'Residents living nearby were contaminated with mercury and arsenic, as were fish and other creatures of the sea,' charged the prosecutor.

The case is being closely watched by foreign investors already anxious over the country's weak legal system.

Environmentalists, meanwhile, are eager to see if the cash-strapped government will punish a multinational mining company for the first time in recent memory.

The government says Denver-based Newmont Mining Corp. violated Indonesian laws by dumping millions of tons of mercury and arsenic-laced pollutants into the Buyat Bay on Sulawesi island and causing villagers to develop skin diseases and other illnesses.

It is holding Richard Ness, the president director of its Indonesian subsidiary Newmont Minahasa Raya, accountable. He faces up to 10 years in prison and a fine of US$68,000 (€54,000) if convicted.

'There Is No Pollution'

"There is no pollution ... I don't know why I am sitting here," Ness, 55, told the panel of five judges at the opening of his trial in Manado, 2,000 kilometers (1,300 miles) northeast of Jakarta.

Dozens of police officers stood outside the muggy auditorium that was converted into the makeshift courtroom. A crowd of 300 watched the proceedings, including Newmont employees and residents from villages that surround the mine.

Ness, who is married to an Indonesian and converted to Islam in the 1990s, took his place beside a translator and showed little emotion as prosecutor Robert Ilat read the 70-page indictment.

"As president director, it was up to Richard Bruce Ness to supervise, control and order his employees to carry out their duties in accordance with the company's regulations and Indonesian law," Ilat said.

Newmont says its mine waste has remained at the bottom of the bay and has never entered the bay's ecosystem. The indictment, however, alleges that the tailings "were stirred up by waves, currents and rising tides, polluting the water and damaging the environment."

"Residents living nearby were contaminated with mercury and arsenic, as were fish and other creatures of the sea," Ilat said, adding that the company never had a permit to dump its waste between 2001 and 2004.

Ilat made no mention of villagers' claims that the company's actions resulted in skin disorders, tumors and other ailments.

The trial was adjourned until Aug. 19, when Ness and his team of lawyers will present their defense plea.

Poor Hygiene and Diet?

Afterward, Ness told The Associated Press that "it wasn't clear what they allege that I did wrong."

"This was the first time that any Indonesian institution has accused Newmont Minahasa Raya of pollution," he said. "We have never received anything from any government agency indicating we were in violation of environmental laws and regulations."

The company says any health problems villagers near the bay are facing are due to poor hygiene and diet, as well as mercury pollution from the thousands of illegal miners that work the hillsides along the bay.

The case concerns foreign investors, who say a weak legal system adds to the risks of doing business in Indonesia, one of the most populous nations in the world, and one of the most corrupt. Rising costs and excessive red tape add to their worries.

"This appears to be another attempt to use the law to force further payment from a foreign investor," said Peter Fanning of the International Business Chamber.

There has been progress, he noted, with high courts increasingly overturning lower court decisions, but this case will reveal just how far Indonesia has or has not come.

Conflicting Test Results

Environmentalists say the trial offers the government -- which for decades coddled investors -- an opportunity to hold a foreign firm accountable.

"For 30 years giant mining companies have operated in Indonesia with impunity despite shocking environmental practices," said Raja Siregar, of the Indonesia Forum for Environment. "They have taken advantage of a failure in law enforcement by the government."

Newmont began operations in Sulawesi in 1996, and stopped mining two years ago after extracting all the gold it could. But it continued processing ore until Aug. 31, 2004, when the mine was permanently shut.

The company says the case should be heard in a civil, not criminal court, and argues there is nothing in the environmental law that allows Ness, of Ada, Minnesota, to be charged.

"Prosecutors are talking about pollution that occurred after 1997," lawyer Luhut Pangaribuan told reporters outside the courthouse. "That's one year before Ness joined the company."

The case is complicated by conflicting test results.

The World Health Organization and an initial Environment Ministry report found the Buyat Bay to be unpolluted, and a government study released in May found that traces of heavy metals in villagers living close to the mine were within normal levels.

But the prosecution will present a police report showing the levels of mercury and arsenic are well beyond national standards.

"There is overwhelming evidence from the Indonesian scientific community, from respected international organizations, and even from the government itself, that no pollution exists," said Newmont Vice President Robert Gallagher.

The trial is the culmination of a year-long legal battle involving Newmont's Buyat Bay gold mine. Five other executives were jailed for a month in September before prosecutors decided not to charge them in the case.

The company also is fighting a US$133.6 million (€107 million) civil suit filed by the government in the same case. It has refused to negotiate an out-of-court settlement, insisting the matter should be handled within the company's work contract.