Glencore’s murky deals in the DRC
This story is reminiscent of a Hollywood blockbuster: a diamond tycoon, who has connections with “the biggest company you never heard of” (Reuters), i.e. Glencore. Since 2012, the press and NGOs have been dissecting the murky deals involving the Zug-based giant and Dan Gertler in the DRC, a country that embodies the devastation caused by the resource curse. In November 2017, the Paradise Papers, published by the International Consortium of Investigative Journalists, shed light on new explosive elements regarding this risky partnership.
Here’s the story in a nutshell. In 2009, Glencore secured mining permits awarded by the Congolese government to extract copper and cobalt on very favourable terms. For this, the Zug-based company did not hesitate to partner with Dan Gertler, a businessman with a dodgy reputation. Glencore has repeatedly claimed to have conducted extensive due diligence before joining forces with Gertler. However, his bad reputation was already infamous back in 2007, when the mining giant entered into collaboration with him. Gertler’s close ties with President Kabila, – to whom he had allegedly delivered weapons in 2001 in exchange for a monopoly on the sale of DRC diamonds – and with second-in-command Augustin Katumba Mwanke had already been pinpointed by the UN and the Congolese parliament. In 2001, an expert report prepared for the Security Council even referred to Gertler’s transactions in the diamond industry as a “nightmare” for the DRC’s government.
The Paradise Papers have unveiled new elements showing Gertler’s key role in the multinational company’s operations in the DRC. In particular, through Katanga Mining, a company that Glencore was about to take over, the Zug-based giant issued a mandate to the Israeli businessman on several occasions between 2008 and 2009 for him to negotiate with the Congolese authorities. These decisions were taken in the presence of Aristotelis Mistakidis, Glencore’s “Mr. Copper.”
Following a USD 45 million loan that Glencore granted to Gertler, conditional upon the success of the negotiations, Katanga secured a substantial reduction in the signing bonus, or ‘pas de porte’ as is known in French, which went from USD 585 to USD 140 million. According to Resource Matters, an NGO, the Swiss firm allegedly paid Gécamines, the Congolese state company whose responsibility it is to award licenses, a sum that was four times lower than that of most of its competitors. A very bad deal for the DRC, as it reportedly lost the equivalent of one-tenth of its budget. This is a country where nearly 80% of the Congolese population lives on less than two dollars a day. Glencore and Gertler deny any wrongdoing.
When a business partner becomes a burden
The close ties between Glencore and Gertler remained until February 2017. However, the Swiss company eventually decided to distance itself from him, following a “deferred prosecution agreement” issued by a US court in September 2016. The reason was corruption in connection with investment fund Och-Ziff, which showed that more than USD 100 million in bribes had been paid to Congolese officials by an Israeli businessman, along with others, over the course of ten years. This businessman has been identified by several media as being Dan Gertler. However, new research by Global Witness / PPLAAF casts doubt on this distancing.
Guilty of corruption
For Glencore, this saga becomes more and more unpleasant. Recently, the Canadian stock market regulator, where Katanga is listed, has taken an interest in it, too. The Ontario Securities Commission investigated whether the mining company has taken the appropriate measures to inform investors of the risks of corruption associated with its operations in the DRC.
Moreover, the US Department of Justice demanded that Glencore publish documents on its activities in the Democratic Republic of the Congo, Nigeria and Venezuela. At the end of May, the anti-corruption authorities in the United States and the United Kingdom announced that their investigation into Glencore for bribery of foreign public officials was complete. More precisely, according to the US Department of Justice (DoJ), between 2007 and 2018 Glencore paid over $100 million to various middlemen, with full knowledge that a large part would end up being used for the bribery of foreign officials. According to the judicial documents, officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of Congo were bribed. British proceedings also showed links to South Sudan. In total, Glencore's corrupt practices spanned over a decade and eight countries. In the US, the Zug-based commodity giant admitted also to manipulating oil prices.
And in Switzerland?
As you will be aware, Glencore’s registered office is in Zug, where, at least in part, its senior management was approving the bribes. But it is also interesting to know that, in addition to transfers from Swiss bank accounts, individual foreign officials also appear to have been bribed with cash. And according to the US investigators, Glencore employees ”withdrew” the money from a cash desk at Baar's headquarters until 2016!
Based on the revelations in the Paradise Papers, Public Eye called upon Swiss justice to take action against Glencore with the Federal Prosecutor's Office in December 2017. On this basis, the latter opened criminal proceedings against Glencore in June 2020. And in mid-June 2020 it was announced that the Swiss Federal Prosecutor’s office had also initiated an investigation. The matter is becoming increasingly unpleasant for Glencore – the mines in the Congo could cost the group dear.
- May 2022: Announcement by the authorities in Brazil, the United States and the United Kingdom that their investigation into Glencore for bribery of foreign public officials was complete. Glencore admitted to bribing officials from a total of eight countries to obtain lucrative oil trading deals. In the US alone, Glencore agreed to pay over a billion US dollars. The amount of the fine in the UK will be determined by the court in November 2022. And Glencore must pay the Brazilian authorities 39’598’367 US dollars.
- June 2020: Launching of an investigation by the Federal Prosecutor’s office on the grounds of failure to have the organizational measures in place to prevent alleged corruption in the Democratic Republic of Congo.
- December 2019: Investigation by the British anti-corruption authority, the Serious Fraud Office, on the grounds of suspicion of corruption in business dealings.
- April 2019: Launching of an investigation by the Commodity Futures Trading Commission (US regulatory body for forward transactions) on the grounds of suspicion of corruption in connection with commodities business.
- December 2018: Announcement of the launching of an investigation by the Brazilian Public Prosecutor’s Office into Glencore and its two competitors Vitol and Trafigura on the grounds of suspicion of payment of bribes to officials of the state oil company Petrobras.
- July 2018: Filing of a class action lawsuit in the District Court of New Jersey by a group of US shareholders who accuse Glencore of having lied in respect of the corruption charges in order not to impair its share price.
- July 2018: Investigation by the US Justice Department on the grounds of suspicion of corruption and money laundering in Nigeria, the Democratic Republic of Congo and Venezuela since 2007.