CONGO'S SECRET SALES
Between 2010 and 2012, major mining concessions in
Democratic Republic of Congo were acquired by huge international mining
companies for billions of dollars.
But most of that money never reached the Congolese state
coffers. The assets were sold in secret, initially transferred at knockdown
prices to a series of offshore companies, which then made the sales to the
major multinational companies. The Congolese state is estimated to have lost
out on at least $1.36 billion in the process – equivalent to twice the
country’s health and education budgets combined.
The owner of the offshore companies and personal friend of
Congolese President Joseph Kabila, Dan Gertler, profited immensely. The
companies involved are mostly registered in the British Virgin Islands, where
regulations allow their true owners to be kept secret. This is all made possible
by a global system that permits companies to withhold details of the people
behind them or beneficial ownership.
Global Witness investigated these transactions, concerned
that this lack of transparency and Gertler’s relationship with the President
increased the potential for corrupt figures in the Congolese elite to
personally benefit from the sales, just as the Congolese state lost out.
There is certainly evidence that the offshore companies may
have received favourable treatment in the acquisition of the assets they were
soon to sell on. Gertler’s companies sometimes paid under five per cent of
market valuation for their mining rights, before striking immensely profitable
deals with international companies, in particular ENRC (Eurasian Natural
Resources Corporation) and Glencore. At the time both companies were listed on
the London Stock Exchange.
ENRC and Glencore were able to secure these major mining
concessions by doing business through Gertler, who is considered the
‘gatekeeper’ to Congo’s mining sector. Global Witness contends that these
companies, despite knowing the corruption risk inherent in doing business with
Gertler, entered into the deals and acted to protect his shareholdings in joint
ventures in ways that do not make commercial sense.
Each of the deals has added to Gertler’s personal fortune –
which now stands at around $1.44 billion according to the Forbes rich list – at
the expense of the Congolese state and population. In one example, ENRC paid
one of Gertler’s companies $25 million to acquire a stake in a mine which cost
him $15 million, then paid him again – a further $50m – to buy the stake for
themselves; he had apparently quickly quintupled his money without investing in
developing the asset or using any of his own fortune to acquire it.
Glencore, meanwhile, offered privileged loan agreements and
share deals to some of these offshore companies – offers not extended to their
other partners in Congo mining projects – which enriched Gertler and allowed
him and Glencore to take controlling interests in major copper mines. Some
details of these and other suspicious agreements are in Global Witness’ secret
sales key documents.
The scandal over these sales led the International Monetary
Fund to halt its loan programme to Congo in December 2012 and helped spur the
UK’s Serious Fraud Office to launch a criminal investigation of ENRC in April
2013. The scandal may have eventually prompted ENRC to delist in an apparent
attempt to avoid further scrutiny as a public company. A month later, the
Africa Progress Panel – headed by former UN Secretary-General Kofi Annan – said
that Congolese “state companies are systematically undervaluing assets”.
More recently, in January 2014, it was revealed that
Gertler’s Nessergy company sold back oil rights to the Congolese government for
300 times the purchase price, having invested very little in developing the
block. Then, in March 2014, American hedge fund Och-Ziff, one of the main
financial backers of Dan Gertler, announced that it is being investigated by
the SEC under suspicion of breaching the Foreign Corrupt Practices Act in its
African investments.
Mr Gertler vigorously disputes the various charges levelled
against him, saying that all the offshore companies in the Fleurette Group, his
holding company, are solely for the benefit of members of his family. His
spokesman has also argued that he did not obtain assets at knock-down values.
Glencore and ENRC also deny any wrongdoing. We have published official
responses from Mr Gertler’s representatives, Glencore, and ENRC on our website.
This is too important a matter to let rest. The companies
involved must explain the role they have played in these secretive and
questionable deals and full light must be shone on the beneficiaries of the
offshore companies and their transactions.
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