MAC: Mines and Communities

When a mining giant ignored censure by a London agency

Published by MAC on 2018-04-27
Source: RAID, OECD Watch, Guardian

London Calling special report

One of the biggest scandals on the London Stock Exchange (LSE) in recent years centred on the abrupt departure from the UK of a mining enterprise called Eurasian Natural Resources Corporation (ENRC).

And why it was forced to leave.

From the moment the company was listed on the LSE in 2007, it was promoted amidst London investors as a high-flying venture, governed by three honourable Kazakh oligarchs, backed by substantial wealth, and promising quick rewards from mineral-rich countries.

But these were states where environmental legislation was relatively weak, and the rights of local people, could be safely ignored, as revealed by one of its more recent projects in Brazil - one since apparently abandoned. partly due to concerted resistance (See: Communities call for ENRC withdrawal from Porto Sul).

Nor did its severing ties with the Stock Exchange in 2013 mean the company was breaking all ties with London, as the Guardian reported that year (see below).

However, over the following three years, ENRC's corrupt performance in the DR Congo - and notably its liason with the notorious Dan Gertler - merited the attention of the UK Serious Fraud Office; and drew allegations of human rights violations by a small Oxford-based NGO called RAID (Rights and Accountability in Development).

RAID's claims against ENRC (now called ERG) were submitted to the British National Contact Point for the OECD, which judged them to be valid in early 2016 (see article below).

While the due diligence of the agency is commendable - specifically in following-up its original report with a further evualtion - it still falls short of recommending that the UK government take punitive action against ENRC/ERG, as the Dutch and German governments are now committed to doing (see aticle below).

Moreover, as London Calling pointed out two years  ago, other London-listed mining companies such as Vedanta, are "still safely ensconced in the UK capital - despite a mounting list of its disregard for tribal communities" - one which grows longer by the week (see: ENRC fails to guarantee rights).

(London Calling is published by Nostromo Research, and its views are not necessarily endorsed by any other party; reproduction is welcomed under a Creative Commons licence)

Mining Giant ERG Ignored UK Government on Human Rights in DR Congo


23 April 2018
London – A British government assessment released today has found Kazakh mining giant, Eurasian Resources Group (ERG, formerly ENRC), flouted the rights of several thousand people living on its cobalt and copper concession in the Democratic Republic of Congo, depriving them of clean water and health care.

The assessment was published by officials at the UK National Contact Point (NCP) - a UK government body for the OECD Guidelines for Multinational Enterprises based at the Department for International Trade.

The UK NCP took up the case after London-based corporate watchdog, Rights and Accountability in Development (RAID), and its Congolese partner, Action contre l’impunite pour les droits humains (ACIDH), brought a complaint against the company in May 2013 on behalf of local communities at Lenge and Kisankala. Both villages are on one of ERG’s concessions in Lualaba Province, formerly Katanga.

When the complaint was first brought, ENRC, as it was then called, was listed on the London Stock Exchange and registered in the UK. It delisted in scandal in November 2013 following reports of poor governance and unscrupulous deals, registering in Luxembourg as a private company under the name ERG.

“ERG seems to view the OECD Guidelines and the UK government’s recommendations on its human rights impact with contempt,” said Anneke Van Woudenberg, Executive Director at RAID. “ERG’s failure to respect the most basic human rights indicates it has little interest in improving the lives of thousands of Congolese harmed by its mining operations.”

Lack of reliable access to clean water was one of the main issues raised in the complaint. The company was aware that water supplies for the villages had been contaminated by previous mining activities and that those who lived there, many of who are subsistence farmers or artisanal miners, had few financial means. 

The new assessment follows an earlier 2016 report in which the UK government found ERG’s predecessor, ENRC, had failed to address human rights impacts at mine sites under the control of its subsidiaries in Congo, had not engaged effectively with local communities and had not adequately addressed community’s right to safe drinking water. It set out four recommendations the company should adopt and said the UK government would assess implementation in February 2017. 

Although ERG had over a year to comply with the recommendations, RAID and ACIDH reported that ERG had taken few steps to remedy the situation in the villages. The NCP noted in its assessment that ERG had only started to act on the recommendations several months after the initial deadline had expired. Last week, ERG sought to delay publication still further.

The Findings:

In its assessment, based on ERG’s self-reporting measured against feedback from the affected communities obtained by RAID and local Congolese partners, the UK NCP found ERG had:

* Failed to ensure that clean water would be supplied to the local communities. As the assessment notes: “Without any clear guidance or agreed process on how it will be managed in the future, the issue of a permanent water supply is only partially resolved and remains an outstanding obligation.”

* Failed to live up to its requirement to keep the communities informed of the conduct of its staff and security contractors on the site. A consultation process has begun, and rules drawn up but – as the assessment puts it – “…they are still in a draft form and have yet to be enforced.”

* Failed to establish any meaningful development projects to assist people in Lenge. Although company officials belatedly held meetings with some local leaders, the assessment notes that: “no concrete decision had been arrived at to ensure the village had an operational school or health centre.”
Richard Ilungu from AFREWATCH, a Congolese group supporting the communities, said: “The population has nearly lost hope that ERG will ever act to improve their living conditions. They know cobalt is in high demand on the world market, but see few benefits for their communities.”

The NCP complaints process allows the UK government to find a company has breached the OECD Guidelines, but does not provide for any repercussions. RAID and other civil society groups continue to urge the UK to introduce tangible consequences for companies who fail to implement the NCPs’ recommendations.

The UK NCP’s recent findings are in sharp contrast to statements made by ERG’s Executive Director, Benedikt Sobotka, who has sought to draw a line under the company’s previous scandals and says he wants to raise ethical standards. At the Africa Mining Indaba in 2017, Sobotka said ERG “continue[s] investing not only in our own businesses, but in fuelling infrastructure growth and improving the health, wealth and well-being of the communities where we operate.”

“Words about improving the lives of local communities are meaningless if ERG managers take no concrete action to implement standards that govern corporate behaviour,” Van Woudenberg said. “ERG should take immediate steps to fully implement the UK government’s recommendations, compensate victims for any harm done and commit that in future it will adhere to international human rights standards in its operations in Congo and elsewhere.”

Corruption Investigation

The criticism of ERG’s human rights record is the latest allegation of serious misconduct levelled at the renamed company. In April 2013, the UK’s Serious Fraud Office opened a criminal investigation into bribery and corruption by then ENRC officials, including in relation to the company’s acquisitions in Congo.

Notorious Israeli businessman, Dan Gertler, who orchestrated deals leading to ENRC’s acquisition of its mines in Congo, is part of the investigation, according to an SFO letter leaked to the press. In September 2016, the US authorities charged and fined Och-Ziff, the hedge fund which had backed some of Gertler’s Congolese acquisitions, including his deals with ENRC. Och-Ziff paid $412 million in combined civil and criminal penalties for admitting its role in bribery and corruption, one of the largest fines on Wall Street. Transactions with ENRC, which were part of the “DRC Corruption Scheme,” are readily identifiable in legal documents released by the US Department of Justice. The SFO’s corruption investigation into ENRC continues.
Gertler and his companies were sanctioned by the US Treasury in December 2017 as part of clampdown on human rights abusers and corrupt actors.

According to the US Treasury, Gertler amassed his fortune through “hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in [Congo].” It estimated that between 2010 and 2012, Congo “reportedly lost over $1.36 billion in revenues from the under- pricing of mining assets that were sold to offshore companies linked to Gertler.”


Message to: OECD Watch contacts
24 April 2018

We would like to call your attention to a new statement by the United Kingdom NCP, which evaluates a company’s implementation of recommendations from an earlier specific instance.
In 2016, the United Kingdom NCP found that Kazakh mining giant ERG (then ENRC) had failed to meet its obligations under the OECD Guidelines with regard to respecting the rights of thousands of residents living on its mining concession in the Democratic Republic of Congo. A new follow-up statement by the UK NCP finds that ERG has failed to fulfil any of the recommendations given by the NCP.
OECD Watch commends the UK NCP for preparing this follow-up evaluation. The fact that the UK NCP’s recommendations are not being implemented effectively underscores the need for all NCPs to conduct follow-up evaluations.
The case also demonstrates the need for governments to apply material consequences to companies that fail to comply with the Guidelines. Consequences are one of the key demands of OECD Watch’s Remedy is the Reason Campaign.

As an example, the Dutch and German governments are now requiring companies to comply with the Guidelines in order to participate in trade missions. Without consequences, companies like ERG can continue to ignore the OECD Guidelines and NCP statements with impunity.

OECD Watch is a network with over 100 members in 55 countries, hosted by Dutch NGO, Somo

Curious tale of the central Asian oligarchs and the City of London

Mining firm ENRC bids farewell to the Stock Exchange but its Uzbek and Kyrgyz creators are here to stay

Simon Goodley and Mark Hollingsworth

22 November 201

It is May 2010 at Monaco's vast Le Sporting banquet hall, where 800 guests have responded to an invitation from one of central Asia's most powerful, and secretive, oligarchs.

The host has packed the venue's gardens with white roses and arranged for entertainment from the singer Jennifer Lopez and French DJ David Guetta.

Several guests execute an impromptu lezginka, a traditional dance from the Caucasus, and a crowd forms to shower them with $100 and €100 bills, a sign of the donors' respect, which is then paid to the musicians.

The grand celebrations have been arranged to mark the wedding of one Sabir Chodiev, the son of Patokh Chodiev, 60, an Uzbek businessman whose then £1.85bn fortune had largely been secured with two Kyrgyz business partners in resource-rich Kazakhstan.

The timing of the wedding just about coincided with the zenith of the worldwide boom in commodity prices and the whole event is estimated to have cost Chodiev around £6m, a fifth of which went on Lopez's one-hour turn.

Those were better times in the world of Patokh Chodiev – plus his two business partners, Alexander Machkevitch, 59, and Alijan Ibragimov, 60 – a trio who largely became known in the City because of their links to a painful hit to many UK savers' pension pots.

After floating their mining company, Eurasian Natural Resources Corporation (ENRC), on the London Stock Exchange in 2007, the company's shares were quickly propelled into the FTSE 100 and, therefore, into many British pension funds.

But the past two years have seen persistent allegations of corruption against the company, along with a string of corporate governance rows, and the shares have crashed, prompting the trio to take the company private again. When the stock market closed on Friday evening the shares, which have fallen by 85% from their peak, were traded publicly for the last time.

So is London bidding farewell to the trio, whose company was dubbed "more Soviet than City" by Ken Olisa, a former non-executive director who was ousted by the three founders? Probably not.

ENRC may be disappearing from the London Stock Exchange, but the professional and personal lives of the tycoons link them inextricably to the UK.

One of their main businesses, private firm International Mineral Resources (IMR), is run out of London, several of their legal scraps are still being fought here, while ENRC continues to be investigated by the Serious Fraud Office for "fraud, bribery and corruption".

Lavish properties in the most exclusive parts of the capital continue to be owned by the businessmen, while among the diverse collection of London names touched by the oligarchs are Miriam Gonzalez, the lawyer and wife of deputy prime minister Nick Clegg; the steel billionaire Lakshmi Mittal; and the British artist Damien Hirst.

The tycoons' partnership was conceived in Kyrgyzstan, one of central Asia's poorest countries to the south of Kazakhstan, where Machkevitch and Ibragimov grew up.

The pair are thought to have met at a wedding in 1971 but pursued separate careers, as Chodiev worked in Japan for the Soviet ministry of foreign trade.

But by the late 1980s, in a move that has never been explained, they came together during the early stages of perestroika. Machkevitch and Ibragimov are believed to have moved to Moscow in 1987 to trade everything from scrap metal to iron ore, aluminium and oil.

Chodiev joined them two years later, with much of the trio's business being conducted in Kazakhstan, a market they knew well.

From there, they gained control of newly privatised chromium, alumina, and gas operations in Kazakhstan, creating partnerships (and eventually feuds) with some of the pioneers of early post-Soviet capitalism, including the London-based Reuben brothers and the metals trader Lev Chernoy.

Quite how this transformation was achieved remains unclear. Observers of the period say anybody could succeed in Kazakh business if they enjoyed powerful sponsorship, which explains the tales of alleged sweetheart deals with Kazakhstan's president, Nursultan Nazarbayev, and of charging "special commissions" to the Mayfair-based Mittal for acting as intermediaries to the Kazakh elite.

A spokesman for the trio would not comment on the payments, while Mittal's spokeswoman has denied the payment was a commission.

What is known for certain, however, is that from the chaos of the 1990s, the trio grew a substantial business, part of which became ENRC.

But by the time that company floated in 2007, some of their wealth had already arrived in Mayfair. In 2005 a British Virgin Islands-based company associated with Machkevitch paid £14.5m for a palatial three-storey Georgian mansion in one of London's most opulent squares.

Five years earlier, Chodiev bought his £10m penthouse in a glass-fronted development near London's Vauxhall Bridge, that boasts a 24 hour concierge service, residents' gym and secure underground car park.

Two Mayfair properties are registered to a company run by Chodiev's daughter Mounissa Chodieva, head of ENRC's investor relations.

A two-mile stroll north to Portman Square brings you to the offices of Amre Youness, who runs the trio's private mining business IMR.

Youness has married into the Heinz family, and so is related by marriage to US secretary of state John Kerry.

But despite his high-level links, IMR's private status has meant the company has been far less visible than ENRC.

Even so, the firm has attracted controversy. It sold ENRC a business that the listed company's former lawyers say may have made "cash payments to African presidents", while IMR is accused in the Dutch courts of "blatant fraud, exacerbated by bribery" by Russian fertiliser group EuroChem. IMR denies the accusations. ENRC and the trio deny all allegations of bribery and corruption.

Meanwhile, the oligarchs are furious at how they believe they have been treated by the City, arguing they have spent millions on lawyers and bankers in order to meet London compliance standards, only for their shares to slump. One close associate says: "They've been mugged by the City."

That anger is being played out against Dechert, the law firm that raised the allegations about payments in Africa, which ENRC is suing for allegedly overcharging for an internal corruption investigation.

The lawsuit names Clegg's wife, Gonzalez, who worked on the project. Dechert did not comment.

That case follows ENRC's pursuit of its former director, the City grandee Sir Paul Judge, who it accuses of leaking company information to the media. Judge denies this and is suing for libel.

Meanwhile, potentially embarrassing details about the tycoons and their families are set to be aired elsewhere in London's high court, as ENRC's former head of corporate finance, Kirill Stein, is suing the trio for £17m in bonuses and interest he says they reneged on paying.

Stein also names as defendants three of the oligarchs' children – Chodieva, Alla Machkevitch and Dostan Ibragimov – all of whom have London connections.

Alla, along with her sister Anna, is a director of the London-based Machkevitch Foundation.

Anna is said to be one of the largest collectors of Damien Hirst: she has acquired pieces including butterfly wing mosaics, cabinets of manufactured diamonds and the signature Hirst "dots".

All of which means that – for now – London and the trio remain bound.

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