Milwaukee company takes on El Salvador
By Matt Hrodey, Milwaukee Magazine
December 16, 2010
A Milwaukee-based mining company, the Commerce Group, is suing the government of El Salvador for $100 million, arguing it unjustly revoked permits for a gold mine in the country. Some environmental activists are crying foul, saying the lawsuit, filed under the Central American Free Trade Agreement (CAFTA), seeks to exploit the country, where the government has halted all gold and silver mining due to environmental concerns.
Mauricio Funes, elected president of El Salvador in 2009, said earlier this year the government will approve no “mining extraction projects” in the country, solidifying the anti-mining policy begun by his predecessor, President Antonio Saca. The push to stop mining in the country has come from some of the country’s environmental groups, political candidates and even local Catholic Church officials.
Milwaukee’s Commerce Group, located in a small office building on the city’s northwest side, has owned the San Sebastian Gold Mine near the town of Santa Rose de Lima in eastern El Salvador since 1968. The company, formerly run by the late Edward L. Machulak, is now run by his son, Edward A. Machulak, who serves as president and CEO. Operations were put on hold in 1978 when civil war broke out in the country and resumed under a new permit in the late 1980s.
Critics such as Al Gedicks, a professor of environmental sociology at UW-La Crosse, accuse the mine of polluting the nearby San Sebastian River with heavy metals. “This type of gold mining in Central America has been very destructive,” says Gedicks, a frequent critic of mining projects.
He condemns the lawsuit, which is playing out as a binding arbitration case before the World Bank’s International Centre for Settlement of Investment Disputes. “This sets a terrible precedent for the ability of countries to protect themselves against some of the worst mining practices,” Gedicks contends.
John Machulak, a Milwaukee attorney (and brother of Edward A. Machulak, Commerce Group CEO) representing the company, strongly denies the allegations. “There was nothing we were doing that was environmentally unsound to begin with,” he says. “We were inspected all the way and had no complaints.”
El Salvador’s Ministry of the Environment pulled Commerce Group’s environment permit in 2006 as the administration of President Saca imposed a moratorium on mining. “They pulled every mining permit in the country,” Machulak says. In the presidential campaign that followed, the one that led to Funes’ election, whether mining would be allowed in the country became a “hot political issue,” he says.
El Salvador, as a member of CAFTA, is unable to opt out of the arbitration. The $100 million being sought is for lost revenue. According to filings with the international tribunal handling the case, Commerce Group estimates it “has been denied the ability to develop and process an estimated 3.5 million ounces of gold.”
Following a hearing on Nov. 15, the tribunal decided the case would proceed to the “substantive” phase of the case, meaning both sides will now debate its merits. Another hearing has not yet been scheduled.
El Salvador, which has hired a large national law firm headquartered in New York, Dewey & LeBoeuf, has not yet responded to Commerce Group’s accusations that the country violated CAFTA by pulling the mine’s environmental permit and preventing the mine from operating. The country has tried to stop the case, however, arguing the company filed its lawsuit prematurely, before a similar case pending before the Supreme Court in El Salvador was decided.
That case concluded earlier this year with the country’s Supreme Court ruling against Commerce Group, concluding that the company had been provided due process.
According to the annual report (pdf) for the company’s last fiscal year (which ended in March) the company and its subsidiaries employ between 15 and 20 full and part-time employees in El Salvador. In that year, Commerce Group reported a net loss of about $4.9 million. In the year before, it reported a loss of $30 million after the company re-assessed its financial state following the revocation of the mine’s environmental permit.
A Canadian mining company, Pacific Rim, which has also mined in El Salvador, has filed a similar lawsuit with the World Bank body seeking $77 million. Gedicks says it remains to be seen whether the tribunal will uphold the El Salvador’s right to deny permits to Pacific Rim and Commerce Group. He and other objectors, including Public Citizen (the Washington D.C.-based consumer rights group founded by Ralph Nader), say countries shouldn’t be forced into this kind of arbitration to defend environmental policies.