Friday, 30 December 2016

Spotlight on secretive billionaire and his deals in the Congo: SFO steps up probe into one of UK's biggest corporate scandals

Spotlight on secretive billionaire and his deals in the Congo: SFO steps up probe into one of UK's biggest corporate scandals


The scandal surrounding mining group ENRC is one of the worst to have ever hit the City. 

It has been under investigation by the Serious Fraud Office (SFO) for three years and that probe will heat up in the New Year as the role of Israeli billionaire Dan Gertler – said to be an inspiration for the movie Blood Diamond starring Leonardo DiCaprio – comes under the microscope.

The City bloodhounds were recently granted millions of pounds of extra funding to pursue their inquiries.

For millions of small investors in the UK, this is a very important case. Despite having no operations in the UK and being run along decidedly un-British lines, ENRC was listed on the London stock market.

Probe: An investigation into mining group ENRC and the 
role of Israeli billionaire Dan Gertler is set to heat up
 after the Serious Fraud Office was granted
 extra funding

It was a member of the elite FTSE 100 index, meaning it was automatically put into millions of people's pension funds, whether they liked it or not.

Among the bit-part players in the sorry saga are former England cricketer Phil Edmonds and Miriam Gonzales Durantez, wife of the former deputy prime minister Nick Clegg.

The affair casts a poor light on regulators who allowed the firm to list its shares in London and it threatens to cast a shadow over the integrity of UK financial markets.

It has even greater ramifications for the Democratic Republic of Congo, one of the poorest countries on the planet.

Scarred by war, disease and hunger, the majority of its population lives in abject poverty. Nearly one child in every ten won't live long enough to see their fifth birthday.

The stricken African nation is miles away, literally and metaphorically, from the wealth and privilege of the City.

But ENRC and Gertler stand accused of lining their pockets with DRC's mineral wealth at the expense of its impoverished citizens.

Following a recent case in the US, pressure is on the SFO to step up the pace. It is investigating Gertler and four former ENRC executives, according to specialist financial news service Bloomberg. 

The probe relates to deals that may have violated UK bribery and fraud laws.

'On a scale of nought to ten for scandal I personally would put ENRC as a ten,' says Daniel Balint-Kurti of campaign group Global Witness. 'You are talking about the looting of one of the most poverty stricken nations on earth and they have been complicit in that.

'There should have been much more rigorous scrutiny of ENRC at the time it listed in London and the question is whether it should have been allowed to list at all.'

DRC has been a magnet for billionaires cashing in on its mineral wealth. They include Gertler, a 42- year-old mining tycoon who is a big investor in the DRC through his Gibraltar-based Fleurette Group. Gertler and Fleurette strenuously deny wrongdoing.

Gertler is a close friend of the country's president Joseph Kabila and has a cat's cradle of interests in the country, where he also claims, through his Gertler Family Foundation, to be a major charitable donor.

In AN explosive recent case in the US involving £32billion hedge fund group Och-Ziff, however, Gertler is accused of paying millions of dollars in bribes to corrupt officials.

Och-Ziff has agreed to pay more than £330million to settle charges against it of corruption in Africa, following a five-year investigation.

Gertler is said to be an inspiration for the movie Blood
 Diamond starring Leonardo di Caprio

Gertler, who was not named in the court documents but is understood to be the person referred to as 'DRC Partner', has not been charged.

The SFO will no doubt be poring over details of deals involving ENRC contained in the Och-Ziff court papers. 

One possible smoking gun relates to ENRC's purchase in 2010 of a stake in a copper and cobalt project, Kolwezi Tailings, along with some other assets.

ENRC bought these operations from a network of offshore companies associated with Gertler after they had been seized by the DRC government from a rival company, Canadian miner First Quantum.

In 2012, ENRC agreed a settlement worth £800million at the time with First Quantum, but the Och-Ziff court documents are likely to revive the controversy.

They state that two of the hedge fund's employees 'were informed by a co-conspirator' that £40million of the £470million purchase price agreed by ENRC was earmarked for bribes.

It was, the employees were told, for DRC Partner – ie Dan Gertler – 'to 'use on the ground' to corruptly acquire Kolwezi Tailings'.
ENRC is not named in court papers but it is understood to be the firm referred to as 'Mining Company 1'.

'A lot of extra information ought to be available to the SFO from the Och-Ziff case,' said Balint-Kurti. 'The US is bringing some people to book and we need to catch up.'

Whatever the eventual outcome of the SFO inquiry, the tale of ENRC has been one of protracted misery.

In its unhappy six-year career in the City the share price performance was disastrous. Anyone who invested £100 when it floated in 2007 would have got back just £45, according to figures from the Financial Times.

One former non-executive director said 'a ton of due diligence was done', yet even before ENRC listed, alarm bells were ringing.

The founders, Kazakh oligarchs Alexander Mashkevitch, Alijan Ibragimov and Patokh Chodiev, couldn't sit on the board because they faced a tax evasion case in Belgium, which was dropped in 2011.

As far back as 2012, Global Witness, in a memo to investors, alleged that, between 2009 and 2011, offshore companies associated with Gertler secretly bought prize assets cheaply and passed them on to ENRC. 

The campaign group told investors it believed that 'these offshore structures could allow corrupt Congolese officials to benefit from these deals'.

It added: 'If this is correct, ENRC may have poured money into corrupt transactions.'

Gertler and his Fleurette Group 'strongly deny' allegations of wrongdoing in any dealings in the DRC including those with Och-Ziff.

Fleurette has invested more than £1.2billion into the country, a spokesman added. It claims to be one of the country's biggest taxpayers and to support 30,000 jobs there.

It was through buying a company called Camec, then chaired by former spin-bowler Phil Edmonds, that ENRC obtained a foothold in Africa.

That also marked the beginning of ENRC's business relationship with Gertler, a shareholder in Camec.

Miriam Gonzalez Durantez came into the picture in 2013 when ENRC launched a lawsuit against her employer, City law firm Dechert, for alleged 'overcharging', after it submitted a £16million bill for two years work.

The tally included invoices from Mrs Clegg at £570 an hour.
Dechert, hired to conduct an internal review after allegations of corruption by a whistleblower, was told to hand over material to the SFO.

Since leaving London three years ago, ENRC has moved its HQ to Luxembourg and renamed itself Eurasian Resources Group, or ERG.

The company said it would not be appropriate to comment on the SFO probe into ENRC, a separate legal entity, or on the US Department of Justice agreement with Och-Ziff.

'ERG operates according to the highest international legal, compliance and ethical standards. We are a responsible corporate citizen in all the countries we work in,' it added.

ENRC's legacy, however, could haunt the City for a very long time to come.

This is Money