Just over four years ago, Glencore faced acute embarrassment when the European Union's bank announced an investigation of tax evasion allegations against one of Glencore's subsidiaries in a painfully poor country: Zambia. According to one estimate by ActionAid, the alleged tax evasion may have cost Zambia as much as £76 million a year between 2006 and 2008. Assuming the estimate is correct, it is roughly double the country's health budget in 2007.
Announcing its probe in a press release dated 31 May 2011, the European Investment Bank (EIB) added that 'due to serious concerns' about Glencore's governance', which went beyond the Zambian allegations, it would refuse any further loans to Glencore companies. The Bank had lent $50 million to Glencore's Zambian subsidiary Mopani Copper Mines in 2005, to help pay for new equipment which would help clean up the mine's then massive emissions of sulphur dioxide gas. The clean-up was actually achieved in 2014.
This report tells the troubling story so far of how, despite these grave allegations against it, Glencore has thwarted attempts to investigate its taxes in Zambia. It also tells of how the European Investment Bank, which is wholly owned by EU member countries including the UK, has repeatedly refused to reveal what it knows about the controversy.
The report ends with four questions for Glencore, whose AGM will take place this Thursday 7th May in Zug, Switzerland.
At a time when the commodities giant is seeking to take over Rio Tinto and become still more powerful across the world, such questions are all the more urgent.
2011: Leaked Audit Report Turns the Spotlight on Glencore in Zambia
The first signs that something may have been seriously wrong with the taxes of Glencore's Zambian subsidiary emerged in early 2011, with the leak of a draft report by auditors Grant Thornton and Econ Poyry. It has never been clear who leaked the report. Even by the standards of 2015, when revelations about multinationals' tax affairs are commonplace, the 23-page document is an extraordinary one.
It highlights irregularities around the mine's operational costs, revenues, transfer pricing, employee expenses and overheads and covers the years 2006-7 and 2007-8. The auditors who wrote it also complained bitterly about the obstructiveness they faced when they attempted to do their job, which was commissioned by Zambia's tax authority, the ZRA.
"It should be noted that the international team leaders have not experienced such a lack of compliance in any other country, and Grant Thornton Zambia confirmed that this attitude is also not typical for other industries/companies in Zambia," they said.
Glencore has always dismissed the report as a flawed draft which contained major mistakes and it and Mopani have always denied wrongdoing.
However the EU's bank, which had lent Mopani $50 million, was sufficiently concerned to launch its own investigation of the tax allegations. It first sent investigators to Zambia in March 2011, when they met with Mopani managers as well as the Zambian Revenue Authority.
On May 31st, the Bank announced its investigation in a widely reported press release which has since been removed from its website. Then in August 2011, investigators for the Bank again travelled to Zambia in an attempt to find out what had really happened at Mopani. An investigation report was finally presented to the Bank's management committee in November 2011, although so far the Bank has refused to publish it.
The Zambian authorities' reaction to the leaked report has also been unclear at best. In June 2011, The Guardian newspaper quoted the country's then finance minister state's finance minister, Situmbeko Musokotwane: "The Zambia Revenue Authority (ZRA) has asked Mopani to pay more money in underpaid taxes, but they must be given a chance to respond," said Musokotwane. "If their answers are satisfactory we will go by what they submit, but if they are not satisfactory we will adjust their tax liability upwards to the figure the ZRA has asked them to pay. We are very confident that this matter will be resolved amicably and are just waiting to hear from Mopani."
Christian Aid has been unable to find published evidence of what happened next between the mine and the Zambian government. In 2012, Bloomberg news agency reported a Zambian government finance minister complaining that tax avoidance by mining companies was costing the country as much as $2 billion a year although he did not appear to be pointing at Mopani in particular. Much more recently, the European Investment Bank has said that it had failed to get information about the outcome of the controversial audit from the ZRA.
2012 - 13: Secrecy at the European Investment Bank
As one of the many organisations campaigning for tax justice, as well as working to support people living in poverty in Zambia, Christian Aid was troubled by the tax evasion allegations against Mopani and concerned to hold the EIB accountable for its actions towards its borrower. In November 2012, Christian Aid asked the Bank to publish the findings of its Mopani-Glencore investigation. The Bank refused.
It is worth noting that the Bank is not an ordinary investment institution. Rather, it is wholly owned by the UK and other European Union member states. The board of directors is therefore made up of UK and other civil servants while its board of governors includes finance ministers such as (until the UK election on 7th May 2015 at least) George Osborne.
In June 2013, Christian Aid formally complained to the Bank about its secretive approach, pointing out that it was at odds both with the Bank's own transparency policy and with the public interest in the truth about whether a major multinational had paid its taxes in an extremely poor country. We urged the Bank to reconsider its refusal to reveal its findings about Glencore in Zambia. Christian Aid complained to the Bank's internal Complaints Mechanism, which - as became all too clear - is independent of the Bank's managers but can be overruled by them.
Other organisations working on the Mopani-Glencore affair
Christian Aid is one of many organisations, in Europe and in Africa, which have worked on this case. In April 2011, five organisations including Christian Aid's Zambian partner the Centre for Trade Policy and Development complained to the Organisation for Economic Co-operation and Development (OECD)'s Swiss National Contact Point about a possible violation by Glencore of the OECD's guidelines for multinationals. Christian Aid regards the outcome of the complaint as inconclusive. Others including Oxfam International, Tax Justice Network Africa, Berne Declaration, Alliance Sud, Counter Balance and Eurodad have also publicly called on the European Investment Bank to publish its investigation report on Glencore-Mopani.
Counter Balance, a Brussels-based campaign which focuses on the EIB, has closely followed the Mopani case as a major test of the EIB's avowed commitment to transparency. Counter Balance has worked to influence the Bank's new policy on transparency, which the Bank launched in 2015 to warnings that it had become more secretive than ever, partly in response to its own embarrassment around Mopani-Glencore.
2014 - 15: Europe's Bank says no and the European Ombudsman intervenes
When in February 2014 the Bank had still not responded to Christian Aid's complaint about the secrecy surrounding its Mopani-Glencore report, Christian Aid turned to Europe's official watchdog, the European Ombudsman. Christian Aid again argued that the Bank should have to publish its findings into a matter of major public interest and concern in Africa and Europe.
The information that since emerged, as a result of our complaint to the Ombudsman, has only strengthened our belief that the Bank should reveal what it knows about the conduct of Glencore-Mopani in Zambia.
Then in July 2014, the Bank finally responded to Christian Aid's request that it publish the secret report. It had taken more than a year to do so. The Bank's official Complaints Mechanism - its complaints handling department - recommended that the Bank should publish a redacted version of the document, with some information removed.
However the Bank's more powerful Management Committee rejected their own colleagues' recommendation and refused to publish any part of the report. The Committee argued that to do so would damage future investigations by the Bank and that EU law did not clearly require them to reveal the report.
The Ombudsman Emily O'Reilly made her first public statement on the case in December 2014, when she asked the Bank to reconsider its refusal to publish its investigation report and give access to a redacted version of it or else provide Christian Aid with 'a meaningful summary of the main findings of the investigation report'.
Then in response to the Ombudsman's recommendation, in January 2015, the Bank published a brief but disturbing document which it described as a 'summary' of its Glencore investigation. In its 'summary', the Bank revealed that when it sent investigators to Mopani in August 2011, they met were with clear and repeated obstruction. Their experiences sound remarkably similar to those complained of by the auditors from Grant Thornton and Econ Poyry.
The EIB's 'summary' states:
... Documents which had been requested by the EIB team more than two months in advance of the review were not made available and access to essential information during the review was not provided, despite repeated requests. As a result, the number of issues investigated by the EIB Review Team had to be limited and IG/IN [the Bank's Inspectorate General's Fraud Investigations Division] was forced to break-off the mission almost two days earlier than planned. The work of the EIB Review Team was non-conclusive due to the difficulties faced in the investigation of the case. As not all of the necessary information could be obtained, it was not possible to comprehensively prove or disprove the allegations raised in the Leaked Draft Report regarding Mopani's costs, revenues, transfer pricing, employee expenses and overheads...
According to the same 'summary' document, Glencore argued that the investigators' inability to get the documents they sought was due to the fact that staff at the mine was responding to a simultaneous audit by the Zambian Revenue Authority. Given that Glencore is a well-resourced, major multinational, Christian Aid finds this unconvincing.
We were also unconvinced that what the Bank had published amounted to a 'meaningful' summary of what it knew about Glencore in Zambia. Surely the Bank had reached some sort of tentative conclusion about the tax allegations that had been made against Glencore-Mopani? The Bank's own summary of its secret report hints that it had.
... On the basis of the difficulties encountered, IG/IN [the Bank's Inspectorate General's Fraud Investigations Division] concluded its investigation in November 2011 and the EIB started discussions with Mopani's parent company, Glencore, which resulted in the latter deciding to voluntarily prepay the loan in 2012, thus closing its contractual relationship with the EIB...
Despite this possible hint of what the Bank really concluded, Christian Aid put our concern that the Bank's 'summary' omitted important information to the Ombudsman. She had seen the Bank's secret report in full and could therefore assess whether its 'summary' was meaningful.
In a damning final ruling in March 2015, Ms O'Reilly confirmed that it was not. She concluded:
1. The summary released to the complainant and published on the EIB's website on 29 January 2015 does not constitute, with regard to the substantive findings into the allegations of tax evasion by Mopani, a meaningful summary of the EIB's Inspectorate-General's investigation report of 16 November 2011.
2. In its handling of the request for access to the report in question, the EIB failed to meet its obligations under its own Transparency Policy.
She also sharply criticised the Bank's argument that publication of its Glencore-Mopani report would damage its future investigations, pointing out that the Bank's own website carried a document about the procedures used in its investigations.
The Ombudsman cannot force the Bank to act on her findings. However within six months of her final ruling, she expects the Bank to tell her of anything that it has done in response.
Christian Aid is very grateful to the Ombudsman and her colleagues for their meticulous work on the Glencore-Mopani tax case. Their efforts have exposed what high levels of secrecy and uncooperativeness investigators faced when, in 2011, they attempted to get to the bottom of the tax evasion allegations facing Mopani-Glencore. The Ombudsman's work has also shown that the European Investment Bank has further, significant information on the Glencore-Mopani tax case. Christian Aid believes it should make the remaining information public without further delay.
Glencore meanwhile claims to have conclusively disproven the allegations in the report, which it says 'contained fundamental factual errors'. Christian Aid is not satisfied that Glencore has done any such thing, because Glencore-Mopani has failed to allow independent investigators free and full access to relevant records. Nor is the company sufficiently transparent to enable citizens to identify financial irregularities which could indicate tax evasion or avoidance, if they were occurring. Full, public country-by-country reporting would be a minimum condition for this.
The company cites in its favour the opinion of accountants Deloitte, whose letter argues among other things that the leaked auditors' report 'contains fundamental flaws'. As Mopani's own auditors in 2011 (and apparently now), Deloitte would know the company's finances better than most. However Christian Aid notes that as the mining company's auditors, Deloitte can hardly be said to have an independent view of other accountants' suggestions that Mopani may have been guilty of systematic tax evasion.
QUESTIONS FOR GLENCORE AND THE EUROPEAN INVESTMENT BANK
1. Why did Mopani-Glencore blatantly obstruct the independent investigators who came to examine its financial records, not once but twice? The first team of investigators were from Grant Thornton and Econ Poyry and the second were working for the European Investment Bank.
2. Why did Glencore apparently ask Deloitte to write an attack on the leaked draft audit report? Deloitte were and apparently still are as of April 2015 the auditors of Mopani, so could be thought to have a conflict of interest.
3. Why has Glencore failed to ask the European Investment Bank to publish its secret report, so all is out in the open? Glencore could then - if it is as innocent as it claims to be - move towards countering existing allegations.
4. Will Glencore produce public country-by-country reports of its worldwide operations, to help tax authorities, journalists, civil society and other companies determine whether or not it is paying its fair share of tax in all the countries in which it operates?
5. Why has the EIB repeatedly refused to reveal what it knows about the affair? As the European Ombudsman has shown, the reasons given by the EIB are unconvincing. The example of the World Bank Integrity Vice-Presidency shows that edited versions of its investigation reports - with identifying details removed - can be published.
For more information contact Rachel Baird on 0207 523 2446 or 07850 242950
Notes to editors:
1. Christian Aid works in some of the world's poorest communities in around 40 countries at any one time. We act where there is great need, regardless of religion, helping people to live a full life, free from poverty. We provide urgent, practical and effective assistance in tackling the root causes of poverty as well as its effects.
2. Christian Aid's core belief is that the world can and must be changed so that poverty is ended: this is what we stand for. Everything we do is about ending poverty and injustice: swiftly, effectively, sustainably. Our strategy document Partnership for Change explains how we set about this task.
3. Christian Aid is a member of the ACT Alliance, a global coalition of more than 130 churches and church-related organisations that work together in humanitarian assistance, advocacy and development. Further details at http://actalliance.org
4. Follow Christian Aid's newswire on Twitter: http://twitter.com/caid_newswire
5. For more information about the work of Christian Aid visit http://www.christianaid.org.uk