Rio Tinto: scandal in Guinea and missing $13.5m vexes board
Rio Tinto’s Guinea payments scandal remains a more serious concern than its Mozambique acquisition problems.
Rio Tinto’s Guinea payments scandal remains a more serious concern to the miner’s board than its mounting Mozambique acquisition problems because while the miner found no evidence of law-breaking around a $US10.5 million ($13.5m) Guinea consultant payment, it is not exactly clear what happened to the money.
Rio was hit by legal action from ASIC last week for alleged misleading or deceptive conduct over company reporting of its failed $4 billion Mozambique coal acquisition, adding to a US Securities and Exchange Commission fraud case.
But Guinea, where there is a continuing British Serious Fraud Office inquiry into suspected corruption, is understood to remain the priority for a special board committee led by chairman Simon Thompson that is keeping tabs on both matters.
In recent court filings, Rio’s lawyers for the first time appeared to back the intentions of former executives Tom Albanese, Sam Walsh and Alan Davies, and said the company had admitted no wrongdoing, despite a leaked email exchange between the trio leading to Rio reporting itself to anti-corruption authorities.
“Hiring a consultant to assist in negotiating an agreement with a foreign government is not unlawful, and that is true even if the consultant has strong connections to the foreign government,” lawyers for Rio, Mr Albanese, Mr Walsh and Mr Davies said in a joint November 2017 filing defending a US class action. “The board’s conclusion five years later that it believed individuals did not maintain the standards expected from the internal code of conduct does not suggest these individuals knew at the time that they were acting wrongfully.”
In an earlier filing, the lawyers gave further insight into findings of an internal investigation that led to Rio reporting itself to authorities.
“Rio Tinto has not admitted to any wrongdoing,” lawyers for Rio and the executives said in a July filing. “There is nothing at all illegal about the payment on the facts alleged in the complaint.”
The filings are signed by Rio’s defence lawyer from Kirkland & Ellis, who earlier conducted the internal investigation.
Guinea remains the key board concern because while no criminal activity was uncovered by Rio, it is not clear what happened to the $US10.5m consultant payment discussed in the emails by then chief executive Mr Albanese, then iron ore boss Mr Walsh and then Simandou chief Mr Davies.
And Rio does not know what the SFO, which opened an investigation in July into suspected corruption by Rio, its employees and others, has found.
The Guinea scandal surfaced publicly in 2016 when the 2011 emails were leaked.
The emails discussed a payment to consultant Francois de Combret, who had close ties to the Guinean president, for help in organising a $US700m settlement payment to let Rio keep the big, and still undeveloped, Simandou iron ore deposit.
In the email exchange, Mr de Combret was said to provide “unique and unreplaceable services” and was noted as being close to President Alpha Conde.
That Rio appears unable to prove the payment was not used nefariously, despite finding no evidence of wrongdoing, is probably part of the reason Mr Davies is no longer at the company and lost bonuses last year. It is believed his sacking was around alleged failure to follow process.
Compliance experts say best practice requires detailed investigations into the destination of where consultant payments in developing countries.
The Mozambique case, where the SEC accused Rio, Mr Albanese and former finance director Guy Elliott in October of fraud, and where ASIC has called for the two executives to be barred from Australian directorships, has been looked at by British authorities. They fined the company over impairment delays but found no evidence of fraud.
The class action suit, launched in New York in December 2016, has shed more light on the Guinea scandal.
Mr Albanese, Mr Walsh and Mr Davies have all defended their roles, declaring they had no knowledge there was anything wrong with the payment to Mr de Combret.
The filings show the leaked emails surfaced in Rio’s own 2015 discovery, during an unsuccessful lawsuit against Vale that accused the Brazilian iron ore giant of conspiring with Israeli diamond merchant Beny Steinmetz to take the Simandou concessions.
That the emails were not escalated in 2015 is believed to have played a big part in the exit of legal head Debra Valentine, who also lost her bonus last year.
Instead, the emails came to the attention of new Rio chief Jean-Sebastien Jacques and long-time chairman Jan du Plessis (who retires today) when they were leaked, by persons still unknown, to a French website in 2016.
A thorough internal investigation, using Kirkland & Ellis, went through 60 terabytes of data at Rio, whose board decided it should notify anti-bribery authorities in the US, Britain and Australia. But, as Mr du Plessis said in April, Rio did not admit bribery, just that “we think something might have gone wrong”.
The class action complaint was originally lodged in the Southern District court on behalf of the Jeffrey P. Weiner Supplemental Trust.
The lead plaintiff is now Puranjay Das, who has requested trial by jury. The complaint describes the payment as “ a bribe” and alleges Mr de Combret was a “nefarious adviser to Guinean President Alpha Conde”.
Mr Albanese’s defence of the claim is the most strident. “Plaintiff’s claims ... are premised solely on the theory that Mr Albanese and others colluded to pay a bribe, yet plaintiff pleads no facts to show that any alleged bribe actually occurred or that Mr Albanese had any reason to suspect the disputed payment to a consultant was improper,” a November filing from his lawyer says.
“At most, plaintiff’s allegations amount to a claim that Mr Albanese contributed a single sentence to a four-email exchange regarding paying a third party who was openly operating an independent advisory firm. Such allegations do not support an inference that any illegal payment was made or that Mr Albanese furthered such illegality with scienter.”
The defence of Mr Davies and Mr Walsh will take the same tone, as well as saying they are not subject to the court’s jurisdiction.
“Plaintiffs fail to allege any facts ... to show Mr Davies believed that Rio Tinto’s payment to de Combret was a bribe or was otherwise unlawful,” Mr Davies’ lawyers wrote in a September filing. “To the contrary, Mr Davies wrote that de Combret was helping Rio Tinto ‘in good faith’ and ‘behaved with the utmost integrity’.”
Mr Walsh’s lawyers said: “There is no specific allegation that sufficiently establishes Mr Walsh’s knowledge that the payment was purportedly unlawful or that he subsequently intended to sign and/or approve false financial documents.”
The class action complaint reveals the emails would not have surfaced had Rio, when Mr Walsh was CEO and Ms Valentine was chief counsel, not pursued a case against Vale and Mr Steinmetz over Simandou.