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

30/12/2016

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.

By RUTH SUNDERLAND FOR THE DAILY MAIL

This is Money

PD Editorial: Stop powering devices on the backs of children

 PD Editorial: Stop powering devices on the backs of children

29/12/2016

A “creuseur” descends into a tunnel at the mine in Kawama. 

About 100,000 cobalt miners in Congo use hand tools 

to dig hundreds of feet underground with little 

oversight and few safety measures, according

 to workers, government officials and evidence

found by The Washington Post. 

The world’s leading tech companies have put a wealth of information at our fingertips through smartphones, tablets and laptops. The price or portability, however, is complicity in human rights abuses, including child labor. That must change, and quickly, for both moral and political reasons.

In a series of recent articles, the Washington Post shed light on troubling mining practices in impoverished communities around the world. The investigation found that Apple, Samsung and major automakers have done little to monitor the supply chain involved in the extraction of minerals used to create lithium-ion batteries for portable electronic devices and electric cars.

Much of the coverage focused on Congo, where an estimated 100,000 miners — including tens of thousands of children — hand-dig cobalt in underground tunnels. There are few safety or environmental regulations, and health officials suspect prolonged exposure to toxic chemicals has led to a rise in birth defects and chronic health problems. Workers in Congo earn as little as $2 a day unearthing cobalt. The element then makes its way to a single Chinese company supplying Apple, Samsung, LG and other tech giants. Apple estimates that 20 percent of the cobalt it uses comes from the African nation.

Other recent stories by the Post have drawn attention to tech industry suppliers. In Tibet, a lithium mine operated by Chinese companies is blamed for extensive pollution. In the “Lithium Triangle” in Chile, Argentina and Bolivia, billions of dollars’ worth of lithium is extracted in exchange for yearly payments of $9,000 to $60,000 to the indigenous Atacama.

Tech leaders in the United States and elsewhere say they’re working to sever ties with suppliers who engage in child labor and other abusive practices in Congo. Apple, HP, Samsung and Sony recently joined a reform initiative in Congo involving the Organization for Economic Cooperation and Development, an international agency with established guidelines for safe mining practices. The Electronic Industry Citizenship Coalition, a trade group that includes Apple, Dell and other tech leaders, is also working on plans to identify problems in the supply chain for cobalt and other minerals.

A boy carries a bag used to transport cobalt-laden 

dirt and rock at the Musompo market.

These companies have an ethical responsibility to ensure human rights abuses aren’t a basic component of their products. Besides, consumers might love their smartphones, laptops and electric cars, but the industry would be foolish to assume they won’t forsake companies that fail to put an end to child labor and other troubling practices.

Tech companies would be wise to move swiftly for a practical reason, too. President-elect Donald Trump’s antipathy to foreign trade is well-known, and it’s possible he will show little patience with the tech industry, many of whose leaders supported his opponent, Hillary Clinton. The industry needs to clean up its supply chain before the new administration uses the bad publicity as leverage on other tech-related issues.

Finally, consumers must do their part. They must be savvy shoppers who eschew companies that ignore abuses. They also must prepare to pay a little more for their next upgrade. Companies will increase prices to cover costs associated with paying fair wages and providing adequate safety measures. Making sure children aren’t maimed or poisoned isn’t free.

THE EDITORIAL BOARD

BY THE EDITORIAL BOARD 

Is DRC on the brink of war? Five scenarios for what could happen next

Is DRC on the brink of war? Five scenarios for what could happen next

29/12/2016

A deal between President Joseph Kabila and the opposition hangs in the balance.

DRC people pour into the streets chanting for President 

Kabila to step down

One week after opposition parties and the government agreed a deal that would allow President Joseph Kabila to stay in power until 2017, all eyes are now on national dialogue talks brokered by the Democratic Republic of Congo (DRC)'s powerful Catholic church.

The Conférence Episcopale Nationale du Congo (CENCO) summit is due to begin on Thursday (29 December) and is aimed at stemming the violence that followed Kabila's refusal to stand down despite the expiry of his two-term limit as leader of the resource- rich African nation.

Kabila and opposition parties agreed in principle to a deal before Christmas, but will now discuss holding elections next year and setting up a transitional government to last until his departure at the end of 2017.

Ahead of the talks, IBTimes UK looks at five potential scenarios for the DRC.

• The dialogue drags on, sanctions have little impact and Kabila remains in power as protests die down and elections are delayed until 2018

The limited international spotlight on the situation in DRC may further offset political instability, as it becomes clear that US and EU sanctions on Kabila's top officials have had little impact. Kabila could capitalise on a change in foreign policy under Donald Trump, who is expected to cease US engagement in Congo while effectively empowering Africa's strongmen.

A moto drives past a sign asking for President Joseph 

Kabila's resignation on an avenue in Kinshasa on 

19 December 2016, as tensions rose 

as Kabila's last term ended 

 "Kabila is now over the big hurdles, and the principle whether or not he remains in office beyond the 19 December has gone," Jordan Anderson, a leading Great Lakes analyst at the London-based think tank IHS, told IBTimes UK.

Opposition supporters show President Kabila 'the yellow card' 

in the capital Kinshasa on October 19, 2016 in a protest over

 plans by the president to stay in power beyond 

the end of his term on 19 December    

In spite of pledges by pro-democracy groups to carry on demonstrating, mass protest will likely be short-lived. In combination with the violence and civilian deaths, political heavyweights Moise Katumbi and Etienne Tshisekedi are calling for "peaceful resistance", not demonstrations – and the Catholic Church is not supporting protests either.

A Congolese opposition party supporter displays a red card

 against President Joseph Kabila in Kinshasa, DRC

 on 19 December 2016  

The Church-led negotiations are now focused on how long it is until the next election – and how long Kabila stays in office, rather than whether or not he does.

"They (Kabila's side) are already laying the groundwork for a reason why, in 2018, if the constitution hasn't been changed, elections will be delayed further," Anderson added.

Citing lack of funding and delays in voter registration, the electoral commission postponed the polls. Earlier this month, the head of the commission said the budget to hold the elections would be $1.8bn (£1.47bn) – up 60% and two-fifths of the new government's budget – leading commentators to suggest it could be an indicator that 2018 is the earliest possible date for elections, should Kabila continue in office.

Residents chant slogans against Joseph Kabila as 

personnel from the UN's peacekeeping force, 

Monusco, patrol during demonstrations in the

 streets of the capital, Kinshasa, 

on 20 December 2016          

•     Elections are delayed past 2018 and Kabila changes the constitution, rendering the current one an empty shell

It is very likely that Kabila will seek to change the constitution by arguing that delays to the election mean the current one is no longer fit for purpose, and that it did not foresee the current situation.

Residents chant slogans against Congolese President 

Joseph Kabila as peacekeepers serving in the Monusco

 patrol during demonstrations in the streets of the

DRC's capital Kinshasa on 20 December 2016

Another possibility is that Kabila may use Article 78 of the constitution which stipulates that the president appoints the prime minister from the ranks of the parliamentary majority after consultation of the latter. It is constitutionally unclear how the new prime minister – and opposition member – Samy Badibanga's position works.

A man is arrested by a member of the military police after

people attempted to block the road with rocks, in the 

neighbourhood of Majengo in Goma, eastern DRC,

 on 19 December 2016 

"That may be another fact that gets trotted out: that the transitional government is not actually constitutional so Kabila could present the argument that the constitution needs to be changed to enable this to be constitutional. This could quietly allow him to push through changes to term limits," Anderson said.

A Congolese armed forces (FARDC) soldier poses for a

 photograph during their battle with M23 rebels in Kibati 

village outside Goma in the eastern DRC, in August 20

•     Kabila refuses to step down and faces a mutiny by military/police, who are unpaid and frustrated as national budget decreases as economic growth slows

Since 2015, the Great Lakes region has witnessed DRC's neighbour Burundi slowly slide into violence following a military coup against President Pierre Nkurunziza who was running for a controversial third term, seen by many as unconstitutional. In May 2015, disgruntled and politically engaged army officers and officials staged a coup d'etat in the capital, Bujumbura, before dismissing Nkurunziza – although that coup was ultimately crushed.

An FARDC soldier patrols on March 21, 2015 in an 

abandoned part of the South Kivu village of Mutarule 

where in June 2014 unknown assailants stormed an 

outdoor mass opening fire with automatic weapons

 and grenades       

In DRC, the risk of forces turning against Kabila in a Burundi-style scenario peaked on 19 and 20 September when the poorly paid army was deployed in the streets during protests. "This deployment was a test of the army's happiness, and how far they were willing to go for Kabila to suppress large non-violent protests," Anderson said.

The risk of mutiny or a coup significantly decreased when Kabila passed his term deadline. It would also be unclear who a coup attempt would be in favour of, as the DRC does not have a particular loyalty for the opposition – unlike Burundi, where it spilt along political and ethnic lines.

Servicemen of the FARDC were given new uniforms after

 ADF rebels, who have been carring out attacks in the 

DRC's east have been seen using uniforms 

of the FARDC    

"The huge opposition to Kabila in Kinshasa is largely unarmed opposition, whereas the armed opposition is largely based in the east of the country – with a few exceptions – which means they don't have the ability to shape power in Kinshasa itself. Unlike in Burundi, where the opposition against the Nkurunziza was concentrated in Bujumbura," Anderson explained.

The presence of South Sudanese fighters, and Rwandan 

and Burundian rebels in the north and eastern parts of 

the country does not pose a risk to President 

Joseph Kabila    

•     In a return to the past, instability overflows and affects the region, with dozens of countries meddling and more armed groups passing through porous borders

Regarding contagion, it is important to look at the position of the other regional countries. Unlike during the Second Congo War, during which nine countries were fighting each other on Congolese soil, neighbours Rwanda and Uganda are unlikely to get involved internally in the DRC at this point and support an insurgency against Kabila.

In early August, Kabila travelled to both Rwanda and Uganda to meet Presidents Paul Kagame and Yoweri Museveni, where he is believed to have told them of his plans for the second half of 2016, and what his stay in power would mean for their countries' relationships.

A fighter from the FDLR rebel group, which is being hunted

 by the Rwandan and Congolese armies, moves through

 the forest deep in the bush of eastern Congo 

The DRC and Rwanda's relationship is mainly based on the DRC's ongoing operation against the FDLR rebels – formed by Rwandan Hutus linked to the 1994 Rwandan genocide. Rwanda is appreciative of the Congolese forces' capture and handover of FDLR commanders and fighters in North and South Kivu.

In Uganda, Museveni is seen as being solely focused on his own country, having himself been re-elected and having plans to develop oil in the northwest of the country on the border with the DRC. "So Museveni, who has a certain amount of security cooperation with the DRC, doesn't want to see instability in the region," Anderson said.

A larger population of South Sudanese in DRC could lay the grounds for a new refugee community-based militant group after fighters loyal to their ousted vice-president, Riek Machar, crossed into DRC in August following a resurgence of violence in South Sudan.

United Nations peace-keepers record details of weapons

 recovered from FDLR militants after their surrender

 in Kateku in the eastern region of the Democratic

 Republic of Congo (DRC), 30 May 2014     

"This a fear we have seen displayed by the population in North Kivu – that the South Sudanese refugees will form a militant group along the lines that the refugee Rwandan Hutus did with the FDLR," Anderson explained.

The DRC government is currently trying to split South Sudanese refugees into two groups – most of the refugees are concentrated in refugee camps in Ituri province close to the border with South Sudan. A second group – several hundred militants loyal to Machar – are held in Goma, North Kivu.

The few hundred militants, who do not appear to have any support among the community, are not a threat, but that could change if they form their own self-defence group and start retaliatory attacks together with those in the camps. This, though, would not pose a threat to the Kinshasa government.

DRC opposition supporters gather in Kinshasa on 15 

September 2015 after violent clashes broke out when

 a rally was attacked by youths hurling stones, 

sparking a lynching attempt and a police 

crackdown     

•     Kabila signs a political accord with the opposition, agreeing to reinforce the principle of a two-term limit and standing down as the transitional government led by Samy Badibanga stays in place, paving the way for 2017 elections

The most unlikely scenario now that the 19 December deadline is receding into history. Kabila's choice of prime minister, who is not a strong political figure, suggests he has no intention of stepping down. Badibanga is not seen as someone who would last long as prime minister, or have the ability to keep the government together and, by extension, help protect Kabila's interests were he to leave.

Congolese opposition leader Vital Kamerhe (C) leaves on 

February 23, 2015 the Supreme Court of Justice 

in Kinshasa    

In the event that Kabila steps down, Anderson expects party leader Vital Kamerhe to get a "significant role" in the transitional government, while dropping "trumped-up" charges against opposition heavyweight Katumbi would also be a step towards reconciliation and transition.

Clockwise from top left: Opposition heavyweights Olivier

 Kamitatu, Martin Fayulu, Jean-Bernard Ewanga and 

Etienne Tshisekedi formed Le Rassemblement - 

the DRC's largest opposition coalition 

in June 2016     

Were Katumbi to be given a position in the government, "mentor" Tshisekedi would also have to be involved, due to his popularity.

"The government would not have a huge amount of legitimacy in its own right, but leaders would call for the elections which would have to be organised in the latter half of 2017, for logistical reasons," Anderson explained.

This is likely to lead to a period of instability next year, with a risk of violence and civilian deaths, since many politicians' support works along ethnic lines.

This will not be an indication of a general rise against the government, but low-level violence by these armed groups may continue in the Kivus and eastern parts of the country both before and after the elections.

"Around election time, people tend to get very worried that their candidate will lose out against another ethnic group's candidate and take something away from them. As a consequence, militias form in communities and groups tend to receive a great amount of support from those populations, meaning more people are willing to join them, because people are afraid.

"They look at someone who can protect them, whether their candidate wins or loses, and look at someone who can ensure that their candidate wins by legal and illegal means," Anderson added.

By Elsa Buchanan
IB Times UK