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)
Copyright (c) 2018 Dow Jones & Company, Inc.
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