The Israeli Billionaire Forcing Glencore to Buck U.S. Sanctions

(Bloomberg) -- Not many billion-dollar companies would be willing to circumvent U.S. sanctions for their business partner, but then few people are as powerful as Dan Gertler in the Democratic Republic of Congo.

The Israeli Billionaire Forcing Glencore to Buck U.S. Sanctions

Gertler scored a victory when Glencore said on Friday that it would evade U.S. sanctions to keep paying him royalties from copper and cobalt mines. It’s a rare, possibly unprecedented, arrangement for a global corporation and speaks to Gertler’s power over Glencore, which has bet its future on Congo’s mining riches.

Gertler, who’s been friends for two decades with Congolese President Joseph Kabila, was shut out of the American financial system in December, when the U.S. government accused him of corrupt mining and oil deals. Yet his companies still control Congo’s most lucrative oil concessions and his relationships with the country’s political and business elite run deep.

The Israeli Billionaire Forcing Glencore to Buck U.S. Sanctions

"Glencore seems more afraid of Gertler’s striking power in Congo’s courts than of U.S. sanction," said Elisabeth Caesens, a Congo expert and director of Brussels-based Resource Matters. “Time will tell if this is the right bet, it’s arguably not the most ethical one.”

Glencore will resume payments to Gertler, without public approval from U.S. authorities, as a last resort to avoid seizure of its assets. A spokesman said Glencore discussed the matter with U.S. and Swiss authorities. The payments will be made in euros through a non-U.S. financial institution.

Gertler, who arrived in Congo as a young diamond merchant in 1997, had been on the U.S. government’s radar since he was implicated in a sprawling bribery scandal involving one of Wall Street’s biggest hedge funds. More recently, America’s relationship with Kabila deteriorated as the president continued to delay elections. In December, the U.S. accused Gertler of using corrupt mining deals to enrich his long-time friend. Gertler had denied any wrongdoing.

Six months on, Gertler’s power in Congo appears unchecked, with the billionaire still shuttling by private jet most weeks from his home in Tel Aviv to the Congolese capital Kinshasa.

Glencore, a longtime partner of Gertler’s in Congo, cut ties with the tycoon in December after the sanctions were announced. While the mining and trading company bought Gertler’s share in their two joint-venture mines last February, it was still required to pay royalties he acquired from Gecamines in earlier deals.

Since then, the company’s troubles in Congo have rapidly intensified. The government passed a new mining code that hiked taxes and Glencore’s partner in the country, state-owned Gecamines, sought to dissolve their joint-venture. Other historic legal problems reappeared.

In April, Gertler won a Congo court ruling to seize almost $3 billion of Glencore’s assets that could have seen the Israeli take control the company’s mines in the country. Paying Gertler is the only way to keep hold of the assets, Glencore said in a statement Friday.

"Despite the sanctions, Gertler clearly remains a powerful fixer in the Congo," said Ben Davis, an analyst at Liberum. "A gatekeeper to the country’s cobalt riches."

©2018 Bloomberg L.P.