The Glencore-controlled mining company Katanga Mining has today agreed to pay USD $22 million to settle allegations by Canadian regulators that it had failed to comply with disclosure requirements, including that it had not properly described risks of doing business with a controversial middleman in Democratic Republic of Congo (DRC). Several of Katanga’s current and former directors and executives were also named in the case in what is a welcome step forward for accountability in natural resource governance, Global Witness said.
The Ontario Securities Commission (OSC) found that Toronto-listed
Katanga Mining had failed to fully disclose the
extent and risks of the relationship with the notorious Israeli businessman Dan
Gertler. Gertler is closely linked to Congolese President Joseph Kabila and was
sanctioned by the US government in 2017 for “opaque and
corrupt” deals in DRC stretching back to 2010.
The OSC investigation focused in part on secretive payments worth tens of millions from Katanga to Gertler. Global Witness exclusively revealed those payments in a two-part exposé in November 2016 and March 2017. Our research showed that Katanga Mining had been redirecting contractual payments, originally meant for DRC’s state mining company Gécamines, to Gertler. We also revealed that since 2014, Katanga Mining’s stock exchange filings had omitted the identity of the recipient of royalties and signature bonus payments when the beneficiary was in fact Gertler. Within months of our publication, the Wall Street Journal reported that OSC had opened its own investigation.
“The details provided by Canadian authorities vindicate our concerns that Glencore’s Katanga Mining had failed to comply with rules by not disclosing that it was paying millions to Gertler, a known corruption risk. The picture painted by the Ontario Securities Commission indicates that Glencore used Gertler and his associates to manage relationships with the DRC government,” said Peter Jones, Campaign Leader at Global Witness. “This will be very awkward reading for Glencore management and should lead to further investigations,” he added.
The OSC said that three executives of Katanga’s gigantic parent company Glencore, who were on Katanga’s board, had been involved in conduct that “undermined” the company’s “corporate governance, internal controls and culture of compliance”. The most senior individual named was Aristotelis Mistakidis, formerly the head of copper for Glencore. The two other Glencore executives named were Liam Gallagher and Tim Henderson. All three men had stepped down from the Katanga Mining board in November 2017 when the OSC investigation was confirmed by Glencore. Another four Katanga directors were named.
Each of the directors or executives named by the OSC paid an individual settlement and was banned for a period of time from acting as a director or officer of a publicly traded company in Ontario.
This ruling is a welcome first step towards holding Katanga Mining to account, but the payment made by the company is relatively small for the mega-rich Glencore group, a commodity trading multinational which ranks fourteenth in the world by revenue. Katanga’s payment of $22m also pales in comparison to the secretive payments the company directed to Gertler. Katanga paid a total of $146m in royalties and other payments to Gertler between December 2013 and July 2015, according to the OSC.
“These figures put the $22m payment in perspective and make it look less like real accountability and more like a slap on the wrist,” said Jones. “If there is to be real change in the way that Glencore and its subsidiaries operate, top management must be held accountable for the way these companies handle risk. It’s a first step forward when individual executives and directors have been named and receive some financial punishment, but there is further to go to achieve real accountability”, added Jones.
“Glencore is already facing an investigation by the United States into its business in DRC, so there may be more to come for the company and its executives. It is also one of the biggest companies on the London Stock Exchange – it’s urgent that the UK’s Serious Fraud Office also open an official inquiry into the company’s activities in DRC, otherwise London will lose credibility as a centre for business,” Jones continued.
Since 2011 Global Witness has raised concerns about the corruption risks of doing business with Dan Gertler. Glencore’s joint-ventures with Gertler, established as the company sought access to DRC’s lucrative copper assets, lasted a decade until Glencore bought out Gertler in 2017. The contractual payments have continued even since that buyout and despite Gertler being sanctioned by the US.
Glencore’s decision to pay Gertler in euros rather than dollars in order to work around the sanctions caused controversy this summer. Despite the reputational and legal risks involved in doing business with Gertler, the company is continuing as though it is business as usual. It is imperative that all payments to Gertler from Glencore and its subsidiaries are stopped immediately.
In the past Glencore has defended its deals with Gertler as a straightforward business partnership. Gertler has also rejected any suggestions of wrongdoing in his investments in DRC.
- Glencore and Dan Gertler were partners in mining ventures in Democratic Republic of Congo for a decade, until Glencore bought out Gertler in a billion-dollar deal in February 2017.
- Gertler owns rights to royalty payments from the Mutanda mining project. In November 2015, Global Witness revealed that he had secretly acquired the rights to royalty payments from Glencore’s other mining outfit, KCC.
- Gertler was sanctioned in December 2017 under the global Magnitsky Act for making a fortune out of “opaque and corrupt mining deals in the Democratic Republic of Congo”. The US treasury also said he used his close friendship with Joseph Kabila to “act as a middleman for mining asset sales in the DRC, requiring some multinational companies to go through [him] to do business with the Congolese state”.
- As a result of the sanctions, Gertler is now unable to visit the U.S., to access his assets held within U.S. jurisdiction, or to engage in transactions (exchange of money, goods or services) with any U.S. entity. Any company owned 50 percent or more by him or his companies is automatically sanctioned — whether or not it is on the list. U.S. authorities can also choose to sanction a company owned less than 50 percent by Gertler, if they determine that he exerts control. Any individual or company, even outside the U.S., that does business with Gertler risks being fined or even sanctioned by the U.S. Office of Foreign Assets Control (OFAC). In extreme cases they may become the subject of a criminal investigation by the U.S. Department of Justice, not to mention the reputational risk of doing business with a sanctioned individual.
- Global Witness has reported on Glencore’s deals with Gertler since 2011, calling into question how the commodities trader has enriched Gertler and protected his interests in mining deals.
- In September 2016 the US hedge fund Och-Ziff admitted to its role in a bribery conspiracy in Africa and entered into a deferred prosecution agreement with the Department of Justice. Och-Ziff’s partner in Congo was described by US authorities as an “infamous Israeli businessman” and has been widely understood to be Gertler. US authorities’ evidence showed that Och-Ziff’s partner paid substantial bribes to Congolese officials as he sought access to mining rights. Gertler has not been charged in the case and the Wall Street Journal reported that Gertler’s spokesman has denied the allegations.
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