MAC: Mines and Communities

Canadian regulator fines Glencore’s Congolese Unit

Published by MAC on 2018-12-19
Source: Bloomberg, Reuters, statement

Glencore’s Congolese Unit Agrees to Settlement in Canadian Probe

By Jack Farchy

17 December 2018

Glencore Plc’s Congolese copper and cobalt unit has agreed to settle with Canada’s Ontario Securities Commission over an investigation into its accounting, the two sides said, without disclosing the terms of the settlement.

The settlement would also cover several current and former executives and directors at the unit, Katanga Mining Ltd., including Glencore’s head of copper trading Aristotelis Mistakidis, whose retirement was announced earlier this month.

The settlement agreement will be considered at a public hearing on Tuesday, according to separate statements from Katanga and the OSC on Monday. Mistakidis and two other Glencore executives stepped down as directors of Katanga last year after an internal review had found "material weaknesses" in its financial reporting controls.

Katanga, which is 86 percent owned by Glencore, said that it was required to keep the terms of the settlement agreement confidential until the hearing. The Wall Street Journal earlier reported that Katanga and the individual executives and directors would pay more than $22 million to Canada’s biggest stock market regulator.

In a separate document, the OSC set out its allegations against Katanga and the individuals. The document alleges that:

Canadian regulator to fine Glencore-controlled miner over Congo -WSJ

Reuters -

16 December 2018

Katanga boasts one of Congo’s biggest reserves of copper and cobalt. (Image: Musonoie-T17 open pit mine. Courtesy of Katanga Mining.)

A Glencore PLC-controlled mining company and some of its current and former executives have agreed to pay more than $22 million to settle Canadian allegations they hid the risks of doing business with an Israeli man close to Congolese President Joseph Kabila, the Wall Street Journal reported on Sunday.

The expected settlement between the Ontario Securities Commission and Toronto-listed Katanga Mining Ltd is related to the company’s business activities in the Democratic Republic of Congo between 2014 and 2016, the Journal reported, citing an anonymous source.

A Glencore spokesman declined to comment on the report.

The Canadian regulator is expected to name several of Katanga's current and former executives in the settlement and will focus on Katanga’s ties with Israeli businessman Dan Gertler, who first invested in Katanga alongside Glencore in 2008, the report said.

The settlement is also expected to allege that Katanga overstated copper production, understated mining costs and lacked proper internal financial controls, the report said.

(Reporting by Caroline Stauffer Editing by Paul Simao).

Glencore Billionaire Among Directors Banned, Fined by Canada

By Thomas Biesheuvel and Kristine Owram

18 December 2018

Glencore Plc’s billionaire head of copper trading, Aristotelis Mistakidis, was among executives fined and banned from being a director by Canada after admitting that its Congolese copper and cobalt unit misstated how much metal it mined.

Mistakidis, who is retiring from Glencore at the end of this year, was hit with a C$2.45 million ($1.8 million) fine and a four-year director ban in Ontario at a public hearing on Tuesday by Canada’s Ontario Securities Commission. Other Katanga Mining Ltd. directors including Liam Gallagher and its chief executive officer, Johnny Blizzard, were also sanctioned.

The punishment from the OSC is a response to false accounting from Katanga that saw it overstate how much it mined in the Democratic Republic of Congo in 2014. Glencore, which has come under intense pressure following a string of investigations into its dealings in Congo, owns 86 percent of Katanga.

The OSC previously said that Katanga overstated its copper production by about 8,000 tons in 2014 after the Glencore directors on its board "participated in instructing management" to report output at a certain level. It also said the company had failed to disclose the risks posed by its reliance on its partner in Congo, Israeli billionaire Dan Gertler, who was placed under U.S. sanctions last year.

Glencore is set to have a greater involvement in Katanga, with the companies planning to enter into a management agreement early next year. That will allow operations to be managed more effectively, they both said.

Glencore is “disappointed by the conduct that has led to today’s settlement,” it said in a statement. The world’s biggest commodity trader, which is also facing a corruption probe by the U.S. Department of Justice, said it had taken remedial actions in response to the conduct.

Breakdown of penalties and bans:

Katanga’s rose 1.8 percent in Toronto, rebounding from earlier losses. Glencore fell 1.6 percent in London.


Global Witness welcomes Canadian regulator ruling on Glencore-controlled company and executives

Global Witness statement -

18 December 2018

The Glencore-controlled mining company Katanga Mining has today agreed to pay USD $22 million to settle allegations by Canadian regulators that it had failed to comply with disclosure requirements, including that it had not properly described risks of doing business with a controversial middleman in Democratic Republic of Congo (DRC). Several of Katanga’s current and former directors and executives were also named in the case in what is a welcome step forward for accountability in natural resource governance, Global Witness said.

The Ontario Securities Commission (OSC) found that Toronto-listed Katanga Mining had failed to fully disclose the extent and risks of the relationship with the notorious Israeli businessman Dan Gertler. Gertler is closely linked to Congolese President Joseph Kabila and was sanctioned by the US government in 2017 for “opaque and corrupt”deals in DRC stretching back to 2010.

The OSC investigation focused in part on secretive payments worth tens of millions from Katanga to Gertler. Global Witness exclusively revealed those payments in a two-part exposé in November 2016 and March 2017. Our research showed that Katanga Mining had been redirecting contractual payments, originally meant for DRC’s state mining company Gécamines, to Gertler. We also revealed that since 2014, Katanga Mining’s stock exchange filings had omitted the identity of the recipient of royalties and signature bonus payments when the beneficiary was in fact Gertler. Within months of our publication, the Wall Street Journal reported that OSC had opened its own investigation.

“The details provided by Canadian authorities vindicate our concerns that Glencore’s Katanga Mining had failed to comply with rules by not disclosing that it was paying millions to Gertler, a known corruption risk. The picture painted by the Ontario Securities Commission indicates that Glencore used Gertler and his associates to manage relationships with the DRC government,” said Peter Jones, Campaign Leader at Global Witness. “This will be very awkward reading for Glencore management and should lead to further investigations,” he added. "Glencore’s joint-ventures with Gertler, were established as the company sought access to DRC’s lucrative copper assets, they lasted a decade until Glencore bought out Gertler in 2017"

The OSC said that three executives of Katanga’s gigantic parent company Glencore, who were on Katanga’s board, had been involved in conduct that “undermined” the company’s “corporate governance, internal controls and culture of compliance”. The most senior individual named was Aristotelis Mistakidis, formerly the head of copper for Glencore. The two other Glencore executives named were Liam Gallagher and Tim Henderson. All three men had stepped down from the Katanga Mining board in November 2017 when the OSC investigation was confirmed by Glencore. Another four Katanga directors were named.

Each of the directors or executives named by the OSC paid an individual settlement and was banned for a period of time from acting as a director or officer of a publicly traded company in Ontario.

This ruling is a welcome first step towards holding Katanga Mining to account, but the payment made by the company is relatively small for the mega-rich Glencore group, a commodity trading multinational which ranks fourteenth in the world by revenue. Katanga’s payment of $22m also pales in comparison to the secretive payments the company directed to Gertler. Katanga paid a total of $146m in royalties and other payments to Gertler between December 2013 and July 2015, according to the OSC.

“These figures put the $22m payment in perspective and make it look less like real accountability and more like a slap on the wrist,” said Jones. “If there is to be real change in the way that Glencore and its subsidiaries operate, top management must be held accountable for the way these companies handle risk. It’s a first step forward when individual executives and directors have been named and receive some financial punishment, but there is further to go to achieve real accountability”, added Jones.

“Glencore is already facing an investigation by the United States into its business in DRC, so there may be more to come for the company and its executives. It is also one of the biggest companies on the London Stock Exchange – it’s urgent that the UK’s Serious Fraud Office also open an official inquiry into the company’s activities in DRC, otherwise London will lose credibility as a centre for business,” Jones continued.

Since 2011 Global Witness has raised concerns about the corruption risks of doing business with Dan Gertler. Glencore’s joint-ventures with Gertler, established as the company sought access to DRC’s lucrative copper assets, lasted a decade until Glencore bought out Gertler in 2017. The contractual payments have continued even since that buyout and despite Gertler being sanctioned by the US.

Glencore’s decision to pay Gertler in euros rather than dollars in order to work around the sanctions caused controversy this summer. Despite the reputational and legal risks involved in doing business with Gertler, the company is continuing as though it is business as usual. It is imperative that all payments to Gertler from Glencore and its subsidiaries are stopped immediately.

In the past Glencore has defended its deals with Gertler as a straightforward business partnership. Gertler has also rejected any suggestions of wrongdoing in his investments in DRC.


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