The Rio Tinto Group, a global mining and metals enterprise composed of Rio Tinto Ltd, headquartered in Australia, and Rio Tinto plc, headquartered in the United Kingdom, has agreed to pay $15 million to settle charges brought by the US Securities and Exchange Commission alleging violations of the Foreign Corrupt Practices Act.
According to the SEC, in 2011 Rio Tinto engaged an agent/consultant to help the company retain rights to mine iron ore in Simandou, Guinea. The agent, who is not named in the SEC documents, is a citizen of France, and has longstanding ties to a senior Guinean government official (they were college classmates together in Paris). The agent was paid over $10 million by Rio Tinto without adequate due diligence performed by Rio Tinto despite company policies that required due diligence on third party consultants. No written contract was signed between Rio Tinto and the consultant until the day before the company paid him. The facts as recited in the Cease and Desist Order reveal that the French citizen attempted (as detailed below) to pay hundreds of thousands of dollars to the Guinean official, and Rio Tinto did retain its mining rights in Simandou blocks three and four. Rio Tinto executives were aware that the consultant’s conduct raised red flags; they were also aware that the lump sum payment demanded by the consultant looked like a bribe. Nevertheless, Rio Tinto paid $7.5 million into the consultant’s Swiss bank account on July 8, 2011, and released an additional $3 million to him from escrow in February 2016.
A Rio Tinto executive initiated the payments, improperly using manual payment forms that were usually reserved for payments under $5,000. Also unusual was the Rio Tinto entity from which the payments were made – Hamersley Iron Pty Limited, an Australian subsidiary of Rio Tinto Limited, rather than one of the Rio Tinto plc entities. Employees expressed concern over the source and accounting for these payments, but an executive of the company explained that the payments had to be made urgently, confidentially, and quickly, and were therefore processed through Hamersley.
Shortly after the initial $7.5 million payment was made, the consultant submitted an invoice for tee-shirts to the Swiss bank in an attempt to justify the transfer of $822,506 from his Swiss account to the account of a Hong Kong company owned by a Guinean citizen with known ties to Guinean government officials. The transaction was blocked by the bank due to the recipient’s connections with Guinean government officials. The SEC discovered that the Hong Kong company subsequently paid $200,000 to a Chinese company to manufacture tee-shirts for the senior Guinean government official’s re-election campaign.
The SEC determined that Rio Tinto’s conduct violated Sections 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934, because the company, an issuer within the meaning of the Act, failed to make and keep books, records and accounts that accurately reflect its transactions, and because it failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed and recorded in accordance with accepted principles of accounting.
In reaching a settlement with Rio Tinto, the SEC took into consideration the company’s cooperation in the investigation, including the production of key documents and facts, and making current and former employees available for interviews. The SEC also viewed favorably the remedial efforts undertaken by Rio Tinto: the company terminated employees involved in the misconduct, improved its internal accounting controls, strengthened its compliance program and enhanced its policies and procedures regarding due diligence, gifts, hospitality and the engagement of third parties, implemented better monitoring systems and controls relating to manual payments, sharpened its anticorruption risk assessment and transaction testing mechanisms, and increased anti-bribery training for employees and third parties.