Third World issues, third-rate pollies

Charges leveled at Rio Tinto and former executives Tom Albanese and Guy Elliott, both very experienced men, are utterly ludicrous, writes Terry McCrann.

Former Rio Tinto chief executive Tom Albanese.

WHACK. Whack. Rio Tinto provided a salutary lesson in the perils of doing business in the Third World. Crown’s lesson was of the perils of utterly irresponsible third-rate showboating First World politicians.

Any time the SEC — that’s the US version of our corporate cop ASIC, not the semi-government business that used to give Victorians cheap, plentiful and reliable electricity — comes after you, you have a problem.

Not because of any substance necessarily in what it’s alleging, but because of the absurd complications of the US legal system and its ability to force you to confess to crimes you didn’t commit because the consequences of doing a ‘plea bargain’ deal aren’t as bad as the process to prove your innocence.

The SEC is alleging that Rio’s then top two executives — its CEO Tom Albanese and its CFO Guy Elliott (interestingly, one American and one Brit) — conspired to hide the fact that Rio had bought a $4 billion dud with its purchase of an undeveloped coal resource in Mozambique.

Former Rio Tinto chief financial officer Guy Elliott.

They are supposed to have concealed just how bad it was from the board, from the auditors, and from the market. Until the company had to ’fess up that it had basically lost the lot.

The first thing is that, just like the Andrew Wilkie smearing of Crown, there’s a fundamentally inherent implausibility in the SEC claim.

We are not talking about a couple of bogans crashing a car on a Saturday night, fleeing the scene, and when caught in a front garden down the road, trying to pretend it wasn’t them. Never mind the fingerprints all over, and to say nothing of various varieties of DNA in the vehicle.

Albanese and Elliott were very senior, very experienced executives. The idea that they thought they could do the equivalent of ‘hiding in a garden’, that they could pretend that the project was operating ‘just fine’ and that nobody would notice, is, quite simply, utterly ludicrous.

That’s before you get to the more granular analysis of what was actually happening in Mozambique and at what point it is necessary to recognise value destruction and so deal with it both in profit-and-loss accounting and disclosure senses.

You could reasonably accuse a company of being tardy in making disclosures — heck, I’ve done it a few hundred times over the years — but they are ultimately matters of judgment. To apply the word ‘fraud’ even so-called ‘civil fraud’ is, as I say, ludicrous and indeed Wilkie-level offensive.

Unless — and the same applies to the Wilkie claims — you have absolutely rock-solid evidence of behaviour, conversations and so on. Like Albanese to Elliott: “Mate, mate, we gotta hide the fact that the $4 bil has gone and hope that Jan (then Rio chairman Jan du Plessis) doesn’t miss it.”

As I said: implausible.

Interestingly, the SEC attack on Albanese and Elliott surfaced on the same day that Rio itself disclosed that it had settled with the equivalent of the SEC on the other side of the Atlantic — the British Financial Conduct Authority — over the timing of it writing off that Mozambique project.

Rio said the FCA had made no findings of fraud or any widespread or systemic failure by Rio, but they’d agreed on a £27 million  ($45.3 million) fine.

That sort of proves the point: Rio was, at worst, slow to disclosing the mess, but to the corporate cops on that side of the Atlantic, no more than that.

More broadly, Rio’s also had Third World-type difficulties, and also under the Albanese-Elliott team, in Guinea on the other side of Africa and on the other side of the world in Mongolia.

In Guinea it had to write off $2.5 billion on an iron ore project that would only have been feasible at the crazy prices of 2012.

It’s also ‘got a problem’ with a $13 million ‘fee’ it paid: was it a legitimate ‘fee for service’ or an illegitimate ‘fee for facilitation’?

In Mongolia it’s got a fabulous copper mine but it’s cost a lot more to develop than Rio expected and Rio’s had to go through a series of increasingly expensive ‘renegotiations’ with the government.

One assumes that all that will sort of make it appreciate doing business in WA and Queensland, even with state governments trying to rip out higher royalty payments.

Tasmanian independent MP Andrew Wilkie. Picture: Kym Smith

LET’S SEE THE ‘EVIDENCE’

THERE’S a legitimate interest in ensuring that casinos — all casinos — are not used for money-laundering. Just as there’s a legitimate interest in ensuring banks are not used either.

But what Tasmanian independent Andrew Wilkie did on Wednesday was not the way to go about it — using parliament to make the most outrageous and highly improbable allegations without the slightest shred of evidence other than assertions from (anonymous) individuals.

The initial impact on Crown was to strip over $700 million from the value of its shares.

After the shares recovered in later trading the loss was trimmed to $350 million.

Even if the share price fully recovers, those that sold on Wednesday won’t get their money back — unless Wilkie is prepared to reimburse them.

Andrew Wilkie has smeared Crown, says Terry McCrann.

Setting aside the relatively small casino in Hobart, which goes back into the 1970s, casinos have now been operating pervasively across Australia for close to a quarter of a century. And in that time they have turned over hundreds of billions of dollars.

It would be naive to assume that there hasn’t been any ‘money laundering’ at all. But we’ve seen no evidence of systematic laundering — either at an operational level in a casino, far less of a casino company itself.

And the same applies, for that matter, to the banks.

And nothing Wilkie said raised any serious question on that score. The same was the case with his claims of machine tampering.

There will be an inquiry. We will see what it produces.