By Scott Patterson
Swiss mining giant Glencore PLC said it would resume
multimillion-dollar payments to a former business partner
sanctioned by the U.S. Treasury Department, setting up a test for
whether Washington is willing to give Western firms more wiggle
room dealing with sanctioned counterparts.
Glencore stopped paying royalties to Israeli billionaire Dan
Gertler in December after sanctions were imposed for alleged
corruption in the Democratic Republic of Congo. On Friday, it said
resuming the payments was the only viable option to avoid the risk
of losing its assets. It said, though, it would make the payments
in euros and ensure no American citizens had any role in the
arrangement to comply with U.S. sanctions.
The company's move could measure the level of tolerance in
Washington for allowing workarounds by western firms linked a
growing list of sanctioned companies and individuals. While
Glencore didn't receive an explicit exemption from the sanctions
from the U.S., a spokesman said it has been in talks with U.S.
officials about the matter. Glencore didn't disclose which bank is
handling the transactions with Mr. Gertler.
"They appear to have found a way to structure a payment that
doesn't run afoul of the U.S. sanctions," said Brad Brooks-Rubin, a
former Treasury Department official in the George W. Bush
administration and managing director for The Sentry, a Washington,
D.C., group that investigates corruption in Africa. He said
Treasury should pay close attention to how the payments to Mr.
Gertler are used.
The U.S. in the past year has rolled out sweeping sanctions
against companies it says violate international and U.S. law, often
forcing businesses that deal the with those companies to cut
financial ties. In April, the Treasury Department sanctioned Oleg
Deripaska, the main owner of giant Russian aluminum maker United
Co. Rusal PLC, for allegations of money laundering and other
charges.
The sanctions sent shock waves through global aluminum markets
as western companies pulled away from Rusal and banks froze credit
lines. Mr. Derispaska has described the sanctions as "groundless,
ridiculous and absurd."
The U.S. has also imposed extensive sanctions against Iran,
forcing shipping operators and other businesses to pull back from
the big oil-exporting nation. Since few western banks deal directly
with Iran, it is unlikely businesses would be able to follow
Glencore's blueprint for getting around the sanctions.
A spokesperson for the U.S. State Department didn't immediately
respond to a request for comment.
Glencore, in its discussion with U.S. officials, said that
failure to continue making the payments could put the operation of
its assets in Congo as risk, posing a threat to copper and cobalt
prices world-wide, according to people familiar with the talks.
Glencore, through its Congolese mines, is the world's biggest
producer of cobalt, a key commodity for electric-vehicle batteries.
More than 60% of the world's cobalt reserves are in Congo.
Mr. Gertler in April launched a legal action against Glencore in
a Congolese court seeking $3 billion in damages in response to the
company's decision to halt payments. Mr. Gertler had also obtained
high court injunctions which, if they had become final, would have
enabled him to permanently seize assets at Glencore's mines,
causing severe disruption, the company said.
The Treasury Department's sanctions prohibit U.S. firms from
working with Mr. Gertler and several companies associated with him.
That presented a challenge to Glencore, which, while a Swiss
company, is tightly linked to the U.S. financial system.
Glencore said it believes the arrangement announced Friday
"would appropriately address all applicable sanctions obligations."
As a result of the agreement, Glencore said its subsidiaries and
affiliate companies of Mr. Gertler agreed to withdraw all pending
and threatened litigation between them.
The payments to Mr. Gertler have been a long-running headache
for Glencore. Canadian regulator, the Ontario Securities
Commission, or OSC, launched an investigation into the payments,
which had originally been designated for Congo's state-run mining
company, Gecamines, but instead were diverted to Mr. Gertler, The
Wall Street Journal reported in July. Glencore said the shift in
payments was done at the request of Gecamines.
Glencore in November disclosed that the OSC had launched a probe
into financial statements and disclosures related to international
bribery and anticorruption laws by Glencore's Toronto-listed
Katanga Mining subsidiary. Three Katanga directors stepped down
from its board following an internal review that found weaknesses
in the company's controls over financial reporting.
Then came the U.S. Treasury Department's December allegations
that Mr. Gertler had amassed a fortune through "opaque and corrupt
mining and oil deals." Mr. Gertler's main company working in Congo,
Fleurette Group, has vigorously denied corruption charges.
Mr. Gertler is a friend of Congolese President Joseph Kabila,
according to the Treasury Department. He was also a close partner
with Glencore as it built a dominant position in copper and cobalt
in a country where few Western mining firms choose to work.
Glencore said it expects to start paying Mr. Gertler's company,
Ventora Development, in July at a rate of about EUR10.5 million, or
$12.2 million, a quarter, from its Mutanda Mining SARL operation.
It will also make a "true-up" royalty payment of EUR4.6 million, or
$5.3 million, when the settlement is signed.
Payments from Glencore's other copper and cobalt mine in Congo,
Katanga Mining's Kamoto Copper Co. unit, estimated to be about
EUR16.5 million a quarter, or $19.1 million, will begin in
2019.
Totally royalties paid to Mr. Gertler from both mine will amount
to about $130 million a year, according to an estimate by Goldman
Sachs, an amount it says "is not material" to Glencore.
Mr. Gertler was a central figure in a $412 million settlement in
September 2016 between the Justice Department and the Securities
and Exchange Commission with New York hedge fund Och-Ziff Capital
Management Group LLC.
The Justice Department alleged in a criminal case that Och-Ziff
went into business with Mr. Gertler despite a consultant's warning
that he used political connections to benefit himself and his
associates.
Mr. Gertler hasn't been charged in the case and his spokesman
has denied the allegations. Daniel Och, chairman and chief
executive of Och-Ziff, said the firm's conduct scrutinized by the
Justice Department was "inconsistent with our core values."
Following the allegations against Mr. Gertler, Glencore
purchased Mr. Gertler's stakes in its two Congo copper projects for
$534 million in cash.
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
June 15, 2018 10:58 ET (14:58 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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