Image by Unesco. Open License.
This article was written by Gesa Steeger of CORRECTIV, edited by Romina Cáceres and published in El Surtidor on September 26, 2023. An edited version is republished by Global Voices under a media partnership agreement.
A joint investigation by El Surtidor, a Paraguayan digital media outlet, and CORRECTIV, an independent media outlet from Germany, shows how Deutsche Investitions und Entwicklungsgesellschaft (DEG), a subsidiary of a public institution, and the German Development Bank (KfW) ) invested EUR 25 million in the Paraguayan Agricultural Corporation (PAYCO), which, between 2013 and 2020, deforested at least 7,000 hectares of forests on three properties in the Chaco.
The Paraguayan Chaco is a region that comprises 60 percent of Paraguay's land area. However, it has less than 3 percent of the population, making it one of the least inhabited areas in South America. Many of the people who live there are indigenous.
This case shows the role of financial institutions, with the backing of Germany's federal government, in driving the same deforestation that the European Union now opposes, and illustrates the responsibility of banks and investment funds in the climate crisis.
This is why in October 2023, the German and European Parliaments called for an end to the DEG's investment in PAYCO, a company that deforested in the Chaco.
Over 4000 hectares deforested between 2013 and 2020
PAYCO was founded in 2013 by the Espirito Santo Group. After the collapse of the group in Europe, in 2014 it was created as a public limited company in Paraguay. It became the second largest landowner in Paraguay, according to Oxfam's Yvy Jára Report, and became involved in livestock, soybeans, eucalyptus plantations, and the sale of environmental services to the Paraguayan state. It was one of the private entities that participated in the creation of the carbon credits bill.
PAYCO declared 130,000 hectares of land and 35,000 heads of cattle on several farms, both in the Chaco and in the Eastern Region. Added to this are soybeans, wheat and forest plantations.
The DEG invested EUR 25 million in the company in 2013, at that time still established with its headquarters in Luxembourg, a tax haven. The objective of the investment, according to the bank, was to support local food production and a sustainable timber industry.
However, the opposite happened. Since the involvement of the DEG, at least three PAYCO ranches in the Chaco suffered deforestation of 7,000 hectares. This occurred partially through burning, but mostly logging for livestock. This is demonstrated by an evaluation by the German Aerospace Center, which documented deforestation on the company's lands between 2013 and 2020.
Deforestation 2013-2020 at the PAYCO Timboty Ranch. Source: German Aerospace Center — Enmannuel Da Ponte — Google Earth Images. Used with permission.
According to the analysis of the German Aerospace Center, the Carandayty ranch, located in Alto Paraguay, had an approximate deforestation of 4,619 hectares between 2013 and 2020. Timboty, located in Presidente Hayes, had an approximate deforestation of 2,037 hectares in the same period, while Santa Rosa had a deforestation of 824 hectares between 2015 and 2016.
The company did not just create space for livestock in the Chaco. In the Eastern Region, PAYCO apparently had a palm plantation cut down to create eucalyptus plantations, according to a 2021 study by human rights organization FIAN. The study also includes complaints on other company properties about the use of agrochemicals and conflicts over land ownership.
‘Owners of all this’
The Paraguayan Agricultural Corporation was not always called that, but it has a history of 50 years in the country. According to data collected by economist Sarah Zevaco, researcher at the specialized think tank BASE IS, the Espírito Santo Group made its first investment in Paraguay in 1976, when it purchased the Estancia Golondrina.
Espírito Santo, a group made up of Portuguese bankers created in 1869, had just reinvented itself in the tax haven of Luxembourg after its bank had been nationalized by the Carnation Revolution in Portugal. In 1979, Estancia Golondrina became a direct part of the business group with the creation of Sociedad Agrícola Golondrina S.A. Between 1997 and 2002, it purchased Ganadera Corina Campos y Haciendas SA and created, together with Unique Wood, the entity Certified Forestry in Paraguay (ForCerPa).
In 2013, they announced the investment of the DEG, creating the Paraguayan Agricultural Corporation in Luxembourg, owner of all Espírito Santo activities in the country. Ricardo Salgado Espírito Santo was the man at the top of the business group, and in Portugal they called him DDT: “dono disto tudo or “owner of all this.”
The debacle became known in 2014, a year after the DEG investment, but it began earlier. The impact of the financial crisis in Portugal meant that the debt taken on by the group to recover the bank in its name became unsustainable, so the group carried out fraudulent maneuvers to continue accessing capital. After an internal battle between shareholders and the bank's intervention in Portugal, its subsidiary Rio Forte declared bankruptcy on July 22, 2014.
Ricardo Salgado Espírito Santo went from owning everything to being seized everywhere. In 2022 he was found guilty of diverting funds from the business group to an offshore company. Portugal confiscated his passport and he is accused of 65 crimes.
One day after the bankruptcy of Rio Forte was recognized, PAYCO was created on July 30, 2014, but this time based in Paraguay. According to the official deed, it is the merger of the two companies that the group had in the country (Golondrina and Corina) and 85 percent of the capital came from EuroAmerican Finance, another of Espírito Santo's subsidiaries. The rest were the shares of Germany's DEG.
Copy of the deed presented by PAYCO to sell environmental services to ANDE. Used with permission.
According to Zevaco's investigation, when on December 8, 2014, a court in Luxembourg confirmed the insolvency of the Espírito Santo group companies and began to seize their properties, PAYCO Paraguay was safe.
Who is in charge?
Currently, an information request is pending before the Cologne Administrative Court against the state development bank KfW, to which the DEG also belongs. The human rights organization FIAN and the European Center for Constitutional and Human Rights (ECCHR) demand the disclosure of PAYCO's environmental and social action plans in Paraguay.
Although the court ruled in favor of the organizations, KfW appealed this decision. The court had decided that KfW is obliged to provide information under the German Freedom of Information Act — and that includes the DEG.
The lack of transparency and questionable business practices are also a recurring theme in the German Parliament, where for years the federal government of that country has been asked for greater transparency and regulation of the DEG's businesses. “The bank operates in the shadow of KfW. Nobody knows exactly what it actually does,” says finance and development expert Peter Wolff.
Written by El Surti Translated by Ameya Nagarajan · View original post [es]
This post originally appeared on Global Voices.
