The fight to hold corporate actors to account for overseas corruption has been given a significant boost after the New York hedge fund Och-Ziff was ordered to pay $413m by the United States Department of Justice and Securities and Exchange Commission (SEC) for violations of the Foreign Corrupt Practices Act (FCPA). The parent company entered into a deferred prosecution agreement while a subsidiary pleaded guilty to corruption charges. Two executives, founder Daniel Och and CFO Joel Frank, also agreed to a financial settlement.
“This is one of the biggest fines ever handed out for violating the FCPA and is a major step forward in holding corrupt corporations to account. The use of bribes enabled Och-Ziff to profit from mining and oil deals, some of which deprived one of the world’s poorest countries of money that could have been used to build schools and fund hospitals. It is only right that they are held to account,” said Pete Jones, campaigner at Global Witness. “But this mustn’t just be about issuing fines: the individuals behind these corrupt deals must be held accountable and jailed where appropriate."
“Anonymously-owned companies played a key role in helping to pull off some of the damaging deals in the Och-Ziff case,” said Jones. “We’ve seen time and again that corrupt corporate actors use anonymous companies to disguise payments and make off with their profits. The evidence in the Och-Ziff case shows once more that if we are serious about ending corruption and the damage it does, then we must also end the creation of anonymously-owned companies.”
Some of the key violations in the Och-Ziff case came in deals in Democratic Republic of Congo that Global Witness and journalists have investigated and exposed since 2011. In the course of its Congo deals Och-Ziff financed the Israeli billionaire mining and oil magnate Dan Gertler in his acquisition of companies and mining and oil assets. A “significant portion” of the loans paid to Och-Ziff’s “Israeli businessman…partner in DRC” were used “to pay bribes to high-ranking DRC officials to secure mining assets for Och-Ziff and its partner”, according to a document published by the SEC. Global Witness has published wide-ranging evidence of corruption risks inherent in Gertler’s deals in Congo, whose President Joseph Kabila is a close personal friend of Gertler.
Gertler disputes any wrongdoing in his business dealings in Congo. His spokesperson has said prior to the release of the SEC document that the Och-Ziff case has “nothing to do with [Gertler’s] Fleurette”.
“Today’s Och-Ziff settlement raises more questions for Gertler’s other key partners in Congo to answer, which include London-listed Glencore, a giant commodities company,” said Jones. “Kazakh miner ENRC, which secured Congolese assets in partnership with Gertler, has been under investigation by the UK’s Serious Fraud Office since 2013, following exposés by Global Witness and journalists. UK authorities must now move to make the decision as to whether to formally prosecute ENRC for their actions.”
Och-Ziff’s share price dropped 41% within the first seven months of 2016 alone and amidst the ongoing investigations for alleged bribery, it has been difficult for Och-Ziff to adequately assure its investors. Och-Ziff was a once widely attractive investment for public pension funds and other institutional investors but has now seen at least two investors divest citing the bribery cases as a factor in their decisions. Goldman Sachs Group Inc.’s retirement plan has been the latest to reportedly liquidate $350 million of its holdings in Och-Ziff. Even after this case settles, Och-Ziff is likely to continue answering to its shareholders in a New York court under investors’ accusations that it made misleading statements about its dealings in Africa and that it failed to disclose material facts.
 Menaldi v Och-Ziff Captial Management Group LLC et al, U.S. District Court, Southern District of New York, No. 14-03251.
Notes to editor:
1. The Och-Ziff bribery investigation is extremely wide-ranging: the probe has looked at bribery cases in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo.
2. In 2008 Och-Ziff entered into a joint venture called Africa Management Limited (AML) which employed a Gabonese fixer, Samuel Mebiame. Mebiame has been alleged to have paid bribes to officials to obtain mining rights in several African countries. The other companies in AML were Mvelaphanda Holdings, a South African company founded by prominent South African businessman and anti-apartheid political leader Tokyo Sexwale, and Palladino Holdings, a secretive Turks and Caicos company. Palladino was owned by Olaf Walter Hennig, a controversial South African businessman.
3. As well as the joint venture Och-Ziff formed with the Turks and Caicos company Palladino Holdings, the hedge fund also routed money to Israeli billionaire Gertler, allegedly through anonymous companies formed in the British Virgin Islands and the Caymans. The SEC’s findings against Och-Ziff show that the hedge fund “entered into a partnership [with] an infamous Israeli businessman” who used loans from Och-Ziff to, in part, bribe high-ranking Congolese officials.
4. Global Witness’ May 2016 report Out of Africa also showed how secretive mining and oil deals in Congo involving Gertler lost the country $1.5 billion in potential revenues. A portion of the revenues from at least one of these deals was used to contribute to an election fund for the 2011 presidential elections, won by Gertler’s friend President Joseph Kabila. Kabila is now fighting to stay in power despite being obliged by the constitution to stand down. Protests against his regime on 19 and 20 September saw widespread violence with up to 50 civilians reported killed by the police and army, and political party headquarters burned to the ground.
5. Since the launch in April 2013 of the SFO’s investigation into ENRC, the company delisted from the London Stock Exchange and now operates as ERG (Eurasian Resources Group).
6. The movie When Elephants Fight, backed and narrated by Golden Globe Award winner Robin Wright, explained how Dan Gertler’s anonymous companies had repeatedly received Congolese mining assets at knockdown prices before selling them on for huge profits, at the expense of the Congolese state.
7. Och Ziff founder Daniel Och provided the following comment to media in response to the fines: “This has been a deeply disappointing episode. This conduct is inconsistent with our core values and not representative of our hundreds of employees worldwide, who are dedicated to serving our clients with the utmost integrity. We have learned from this experience and taken significant steps to strengthen Och-Ziff. We are pleased to bring this matter to a conclusion and remain focused on generating returns in our Funds.”
8. Glencore has also denied any wrongdoing in their dealings with Gertler and we do not allege that it is connected to the Och-Ziff case.