of the Sarawak provincial government.

A timber industry source said the decision to shut out the Japanese-
registered vessels is a blow for exports, especially those with long-
term ties to large Japanese buying houses, particularly for plywood.
So long as their owners refuse to pay, permission to pick up Sarawak
logs and other timber products will be withheld, according to a
shipping company executive.

Several large exporters have started making enquiries with other
Malaysian-registered shipping lines in Sarawak but they, too,
presumably will have to go through Achi Jaya Shipping Agency as sub
agents.

A Family Affair

Achi Jaya is yet another part of the corporate empire that makes the
state of Sarawak and its 2.2 million people a virtual Taib Mahmud
family business, as Asia Sentinel reported in August. All five Achi
Jaya Holdings directors are linked to Sarawak's first family. They
comprise Onn Mahmud, his wife Halimatun Abdul Ghani, 23-year-old son
Omar Yakub and 28-year-old daughter Siti Hajah Hamidah, and Noor
Zakri. Onn and Halimatun were the pioneer directors while their son
became a director in January 2007. Onn and his wife together own all
the shares of Achi Jaya Holdings. Onn holds 499,999 shares while the
wife has one share.

The Mahmud family's main investment vehicle is a company called Cahya
Mata Sarawak, which means "light of Sarawak's eye" in English and
goes by the acronym CMS, originally known as Cement Manufacturers
Sarawak Bhd. CMS's transformation has been remarkable. It was
privatized and restructured from a state-owned public-listed company
into a private sector public-listed conglomerate controlled by the
Taib Mahmud clan.

By 1996, the family had consolidated operations from a publicly-owned
cement producer into a private-sector diversified conglomerate
involved in stock brokering, road construction, water, quarry
operations, steel bar manufacturing, trading, cement production and
investment holdings. His 26-year tenure as chief minister also gave
the company at least the appearance of having ready access to
government power and favors during a time when the family company had
a healthy cash flow and high annual turnover that drove up the share
price. The company also got involved in numerous infrastructure
projects.

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