(Bloomberg) -- The U.K. Serious Fraud Office is investigating Israeli billionaire Dan Gertler and four former Eurasian Natural Resources Corp. executives as part of its three-year probe into the Kazakh company’s acquisition of copper and cobalt mining projects in the Democratic Republic of Congo.
The SFO asked the Congolese authorities to provide banking and business records relating to four Congo-registered companies in its investigation into ENRC and nine individuals. They include ex-Chief Executive Officer Felix Vulis; the former head of its Africa unit, Victor Hanna; two other ENRC executives; Gertler and two of his associates, according to a letter from the SFO to the Congolese government. The letter was shown to Bloomberg by a person who asked not to be identified because it hasn’t been released publicly.
The SFO’s investigation relates to three sets of transactions through which ENRC, then listed on the London Stock Exchange, acquired five mining projects in Congo between 2010 and 2012. The deals may have violated U.K. laws including the 2010 Bribery Act and the 2006 Fraud Act, for which individual offenses carry penalties of as long as 10 years in prison or an unlimited fine, the anti-fraud agency said in the Sept. 2 letter. It was signed by SFO Director David Green.
The SFO declined to comment on a continuing investigation. Vulis through his lawyer, declined to comment. Hanna, through his lawyer, didn’t immediately respond to an e-mailed request for comment.
Gertler’s Fleurette Group said it wouldn’t comment on the SFO investigation. “Mr. Gertler has always made it clear that his business dealings in the DRC are entirely proper and appropriate. That remains the case. Beyond that, he is not able to comment on allegedly leaked documents,” the company said by e-mail.
While the SFO investigation is public, many of the details of the probe have remained undisclosed until now.
ENRC and Gertler’s activities in Congo have come under regular scrutiny since the International Monetary Fund in 2012 canceled a $532-million loan accord with the country. It pulled the loan because state-owned miner Gecamines didn’t disclose the transfer of its stake in another ENRC project to a BVI-registered company controlled by Gertler. Gecamines declined to comment on the matter at the time, while Mines Minister Martin Kabwelulu said the government had published all the information the IMF requested about the project and called its decision to halt the loan program “unconsidered.”
In September, U.S. hedge fund Och-Ziff Capital Management Group LLC pleaded guilty to providing millions of dollars to “an infamous Israeli businessman” to bribe Congolese officials for access to copper and cobalt projects at preferential prices, some which of were then sold to ENRC, according to court documents. Och Ziff paid $413 million to settle the cases brought by the U.S. Justice Department and the Securities and Exchange Commission. A person familiar with the matter identified the partner as Gertler. Fleurette said in a statement the company “vigorously contests” any accusations of wrongdoing. No charges have been brought against Gertler by the Justice Department or the SEC.
The SFO asked the Congolese government to execute its request by Dec. 31. The spokesman at the Justice Ministry, to which the letter was sent, referred all questions on the matter to Justice Minister Alexis Thambwe. Thambwe’s phone was off when Bloomberg called four times seeking comment and he didn’t immediately respond to a text message. Government spokesman Lambert Mende also referred a request for comment to Thambwe.
ENRC delisted in 2013, shortly after the SFO began its investigation, and changed its name to Eurasian Resources Group. The head of communications at ERG in Luxembourg, Andrey Belov, declined to comment, citing the continuing investigation.
Last year, ERG produced 28,670 metric tons of copper and more than 370,000 tons of copper concentrate from its Congo mines, according to government statistics. Congo is Africa’s biggest copper producer and the world’s largest source of cobalt, used in rechargeable batteries.
The SFO is specifically probing ENRC’s purchase from Gertler of the Kolwezi Tailings, Frontier and Lonshi mines previously operated by Vancouver-based First Quantum Minerals Ltd., and two other BVI-registered companies with mining permits in Congo’s copper-rich Katanga region, it said in the letter. In each case, the transaction was completed by the purchase of shares in holding companies registered in the British Virgin Islands, or in one instance Hong Kong, it said.
The inquiry is at “an evidence-gathering stage,” the SFO said. Some witnesses and suspects have been interviewed, though no charges have been brought yet, the SFO said in the letter.
Here are the details of the three deals the SFO is investigating:
* ENRC’s 2010 and 2012 purchase of the Kolwezi Tailings, Lonshi and Frontier projects. $40 million in cash was withdrawn from an ENRC-controlled bank account in Congo in six transactions between October 2010 and February 2011 after the company’s acquisition, from Gertler, of a stake in the Kolwezi Tailings project in August 2010, the SFO said. The explanations offered by ENRC to justify six cash withdrawals were conflicting and documentation provided by the company was either produced after the withdrawals were made or are believed to be false, the SFO said in the letter. Separately, the SFO said that in 2012, offshore structures were intentionally used to hide beneficial ownership during ENRC’s purchase of Lonshi and Frontier, which may have involved acts of corruption.
* ENRC’s July 2011 purchase of Congo-based Dezita Investments SPRL. Hanna provided false information to the board on the value of the copper and cobalt reserves controlled by Dezita in a potential conspiracy to which Vulis may have been complicit, the SFO said. “The SFO believes that various suspects have committed fraud by false representation by dishonestly representing Dezita was a valuable asset based on data for an entirely different asset,” it said. To acquire Dezita, ENRC then purchased its BVI-registered parent company, Legacy Industries Ltd. It paid $195 million into Legacy’s Swiss bank account in 2011, at which point the money was transferred to other bank accounts in Switzerland and around the world, the SFO said. “The SFO are seeking to trace the onward distribution of this money as it is believed to be the proceeds of crime,” it said.
* ENRC’s 2010 acquisition of 50 percent of a copper and cobalt project called Societe Miniere de Kabolela & Kipese SPRL from Gecamines via a Gertler-controlled company, Emerald Star Enterprises Ltd. ENRC already owned the other half of the project. Rather than exercise its right of first refusal to buy the government’s stake, it paid the Gertler firm $25 million for an option to buy the remaining 50 percent of SMKK and completed the acquisition six months later, paying a further $50 million. In the interim, Emerald Star had acquired the Gecamines shareholding for $15 million, according to the sales agreement published by Congo’s Mines Ministry, netting Gertler a 500 percent profit.