Fast Track Past Red Flags


An international mining company that is coming under growing scrutiny for its business practices alerted a British government agency that its impending purchase of a major cobalt and copper mine in the Democratic Republic of Congo may have involved corruption, but anti-corruption authorities did nothing to block the deal, which soon went through.

As disclosed by 100Reporters last week, the mining firm — Eurasian Natural Resources Corporation – filed a Suspicious Activity Report to a British law enforcement agency two years ago. The report acknowledged multiple “red flags” indicating that an Israeli businessman who sold it the Kolwezi mine may have bribed Congolese officials when he originally obtained it.

The document also referred to a previous Suspicious Activity Report that the company had filed with the law enforcement office, Britain’s Serious Organised Crime Agency. Despite the company’s suspicions, the report noted that the agency had given its consent.  ENRC’s second report of suspected corruption sought “updated . . . fast track consent,” which it apparently won.

Sion Richards of Jones Day, the law firm representing Eurasian Natural Resources, declined to discuss the report or subsequent deal. He called on 100Reporters to eliminate any references or discussion of the Suspicious Activity Report from its website. ENRC did not object to “appropriate investigative reporting,” Richards wrote in an email, but it did “object to journalists referring to or printing the content of suspicious activity reports…[that] are strictly confidential.” The email demanded that 100Reporters “immediately remove” any reference to the report from stories and “destroy all copies of the Report,” adding that if  100Reporters failed to comply it would be “in contravention of the public interest” and potentially liable “to a claim for damages.”

Stuart Hadley, a spokesman for Britain’s Serious Organised Crime Agency, declined comment on the agency’s response to warnings on the Kolwezi deal, saying the process for handling such reports of suspected criminal activities is confidential. The agency is barred from even acknowledging that a specific report had been filed, Hadley said.

Eurasian Natural Resources is based in Kazakhstan, and its three principals have close ties to that country’s corrupt, oppressive regime. It trades on the London stock exchange and has a market cap of about $9.1 billion

In 2010, it bought the Kolwezi mine, which the Congolese government of Joseph Kabila had recently expropriated from a Canadian company called First Quantum Minerals, saying it suspected the firm of “wide-scale misconduct”.

Within hours of seizing the Kolwezi mine, the Kabila government sold First Quantum’s stake for $60 million to offshore companies linked to an Israeli businessman named Dan Gertler, who is known for his extremely close ties to Kabila. (A British parliamentarian released documents late last year that showed the Congolese government had secretly sold billions of dollars of mining assets to British Virgin Islands-registered shell companies, several which are linked to Gertler.)

Gertler flipped about half of the stake – for $175 million – to Eurasian Natural Resources, along with a few other minor assets. First Quantum sued, saying Kabila’s government had seized its assets illegally.

A spokesman for Gertler did not respond to requests for comment.

The tiger that didn’t roar: Report of suspected corruption to Britain’s Serious Organised Crime Agency did not slow down Congolese mine deal. / Photo: SOCA website

Eurasian Natural Resources has never publicly acknowledged any improprieties in connection with its acquisition of the Kolwezi mine, and has worked strenuously to keep its suspicions under wraps. However, earlier this year it agreed to pay First Quantum $1.25 billion to settle its claim.

In August 2010, shortly before buying Kolwezi, an attorney at Herbert Smith, a firm then representing Eurasian Natural Resources, filed the report disclosing the potential corruption to the Serious Organised Crime Agency. SOCA is an “intelligence-led agency” that works “with agencies and officials across the UK and all over the world” to “ensure crime doesn’t pay,” according to its website. It works closely with the Serious Fraud Office, which enforces British laws in cases of domestic and overseas corruption.

The Suspicious Activity Report noted “red flags” it had uncovered about Gertler and his Highwind Group, one of his offshore firms involved in the Kolwezi deal. It concluded: “Whilst the above allegations are in large part unsubstantiated…it is not possible to discount them completely. Accordingly, in the light of these allegations and the low test for ‘suspicion’ Herbert Smith and ENRC suspect that there is a risk that the assets of the Highwind Group may have been obtained by corruption and the transaction may facilitate the acquisition, retention, use or control of criminal property by the Highwind Group/Dan Gertler and others and/or may result in corrupt payments being made to public officials.”

100Reporters has also obtained details about an internal report that Herbert Smith delivered to ENRC in 2007, concerning the company’s poor record of corporate governance. The report said that ENRC did not appear to have procedures in place to prevent corrupt payments being made on the company’s behalf or to prevent its sales staff from receiving kickbacks from customers.

The Eurasian Natural Resources-First Quantum dispute has been covered heavily by the British press and has been a huge embarrassment to the Kazakh firm. In the year after it obtained Kolwezi the company forced out three directors who expressed concerns about corporate governance. Just last week the company announced the appointment of two new independent directors –Richard Burrows, chairman of British American Tobacco, and Mohsen Khalil, head of the climate business group at the World Bank – as part of an effort to bolster its credibility and its sagging share price.

Within 10 days of filing the Suspicious Activity Report, Eurasian Natural Resources went ahead with its purchase of Kolwezi, despite the “red flags” it cited. It is not clear what, if any, action the company’s warning prompted on the part of British authorities.

Last week, a former British government corruption prosecutor called for an investigation into Eurasian Natural Resources’s acquisition of Congolese mining assets. “When these shell companies obtain these assets on the cheap, there’s no way to tell if it’s fraud,” the prosecutor, who asked to remain anonymous, told ThisIsMoney, a website of the Daily Mail in London.

A number of British parliamentarians have also publicly called for an investigation into Eurasian Natural Resources’s holdings in Congo and its relationship with Gertler. Earlier this week, lawmaker Pauline Latham urged the British government to consider halting aid to Congo sent via the International Monetary Fund until the deals are investigated, saying there was “little point in pumping money into a DRC Government that is stealing its own natural resources through a network of shell companies housed in the British Virgin Islands.”

Earlier this year, Africa Confidential, an influential newsletter that circulates to many top government officials, published a story about the Suspicious Activity Report, but it withdrew the document from its website after lawyers for Eurasian Natural Resources threatened the newsletter with legal action.  The law firm, Jones Day, has exerted similar pressure on at least two other media outlets that obtained the document, 100Reporters has learned. Jones Day has told journalists that the document was submitted to the government in strictest confidentiality and demanded they return it or face prosecution.

Ken Silverstein

Ken Silverstein

Ken Silverstein, a member of 100Reporters, is an investigative journalist focusing on corporate and government corruption. His stories on ties between the government of Equatorial Guinea and major U.S. companies led to the convening of a federal grand jury and investigations by the United States Senate and the Security and Exchange Commisssion.
Ken Silverstein

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