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Expert Corporate Governance Service (ECGS)
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Proxy Report - 11/04/2018

Bribery Scandal:

In 2016, Rio Tinto notified relevant authorities in the United States, United Kingdom and Australia of information concerning contractual payments totaling US$10.5 million made in 2010 to François Polge de Combret, a consultant, former Lazard banker and university friend of President Alpha Condé of Guinea, who provided advisory services on the Simandou project in Guinea. On March 15, 2018, investigators from the UKs Serious Fraud Office (SFO) raided the London home of Mr. de Combret in pursuit of evidence to build their bribery case.

 

The payments at the centre of the bribery probe were discussed in leaked emails by Alan Davies, who was the Simandou iron ore boss at the time, Sam Walsh, the then-head of the Companys iron ore group (who later became CEO in 2013),and Tom Albanese, who was the CEO. Mr. Davies, the only one of the trio who was still working for Rio Tinto in November 2016, and legal chief Debra Valentine, had their contracts terminated due to subsequent investigations on this matter. Moreover, the Board and Mr. Walsh (who left his job as CEO in July 2016) have agreed to defer the payment of his 2016 STIP award and all remaining unvested LTIP awards (including BDP and PSP awards) for a minimum of two years. Under this agreement, Mr. Walsh will receive 50% of both his 2016 STIP and LTIP on December 31, 2018. The remainder for both plans will vest on December 31, 2020. Rio Tinto noted that the vesting of these awards is contingent on there beingno connection between actions taken by Mr. Walsh concerning the Simandou project.

 

In October 2016, Rio Tinto signed a non-binding agreement with Chinas Chinalco to exit the Simandou project. The Company will receive a small fee on its estimated US$1.1 - $1.3 billion stake in the project should the mine ever be developed. As of the end of 2017, Rio Tinto still held 45.1% in the project (indirectly through Simfer SA). In compliance with guidance from the Financial Conduct Authority (FCA), Rio Tinto proceeded to write down the value of the resources at Simandou taking a pre-tax
impairment charges of US$1,849 million in 2015.

Background on Simandou:

The bribery saga dates back to 2008 when Rio Tinto was stripped of half the rights to the Simandou project by Guinea’s long-time dictator Lansana Conté, citing the failure of theCompany to develop the project a decade after acquiring the rights. The stripped rights were then awarded to BSG Resources (BSGR), controlled by billionaire investor Benny Steinmetz. Following the death of Mr. Conté shortly after the decision, and the ascension of Mr. Condé to the presidency, Rio Tinto paid $700 million to confirm its rights to block 3 and 4 of the Simandou project. BSGR later sold 51% of its stake in the project to Vale SA for an estimated $2.5 billion. In 2014 however, the Guinean government revoked the rights held by BSGR and Vale, claiming that there was evidence of corruption in awarding the rights in the first place

 

According to Mahmoud Thiam, Guinea’s former mining minister, Steven Din, the former head of Rio Tinto’s Guinea operation, offered him a bribe in early 2010 to regain control over the rights given to BSGR, a claim Mr. Din, who is now CEO of a copper mine in Zambia, denies. A diplomatic cable leaked by Wikileaks revealed that Mr. Din met with the US ambassador to Guinea in February 2010 around the time the alleged bribe took place. A memo prepared by the ambassador following the meeting indicated that he was informed by Mr. Din that Mr. Thiam’s purchase of a $3 million property in New York was evidence that he was bribed by BSGR. In 2013, Frederic Cilins, an agent for Mr. Steinmetz was arrested by the FBI in Florida for potential illegal payments made in Guinea pertaining to mining concessions; he pleaded guilty and was sentenced to two years in prison. Key to the FBIs case was a sworn testimony by Mamadie Touré, fourth wife of the late Mr. Conté, in which she revealed that she personally accepted payments in cash and shares to favor BSGR’s mining interests. Mr. Steinmetz himself was detained in December 2016 and placed under house arrest by Israeli police in connection with the case. He was detained again in August 2017 after appearing in court on charges of fraud, forgery, and money laundering

 

In 2015, Rio Tinto brought a racketeering case against BSGR claiming that it had paid Mr. Thiam $200 million to secure rights to Simandou. The case was later thrown out by a New York judge citing that Rio Tinto had waited too long to sue and that it had failed to demonstrate a pattern consistent with racketeering activity. Mr. Thiam was then arrested in December 2016 and convicted by a US court in August 2017 on charges to launder US $8.5 million in bribes from the China International Fund Ltd and sentenced to seven years in prison.

Underlying
Rio Tinto PLC

Rio Tinto is engaged in finding, mining and processing mineral resources. Co. has four product groups: iron ore, which supplies the global seaborne iron ore trade; aluminium, which includes bauxite mines, alumina refineries, and aluminium smelters; Copper and Diamonds, which has managed operations in Australia, Canada, Mongolia and the U.S., and non-managed operations in Chile and Indonesia, with by-product including gold, silver, molybdenum and others such as sulphuric acid, rhenium, and lead carbonate; and Energy and Minerals, which comprises mining, refining and marketing operations across borates, coal, iron ore concentrate and pellets, salt, titanium dioxide and uranium sectors.

Provider
Proxinvest
Proxinvest

Founded in 1995, Proxinvest is an independent proxy firm supporting the engagement and proxy analysis processes of investors. Proxinvest mission is to analyse corporate governance practices and resolutions proposed at general meetings of listed firms.

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