BHP Billiton hit by bribery allegations

Published by MAC on 2010-05-01
Source: Reuters, AFP, The Age, and others

BHP investigated for anti-graft violations

James Regan

Reuters

21 April 2010

SYDNEY - Global miner BHP Billiton has discovered potential violations of anti-graft laws relating to its exploration activities, in another blow to the mining industry's tarnished image.

The case, under investigation by the U.S. markets watchdog, follows the jailing in China last month of staff from rival Rio Tinto and comes as both mining giants seek regulatory approval for a $116 billion Australian joint venture.

"This is probably the last thing they need at this point in time," said Tim Schroeders, fund manager with Pengana Capital, referring to BHP's need to keep international regulators onside as it looks to combine its main iron ore operations in west Australia with those of Rio Tinto.

BHP Billiton said on Wednesday it had found the possible violations, relating to old exploration projects, and was now cooperating with the U.S. Securities and Exchange Commission (SEC) and carrying out its own internal probe.

By 0150 GMT, BHP shares were flat in a slightly firmer market, with analysts taking comfort in the fact the possible violations were unrelated to China or BHP's sales and marketing.

"The fact that the investigation applies to expired mineral exploration tenements is infinitely preferable to if it had applied to marketing or sales activities, which would have potentially far-wider-ranging implications," said Michael Bush, National Australia Bank's head of fixed income credit research.

He said it was unlikely to have any significant implications for BHP's credit ratings.

BHP said the exploration projects in question had been terminated before December 2008, were "relatively small" and were not related to any activities in China, but it declined to detail the possible violations. The SEC declined to comment.

"The company has disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anti-corruption laws involving interactions with government officials," it said in a few lines dropped into its quarterly production and exploration report.

"It is not possible at this time to predict the scope or duration of the investigation or its likely outcome," BHP said.

Mining analysts said regulators worldwide would be watching the case closely as they weigh up BHP's planned Australia iron ore joint venture with Rio Tinto.

Steelmakers in Asia and Europe are pressing regulators to block the venture, arguing it would give the pair undue influence on the price of iron ore, which has more than doubled on the spot market over the past 12 months amid a commodities boom fuelled by Chinese demand.

BHP Billiton and Rio Tinto are the third- and second-largest producers of iron ore, respectively.

Exploration Permits Not in US - Source

A source familiar with the matter said the projects in question were outside the United States, but would not say where they were located.

"This is obviously an event that BHP will wish had not occurred and my have implications for its ability particularly to undertake exploration activities in the relevant jurisdiction," NAB's Bush said in a note.

The U.S. Department of Justice declined to comment on whether it, too, was looking at the case.

"We can confirm that the SEC's requests for information primarily relate to certain terminated minerals exploration projects and not any activity in China, BHP Billiton's marketing activities or the sale of any of the company's products," BHP said in a separate, emailed statement on Wednesday.

(Additional reporting by Karey Wutkowski in WASHINGTON and Cecile Lefort and Bruce Hextall in SYDNEY; Writing by Mark Bendeich; Editing by Anshuman Daga)

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Cambodian PM denies BHP paid bribe

AFP

27 April 2010

The Cambodian prime minister has denied that mining giant BHP Billiton paid a large bribe for an exploration contract in his country.

Australian media last week reported that authorities in the United States were probing BHP over a $US2.5 million ($A2.7 million) payment related to a project in Cambodia.

But Cambodian leader Hun Sen said the money was for a so-called "social fund" established in an agreement between Australia and Cambodia, and was used to build a hydroelectric dam, schools and hospitals.

"These days, they have been saying BHP paid illegal money to Cambodia. Let's see the contract - it was a social fund," Hun Sen said in a speech.

"This issue is written in the contract. It is not the under-the-table money," Hun Sen told a meeting between the government and private sector which Australia's ambassador to Cambodia also attended.

"It is written in the contract. It is not secret," he said.

The Anglo-Australian miner on Wednesday said it had evidence of possible corruption involving "interaction" with government officials, related to a minerals exploration project that was terminated about a year ago.

It declined to reveal the location of the project, but said it was not in China, where four staff of rival miner Rio Tinto were jailed for bribery and commercial espionage last month.

BHP has said it paid $US2.5 million to a community in Cambodia's east and $US1 million to the government for bauxite exploration rights, according to The Australian newspaper.

BHP declined to comment on the reports. On Wednesday, it said it had handed evidence to the US Securities and Exchange Commission and was also conducting an internal investigation.

Anti-corruption watchdog Global Witness said in a statement last week that Cambodian government accounts do not appear to reflect large amounts of money paid by BHP and other companies for mining concessions.

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Timing could not be worse for the Big Australian

Matthew Stevens

The Australian

22 April 2010

There is never a good time to fall on to the radar of a US Securities and Exchange Commission seeking to enforce the Foreign Corrupt Practices Act. But there is a worst time and for BHP Billiton this surely has to be it.

News of the SEC's investigation, and BHP's admissions of a "possible violation of anti-corruption laws", comes barely a month after four Rio Tinto executives were jailed in China, then sacked by the company, for taking bribes and buying commercial state secrets.

For all that the nature of the SEC's issues appear to be distinctly different from the critical failures revealed by the Stern Hu affair, BHP now risks being sucked into the same deeply murky territory that Rio has stalked since the arrest of the Rio Tinto Four.

Not that BHP did itself any favours in attempting to avoid such a dark slide yesterday.

The decision to tack confirmation of the SEC's request for information, and BHP's subsequent discoveries, to the bottom of the quarterly exploration and development report was bizarrely inadequate.

And the lack of detail carried by the "Additional Information" only worked to amplify the sense that something quite sinister had been afoot.

The other strategically important reputational issue here is that BHP is stuck in the extremely delicate middle stages of anti-trust investigations of the proposed $US116 billion ($124bn) joint venture of its Pilbara iron ore production assets with those of its competitor, Rio.

Self-evidently, any suggestion that BHP has issues to face under the tough US anti-corruption laws could become useful PR tools for those ardently resisting the deal in Europe and Asia, most particularly.

So, what do we know has happened here and what, then, do we think has happened?

Well, from what BHP said yesterday, we know that in August last year the SEC asked the company for information about the conduct of at least one of its international exploration projects. We know that BHP then opened an internal inquiry that identified "possible violations" of US laws that guard against the bribery of a foreign government and its officials as well as against other forms of commercial corruption.

We are told that, whatever the problem actually is, it does not involve China and has nothing at all to do with marketing or distribution scams. We have been warned not to presume that bribery is a focus of the investigation nor, indeed, that any individual person has been identified as being either negligent or culpable.

We know that BHP has reported back to the SEC and is helping with the regulator's investigation, while its internal inquiry continues with a focus now on more than one project. Mind you, we don't know whether the issues spread across two or more countries. But we do know that the asset that triggered the SEC's interest was surrendered almost a year ago.

Keeping track of where BHP is and isn't exploring is a tough task, given it routinely spends $US500 million a year on exploration and much of that work is far too small to be material enough to require any sort of announcement. But there are four comparatively big exploration efforts in troublesome destinations that could fit the bill here.

Over the past year or so BHP had dropped a high-profile nickel project in The Philippines, a diamond exploration effort in the Democratic Republic of Congo, a bauxite project in Suriname and another bauxite exploration push in Cambodia. Each of these projects has generated controversy of sorts.

But, in the end, what we think we know is that the project most likely to have attracted the SEC's attention is the Mondulkiri bauxite exploration joint venture with Mitsubishi in Cambodia. Now, in the end, it could well be that Cambodia is not be the root of BHP's ill-timed contretemps with the SEC, but the company's experience in arguably Asia's most unfortunate nation would seem to, at very least, characterise the sort of issues that might trigger the US regulator's interest.

According to a report carried in The Cambodia Daily on July 24, 2007, the National Assembly was told BHP paid $US2.5m to the Cambodian government to secure exploration rights to a bauxite deposit in the northern province of Mondulkiri.

The claim was made by the then minister for water, who went on to describe the payment as "tea money", which is apparently a colloquialism for unofficial payments to government officials in Cambodia.

The minister's commentary then went on to become one of many reference points for a report into Cambodian corruption by the NGO Global Witness.

In preparing a report called Country for Sale, Global Witness detailed the claims and BHP's brusque, complete rejection of them. Global Witness wrote to BHP in October 2008 requesting details of any and all payments it may have made to the Cambodia government.

BHP responded saying it had put $US2.5m into a development fund that was investing in local social welfare programs and that it had paid $US1m in September 2006 to the Cambodia government for bauxite exploration concessions. "BHP Billiton has never made a payment to a Cambodian government official or representative and we reject any assertion that the payment under the minerals exploration agreement is, or amounts to . . . `tea money'," it said.

Global Witness was told that any spending by the fund could be authorised only by a BHP representative, although it appears that the Cambodia government had some kind of representation in the management of programs.

While Global Witness did not draw any negative conclusions about the management of the development fund, it did identify an issue with the $1m payment to government, although one patently outside the control of BHP. The NGO conducted an audit of the government balance sheet only to find that the income line showed that non-tax revenue from mining concessions in 2006 was only $US455,866.

And yet BHP and Mitsubishi paid $US1m for their concession. "If the money appears elsewhere in the TOFE (state finances) it is not clear where," Global Witness wrote. "This raise questions as to where BHP's $US1m payment made in September 2006 has gone."

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Hun Sen backs BHP in speech

May Kunmakara and James O'Toole

Phnom Penh Post

28 April 2010

In a speech lasting more than five hours, Prime Minister Hun Sen on Tuesday rejected reports that a corruption probe at international mining giant BHP Billiton is related to the company's dealings in Cambodia.

The marathon address was delivered at the 15th Government-Private Sector Forum in Phnom Penh. In addition to addressing topics ranging from silk yarn imports to the price of airfare to Bangkok, the premier weighed in on the controversy that has ensued since BHP announced last week that it had begun an internal investigation of possible corruption in response to an inquiry from the United States securities and exchange commission.

"They say that the company that explored for bauxite in Mondulkiri province gave money illegally to Cambodia," Hun Sen said, referring to the Australia-based BHP. "We should ask ... how can they bribe? It cannot be possible."

BHP has thus far declined to identify the project at the centre of its inquiry, other than to say it is not in China. Speculation has focused on the firm's operations in Cambodia in part because of comments made in 2007 by Minister of Water Resources Lim Kean Hor, who told the National Assembly that BHP had secured rights to a mining concession in Mondulkiri by paying US$2.5 million in unofficial fees, known as "tea money".

Hun Sen said Tuesday, however, that when he signed the formal concession agreement with BHP in 2006, it was established that the $2.5 million would support development projects in the Kingdom.

"I proposed taking the money to develop hydroelectricity in Pursat, and later on the company asked to use the money to develop schools and hospitals in Mondulkiri," Hun Sen said. "This is in the contract - it is not money under the table."

It is standard practice for foreign companies operating in Cambodia to offer support for social projects, the premier said. French oil company Total, for example, has paid $8 million into a social development fund as part of its agreement to explore for oil offshore, Hun Sen said, in addition to an $20 million fee paid to the government.

In a 2008 letter to the watchdog group Global Witness, BHP, too, said the $2.5 million that Lim Kean Hor called "tea money" had gone to a social development fund overseen by the government and BHP personnel for projects in Mondulkiri.

Wildlife Conservation Society country director Mark Gately said Sunday that his organisation had received $24,000 from BHP in 2008 for a project in Mondulkiri. Heng Ratana, deputy director-general of the Cambodian Mine Action Centre, said his group had received roughly US$1.1 million from BHP for projects in Mondulkiri since 2007.

In addition to the social fund, BHP told Global Witness that it paid the government $1 million as part of the formal concession agreement in 2006.

That $1 million, Global Witness subsequently found, was not accounted for in the government's official revenue figures for that year.

Prior troubles

A BHP spokesman in London declined to comment on Hun Sen's remarks. The firm has said little on the issue beyond last week's statement that disclosed the discovery of "possible violations of applicable anti-corruption laws involving interactions with government officials". This evidence, the statement said, arose after "requests for information from the US Securities and Exchange Commission as a part of an investigation relating primarily to certain terminated minerals exploration projects".

Australian and British media have reported that the current BHP probe is focused on Cambodia. BHP pulled out of the Kingdom last year, saying that a feasibility study at the Mondulkiri site had determined that large-scale mining operations there would not be profitable. A Philippine nickel-mining project that the firm pulled out of last year has also been mentioned. That project was fraught with controversy through much of BHP's involvement.

In 2008, the Catholic Agency for Overseas Development (CAFOD) alleged that officials from BHP's partner in the project, the Philippines' AMCOR, had paid bribes to members of the Mindanao island community where the project was located in exchange for their support.

CAFOD extractives policy analyst Sonya Maldar said Tuesday that when confronted by her organisation on this issue, BHP "refuted our allegations".

"Their response was that they had carried out their own kind of internal audit processes around the [community] consent process and they uncovered no irregularities," Maldar said. She added that BHP had refused to make the results of this audit public.

In 2007, AMCOR filed fraud charges against BHP in a Philippine court, according to a CAFOD report. An injunction that prevented BHP from accessing the mining site was granted on AMCOR's behalf in 2008 before being overturned last year, the Philippine Star reported.

Maldar said that while BHP has never been proven to have broken corruption laws in the Philippines, the company's experience there and its current troubles show the difficulties facing the extractive industry in emerging markets.

"It really demonstrates that companies need to be really thorough when choosing who they work with, who they go into partnership with, in countries that have records of governance and corruption issues," she said.

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BHP sued over US mine

Mathew Murphy

The Age

27 April 2010

BHP Billiton is being sued by a powerful environmental group in the US over claims that its New Mexico operations have contaminated groundwater flowing into neighbouring areas.

Court documents filed earlier this month by the Sierra Club, one of the oldest and largest environmental organisations in the US, allege BHP's San Juan Coal Company is threatening the health and livelihood of its members, who live just outside the company's permitted area.

The coalmine, near Farmington in north-west New Mexico, is believed to be discharging contaminants including arsenic, lead, chromium and sulphates, in some cases 200 times above water-quality standards.

The contaminants, collectively called coal combustion waste, a byproduct of coal-fired power generation, are potentially lethal if found in high enough concentrations.

BHP has strongly rejected the Sierra Club allegation that its operations have contaminated water supplies, saying it is ''not supported by water monitoring data''.

''Monitoring data is submitted to state of New Mexico Mining and Minerals Division on a quarterly basis and is available to the public,'' BHP said. ''The results from this program demonstrate that coal combustion waste placement at San Juan has not adversely affected water quality and is in compliance with all state and federal regulations.''

The Sierra Club says it noticed the violations last September during an inspection of the mine. Testing of water from several wells on site showed levels in breach of regulations and continuing to rise.

The court documents say the San Juan coalmine has served as a ''disposal site for millions of [tonnes] of coal combustion waste''.

''From 1973 to 2010, at least 40 million tonnes of coal combustion waste generated by the San Juan generating station has been disposed of in the San Juan coalmine,'' the documents allege. ''Material damage to the hydrologic balance which San Juan Coal Company's operations have caused outside its permitted area has adversely affected the interest of ... individuals in maintaining their health, in conducting agricultural and other businesses and in using and enjoying the water resources.''

BHP acquired the New Mexico Coal assets in 1984.

If found guilty, it could be forced to pay millions of dollars in penalties and legal fees.