U.K. fraud office looks into Eurasian Natural Resources

London, U.K. – The Serious Fraud Office (SFO), an independent department of the British government that investigates and prosecutes serious or complex financial fraud and corruption, is looking into allegations of unlawful activity at Eurasian Natural Resources (ENRC-L), according to a Dec. 11 report by The Sunday Times.

A diversified London-based miner with operations in Kazakhstan and Africa, Eurasian Natural Resources (ENRC) has reportedly been under scrutiny for months concerning the operations of certain wholly-owned subsidiary companies. A whistle-blower has alleged that money has been siphoned off from a Kazakshtan-based subsidiary, kickbacks have been paid on supplies and some executives in the firm have been “raking in huge sums,” according to the British newspaper. 

One of the investigators also told the Times that employees of ENRC’s subsidiary, SSGPO (which is the largest iron ore producer in Kazakhstan employing 18,500 people), appear to have been obstructing the inquiry by creating false documentation, destroying or failing to provide hard copy documents requested, and deleting or wiping electronic data.  

Another issue allegedly under investigation is the August 2010 purchase by ENRC of the Kolwezi copper-cobalt tailings project in the Democratic Republic of Congo, formerly owned by Vancouver-based miner First Quantum Minerals (FM-T, FQM-L). The DRC government seized the project from First Quantum in September 2009, after the company had spent $388 million acquiring it and another $406 million developing it. The government then sold the project for US$60 million to Dan Gertler – an Isreali diamond magnate and an associate of Joseph Kabila, the DRC president – who flipped it shortly thereafter to ENRC. ENRC paid US$175 million for a 50.5% interest in Camrose Resources, which owns 70% of a company that maintains it owns the Kolwezi exploitation licence.

Since then, First Quantum has won several international legal battles against the DRC government but has received little for its efforts other than indifference. A US$2-billion lawsuit between First Quantum and ENRC is ongoing.

In April, an MP from Britain’s Labour Party accused ENRC in parliament of “entering into ropey deals with frankly shady middlemen.” The MP also asked the Serious Fraud Office to check whether the company complied with the U.K.’s new Bribery Act, which came into effect this year. Under the new law, companies that conduct business in the U.K. can be pursued for bribes paid in countries overseas. The Times compared the level of corruption in Kazakhstan to those in Ethiopia, Mozambique and Iran.

The Times further reports that ENRC and directors of the SFO have had at least two meetings since August, including one held in the past fortnight. It said the SFO has warned ENRC it reserves the right to raid the offices of directors and executives if the company fails to co-operate. When contacted by the Times, ENRC denied there was any official investigation into the company’s activities, saying: “We keep in touch with all key regulators. If you check with the SFO, they will refute that there is a formal investigation into ENRC.” The SFO’s official comment to the newspaper was, “We cannot confirm or deny that we are investigating.”

ENRC, a FTSE 100 company, has been mired in controversy in recent months after a nasty boardroom dispute turned public in June. Two leading non-executive directors, including the former head of Glaxo Smith Kline and the chairman of a boutique investment bank, were ousted after interference from the three main shareholders of ENRC: Alexander Mashkevitch, Alijan Ibragimov and Patokh Chodiev. The three oligarchs combined and reorganized their businesses into ENRC in 2007 and now hold 44% of the company’s shares. The Times reports they initially made their fortunes “in the chaos that followed the collapse of Soviet communism,” or as the company describes it, “through the participation of the founders in the privatization process in Kazakhstan.”

The financial media in London took particular interest in the boardroom spat this summer after one of the ousted directors famously described his own departure as “more Soviet than City.” As a condition of ENRC’s £6.8-billion public listing in December 2007, the oligarchs had agreed not to meddle in the running of the company.

Shares of ENRC fell as much as 10% in intraday trading on Dec. 13 before closing down 6.5% or 44.3 pence to 640.6 pence on 4.59 million shares traded. At presstime, the company had yet to publicly respond to the report by the Times.