GLNCY Glencore Plc (PK)

By Scott Patterson and Rebecca Davis O'Brien 

American authorities are probing ties between Glencore PLC and an Israeli diamond merchant, according to people familiar with the matter, embroiling the mining giant in foreign and U.S. investigators' deepening scrutiny of the gem trader.

On Tuesday, London-listed Glencore said it received a subpoena from the U.S. Department of Justice, demanding records related to its compliance with American antibribery and money-laundering laws in the Democratic Republic of Congo, Nigeria and Venezuela.

Glencore didn't provide details and declined to comment more broadly on the subpoena.

In Congo, U.S. investigators are focused, at least in part, on Glencore's ties with Dan Gertler, the diamond merchant and a former co-investor with Glencore in two Congolese mining operations, according to the people familiar with the situation. A spokeswoman for the Justice Department declined to comment on the probe.

In December, the U.S. Treasury Department sanctioned Mr. Gertler, alleging he traded on a friendship with Congo President Joseph Kabila to amass a fortune through "opaque and corrupt" deals on behalf of multinational companies seeking to do business in Congo. Mr. Gertler has repeatedly denied wrongdoing. Through a spokesman, he has declined to comment on the Treasury allegations and the Justice Department probe.

Apart from Glencore's previous investments with Mr. Gertler in Congo, the company has said it is paying him royalties stemming from the mining operations. A company linked to Mr. Gertler also provided a host of services to at least one of Glencore's subsidiaries in Congo, according to a contract between the two reviewed by The Wall Street Journal.

Those services included maintaining relations with several local government offices, including the country's presidency and its mining ministry, according to the contract. The business relationship between Glencore's Congo operation and the Gertler-linked company hasn't been previously disclosed. Through his spokesman, Mr. Gertler declined to comment about the contract.

Glencore is one of just a few big Western miners that have positioned themselves to profit from Congo's copper and cobalt deposits. The country sits on about 60% of the world's known cobalt reserves. Prices for the metal, a component in cellphone and electronic-vehicle batteries, have soared on rising demand.

Mr. Gertler became a partner with Glencore in the 2000s as the two tried to gain a stake in the country's lucrative copper belt. Glencore and Mr. Gertler separately bought shares of Nikanor PLC, a company listed in London that owned a large copper mine there.

To expand, Nikanor's owners, including Glencore, sought to merge with another Congo mining company, Toronto-listed Katanga Mining Ltd. A tie-up between Katanga and Nikanor was sealed in January 2008, creating one of Congo's largest copper-mining companies.

In 2013, a subsidiary of Glencore-controlled Katanga Mining hired the Gertler-linked firm, De Novo Congo SPRL, according to the contract reviewed by the Journal. The contract was signed by Pieter Deboutte, which the document lists as De Novo's manager. Mr. Deboutte also managed Mr. Gertler's business in Congo.

Mr. Deboutte, who also served as president of the Gertler Family Trust, a charity in Congo, was sanctioned along with Mr. Gertler by the Treasury Department in December. Through a spokesman, Mr. Deboutte declined to comment.

The contract listed De Novo's address in the Congo capital of Kinshasa, an address it shared with Fleurette Group, Mr. Gertler's main company.

De Novo was paid $6 million a year by the Katanga subsidiary for a series of back-office services, including tax advisory and database administration, according to the contract. The contract also covers external-relations work, including "maintenance" of relations with local government offices including the Congolese presidency, the mining ministry, lawmakers and the judicial system, among other government institutions, according to the document.

The contract stipulates that De Novo shouldn't engage in any activities that violate anticorruption laws and that it would maintain "adequate procedures to prevent bribery," according to the document.

The agreement ended in early 2017, according to a person familiar with the arrangement. Last year, Glencore agreed to buy out Mr. Gertler, paying him nearly $1 billion for his stakes in Katanga and another jointly owned Congo operation.

The De Novo contract "allowed Glencore to rely on a businessman widely accused of bribery for its relations with government officials," said Elizabeth Caesens, director of Resource Matters, a Brussels nonprofit organization that focuses on dealings between mining companies and the government of Congo. That is likely to "raise red flags with investigators," she said.

U.S. authorities have previously scrutinized dealings between Mr. Gertler and his Western partners. In 2016, the Justice Department reached a $412 million settlement with New York hedge fund Och-Ziff Capital Management LLC, in which one of its units pleaded guilty to criminal charges related to its activities in Africa. In the settlement documents, the Justice Department accused Och-Ziff of working with an unnamed partner who it said gave Congolese government officials more than $100 million in bribes.

That person was Mr. Gertler, the Journal has previously reported, citing people familiar with the investigation . The Justice Department had weighed whether to charge Mr. Gertler, the Journal has reported, although the status of that investigation isn't clear. He has said he did nothing wrong.

The Journal reported last year that the Ontario Securities Commission, Canada's largest securities regulator, is separately probing more than $100 million in payments Glencore-controlled Katanga made to a separate company controlled by Mr. Gertler -- payments originally slated for Congo's state-owned mining firm, Gécamines SA.

Glencore says it diverted the payments at the request of Gécamines. Repeated attempts to seek comment from Gécamines weren't successful. A spokesman for Mr. Gertler's company said it follows all disclosure obligations.

Glencore disclosed in November the Canadians' investigation and said three Katanga Mining directors were stepping down, following an internal probe that found "material weaknesses" in the company's controls over financial reporting.

In response to the U.S. Treasury sanctions, Glencore said it cut financial ties to Mr. Gertler and halted tens of millions in dollars of royalty payments it still owed him. Mr. Gertler fired back with a lawsuit in Congo demanding more than $3 billion. In June, Glencore said it would resume the payments, saying it was its only viable option to avoid the risk of losing its copper mines in a legal battle.

Hours after Glencore disclosed its decision to resume payments to Mr. Gertler in June, the Treasury Department unveiled new sanctions on 14 entities it said were affiliated with Mr. Gertler.

Write to Scott Patterson at scott.patterson@wsj.com and Rebecca Davis O'Brien at Rebecca.OBrien@wsj.com

(END) Dow Jones Newswires

July 05, 2018 18:08 ET (22:08 GMT)

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