12 September 2013

South Africa: Gold Miner Feels Heat of U.S. Anti-Corruption Measures

Photo: Gold Fields
South Deep Gold Mine near Johannesburg

Cape Town — A 125-year-old gold mining company established by the British imperialist Cecil John Rhodes is feeling the heat of United States anti-corruption measures over a scheme to allocate black South Africans - including prominent members of the ruling African National Congress - a share of its business.

Gold Fields Limited has confirmed in a notice published on the official Johannesburg Stock Exchange news service that it has been told it is the subject of a regulatory investigation by the U.S. Securities and Exchange Commission (SEC).

The probe, it said, relates "to the black economic empowerment transaction associated with the granting of the mining license for its South Deep operation."

South Deep is a gold mine south-west of Johannesburg for which Gold Fields secured mineral rights from the government on the basis of a 2010 deal in which a range of black South Africans - company employees, community organisations and a consortium including ANC leaders - were allocated shares.

Such deals are regularly concluded to meet government requirements for the economic empowerment of black South Africans. But the Gold Fields transaction became the subject of fierce criticism in South Africa's business press after the identity of some beneficiaries had emerged, and when it became known that Gold Fields' advisers had included convicted fraudsters.

The company was also criticised for not revealing a full list of beneficiaries when the controversy erupted - despite, it turned out, having already published the list for shareholders when the deal was struck.

The SEC investigation has its roots in a decision by the Gold Fields board late in 2012 to commission the prominent New York law firm, Paul, Weiss, to probe the deal.

The board had received opinions from South African lawyers clearing the empowerment scheme but was concerned that since Gold Fields is listed on the New York Stock Exchange, it needed to pay heed to SEC regulations and the U.S. Foreign Corrupt Practices Act.

The board did not announce its decision, but after its chairperson at the time (and a former managing director of the World Bank), Mamphela Ramphele, resigned and went into politics early this year, she responded to criticism of her role by revealing the Paul, Weiss probe to South Africa's Business Times newspaper.

She told the Times that the coordination of the investigation had been entrusted to the the chairman of the board's social and ethics committee, Roberto Dañino, a former Peruvian prime minister who has also served as senior vice-president and general counsel of the World Bank and as secretary general of the International Centre for Settlement of Investment Disputes.

Late last month, the board - now chaired by former ANC activist Cheryl Carolus - received a report on the Paul, Weiss probe, and declared afterwards that "the implementation of the transaction did not consistently meet the high standards set by Gold Fields."

It added: "In particular, the board has identified areas that require further attention where internal policies and procedures can be strengthened. These include policies and procedures designed to increase transparency and improve the timeliness of internal communications between management and the board."

The board rapped the chief executive officer, Nick Holland, over the knuckles but said he retained its full confidence and that he had offered to waive his 2013 bonus. No other action was announced.

In a separate statement, the board announced that three directors - one of them Roberto Dañino - had resigned with immediate effect. A day later, a third statement further explained the resignations as being linked to reducing the number of Gold Fields directors from 12 to nine as a result of restructuring, but went on to add: "Once it became clear that the board had concluded its examination of the transaction relating to South Deep, Mr. Roberto Dañino resigned as chair of the social and ethics committee."

Last Friday, Johannesburg's Mail & Guardian newspaper led its weekly edition with a report saying that Paul, Weiss had questioned the legality of the circumstances under which ANC chairperson Baleka Mbete had secured a U.S. $2.5 million stake in the share allocation.

Paul, Weiss had recommended Gold Fields should "self-report" its conduct to the U.S. authorities but the board had "buried" the firm's finding, the paper said.

It quoted Dañino as saying he thought it his duty to remain on the board and its ethics committee until the board had considered the report. "Once the board made a decision, I decided to resign irrevocably. That's all I can say and you can draw your own conclusions."

On Monday, the SEC investigation was announced.

Declaration of interest: The writer liaised between Mamphela Ramphele and the Business Times while acting as an adviser to her during a leave of absence from AllAfrica.

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