Where does the buck stop when it comes to how matters of bribery and corruption are dealt with between corporations and governments?
Particularly if the country in question now faces a grey listing of its financial practices which could well be the final nail in South Africa’s economic coffin.
The story of Glencore, highlights several concerns, not least of all, how easy it has been for the brown paper bag syndrome to flourish, but also, the number of highly influential and well-placed persons in the South African government and its key financial levers who are connected to Glencore’s dealings.
The UK Serious Fraud Office, has shown how Glencore paid more than $28 million (R507m) in bribes across five African countries over five years to 2016. And those are the ones that are known…
A judge handed down a penalty of £276 million (R5.6 billion) for Glencore’s conduct, on top of about $US1.1 billion the company has already paid in related cases in the US and Brazil.
The court found that Glencore traders’ hand-delivered enormous quantities of cash to government officials, they sought to profit from political turmoil, and they inserted themselves into government-to-government deals that had been negotiated at preferential rates.
In Nigeria, Glencore paid millions of dollars to an intermediary who was used to bribe officials.
The Nigerian agent also transported cash by private jet to Cameroon. Other African countries mentioned were Malawi, Chad, DRC, Equatorial Guinea, and Zambia and South Africa.
On June 25, 2012, Reuters reported, that a consortium comprising a Glencore subsidiary, Piruto BV, and politician turned businessman, now President, Cyril Ramaphosa’s Lexshell 849, had finalised the purchase of just over 70 percent of Optimum Coal.
Glencore stated that Ramaphosa had no interest in the mine following the conclusion of the co-operation agreement.
And in 2014, Ramaphosa had divested his entire interest in Optimum Coal Holdings, prior to him taking office as the deputy president.
This was also prior to his involvement with the Eskom war room, during the period when Optimum Coal Mine and Holdings were negotiating with Eskom regarding potential amendments to the coal supply agreement with Eskom.
The transaction subsequently came under the spotlight in the State capture investigations.
However, former Eskom bosses Brian Molefe and Matšhela Koko, have both testified that there had been an adversarial relationship between the power utility and Glencore.
Ramaphosa, who was then head of government business and overseeing Eskom, was also chair of Glencore - at the same time. He has been widely accused of facilitating deals for Glencore at the expense of Eskom and the taxpayer. Molefe has also in the past, accused Glencore of supplying sub-standard coal to Eskom.
Glencore’s influence and connections also encompassed, former governor of the South African Reserve Bank, Gill Marcus, who was appointed as an Independent Non-Executive Director of Glencore plc with effect from January 1, 2018.
Marcus has functioned as chairperson of a number of South African regulatory and supervisory bodies, including the Financial Services Board and the Standing Committee for the Revision of the Banks Act. She has also served as a non-executive director of the Advisory Board of the Auditor General and was a member of the Millennium Labour Council.
Her acceptance of the Glencore position clearly shows no fear of reputational risk. Her take on Glencore also seems aligned with the current stance of the Reserve Bank, as later reported in this article.
At the hearing, attended by Glencore chairperson Kalidas Madhavpeddi, the company’s lawyer said it “unreservedly regrets the harm caused by these offences”. But, does an apology absolve the company from its misdeeds and clear the reputational risk slate? That the magnitude of these transgressions have not resulted in greater sanction, is quite surprising.
According to Glencore’s 2021 Payments to Governments Report, Steve Kalmin, Glencore’s chief financial officer, notes that: “During 2021, our total payments to governments, were around $7.6 billion, in tax, royalty and levy payments…..while almost $4 billion is reported pursuant to the EU Accounting Directive extractive industries’ reporting requirements, including payments.”
In respect to “Resolutions with US, UK and Brazilian Authorities” he stated that: “In May 2022, we announced that we had reached coordinated resolutions with authorities in the United States, the United Kingdom and Brazil of previously disclosed investigations into past activities in certain Group businesses related to bribery, and separate US investigations related to market manipulation. Glencore cooperated with these investigations.
“These investigations identified serious cases of past misconduct in parts of our business. We acknowledge this is unacceptable behaviour that has no place in the Glencore of today. We are committed to operating ethically and responsibly in all aspects of our business. We are determined to foster a culture of integrity, inclusivity, and transparency wherever we operate, and at every level of Glencore.”
The company in relation to South Africa states: “In South Africa, we are supporting local Small, Medium and Micro-sized enterprise’s (SMME) development through our Enterprise and Supplier Development (ESD) hubs.” The question arises as to what the agreement entails.
Taxes and duties paid relating to non-extractive activities are considered without payroll tax. Other taxes include wealth tax, stamp duties, transfer tax, environmental tax, and other taxes according to local law.
The payment in 2021 of $1687638 (in excess of R30bn), is one such query we have, as these amounts payable to South Africa look suspiciously high and out of range compared to all the other countries in which Glencore operates.
We have written to Glencore to ask them to explain this item. Could it be that they make this payment and reduce their tax bill and the fiscus loses the tax payable thereon?
As Glencore’s ‘behaviour’ is a matter of some serious reputational risk, we also asked the Reserve Bank to comment on the questions below:
⦁Does the Reserve Bank regulate the stance a Bank takes on the issue of reputational risk relating to their clients?
⦁If the Reserve Bank monitors this aspect, what are the criteria considered?
⦁With grey listing on the radar, does the Reserve Bank consider it sufficient for a client to merely apologize and take steps against individuals by replacing responsible individuals?
⦁Does the Reserve bank consider it necessary for Banks to be consistent in their approach?
Their Response:
The Prudential Authority (PA) does not get involved in a bank’s relationship with its clients. Banks have their own internal risk management and governance structures.
We also posed the following questions to the major Banks.
Currently, the grey listing of South Africa due to various shortcomings is very topical. Glencore's admission of corruption is very disturbing as per the reporting auditors' statements below:
⦁"On February 15, 2022, the Glencore Group announced that it presently expects to resolve the US, UK, and Brazilian investigations in 2022. Accordingly, and based on the Company’s current information and understanding, the Group has recognized a provision as of December 31, 2021 in the amount of $1500 million representing the Company’s current best estimate of the costs to resolve these investigations."
⦁"We identified the following matters that led us to consider this to be a key audit matter: • the risk that the provision made by the Group is not complete and accurate, and the related disclosure made by the Group on the nature, timing, and associated uncertainties relating to the provision as required by IAS 37 is inadequate; and • the risk that the judgment on the probability that a present obligation did not exist for the Swiss and Dutch investigations and potential additional investigations or claims is inappropriate, and the disclosure of these as contingent liabilities may not be adequate."
Considering the above: Is your bank prepared to extend banking facilities to Glencore?
At the time of going to press we had only received an answer from the Prudential Authority and Standard Bank, which we appreciate.
The latter’s response was as follows; “The extension of credit facilities to clients involves careful consideration of applicable local and international legal and regulatory requirements. Standard Bank complies with these requirements when making credit decisions”.
From the above it seems as if the banks claim they comply with what the Regulatory authority demands, and the latter is confident that they need not intervene in this regard. The Reserve Bank is quick to raise interest rates but slow with measures to prevent a potential grey listing due to inadequate anti-corruption activities.
If it is possible to fly in Dollars under the radar into an African country, the international community will no doubt seriously consider grey listing that country. Zero tolerance by the citizens of this country demands action from all banks and authorities.
Action should apply to big or small, high profile or the ordinary man in the street.
Ultimately, the Prudential Authority should be more pro-active.
Corrie Kruger is an Independent Analyst.
BUSINESS REPORT