Prince Charles’ offshore investment in Sustainable Forestry Management Ltd: A cautionary tale featuring conflicts of interest, a web of offshore companies, carbon credits, transfer pricing

And tax avoidance galore.

Nov 15, 2017

Sustainable Forestry Management Ltd was the name of a company incorporated in the Bahamas in October 1999. The company set up forestry projects and traded carbon credits. Its directors included Eric Bettelheim (Executive Chairman and General Counsel), Alan Bernstein (Chief Executive Officer), and Hugh van Cutsem (Director).

Bettelheim founded the company together with Richard Sandor, the founder and chair of the now defunct Chicago Climate Exchange.

Sustainable Forestry Management Ltd lobbied governments to promote voluntary carbon markets. For example, in January 2007, SFM made a submission to the UK government’s Environmental Audit Committee about voluntary carbon markets, and the role of avoided deforestation and sustainable forestry management. SFM’s submission states,

This submission highlights the necessity of the inclusion of forestry-based carbon offsets in meeting the 450ppm climate stabilization goal needed to prevent the onset of irreversible and calamitous climate change. Forestry can and must make up a significant part of the required emissions reductions required to reach this target. The voluntary markets provide the necessary flexibility for achieving this by crediting forestry projects that are currently excluded in today’s compliance markets. These include credits for avoided deforestation, assisted natural regeneration and sustainable forest management.

REDD-Monitor has pointed out repeatedly that trading the carbon stored in forests would be disastrous for the planet’s climate because at best it does not reduce greenhouse gas emissions. It just shuffles them from one place to another and helps lock in polluting technology. These arguments are put forward in detail here.

SFM hired Stuart Eizenstat, the former lead negotiator for the USA on the Kyoto Protocol. Eizenstat’s job was “to lobby for inclusion of forest carbon credits” in US and EU climate legislation. Here’s the opening of a 2006 piece he wrote in the New York Times, aimed at getting avoided deforestation carbon credits included in the UNFCCC and the EU Emissions Trading System:

There is a little recognized but vital element to re-engaging the United States in solving the problem of global climate change: forests. Creating financial incentives to protect forests and promote tree planting would be attractive to poor nations but also to American companies and farmers, giving the United States government a potent political reason to get involved in international climate policy.

Enter Prince Charles

In February 2007, Prince Charles’ private estate, the Duchy of Cornwall, secretly bought shares worth US$113,500 in SFM. Until the Paradise Papers leak, and reporting by the BBC and the Guardian, Prince Charles’ investment had remained secret.

Prince Charles was introduced to the company by Hugh van Cutsem, a close friend of the Prince. They had met when they were at Cambridge University in the 1960s. Notes of an SFM board meeting state that,

“The Chairman thanked Mr van Cutsem for his introduction of the Duchy of Cornwall and the Board unanimously agreed that the subscription by the Duchy of Cornwall be kept confidential except in respect of any disclosure required by law.”

The BBC’s story about Prince Charles’ offshore investment includes a screenshot of part of the notes:

Notes of another SFM board meeting in June 2007, included in the Paradise Papers, reveal that van Cutsem asked Eric Bettelheim to send lobbying documents to Prince Charles’ office:

“the chairman referred the committee to the bundle of materials which had been prepared by the company for various policymakers… Mr van Cutsem… asked that a set of documents be prepared for the Prince of Wales office. The chairman undertook to do so”.

Conflict of interest

After the Duchy of Cornwall invested the Prince’s money in SFM, Prince Charles gave several speeches in favour of trading the carbon stored in forests.

In July 2007, for example, Prince Charles gave a speech at the Business in the Community Awards Dinner. He argues that we “need” a market for forest carbon credits:

We need to develop a new credit market which will give a true value to carbon and the ecosystem services that rainforests provide the rest of the world. If we could get this right – and there are some exceptional people from the finance world who are working on exactly this problem, the market could generate enough to out-compete the powers of destruction – mostly driven by demand for palm oil, beef or soya – and the indigenous peoples who live in these remarkable places could share in the benefits. Imagine how the situation could change if those countries wise enough to have retained their forests, found themselves the owners of the new billion dollar ecosystem industries of the future…?

In October 2007, Prince Charles launched the Prince’s Rainforest Trust. The Trust had the backing of some world class polluters: Shell, Rio Tinto Zinc, McDonald’s, Morgan Stanley, Goldman Sachs, Sun Media, Sky, Deutsche Bank, Man Group, KPMG, Barclays Bank, Finsbury and the European Climate Exchange.

The BBC gives several more examples of Prince Charles’ speeches in favour of trading forest carbon in the UNFCCC and the EU ETS, but the BBC could not find any evidence of speeches made before his investment in SFM that support these views.

On 18 June 2008, the Duchy of Cornwall sold its SFM shares for US$325,000. That’s a profit of US$211,500 in less than 18 months.

Prince Charles had a clear conflict of interest. A spokesperson for Prince Charles’ office said that Prince Charles had “certainly never chosen to speak out on a topic simply because of a company that [the Duchy of Cornwall] may have invested in”. But that’s not particularly reassuring. Prince Charles was investing in his friend’s company. The investment was kept secret. And he lobbied on behalf of the company he’d invested in.

Raising money for Sustainable Forestry Management Ltd

In 2009, REDD-Monitor reported on a presentation by Eric Bettelheim at a side event at COP14 in Poznan. He explained that SFM’s main source of income was not from selling carbon credits. “I raise money,” Bettelheim said. “We do not bet on carbon.”

SFM, it seems, was pretty good at raising money. Last week, OjoPúblico wrote a great article about SFM, based on the information in the Paradise Papers.

In addition to Prince Charles, OjoPúblico mentions the following shareholders in SFM:

Hugh Van Cutsem, friend of Prince Charles, and a landowner, banker, businessman, and horse-breeder. Van Cutsem’s children Edward, Hugh, Nicholas and William were also shareholders.
Charles Ellingworth, a property developer, who boasts that his company Cadogan Estate “owns much of Chelsea”. He’s married to Lady Amanda Ellingworth, who turned down Prince Charles’ proposal of marriage in the 1970s.
Charlotte Anne Townshend, the second richest woman in England, after the Queen.
Lord Browne of Madingley, chief executive of BP from 1995 and 2007.
Marcel van Poecke, whose investment company AtlasInvest invests in the oil and gas industry, renewable energy, and property.
Sustainable Investment Enterprises Ltd, whose founder was Alan Bernstein, SFM’s Chief Executive Officer.
The millionaire Duprey family of Trinidad and Tobago, who invested in SFM through an offshore company called Ibis Cedar Ltd, registered in the Cayman Islands.
At least 14 companies incorporated in the tax havens of Cayman Islands, Bermuda, Bailiwick of Guernsey, Isle of Man, the British Virgin Islands (all of which are overseas British territories), Luxembourg, Panama and Switzerland.
Ian Swingland, a professor of conservation biology. He was an adviser on conservation and biodiversity management to the World Bank, the Global Environment Facility, the Asian Development Bank, and the UK Government. In 1989, Swingland founded of the Durrell Institute of Conservation and Ecology at the University of Kent. In 2016, Swingland appeared in Southwark Crown Court, accused of taking part in a £60 million tax avoidance scheme involving carbon credits. The scam ran between 2005 and 2008. Swingland denied the charges.
Octavian Special Master Fund L.P., an investment fund registered in the Cayman Islands.

OjoPúblico’s article includes this screenshot of shareholders, from the Paradise Papers:

Bettelheim’s move from forestry to oil (and back again)

Bettelheim left SFM in 2009. He was recruited by Marathon Oil Company. On his website, Bettelheim explains that his new job was “to establish and manage a new business division to develop a global portfolio of forest carbon projects”.

Two years earlier, Marathon Oil Company had spent US$6.6 billion to buy Western Oil Sands, giving Marathon 20% of the Athabasca Tar Sands in Alberta, Canada. Bettelheim’s job was to find ways of “offsetting” and thus allowing business as usual at one of the dirtiest operations on the planet:

A year later Bettelheim left Marathan Oil, after the proposed cap and trade legislation didn’t get through the US Senate. He worked for a few months at pulp and paper giant APRIL (which the Paradise Papers reveal squirrelled away billions of dollars through offshore companies), then set up another forestry company, Floresta Holdings Ltd. According to the company’s websites, Floresta has a project in Brazil, and one in Indonesia.

SFM in Peru

One of the projects that SFM invested in was the Campo Verde project, a reforestation project in Ucayali in Peru. The project is run by a Peruvian company called Bosques Amazónicos.

OjoPúblico reports that the company,

made financial transactions totaling US$71 million between 2008 and 2013 with offshore companies located in tax havens. The most important were with SFM, which during this period had nine subsidiaries across the world and was not due to pay tax in Bermuda until at least 2016.

In 2007, SFM and Bosques Amazónico signed an agreement that made SFM the principal buyer of carbon credits from Bosques Amazónico. Jorge Cantuarias, Bosques Amazónico’s CEO and founder, told OjoPúblico that under the agreement,

“SFM committed to finance reforestation and forestry operations in the Amazon forests for up to US$20 million. In return, Bosques Amazónicos committed to deliver the carbon credits generated by its projects to the value of US$ 0.5 for each carbon credit.”

Bosques Amazónicos was selling its carbon credits at the cheap end of the market, making the deal look suspiciously like transfer pricing manipulation. According to EcoSystem Marketplace’s report “State of the Voluntary Carbon Markets 2007”, carbon credits from reforestation projects using native trees were selling for anywhere between US$0.50 and US$45 in 2007:

OjoPúblico reports that in 2007, Bosques Amazónicos received a loan of US$426,000 from SFM in Bermuda. In April 2008, it mortgaged two of its properties in Ucayali, called Campo Verde II and Selva Maestra, to SFM for US$40 million. Bewteen July and December 2011, Bosques Amazónicos mortgaged the same two properties and a third property, Mirianita, for a total of US$11.4 million, to an SFM shareholder – the Cayman Islands registered Octavian Special Master Fund L.P.

Cantuarias told OjoPúblico that, “In 2008, SFM was acquired globally by the Octavian Special Fund, another global investment fund owned by international investors.” This restructuring resulted in yet another offshore company: Asterix Ltd.

Asterix is registered in Bermuda. The company has two Peruvian directors: David Saettone Watmough, who describes himself as one of Peru’s top business leaders, and is also on the board of Care Peru; and José Cárdenas Mares, who is a principal partner of the law firm Alcázar & De las Casas, which advises Bosques Amazónicos. Both men are shareholders in Bosques Amazónicos.

On its website, Bosques Amazónicos describes Asterix as follows:

Asterix Ltd. is a financial vehicle controlled by Octavian Advisors, a New York based private investment firm, with over US$1 billion under management and extensive holdings worldwide.

Octavian Advisors was “an international special situations and distressed investment fund which managed approximately $1.4 billion”, according to Richard Hurowitz, the founder and chief investment officer of Octavian Advisors. In 2013, it was sold to TGP, one of the largest private equity firms in the world.

Between April 2009 and September 2013, Bosques Amazónicos mortgaged its Campo Verde II and Selva Maestra properties for a total of US$20 million to Asterix. Cantuarias told OjoPúblico that the mortgages to the various offshore companies were “collateral” for the loans received.

In one of the mortgage transactions with Asterix, Bosques Amazónicos was represented by the Peruvian ecologist Gonzalo Castro de la Mata Valdivia . Based in Washington DC, Castro de la Mata has worked at the World Bank, the Global Environment Facility, and WWF. He founded a company called Environmental Services LLC and is an enthusiastic proponent of the free market as a solution to environmental problems. Until 2008, Castro de la Mata was SFM’s managing director for the Americas. Environmental Services’ website explains that “he was responsible for seminal investments that generated some of the earliest carbon offsets from plantations and REDD anywhere in the world”.

OjoPúblico reports that earlier this year, Bosques Amazónicos transferred all its mortgaged land in Ucayali to Andean Crown, a Peruvian investment fund directed by Saettone

SFM’s website stated that the company “was established in 1999 to demonstrate that attractive returns can be generated by investment in the world’s tropical and subtropical forests”. But despite all the money SFM raised, OjoPúblico reports that,

Documents from the Paradise Papers investigation show that one of the reasons for SFM’s liquidation in 2011 was that Asterix was unwilling to meet the company’s liabilities.