Glencore resumes payments to dodgy Dan Gertler as it clings to DRC mines

JOHANNESBURG — Doing business in the Democratic Republic of the Congo (DRC) is not for sissies. But when you start to potentially compromise your own ethics and better judgement in order to keep a business going in that part of the world, you then have to ask yourself some seriously tough questions. And it’s tough questions that Glencore may have to pose to itself as the company plans to resume payments to controversial Israeli-middleman Dan Gertler. This is a man who finds himself uncomfortably cosy with the president of the DRC while he has also been sanctioned by the US. Meanwhile, the UK’s white-collar crime prosecutor is preparing to open a formal bribery investigation into Gertler. – Gareth van Zyl 

By Tom Wilson

(Bloomberg) – Glencore Plc, the world’s biggest commodities trader, is testing the limits of U.S. sanctions.

The company has moved to resume payments to its longtime partner in the Democratic Republic of Congo, Dan Gertler, without public approval from U.S. authorities, as part of an effort to keep access to valuable mining assets. The deal came days after a $150 million settlement with Congo’s state-owned miner and debt restructuring of Glencore’s local subsidiary.

File photo: Billionaire Dan Gertler poses for a photograph in his office at the Israel Diamond Exchange in Ramat Gan, Israel, on Tuesday, June 12, 2012. Photographer: Simon Dawson/Bloomberg

Glencore called the payments to Gertler “the only viable option to avoid the material risk of seizure” of its Mutanda Mining Sarl and Kamoto Copper Co. assets in Congo. The mines are among the richest in copper and cobalt, and a key part of Glencore’s strategy of profiting from the rise of battery materials to supply electric cars.

The payments to Gertler will be made in euros through a non-U.S. financial institution, according to a statement on Friday. A spokesman said Glencore discussed the matter with U.S. and Swiss authorities, but declined to confirm whether the U.S. Treasury had given assurances that it will not pursue secondary sanctions.

‘Residual Risks’

Glencore appears to have extinguished the immediate threat to its assets in Congo, according to Tyler Broda, an analyst at RBC Capital Markets.

“Should there be any residual risks from paying this, in effect,‎ Glencore has managed to move the dispute from Congolese courts to U.S. courts,” he said in a report.

The company’s shares slipped 0.6 percent to 396.10 pence as of 9:16 a.m. in London.

Flag map of the Democratic Republic of Congo

Gertler, the heir to a diamond fortune, has attracted scrutiny for his friendship with President Joseph Kabila and allegations of bribery in mining asset sales. He was sanctioned by the U.S. in December.

Through his elite connections and appetite for risk, Gertler built a sprawling portfolio of assets, including many of Congo’s most valuable mines and oil licenses. Though he’s exited many of those investments, he continues to fly to Kinshasa most weeks from his home in Tel Aviv.

The U.K.’s white-collar crime prosecutor is preparing to open a formal bribery investigation into Glencore’s dealing with Gertler in Congo, people familiar with the matter said last month.

Glencore was in a difficult position of whether to deal with Gertler. It is contractually obliged to pay him mining royalties. In April, Gertler won a court ruling in Congo to freeze assets worth almost $3 billion, leading to speculation that he could disrupt and even take over Glencore’s operations in the country.

Gertler will now receive about 25.6 million euros ($29.7 million) in royalties from its Mutanda mining operation this year. Royalties from the Kamoto project, also known as KCC, will not be owed until 2019 due to previous advance payments.

Glencore must not pay millions to sanctioned individual

Global Witness media release:

Glencore today announced it will resume paying royalties to notorious Israeli businessman Dan Gertler, despite the US Treasury designating him a sanctioned individual at the end of 2017. Unless the US responds by enforcing its sanctions, Glencore’s decision will show that big business can ignore even a US executive order and suffer no consequences.

“Global Witness has consistently warned about the risks of partnering with Dan Gertler, but for years Glencore defended that partnership. Getting around sanctions and paying Gertler millions for years on end is not an acceptable solution to this dispute. US authorities must hold Glencore accountable when those payments to Gertler resume,” said Campaign Leader Peter Jones.

The sanctions, imposed in response to Gertler’s “corrupt mining and oil deals”, prohibit US companies or individuals from doing business with him or companies majority owned by him. Companies outside the US that do business with Gertler also risk being fined or even sanctioned.

Gertler, a close friend of Democratic Republic of Congo’s President Joseph Kabila, owns the rights to contractual payments from two Glencore-owned mines in Congo. Those rights are worth tens of millions of dollars per year, but payments were temporarily halted following the sanctions. Glencore now plans to pay Gertler in euros, rather than US dollars.

“The payment of tens of millions of euros to Gertler’s company is a brash test of the resolve of US authorities to uphold their sanctions. Glencore is trying to carry on business as usual by getting around the anti-corruption measures of the world’s biggest economy. If Glencore gets away with these payments it sends a dangerous message that huge companies can act with impunity to protect their business interests,” notes Jones.

“It is time for the relevant authorities to investigate Glencore’s deals with Gertler in Congo. Glencore’s resumption of royalty payments, despite US sanctions, shows the impunity with which some major companies are able to operate. This could send a dangerous message that big business is potentially above the obligation to respect sanction regimes,” he adds.

The news comes at a time of significant political instability in Congo. Elections due to be held in November 2016 have been repeatedly delayed, sparking widespread protest at the prospect of President Kabila ignoring the constitution and standing for a third term. Congo’s political crisis is likely to worsen as it approaches the new December 2018 deadline for elections. Glencore’s decision to resume royalty payments means that it is now enriching an individual close to the president; a fact highlighted by the US Treasury, which said that Gertler had “acted for or on behalf of Kabila”.

Both Gertler and Glencore have consistently denied any wrongdoing in their business deals in Congo.

Notes to Editors
  1. Glencore and Dan Gertler were partners in mining ventures in Democratic Republic of Congo for a decade, until Glencore bought out Gertler in a billion-dollar deal in February 2017.
  2. Gertler owns rights to royalty payments from the Mutanda mining project. In November 2015, Global Witness revealed that he had secretly acquired the rights to royalty payments from Glencore’s other mining outfit, KCC.
  3. Gertler was sanctioned in December 2017 under the global Magnitsky Act for making a fortune out of “opaque and corrupt mining deals in the Democratic Republic of Congo”. The US treasury also said he used his close friendship with Joseph Kabila to “act as a middleman for mining asset sales in the DRC, requiring some multinational companies to go through [him] to do business with the Congolese state”.
  4. As a result of the sanctions, Gertler is now unable to visit the U.S., to access his assets held within U.S. jurisdiction, or to engage in transactions (exchange of money, goods or services) with any U.S. entity. Any company owned 50 percent or more by him or his companies is automatically sanctioned — whether or not it is on the list. U.S. authorities can also choose to sanction a company owned less than 50 percent by Gertler, if they determine that he exerts control. Any individual or company, even outside the U.S., that does business with Gertler risks being fined or even sanctioned by the U.S. Office of Foreign Assets Control (OFAC). In extreme cases they may become the subject of a criminal investigation by the U.S. Department of Justice, not to mention the reputational risk of doing business with a sanctioned individual.
  5. Global Witness has reported on Glencore’s deals with Gertler since 2011, calling into question how the commodities trader has enriched Gertler and protected his interests in mining deals.
  6. In September 2016 the US hedge fund Och-Ziff admitted to its role in a bribery conspiracy in Africa and entered into a deferred prosecution agreement with the Department of Justice. Och-Ziff’s partner in Congo was described by US authorities as an “infamous Israeli businessman” and has been widely understood to be Gertler. US authorities’ evidence showed that Och-Ziff’s partner paid substantial bribes to Congolese officials as he sought access to mining rights. Gertler has not been charged in the case and the Wall Street Journal reported that Gertler’s spokesman has denied the allegations.