It’s not just the Guptas shut out by banks
If you think it’s just the Guptas struggling to keep their bank accounts open, think again
Standard Bank has closed bank accounts belonging to multinational commodities giant Eurasian Resources Group (ERG), as alarm bells ring over a suspicious US$8m payment made to the Democratic Republic of Congo (DRC)’s state mining company.
This case illustrates that banks do often “fire” clients — it just doesn’t hit the headlines as it did when all four major SA banks recently told the politically influential Gupta family it would shut their accounts.
The payment also suggests that ERG, which is Kazakhstan’s largest mining company and the world’s largest producer of ferrochrome, may not have quite left its sordid past behind. Its predecessor, Eurasian National Resources Corp (ENRC), delisted from the London Stock Exchange in 2013 under a cloud involving suspected kickbacks in the DRC.
Now, even though new CEO Benedikt Sobotka has pledged a new, “ethical” company, the payments to Gecamines, a mining company owned by DRC president Joseph Kabila’s government, raise new questions.
A payment receipt from Standard Bank Mauritius on January 8 shows that $8m was paid from a company called Metalkol Sarl with “Gecamines” as the beneficiary. The reason given for this payment seemed odd: it was described as “a royalty prepayment”.
Metalkol is now 70%-owned by ERG and 30% by Gecamines. It scored the mining rights to the lucrative Kolwezi copper and cobalt reserves in 2009, in circumstances that smack of corruption.
Metalkol ended up with the mining rights only after the incumbent, Canadian miner First Quantum, was stripped of those rights by Kabila’s government. The man who came out smiling was Dan Gertler, a 42-year-old Israeli mining magnate close to Kabila, who has been described in a UK newspaper as the “personification of all that is wrong in the Western stampede for diamonds, copper and precious minerals in Africa”.
Immediately after First Quantum was booted out, Gertler’s Highwind Properties — registered in the British Virgin Islands tax haven — snapped up 70% of Metalkol for just $60m. Gecamines retained 30%.
Anticorruption watchdog Global Witness estimated that a 70% stake was worth $2.6bn — multiples of what Gertler paid. Global Witness described this as another case of the president’s friend snapping up “prize mining assets at steeply undervalued prices, and quickly selling them on to ENRC for huge profits”.
Just a few months later, Gertler sold half his Metalkol stake to ENRC for $175m. In 2012, he sold the rest to ENRC for $550m.
The upshot: Gertler theoretically “paid” $60m for a stake he subsequently sold for $725m within three years.
It is deals like this which led Kofi Annan’s Africa Progress Panel to conclude that Congolese citizens lost out on $1.3bn — twice the country’s health and education budgets — as mining assets were secretly sold cheaply.
In this context, the $8m payment through Standard Bank raised huge red flags.
One lawyer close to the case says a “prepayment” for potential royalties is highly suspicious: “Where have you ever heard of a government company getting this? In the old days, these sorts of payments were disguised as ‘consulting’ or ‘facilitation fees’.”
But when contacted by the Financial Mail, ERG Africa’s chief financial officer, Leon Lombard, said there was nothing untoward at all about this payment.
“In terms of Highwind’s joint venture, Gecamines is entitled to royalties once Metalkol is operational. A delay in commencing Metalkol operations impacted Gecamines financially, and it was agreed that partial royalty payments would be brought forward,” he said.
But the insider scoffed at this argument. “Gecamines is owned by government. Why would it be so short of cash it needed a prepayment for royalties that should only be paid from profits when something is sold? Just think about it for a second,” he said.
Lombard said all payments to any shareholders of any project, including Metalkol, “would be well-documented and supported by our banks”.
However, it seems that Standard Bank, for one, may be less convinced about ERG’s track record. Last July, the bank began “discussions” with ERG about potentially closing its accounts, according to confidential bank documents. Then, in March this year, the bank sent a letter to Lombard titled “Termination of bank account” relating to one of the companies in the ERG group.
In it the bank advises of the “discontinuance of the Standard Bank relationship” and says “all accounts and all services” will be terminated within 30 days. “We apologise for any inconvenience,” it adds.
Though asked about Standard Bank, Lombard did not say why it had closed the account. But he said that ERG “continues to enjoy working relationships with several banks across Africa, and we are able to trade in all of the countries where we operate”.
Asked about this, a Standard Bank spokesman said client confidentiality forbids it from commenting. However, it is understood that ERG may have since taken Standard Bank to court over its decision, according to senior banking sources.
One of the things that will have spooked the bank is that ERG is still the subject of a long-running criminal investigation by the UK’s Serious Fraud Office relating to its African business. That probe is centred on how it was that Gertler got the mine at such knock-down prices from Kabila’s government and then flipped it on to ENRC for many multiples of that within months.
Gertler, who admits his relationship to Kabila, rejects the suggestion he did anything wrong. “The idea that [my company] acquired mining assets at prices below their real value is incorrect and does not take into account the considerable capital expenditure required to bring these assets to full production . . . There is a considerable amount of risk attached to these investments,” he told Global Witness a few years back.
Lombard reports to the German-born Sebastian Buchte, a man who news reports say was arrested and deported from SA in 2014 for working “without a work permit”.
Zimbabwe’s Daily News reported that Buchte had “made a run for it” when confronted by SA’s department of home affairs, but was later arrested and deported. Lombard confirmed to the Financial Mail this week, however, that Buchte now “holds a valid work permit for SA”.
All told, this drama playing out in SA is the last thing that Sobotka will want as he seeks to buff ERG’s soiled image. At the Mining Indaba in February, he spoke of ERG’s “strong ethical standards” and boasted of how the company was working with the World Economic Forum to “improve and implement ethical standards for the industry”. Last year, speaking of the culture, Sobotka told the Financial Times that “the old ENRC is gone. It doesn’t exist.”
If that’s so, the suspicious payments to the DRC government suggest that nobody has told its African partners. Rob Rose roser@fm.co.za