Glencore's $200 Million Predicament: How to Handle Payments to Individual Under U.S. Sanctions
February 20 2018 - 5:27PM
Dow Jones News
By Scott Patterson
Glencore PLC is grappling with a thorny problem: whether it can
pay a former partner placed under sanctions by the U.S.
government.
The Swiss mining giant will owe up to $200 million in royalty
payments over two years to Israeli billionaire Dan Gertler, on whom
the U.S. Treasury Department placed sanctions in December for
alleged corruption in the Democratic Republic of the Congo,
according to a report Tuesday by Resource Matters, a Brussels
nonprofit organization that focuses on corruption issues in
Africa.
Mr. Gertler is a friend of Congolese President Joseph Kabila,
according to the Treasury Department. Mr. Gertler was a close
partner with Glencore as it built a dominant position in copper and
cobalt in a country where few Western mining firms work.
Investors and analysts often pepper Glencore, which reports 2017
financial results on Wednesday, with questions about its political
risk in Congo. A Glencore subsidiary already faces an investigation
by Canadian securities regulators into previous royalty payments
made to a company owned by Mr. Gertler in Congo.
The subsidiary owes Mr. Gertler's companies royalty payments via
a circuitous route. The payments were initially owed to Gecamines,
the country's national mining company, but Gecamines has asked
Glencore to divert the payments to Mr. Gertler to pay back loans he
had made to the state company, according to Glencore, Gecamines and
Mr. Gertler.
The U.S. Treasury Department sanctions prohibit U.S. firms from
working with Mr. Gertler and a number of companies associated with
him. The Treasury accused Mr. Gertler of amassing a fortune through
"opaque and corrupt mining and oil deals."
A spokesman for Fleurette Group, Mr. Gertler's main company
working in Congo, declined to comment. In the past, Fleurette has
vigorously denied corruption charges from the U.S. government.
Glencore, which isn't accused of corruption, declined to comment
on payments it could owe Mr. Gertler. But Glencore said U.S.
sanctions on Mr. Gertler and the company's continuing financial
obligations to him present a challenge that it is still figuring
out.
"Glencore is still considering its position in relation to its
pre-existing contractual obligations to companies owned by Mr.
Gertler," the company said.
While Glencore is a Swiss company, U.S. sanctions are
significant because the company's extensive ties to the U.S.
financial system could be affected if it continued working with Mr.
Gertler. The company said it has suspended its ties to Mr. Gertler,
whose stake in two Congo mining operations Glencore bought out for
about $1 billion in January 2017.
The Treasury Department didn't respond to a request for
comment.
Glencore "is in limbo," said Elisabeth Caesens, director of
Resource Matters and the author of the report. "If it keeps paying
the royalties, it risks U.S. sanctions. If it stops, it risks
upsetting a businessman with strong political connections in the
Congo," she said.
Gecamines has declined to comment on the royalty payments and
its relationship with Mr. Gertler. The state-owned firm has
recently begun ramping up pressure on mining companies operating in
Congo, alleging that they have manipulated costs and production
figures, resulting in lower payment to the government.
The royalty payments to Mr. Gertler have been a recurring
problem for Glencore. The Wall Street Journal in July reported that
the Ontario Securities Commission is investigating more than $100
million in payments that one of Glencore's Congo copper-mining
subsidiaries made to Fleurette. The investigation stems from
payments that the subsidiary, Katanga Mining, was expected to make
to Gecamines, but instead diverted to Mr. Gertler's company.
Glencore has said the shift in payments, which began in 2013,
was done at the request of Gecamines. The money was shifted to Mr.
Gertler to pay back a $196 million loan that Fleurette made to
Gecamines in 2013.
The Ontario Securities Commission didn't respond to a request
for comment.
Mr. Gertler was also a central figure in a $412 million
settlement in September 2016 between the U.S. Justice Department
and the Securities and Exchange Commission with New York hedge fund
Och-Ziff Capital Management Group LLC. The Justice Department
alleged in a criminal case that Och-Ziff went into business with
Mr. Gertler despite a consultant's warning that he used political
connections in Congo to benefit himself and his associates.
Mr. Gertler hasn't been charged. His spokesman has denied the
Justice Department allegations. Congolese government officials
haven't responded to requests for comment. Daniel Och, chairman and
chief executive of Och-Ziff, has said the firm's conduct
scrutinized by the Justice Department was "inconsistent with our
core values."
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
February 20, 2018 17:12 ET (22:12 GMT)
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