Prime Forestry; No Trees and No Money

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Last week we reported how teak investment company Prime Forestry has been placed under supervision by the Swiss banking authorities who launched an investigation into the high pressure boiler room sales of Panamanian teak trees. Despite Swiss investigations as well as warnings and measures by financial authorities all over the world against the teak sellers, President Torrijos, together with his wife, and Minister Carlos Vallarino (a former banking regulator himself), are still on the website promoting what regulators just recently called a "scam."

Yet another Panamanian minister, Guillermo Salazar, sits on the board of Prime Forestry S.A., one of the Panamanian subsidiaries of the Switzerland based outfit.

Meanwhile, Noriegaville had no trouble finding unhappy employees and ex-employees - Prime Forestry seems to produce a lot of both - willing to talk to us, although on condition of anonymity.

Teak high rollers find themselves cash-strapped and unable to pay creditors or maintain plantations


Looking into what exactly Minister Salazar is directing, we quickly discovered that the recently appointed member of Torrijos' government may soon have to answer for a trail of unpaid bills. Prime Forestry and its Panamanian sister companies are rapidly becoming known for not paying suppliers. We received reports from lower level employees about their paychecks bouncing and as the stream of money coming from Switzerland has basically dried up because sales are put on hold and accounts frozen by the Swiss authorities, the Panama office in Amador has not even funds to purchase basic office supplies.

The Swiss sales staff, which in the past received generous bonuses and could be seen driving around in Porsches while showing off their Rolex watches, has been laid off. Prime Forestry is unable to maintain its plantations and plant new trees. Thinning, for example, has not been done, and as the stream of money coming in has dried up, it is highly unlikely that a 1000 hectares will be planted in May and/or June as the management had planned.

Spending money like water

Part of the financial troubles is the outrageous spending by Prime Forestry's management, in Panama headed by Dominique Leuba, until they had the accounts frozen. For example, employees told us how the Amador office of one subsidiary was restyled for a whopping $17,000 (there's now only one employee working there) and the Panamanian management spent over $10,000 in cellphone calls in under three months. To build an extensive road system on the plantations - in itself a questionable investment - trucks were purchased and shipped in from Mexico instead of outsourcing the work to local companies. The list further includes such items as luxury cars, lavish parties and trips to Switzerland, saw mills they don't need, and absurd preparation of the plantation land. "It looked as if they were going to grow vegetables there or build a golf course," one employee told us, and another one added that "these people were spending money like water."

Morgan & Morgan now controls spending

To stop more money being wasted, a group of investors has apparently teamed up together with the Swiss authorities and acquired the services of the well known law firm and Panamanian powerhouse Morgan & Morgan, which has offices in Switzerland as well. Lawyer Eduardo Morgan III now has to sign on each and every expenditure that the teak sellers want to make, including salaries and other such items.

However, should investors think that they can recoup assets from Prime Forestry in Panama, they may expect a very cold shower. First of all, the Panamanian companies do not have any cash left and the bank accounts are empty except for some security deposits for credit lines. The cars and other equipment are all leased, some are being returned already and the rest may soon be repossessed because they're not paying the bills. The only asset in Panama is land, which is not worth the approximately $32,000 per hectare the investors paid for it, but somewhere between $2000 and $3000 at most. And then some of it may be owned by a shadowy company that, we found out, buys the land for Prime Forestry, called "Green Development" and which is not incorporated in Panama.

The company they set up in Panama to trade tropical hardwood is not trading anything, has laid off all but one of its employees and owes money to several suppliers. Yet, wasting even more investors money, the prime foresters set out to incorporate Prime Forestry Processing which, as you will have guessed by now, is not processing anything either.

Bonsaï Teak Trees

And that's not the end of the Prime Forestry nightmare. Much of the land they bought has bad soil, we learned, and in combination with lack of maintenance that makes that the trees aren't growing. On the plantations in Chiriqui the young teak trees are not even half the size of what they should be given their age. Prime Forestry's management has gone out of its way to pump expensive fertilizers into the worthless soil, employees told us, but that strategy has not worked so far and would not be successful on the longer term anyway.

Even an audit by certifying agency FSC/Smartwood - more about them later on - showed that the trees are not growing nearly as well as Prime Forestry would make its investors believe.

ANAM working both sides of the street

Our Agriculture Minister Guillermo Salazar is not the only government official making money off the Prime Forestry mess. As we announced last week, various employees of Panama's environmental authority ANAM feature on Prime Forestry's payroll as well. Clementino Herrera, employee of the Forestry Department of ANAM, worked for Prime Forestry as well in plantation maintenance. One Raúl Gutiérrez also took time off at ANAM to work for Prime Forestry.

Most serious is probably the case of Joaquín Díaz, who first approved of slashing down hundreds of hectares of what is claimed by some to have been secondary forest in the ecologically sensitive Dariën province; only to then change his hat and start working for Prime Forestry. A reward? Whichever it is, such entanglements between commercial reforestation and environmental authorities obviously prevent that the latter keep any meaningful oversight of what the higher paying employer is doing.

Case in point is Mrs. Ligia Castro de Doens, head of ANAM, who replied to questions from Noriegaville that she had no knowledge of ANAM employees working for Prime Forestry. She also denied that Minister Salazar would be a member of the board of the Panamanian subsidiary, even though the Public Registry files clearly prove her wrong. She continued to claim that she had no knowledge of the Swiss investigations and financial regulators from all over the world taking action against Prime Forestry, even though that information is easily found on the internet. Mrs. Castro de Doens further stated that Prime Forestry had complied with the rule in Panama that any reforestation project of more than 10 hectares has to have an environmental impact study done, but she did not send us a copy of that study. Maybe she couldn't find that either.

Slashing rain forest to plant teak, with official approval

A serious example of what can go wrong by allowing this type of conflicts of interest - if not outright corruption - to exist is that various sources, including employees of Prime Forestry, have told us that secondary forest, with mature trees, has been cut to plant teak. That is a crime under Panamanian law. However, Mrs. Castro de Doens wrote us that - again - she had no knowledge of such crimes and that the law allows reforestation companies to cut anything under 10 meters on the land.

Basically, Mrs. Castro de Doens is responsible for a situation in which ANAM employees first approve of cutting down anything that grows on hundreds of hectares, then they go to work for the project they just approved earning a higher salary than ANAM pays them, and subsequently allegations of environmental crimes are not being investigated with the director looking the other way and claiming ignorance.

The questionable role of FSC/Smartwood

With the growth of the reforestation industry worldwide and thus investments made in growing trees, the need for some form of certification was eventually recognized by investors as well as by the industry. That is where the Germany based Forest Stewardship Council comes in. This organization sets standards for sustainable reforestation to which companies have to adhere in order to be certified. The FSC does not necessarily do this certification itself; in the case of Prime Forestry this is done by an organization called Smartwood. Reforestation companies become clients of Smartwood, which in return performs inspections or audits and then certifies the company - or not. Prime Forestry is certified by FSC/Smartwood. And that certification raises a number of serious questions.

First of all, responsible financial management is a condition for certification and as we have seen, the spending habits of Prime Forestry's management hardly qualify as such. What's more, the last audit done by Smartwood revealed that the trees on the plantations are growing significantly slower than Prime Forestry says and on which they base their calculations for future returns. But FSC/Smartwood did not require these absurd projections to be adjusted to more realistic levels before certifying Prime Forestry as a sustainable and responsible reforestation company. They basically allow Prime to continue to fool investors.

For some unfathomable reason, investors will have to learn Spanish to be informed about these and other findings by Smartwood, as the report is only available in that language.

If a reforestation company is cutting secondary forest to plant teak, they would not qualify for certification, because cutting forest to plant forest can not be considered reforestation. But FSC/Smartwood did not even investigate allegations to that effect. In the report they only write that they asked ANAM about it, and since no complaints had been filed with that office they just assumed that there was no truth to the reports about forest being cut. Obviously, after what we wrote earlier about the entanglements between ANAM and Prime Forestry, such an "investigation" is just a total joke. To add insult to injury, the FSC maintains its Latin American office right here in Panama in the City of Knowledge. They wouldn't really need to go very far to properly look into Prime Forestry and its alleged environmental crimes.

We tried to get comments on these issues from FSC Latin America's director Daniel Arancibia, but our efforts have been fruitless.

The Boss comes to Panama


We could understand that, after all we've published about Prime Forestry and its activities, some of the Panamanian directors and promoters of the teak scheme - such as Minister Guillermo Salazar, President Martin Torrijos and his wife who is an avid reader of this website - would like some answers from the Swiss bosses of the forest enterprise. Unfortunately, the CEO, although still listed as such on the Prime Forestry website, has had to resign. But the second in command, Richard Breuer, has arrived in Panama on May 1st., we were informed. Breuer is a US citizen who also holds an Italian passport and is a resident of Monaco. His attempts to set up shop with Prime Forestry in the Principality have however failed despite spending tens of thousands of dollars in lawyer fees. Breuer is a long-time business partner of ex-CEO Kurt Meier, who resigned after previous securities swindles linked to the mafia had been exposed in the Swiss and British press.

It is unknown how long Breuer, whom we were told looked and acted "tense" and "nervous" during another recent visit to Panama, will be staying in our country.

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