- September 17, 2019

Pour la version, francaise cliquer ici

The World Bank Group’s private sector arm, the International Finance Corporation (IFC), forfeited its right to an estimated $50 million in compensation following corruption on its investments in the Democratic Republic of Congo by notorious Israeli businessman, Dan Gertler.

UK corporate watchdog, RAID, today submitted a detailed official complaint to the World Bank Integrity Vice-Presidency, an independent unit within the World Bank Group that investigates and pursues sanctions related to fraud and corruption. The unit has the power to commence investigations that may result in blacklisting of individuals and corporate entities. RAID criticized IFC for failing to publicly denounce the corruption on its investments over a decade ago and for giving up its rights to compensation.

“IFC projects were targeted by Gertler and his cronies in Congo yet officials did not denounce those who were responsible, did not refer anyone for blacklisting or take legal steps to recover losses,” said Anneke Van Woudenberg, the Executive Director of RAID. “The Bank could have recovered millions for new development projects in Congo to rectify the wrongs, but instead IFC officials stayed quiet and failed the Congolese people when they needed them most.”

On August 29 a United States court confirmed the former shareholders of Africo Resources Ltd, a company in which IFC had invested in November 2007, were “victims of crime” as a result of the corruption and should be entitled to a restitution award. IFC was conspicuously absent from the legal action, having passed its right to compensation, known as restitution rights, to a third party in an opaque transaction. The possibility of restitution rights only arose in 2016 after the US Department of Justice successfully took legal action under the Foreign Corrupt Practices Act (FCPA) against another co-conspirator in the corruption scheme, American hedge fund Och-Ziff (recently renamed Sculptor Hedge Fund).

The amount of the restitution award has yet to be determined, but a confidential valuation by the former Africo shareholders presented to the court estimates the amount at $600 million. Based on its holdings, IFC could have recovered an estimated $50 million (minus legal costs).

When requested for further information by RAID about the transfer, IFC said in written correspondence that it had transferred its rights to a “third party.” It declined to identify the entity or person and did not explain why it had given up its right to restitution. Such rights would not usually transfer when shares change hands. RAID’s examination of company filings and accounts shows Chris Theodoropoulos, a former Africo chairman, bought shares equivalent to IFC’s holding in September 2009.  RAID contacted Theodoropoulos to provide further clarification about IFC’s restitution rights, but he did not reply.  

RAID urged the Bank’s investigative unit to find out why IFC had not joined other Africo shareholders in legal action to seek compensation and under what circumstances the restitution rights were transferred.

“IFC officials inexplicably forfeited the restitution rights to someone else instead of taking proactive steps to seek compensation to finance development projects for the Congolese residents near to the mine who should have benefitted in the first place.” said Van Woudenberg. “IFC’s Congolese mining projects failed spectacularly at every level and serious questions should be asked about how this was allowed to occur.”

Residents from Kisankala village, on Africo's former Kalukundi concession, queue for drinking water. 2015

As part of its official complaint, RAID further urged the Bank to immediately debar Gertler and his companies from doing any business with the World Bank Group and other development finance institutions. Gertler and his companies were sanctioned by the US Treasury in December 2017 as part of a clampdown on human rights abusers and corrupt actors. According to the US Treasury, Gertler amassed his fortune through “hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in [Congo].”

“It is scandalous that Gertler and his companies have never been blacklisted by the World Bank Group, despite officials having seen the corruption up close on their own investment deals,” Van Woudenberg said. “The US government has acted to sanction Gertler, surely it’s high time the Bank does the same.”

Additional Background on the Africo corruption scheme

 In 2007 Gertler orchestrated the take-over of Africo, working alongside American hedge fund Och-Ziff and high ranking Congolese government officials. Africo held a 75 per cent stake in the valuable Kalukundi copper and cobalt company in southern Congo. IFC invested $4 million Canadian dollars into the project, which represented a 6 per cent holding with an option to buy more shares. It was one of the early IFC investments following years of devastating conflict in Congo and was intended to encourage economic growth and poverty alleviation.

 As part of Gertler’s take-over scheme, which had used bribes to threaten Africo’s title to Kalukundi, Africo was forced to issue new shares to Gertler’s company, Camrose Resources. The holdings of existing shareholders were heavily diluted. “Africo must be screw[e]d and finished totally!!!!” Gertler wrote in a text message revealed in court papers released in 2016. The IFC’s holdings decreased to just over 2 per cent.

For some 15 months after the take-over, IFC sat as an investment partner alongside Gertler before it quietly divested in 2009 by selling to Theodoropoulos, an Africo director and chairman. IFC lost $2.7 million of its initial investment as well as millions more had the project been developed. It issued no press release nor did it publicly denounce the corruption that had occurred.

In September 2016, the US Department of Justice successfully took action against multi-billion dollar New York hedge fund, Och-Ziff Capital Management Group, for its part in the corruption. Och-Ziff entered into a Deferred Prosecution Agreement with the DOJ, while an Och-Ziff subsidiary, OZ Africa, pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA. The company paid $412 million of civil and criminal charges and the case was assigned for sentencing.[1] Before sentencing, Africo’s former shareholders applied to the court for restitution, claiming they were victims. In its August 29 decision, the court recognized the shareholders as victims in the OZ Africa case. If restitution is ordered, this could significant increase the settlement amount Och-Ziff originally agreed with prosecutors.  

Och-Ziff’s role was to finance the lucrative deals, including making funds available to pay the bribes. Legal documents released by the US Department of Justice as part of the case show that Congolese officials received over $100 million in bribes via “an Israeli businessman”, easily identifiable as Gertler. The documents also show that former president, Joseph Kabila, received $10.7 million in bribes from Gertler over a short three-month period between December 2010 and February 2011. Although US officials use the pseudonyms “DRC Official 1” and “DRC Partner” in the documents, it is easy to discern, as many journalists have, the identities are Kabila and Gertler.

Gertler’s company, Camrose, was sold to Kazakh multinational mining company, Eurasian Natural Resources Corporation (ENRC) in two tranches in 2010 and 2012 at a substantial profit. At the time, ENRC was listed on the London Stock Exchange. It delisted in scandal in November 2013 following reports of poor governance and opaque deals, registering in Luxembourg as a private company under the name Eurasian Resources group (ERG). In April 2013, the UK’s Serious Fraud Office (SFO) launched a criminal investigation into ENRC, which is ongoing.

According to the Africa Progress Panel, between 2010 and 2012, Congo lost over $1.36 billion in revenues from the under-pricing of mining assets that were sold to offshore companies linked to Gertler.

[1] USA v. OZ Africa Management GP LLC, case number 1:2016cr00515, New York Eastern District Court, filed 27 September 2016.

Additional Links:

For the complaint to the World Bank Integrity Vice-Presidency, click here.

The executive summary of the report analysing IFC’s Africo investment in Congo is here. En francaise ici.

The full report analysing IFC’s Africo investment in Congo is available here.

For RAID’s report, “Bribery in Its Purest Form” analysing the US action under the Foreign Corrupt Practices Act click here.

RAID’s blog “DR Congo: The Forgotten Victims of Dan Gertler’s Corruption” click here

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