Legislation covering conflict minerals was rightly prompted by widespread evidence of humanitarian abuse in places like the inappropriately named Democratic Republic of Congo (DRC), but abuses in that country go beyond the atrocities committed in the remoter parts of the eastern provinces if investigations by the UK’s Serious Fraud Office and Kofi Anann’s Africa Progress Report prove to be correct.
Allegations suggest that fraud going to the heart of government in the DRC and the heart of the mining industry in the west may have deprived people in one of the poorest countries in the world of hundreds of millions – if not more than a billion – dollars.
Broadly, the allegations are that ENRC, Eurasian Natural Resources Corp., a Kazakhstan miner listed on the London stock market, knowingly entered into deals that deprived the DRC state of the true value of the mining assets being sold.
Articles in the Financial Times say Kofi Annan’s APP report accuses ENRC, senior members of President Joseph Kabila’s inner circle and an intermediary businessman Dan Gertler, of buying and selling assets such as SMKK, a Congolese company that owned rights to copper and cobalt deposits, on the cheap.
Using offshore entities, Mr. Gertler’s entities are alleged to have made returns on five deals of US$1.63 billion on assets purchased for only $275.5 million a few months before. The UK’s Serious Fraud Office, already investigating ENRC for a number of compliance irregularities, suggested the deals could not have gone ahead without ENRC’s explicit agreement and cooperation.
It raises the question of whether legislation like conflict minerals should stop short with tracing the origin of materials and include firms engaged in such behavior.
It may be argued that the US Foreign Corrupt Practices Act of 1977 covers such situations, but it will be hard to prove exactly who has benefitted among Joseph Kabila’s clique. One can be sure he will have covered his tracks among a string of opaque offshore tax havens and shell companies.
Not surprisingly, the three principal private shareholders in ENRC, all Kazakh businessmen, are reported to be looking to return the company to private ownership. Maybe the intrusive spotlight of Western regulatory authorities outweighs the benefits of raising capital via Western markets; private obscurity may have allowed such deals to go under the radar or at least garner less attention.
Nevertheless, it shows that much as Western firms try to move on from the practices of old in some parts of the world, they are still commonplace and sanctions of some form are needed to limit the attractiveness if a level playing field for miners and a fair return for host nations is to be achieved.
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