Words can be powerful weapons, especially when they come from an enforcement agency or a regulator. And the announcement by the U.K.’s Serious Fraud Office (SFO) that it is investigating Rio Tinto’s activities in Guinea has called into question the effectiveness of the company’s anti-bribery controls and its leadership, particularly as two members of its executive committee have been forced out.

The SFO statement from 24 July is just 31 words long. It reads: “The SFO has opened an investigation into suspected corruption in the conduct of business in the Republic of Guinea by the Rio Tinto group, its employees, and others associated with it.” Rio Tinto’s response is even shorter, and contains even less detail. Its e-mailed statement reads: “Rio Tinto will fully cooperate with the SFO and any other relevant authorities, as it has done since it self-reported in November 2016.”

The SFO investigation comes nine months after the company self-reported the alleged wrongdoing, and four months after the Australian Federal Police confirmed that it had launched a formal investigation into the Guinean scandal. However, the SFO statement is the first mention of suspected bribery or corruption by any investigating authority, and lawyers say that it shows that the agency believes the matter is serious enough to mount a full investigation, although it is unclear what additional information the SFO might have other than that which the company self-reported.

The company, which has stock exchange listings in the United Kingdom and Australia, faces the risk of large fines if it is found to have broken anti-corruption laws. As yet, no executives or individuals have been charged. The consequences of a conviction, however, could be devastating, as in some jurisdictions a conviction for bribery or corruption bars companies from public sector contracts.

Words can be powerful weapons, especially when they come from an enforcement agency or a regulator. And the announcement by the U.K.’s Serious Fraud Office (SFO) that it is investigating Rio Tinto’s activities in Guinea has called into question the effectiveness of the company’s anti-bribery controls and its leadership, particularly as two members of its executive committee have been forced out.

The British-Australian mining group’s most recent troubles stem from a regulatory statement that the company issued on 9 November saying that on 29 August 2016 it became aware of e-mail correspondence from 2011 “relating to contractual payments totalling U.S.$10.5m made to a consultant providing advisory services on the Simandou project in Guinea.” That consultant was closely linked to Guinea’s President, and his “services were of the most unique nature.”

Rio Tinto’s involvement in the region has been beset with problems for over a decade. The Simandou range is considered one of the mining sector’s most coveted prizes as it contains the world’s largest untapped iron ore deposits, with enough ore to sustain annual production of 200 million tonnes—around 7 percent of global iron-ore output—for more than a quarter of a century.

The company’s aim, however, to control such a substantial portion of the world’s iron reserves has been mired in cost and controversy and has already produced protracted and expensive litigation.

The Government of Guinea originally awarded Rio Tinto four “blocks” of mining rights in the area in 1997, but the government stripped it of half the Simandou project in 2008 for alleged non-performance. The rights then went to BSG Resources, owned by Israeli billionaire Beny Steinmetz. BSG then teamed up with Brazil’s Vale SA to acquire total control of Simandou. But Rio won the rights back in 2011 after the Guinea government stripped them from BSG and Vale, alleging the companies had acquired them illegally. BSG and Vale have always denied any wrongdoing.

Given such a political backdrop, compliance professionals would be no doubt aware that bribery and corruption risks are likely to be heightened, and that relationships with third parties and their potential links to government officials should be checked and further transactions avoided.

But it appears that such warning signs were not highlighted or were simply ignored in pursuit of profit. Internal Rio Tinto e-mails show that high-level executives, including then-CEO Tom Albanese, approved U.S.$10.5m in payments in 2011 to a consultant named as Franc¸ois de Combret, a former Lazard Fre`res managing director with ties to senior government officials (including President Alpha Conde) in Guinea. At the time, the company was negotiating to retain the rights to mine parts of Simandou.

Emails leaked last year show that the consultant had “… unique and unreplaceable (sic) services and closeness to the President.”

Following years of expense and investment and low iron ore prices, Rio Tinto eventually pulled the plug on the U.S.$20bn Simandou project, and last October the company sold its 46.6 percent interest in Simandou for about U.S.$1.3bn to Chinalco, a Chinese company listed in Hong Kong.


Below, CW’s Neil Hodge talks with criminal defence attorney Raj Chada about the dangers of self-disclosure.
The extractives industry has often been at the centre of large-scale bribery and corruption investigations, as it is a sector where companies have little choice but to deal with government officials directly to win contracts, or through third parties that either have strong links with government departments or are directly appointed by them.
Raj Chada, criminal defence partner at London law firm Hodge Jones & Allen, says that other companies can learn lessons from the case. “The rewards in projects like these can be huge, but they often come with equally huge risk—not to mention political volatility—so all of these need to be considered and carefully reviewed with strict checks and compliance mechanisms,” he says.
Rio Tinto has declined to comment on whether it self-reported the potential illegal activity in the hope of opening up the possibility of being offered a deferred prosecution agreement to protect the company from a criminal conviction. Lawyers, however, have said that such a move is not to be taken lightly, especially as the SFO has long said that it will only consider the DPA route if it can gain unfettered access and that key information is not hidden under privilege.
Letting the SFO have access to corporate information should not be downplayed, as according to Chada, “Once you have self-reported, you cannot control the process,” says Chada. “Recent case law suggests that even records of internal investigations will need to be turned over to the SFO, rather than be legally privileged. However, the consequences of a failure to self-report could be even worse with prosecution likely rather than a DPA.”
—Neil Hodge

But even before the sale, the company had begun its own checks into the conduct of its own executives after uncovering e-mails late last August that highlighted potential illicit payments made to government officials through a third party.

Following its own investigation led by external counsel, Rio Tinto notified the relevant authorities in the United Kingdom, United States, and Australia. The company also scalped two of its executives. Energy & minerals Chief Executive Alan Davies—who had accountability for the Simandou project in 2011—was suspended with immediate effect, while legal & regulatory affairs group executive Debra Valentine “stepped down from her role” six months early, “having previously notified the company of her intention to retire on 1 May 2017,” according to the company’s statement. Rio Tinto also said that it intended “to cooperate fully with any subsequent inquiries from all of the relevant authorities.”

In a subsequent statement released on 16 November, the company said that “the board concluded that the executives failed to maintain the standards expected of them under our global code of conduct, The way we work. In the circumstances, the board terminated the contracts of both executives.”

The the code of conduct says that employees “do not commit, or become involved in, bribery or corruption of any form,” and that “we do not buy business or favour, no matter where we operate, no matter what the situation is, no matter who is involved.” It adds that “we never offer, give, demand, or accept any financial or other favour to, or from, any person in order to secure business, or any other advantage,” and that “we do not use or make payments to speed up routine administrative actions.”

In accordance with contract termination, Rio Tinto said in its 16 November statement that neither Davies—who only took over the company’s energy and mineral group in July 2016 as part of a company restructure—nor Valentine would be eligible for any short-term incentive plan awards for 2016 and that all unvested incentive plan awards from previous years would be cancelled too. The same day, Davies resigned from his role as non-executive director at Rolls-Royce—another company that seemingly has the SFO on speed-dial, and which finalised a deferred prosecution agreement worth £497.25m with the agency in January for historic bribery and corruption offences across Indonesia, Thailand, India, Russia, Nigeria, China, and Malaysia.

Bold Baatar took over Davies’ role as energy & minerals chief executive, while Chief Financial Officer Chris Lynch temporarily assumed accountability for Valentine’s role as head of the corporate legal & regulatory affairs function (since succeeded by law firm Freshfields Bruckhaus Deringer’s corporate partner, Philip Richards).

The company, however, has been keen to play down any suggestion as yet of either bribery or corruption. It has never used either term to explain the sackings of the two executives. Even at the company’s London annual general meeting in April, chairman Jan du Plessis stressed the company had not admitted corruption or bribery and that the dismissals of Davies and Valentine were because of breaches of the company’s code of conduct.

Despite its reluctance to be linked with any illegal activity, Rio Tinto’s business conduct has featured heavily in newsprint over the past year—not much of it flattering. Last December the company was forced to issue a statement in response to press reports regarding a U.S. Securities Exchange Commission (SEC) investigation into the timing of a U.S.$3bn impairment charge it set against its Mozambique business, which the company bought in 2011 and sold off just three years later. The SEC’s investigation began in April 2013 and is still ongoing. In the statement, Rio Tinto confirmed that it was “cooperating with inquiries from the relevant authorities relating to the impairment included in the company’s 2012 accounts in respect of Rio Tinto Coal Mozambique (RTCM).”