US$375 Million Rutile Deal Caught up in African bribery scandalAugust 25, 2017
A secret inquiry by listed Australian miner Iluka Resources has embroiled a leading Sierra Leone presidential candidate, a cabinet minister and high ranking officials in an international bribery scandal.
Fairfax Media can reveal that Iluka Resources uncovered the suspected bribe payments after it added one of the world’s largest Rutile mines to its portfolio via the takeover of the London listed Sierra Rutile Ltd for $375 million in December.
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The UK firm’s former chief executive is multi-millionaire London businessman and Sierra Leone presidential candidate John Sisay, one of the West African nation’s most powerful men.
Mr. Sisay, who is a cousin and close associate of President Ernest Koroma and who is touring Sierra Leone as he campaigns to become the country’s next leader, is at the centre of Iluka’s corruption inquiry. The probe threatens to impact the presidential campaign and, given the potential fallout, the fortunes of the Perth based Iluka.
Anti-corruption investigators in the UK and Sierra Leone are now examining the alleged corruption, with inquiries likely to take many months.
Bribes for licences
The alleged corruption includes allegations that Mr. Sisay oversaw bribe payments to senior government officials to secure mining licences inherited by Iluka. The impropriety was uncovered during a post-acquisition investigation commissioned by Iluka Resources and conducted by corporate lawyers’ Free hills. The inquiry has also implicated Sierra Leone cabinet minister Diana Konomanyi, after it was discovered that Sierra Rutile spent more than $50,000 to provide her with international flights. The potential fallout from the acquisition and subsequent inquiry looms as a nightmare for Iluka, despite the firm acting as a model corporate citizen in notifying international authorities of the suspected bribery as soon as it was detected. It also highlights the dangers of acquiring businesses in high risk jurisdictions.
Iluka risks prosecution, fines, the potential fracturing of its relationship with senior government figures in Sierra Leone and possible shareholder legal action.The revelations also thrust Australia’s struggling anti-foreign bribery regime back into the spotlight and highlight what some experts, senior police and companies say is a gaping hole in the system: the failure to provide a tangible benefit to companies who transparently and immediately disclose corruption discovered during an internal inquiry. Had it disclosed the alleged bribery in the US, Iluka would stand a greater chance of cutting a deal to avoid sanctions or prosecution, although under UK and Australian regimes, this is much harder.
In comments missed by the media but reported to the ASX in April, Iluka’s chairman Greg Martin – who also chairs Sydney’s desalination plant – hinted at the alleged corruption uncovered by the company.
Payments by presidential candidate
A Senate committee is examining why there has been limited disclosure, detection and prosecution of bribery involving Australian multinationals. Since 1999, Australian authorities have launched just two prosecutions with one of the cases – the details of which can’t be disclosed for legal reasons – mired in years of delays and legal challenges.
Several companies, including Rio Tinto, Leighton Holdings (now CIMIC), Getax, Sundance Resources, engineering firm SMEC and defence giant Tenix, have been implicated in the alleged bribery of heads of state or overseas officials but have not faced any charges. Much of this alleged improper conduct has been uncovered or exposed by Fairfax Media. Evidence uncovered by Iluka and forwarded to the UK Serious Fraud Office suggests payments authorized by Mr. Sisay were used to allegedly bribe senior mining officials to secure government approvals.
The Serious Fraud Office is also assessing documents that suggest Sierra Rutile paid for at least $50,000 in undisclosed international travel, including flights from Freetown to London, for Ms Konomanyi, the minister for Lands, Country Planning and the Environment. Ms Konomanyi is reportedly considering becoming Mr. Sisay’s running mate in the presidential campaign. In an exclusive interview, the director of Sierra Leone’s corruption commission, Ady Macauley, told Fairfax Media that he had launched his own bribery inquiry into Sierra Rutile’s activities. “We have written to the management of Iluka to tell them we have commenced an investigation. It can take many, many months and you can never predict what you might see,” he said.
Chairman hints at corruption
In comments missed by the media but reported to the ASX in April, Iluka’s chairman Greg Martin – who also chairs Sydney’s desalination plant – hinted at the alleged corruption uncovered by the company. He revealed the firm had ditched three exploration licences granted to Sierra Rutile “under circumstances inconsistent with Iluka’s Code of Conduct”. Those licences have been reapplied for “according to proper procedure”.
“Although these licences did not have value attributed to them during the acquisition process, and while the outcome of the re-application is not financially material to Iluka, the company considers it is vitally important to be ‘walking the talk’ in relation to expected standards of conduct.” Mr. Martin did not explicitly state the company was investigating bribery in Sierra Leone or had notified the SFO, although it is understood this is because Mr. Martin did not want to jeopardize ongoing investigations. Iluka has mineral sands mining operations in Australia, Sierra Leone and in the US. Rutile is a material used in paint, plastics and sunscreen and the firm acquired by Iluka has been touted as a major success story in a country blighted by poverty, civil war, corruption and the infamous ‘blood diamonds’ trade.
Mr. Sisay, a former student union president of London University’s Goldsmith College, recently ramped up his campaign to replace his cousin as Sierra Leone’s next president, travelling the country and launching a social media strategy. London’s The Independent recently reported there was a “strong chance” Mr. Sisay would replace President Koroma when he steps down in 2018.”We south Londoners are pretty damned determined when we set our mind to something,” Mr. Sisay told the newspaper.The corruption allegations uncovered by Iluka involve evidence suggesting Mr. Sisay approved a $110,000 bribe payment funneled via a West African logistics company, Imatrix 101 Ltd, and deposited in a third party bank account. An amount of $110,000 was separately paid by Sierra Rutile to Imatrix, according to company invoices. Earlier this year, Iluka – the world’s largest producer of Zircon – flagged increasing revenue in line with rising demand and mineral sands’ prices. From a low of $6.56 earlier this year, Iluka has regularly traded above $9 a share. Iluka declined to comment noting the issues were with regulatory authorities.