Glencore buys out Dan Gertler, Israeli businessman accused of bribing DRC’s President Joseph Kabila

It’s hard to imagine a more fitting embodiment of the sad story of economic vandalism in the DRC than the friendship between Israeli businessman Dan Gertler and President Joseph Kabila. Regular readers know that Gertler’s pillage of the DRC is a pet topic on this blog – see here, here, here and here, for example.

Now FT’s  has yet another story on how mining giant Glencore has been forced to buy out Gertler over accusations of bribery:

After years of doing business together in one of the world’s poorest countries, Glencore has dissociated itself from Dan Gertler, an Israeli mining tycoon implicated in the payment of bribes to the ruler of the Democratic Republic of Congo.

Glencore’s announcement last month that it would pay $534m to Mr Gertler to buy him out from their shared prize assets in the DRC — two giant copper mines — is designed to insulate the London-listed mining cum trading behemoth from the fallout of a widening corruption investigation involving the Israeli businessman, say people who have followed the saga. The decision by Ivan Glasenberg, Glencore’s chief executive, highlights the risks of doing business in the resource-rich, war-torn central African country, where Mr Gertler wields influence by virtue of his close friendship with Joseph Kabila, the DRC president.

Settlement documents released in September by US authorities in a scandal involving Och-Ziff, the New York hedge fund, alleged that an “Israeli businessman” — whose description clearly matches Mr Gertler — had paid bribes to Mr Kabila in order to obtain special access to mining rights in the DRC.

One banker who does dealmaking in the mining sector and owns Glencore shares says the company’s purchase of Mr Gertler’s stakes in the two DRC copper mines is defensive. “Buying out Gertler is primarily about detoxification for Glencore,” he adds. “The Och-Ziff investigation in the US has made it very risky to have clear ties to him.”

More on this here. Definitely worth a quick read.

President Joseph Kabila was paid $7m in bribes. Dan Gertler’s buyout is worth $534m in cash, paid by Glencore.

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Old Habits Die Hard: Rio Tinto allegedly bribed government officials in Guinea

Regular readers may recall that in Simandou Guinea has one of the richest iron ore deposits in the world; and that it is a development project that I have been following for a while.

You may also recall the infamous story of how Israeli tycoon Benny Steinmetz paid nothing for exploration rights in a half of Simandou, proceeded to invest about $160m in developing the mine, only to flip it a couple of years later for $2.5b. The Brazilian mining giant Vale was the unfortunate victim of Steinmetz’s scheme.

According to The Intercept:

An investigation by the current government of Guinea found that a shell company controlled by BSGR paid at least $2.4 million to Mamadie Touré, a wife of the former dictator [Lansana Conte], in return for her help in acquiring the rights to the mine for BSGR. Earlier this year the government annulled BSGR’s stake in the mine, saying the firm had obtained it through corruption.

Others on the payroll included then Minister for Mines, Mahmoud Thiam, who preferred to spend his earnings on a Lamborghini, an apartment in Manhattan (%1.5m), and an estate in Dutchess County ($3.75m). All paid for in cash. After the death of President Lansana Conte and the election of Alpha Conde, the government of Guinea successfully repossessed the mine from Vale and vowed to clean up the mining sector.

But old habits die hard.

It now emerges that President Alpha Conde, who successfully managed to get the illegally acquired half of Simandou, was himself allegedly paid about $10.5m in bribes to secure Rio Tinto’s rights to the other half.  May be I am too naive, but are these side payments enough to give away billions of dollars worth of value? It is sad enough that Conde may have taken the bribe. But it is doubly disappointing that his price was so low.

Why don’t people like Conde and Thiam think of setting up their own mining companies, or contractors to the global giants?

How does one begin the process of inculcating a sense of an encompassing interest in an otherwise rapacious elite?

Here is the story from the FT:

Rio Tinto’s lawyers uncovered more than a year ago internal emails about a questionable $10.5m payment to a consultant, but the mining company did not alert law enforcement authorities and investors about the matter until last week. The Anglo-Australian group said on November 9 that it had notified authorities after discovering emails from 2011 that referred to the payment to the consultant, who helped head off a threat to Rio’s claim to the giant Simandou iron ore project in Guinea.

In the emails, seen by the Financial Times, Alan Davies, the executive in charge of Simandou, discusses with Tom Albanese, then chief executive, and Sam Walsh, then head of iron ore, paying a $10.5m fee to François Polge de Combret, a former top French banker and classmate of Guinea’s president. Following an internal inquiry begun in August, Rio said last week that it had referred the matter to law enforcement authorities in the UK, the US and Australia. The company now faces years of scrutiny and the risk of large fines if it is found to have broken anti-corruption laws.

In another section:

The dispute over Simandou dates back to 2008, when the Guinean dictator of the day stripped Rio of the rights to the northern half of the project and handed them to BSG Resources, the mining arm of Israeli diamond tycoon Beny Steinmetz’s family conglomerate. BSGR went on to agree a $2.5bn deal to bring in Vale of Brazil as its partner.

In 2011, Rio secured its claim to the remaining half of Simandou with a $700m payment to the then new government of President Alpha Condé — a deal which, the emails indicate, Mr de Combret helped to facilitate. The ex-Lazard banker declined to comment.

Mineral Assets and Corruption in the DRC: Israeli “businessman” Dan Gertler linked to Och-Ziff bribery convinction

What does Dan Gertler and his business associates think of term limits in the DRC?

This piece from The Globe and Mail has some answers:

The cellphone message from the Israeli businessman was blunt and vulgar: The Canadian mining company must be “screwed and finished totally,” he told an associate as they negotiated a massive bribe to Congolese court officials to guarantee that the Canadian company would lose control of its copper mine.

dan-gertler-3

President Joseph Kabila and Dan Gertler 

Within hours of that 2008 message, the businessman and his associate had arranged a bribe of $500,000 (U.S.) to judges and other officials in the Democratic Republic of the Congo, according to court documents released in a U.S. corruption case.

A day later, the Israeli businessman obtained assurances that Congolese officials would ensure the Canadian company would lose its court fight against a local takeover of the copper mine, the U.S. documents say. Then, a week later, the Israeli won majority control of the company and the valuable asset.

The documents were released on Thursday in the settlement of a corruption case against Och-Ziff Capital Management, a U.S. hedge fund that manages $39-billion.

Och-Ziff agreed to pay $412-million in criminal and civil penalties, one of the biggest payments ever approved under the U.S. Foreign Corrupt Practices Act.

The U.S. documents show the hedge fund paid more than $100-million in bribes to officials in Congo, Libya, Chad, Niger and Guinea – including Congolese president Joseph Kabila – to gain corrupt influence and mining assets.

……. The hedge fund, Och-Ziff, went into partnership with the Israeli businessman and was involved in using intermediaries and business partners to funnel large bribe payments to officials in Congo and other African countries, according to the U.S. Securities and Exchange Commission. Och-Ziff was directly involved in financing the businessman’s acquisition of Africo, including his “legal expenses” in the case, the U.S. documents say.

As I have noted here and here, the DRC is a cherished playground for thieves foreign investors who do not give a rats behind about the political, institutional, and economic consequences of their actions.

That said, Gertler would be advised to talk to Benny Steinmetz. There is a precedent of a change in leadership leading to repossession of a fraudulently obtained concession.

Kabila will not be in power in Kinshasa forever.

More on the Och-Ziff story here.

Political Developments in the DRC

Podcast: Renowned Africanist historian Crawford Young talks with Jason Stearns about politics in the Democratic Republic of Congo.

It looks like Joseph Kabila may be able to extend his stay in office at least until 2018. The constitution bars him from being in office beyond 2016.

The decision to extend Kabila’s stay in office is likely the beginning of a bloody phase in the DRC’s political saga. Opposition groups claim that at least 50 people have died since Monday in clashes with the army and police.

Kabila now joins his neighbors Paul Kagame of Rwanda and Denis Sassou Ngwesso of the Republic of Congo as the latest in a small but growing list of African presidents who continue to buck the trend by abrogating constitutional presidential term limits.

This should not come as a surprise to students of political development.

Leadership transitions are notoriously difficult to manage. Especially in relatively shaky states like the DRC. In case it is not obvious, there will not be any easy solutions to the current impasse. Kabila clearly has the support of a sufficient number of elites that want him to stay in power — primarily for their own benefit. Enough that they are willing to send in the troops to kill protesting civilians.

This means that moralizing about Kabila’s disrespect for electoral democracy will not work. It is not just Kabila on the hook here. His domestic elite-level allies and foreign business associates who pillage the DRC’s resources are also on the hook. And they can’t simply be wished away. Furthermore, the ghosts of the Two Congo Wars will likely inform any regional intervention to try and resolve the constitutional crisis. Nobody wants to ignite more killings and instability.

Unfortunately for Congolese people, Kabila and his allies know this. And have revealed that they are willing to blackmail everyone into letting him stay in power.

On Predatory Investment in Africa’s Extractive Industries

The U.S. military’s African Center for Strategic Studies has a pretty interesting and detailed report on Sam Pa, his group of companies, and involvement in shady deals in the extractive sector in Africa. In Mr. Pa we have got the Hong Kong/Chinese equivalent of the shady Israeli billionaire Dan Gertler who’s playground is mainly the DRC (Global Witness has a thick dossier on Mr. Gertler; See also an FT piece on his partner, Benny Steinmetz, who recently got (figuratively) burned after a too-good-to-be-true deal went sour in Guinea).

Focusing on Mr. Pa and his business network in several African states, the ACSS report examines the networks and (corrupt) practices of the Hong Kong-based 88 Queensway Group. It outlines Mr. Pa’s business strategy as one based on:

Cultivating relationships with high-level government officials in politically isolated resource-rich states through infusions of cash, promises of billions of dollars in infrastructural development, and support for the security sector [….] Starting in Angola in 2003, Queensway has been engaged in the extractive industries in at least nine African countries, including Guinea, Madagascar, Tanzania, and Zimbabwe.

…… In many ways the prototypical predatory investor, Queensway frequently appears in resource-rich states in Africa where it can operate with high levels of opacity. In Angola and Zimbabwe, for example, few details from the contracts pertaining to Queensway’s investments—reportedly worth up to $9 billion in each country—have ever been disclosed to the public. In states where contracts have been unearthed, such as Guinea and Tanzania, the deals were revealed to be flagrantly unfavorable to the citizens of the host country. Having allegedly bribed African government officials and engaged in illicit arms trafficking and diamond smuggling, Queensway’s deals in Africa have often had a disastrous impact on governance.

You can download the full report here.

HT Financial Times

Quick random hits

 

1. As usual, great career advice for those in the academy from Chris Blattman.

2. Boring Development asks some interesting questions re RCTs, and questions the internal validity assumption many of them trumpet. Which raises the question, if RCTs are cannot guarantee internal validity can results so obtained be useful for policy development? My general response here is that not all RCTs are useful for policy development. The obvious incentives to publish clearly skew the design and implementation of studies in a way that makes only a fraction of them useful for policymakers (the IRB process notwithstanding). But all things considered, randomistas have probably made the world a better place.

3. An unfolding case in Guinea could drastically change what is permissible in the process of acquiring concessions from dubious governments. Benny Steinmetz of BSGR bought the Simandou concession in late 2008 during the last days of the administration of ailing dictator Lansana Conte (allegedly with the help of Mr. Conte’s fourth wife). According to FT, BSGR spent a mere $160m for the rights to mine in Simandou. Less than two years later, the company sold 51% of its rights to the Brazilian mining giant Vale for $2.5 billion, $500m of which was in cash. Last week a government committee investigating the Conte-BSGR deal found evidence of corruption and recommended that BSGR and Vale be stripped of their rights to Simandou. If the ruling sticks, lots of contracts in several resource rich states in Africa will become open for legal review thereby drastically lowering the costs of renegotiation (even for the dictators who singed them).

Resource Dependence in Africa (with some thoughts on Mozambique)

Source: The World Bank

Source: The World Bank. Click on image to enlarge  

This map shows resource rents as a share of GDP for the period 2009-2013. Note that the colouring on the map is about to change, with the Indian Ocean east coast getting some of the hydrocarbon action that has hitherto been a preserve of the Atlantic coast and a couple of landlocked states like Chad, Sudan and South Sudan (The biggest change in West Africa will most likely be in Guinea once the mining of its high grade iron ore in the Simandou Mountains gets going. A few contractual and logistical hurdles still stand in the way of the mega mining project).

The eastern African states of Kenya, Uganda, Tanzania and Mozambique are about to get a shade or more redder. Kenya and Uganda will start producing oil between 2016-17. Tanzania and Mozambique have massive amounts of natural gas, with Mozambique having recently climbed to top four in the world with a capacity to meet total global demand for more than two years.

As you may have guessed Mozambique is by far the country to watch out for as far as the ongoing eastern African resource bonanza is concerned. The country will continue to see a rapid rise in coal production, ultimately producing an estimated 42 million tons in 2017. Mozambique’s Gold production is also expected to more than triple by 2017 relative to its 2011 level. Estimates suggest that based on the full capacity exploitation of coal and gas alone the Mozambican economy could rise to become SSA’s third or fourth largest (after Nigeria, South Africa and (or ahead of) Angola). Going by the 2012 GDP figures from the Bank, that would be a change from US$14 billion to about $114 billion.

Have you enrolled in Portuguese classes yet?

As Mozambique gets wealthier in the next five years at a vertiginous pace, it will be interesting to see if it will go the Angola way. Both are former Portuguese colonies that had drawn out civil wars. Both tried to have democratic elections but then the ruling parties managed to completely vanquish the opposition. And both continue to be ruled by overwhelmingly dominant parties that appear to have consolidated power.

My hunch is that Mozambique is different, as FRELIMO is less of a one man show than is the MPLA. Indeed FRELIMO just selected a successor to Guebuza, the Defense Minister Filipe Nyusi (Nyusi’s background in engineering and the railway sector should prove useful for the development of the country’s coal industry).

The Tanzanian model of dominant/hegemonic party with term limits appears to have spread south. And that is a good thing. The other African country that appears to be embracing this model is Ethiopia (I think I can now say that the Zenawi succession was smooth and that Desalegn, also an engineer, is credibly term limtied).

Kampala, Kigali and Yaounde should borrow a leaf from these guys (that is, as a second best strategy given that their respective leaders do not seem to be into the idea of competitive politics).

For more on the politics and management of natural resources in Africa see here, here and here.