{"id":9935,"date":"2019-10-02T11:10:47","date_gmt":"2019-10-02T11:10:47","guid":{"rendered":"https:\/\/amabhungane.org\/?post_type=stories&p=9935"},"modified":"2024-09-20T18:38:41","modified_gmt":"2024-09-20T18:38:41","slug":"the-great-samancor-heist","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/the-great-samancor-heist\/","title":{"rendered":"The great Samancor \u2018heist\u2019"},"content":{"rendered":"\n

Theft and corruption totaling over $500-million (about R7.5-billion now) is being alleged in court proceedings pitting workers against Samancor Chrome, one of South Africa\u2019s major privately owned mining and minerals processing companies, and its previous owner and chair, Croatian billionaire Danko Kon\u010dar.<\/p>\n\n\n\n

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Croatian billionaire Danko Kon\u010dar.<\/p>\n\n\n\n

It is alleged that Kon\u010dar and his associates spirited billions of rands abroad in a transfer pricing scheme, sold assets while secretly pocketing most of the proceeds, got paid secret management fees and anonymously earned facilitation fees as ostensibly independent middlemen between Samancor and an Australian mining company.<\/p>\n\n\n\n

Kon\u010dar, Samancor executives and a number of alleged co-conspirators are yet to respond to allegations in court \u2013 and may throw a different light on the evidence presented so far.<\/p>\n\n\n\n

The case is being brought by the Association of Mining and Construction Union (Amcu) and rests on testimony from a whistleblower, former Samancor director Miodrag Kon, who is supporting the court challenge with a treasure trove of internal documents and emails.<\/p>\n\n\n\n

Kon has asked the court to keep his whereabouts secret \u201cdue to concerns regarding my personal safety\u201d.<\/p>\n\n\n\n

He alleges in a court affidavit<\/a> that Kon\u010dar, through his company Kermas, extracted as much as $500-million in only five years between 2005 and 2010.<\/p>\n\n\n\n

Amcu general secretary Jeff Mphahlele claims in a separate affidavit<\/a> that the damage may ultimately have been as much as $1.9-billion. He does not state the basis for the estimate, but it appears he also took into account what happened after 2010.<\/p>\n\n\n\n

Selling assets on the cheap<\/h5>\n\n\n\n

Mphahlele charges that had the money been paid out as dividends instead, a Samacor employee share ownership scheme would have received $100-million.<\/p>\n\n\n\n

Kon\u010dar bought Samancor with the assistance of International Mineral Resources (IMR), a company owned by three controversial Kazakh oligarchs, Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov. IMR partially paid for Kon\u010dar\u2019s acquisition of Samancor in 2005 and subsequently bought out his entire interest to own 77% by 2010.<\/p>\n\n\n\n

Despite their support for him in 2005, evidence before the court shows that Kon\u010dar allegedly even ripped off the Kazakhs before getting bought out.<\/p>\n\n\n\n

He went on to secretly control a Finnish multinational partially built on Samancor-related assets and run by ex-Samancor executives. Shenanigans there recently saw Finnish authorities slam Kon\u010dar with a mind-boggling fine of \u20ac110-million (about R1.8-billion).<\/p>\n\n\n\n

The crudest and most brazen alleged scheme to extract money from Samancor was the sale of 50% of a subsidiary, Tubatse Chrome, to Chinese state-owned conglomerate Sinosteel in 2007.<\/p>\n\n\n\n

Sinosteel paid $225-million, but a staggering $125-million (R1.9-billion now) of that did not go to Samancor at all. Instead it ended up in the London bank account of Kermas, Kon\u010dar\u2019s company registered in the British Virgin Islands.<\/p>\n\n\n\n

Kon has provided Samancor\u2019s annual report for the 2008 financial year where the proceeds from the sale are recorded as R683-million. At the most favourable exchange rate recorded in May 2007, the month of the deal, this came to $100-million.<\/p>\n\n\n\n

More damning is an email chain<\/a> confirming receipt of payment which makes it clear that Samancor\u2019s banker Nedbank and the company\u2019s management were well aware of the money being diverted.<\/p>\n\n\n\n

In the email chain a Nedbank manager alerts Wessel Erasmus, a Samancor veteran who became chief financial officer when Kermas took over, that $100-million has been received in Samancor\u2019s account.<\/p>\n\n\n\n

A few minutes later the Nedbank manager sends another email: \u201cI can also confirm that Nedbank London has received USD 125-million on the account for Kermas.\u201d<\/p>\n\n\n\n

Samancor\u2019s Erasmus then forwards the good news to Kon\u010dar.<\/p>\n\n\n\n

J\u00fcrgen Schalamon, the German Samancor chief executive installed by Kermas in 2005, was also copied into this discussion. He at the time had a 1% interest in Kermas in the British Virgin Islands, according to other documents in the court file.<\/p>\n\n\n\n

The Sinosteel deal was accompanied by a confidential distribution agreement whereby Kermas became the sole marketing agent for Tubatse products and was guaranteed a steep 9% commission margin. This right, which got sold to a Sinosteel subsidiary for a 50\/50 profit share, was just a smaller version of what was happening at Samancor itself.<\/p>\n\n\n\n

The big profit shift<\/h5>\n\n\n\n

A more complex and audacious transfer pricing scheme accounts for most of the alleged damage at Samancor. It was also allegedly kept in place after Kon\u010dar sold the company to IMR \u2013 and allegedly remains in place to this day.<\/p>\n\n\n\n

The scheme is a form of profit shifting where a company pays a related party far too much for services based in another jurisdiction, usually a tax haven.<\/p>\n\n\n\n

Sometimes the service is even fictitious.<\/p>\n\n\n\n

It is a form of tax evasion, but in the case of Samancor it was also allegedly a way for Kon\u010dar to steal millions from Samancor and its minority shareholders \u2013 with the complicity of at least two directors.<\/p>\n\n\n\n

The alleged transfer pricing scheme started after Kon\u010dar\u2019s Kermas bought Samancor from BHP Billiton and Anglo American for $469-million in 2005.<\/p>\n\n\n\n

In the same year Kon\u010dar registered a company called Samchrome in Malta and made it the sole international distributor of Samancor products with a huge guaranteed commission of 9%<\/a>.<\/p>\n\n\n\n

The evidence indicates that Samchrome was owned by another Maltese company, Chrome Holdings, which was in turn owned by Kermas. This is according to an email<\/a> that Kon\u010dar sent his accountant.<\/p>\n\n\n\n

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Kermas technically belongs to Danica Zagmester, Kon\u010dar\u2019s cousin, but it is effectively his investment vehicle for a variety of holdings across the world. When Kermas set a up a secret agreement with IMR in 2005 to back the purchase of Samancor, Kon\u010dar was the sole signatory on behalf of Kermas.<\/p>\n\n\n\n

Another director of Samancor, Branislav Lazovic, owned a 5% share in Kermas while Schalamon, the Samancor chief executive installed by Kermas, owned 1%.<\/p>\n\n\n\n

Kon\u010dar\u2019s cousin apparently later bought out Lazovic to own 99% by 2010. Kermas was at this point already a player in the Russian and Turkish chrome mining sectors as well as refining in Germany.<\/p>\n\n\n\n

According to Kon\u2019s affidavit in the court application, \u201cSamchrome Malta had no employees. They performed no actual marketing services and gave little if any value. It sold almost all or all material through sub-agents.\u201d<\/p>\n\n\n\n

Kon\u2019s claim that Samchrome had no employees is backed up by the complete absence of any employment related expenses in Samchrome\u2019s accounts. Even telephone costs were zero \u2013 strange for a company that is meant to be managing global trade for a major mining group.<\/p>\n\n\n\n

Financial statements for Samchrome now contained in the court record show that the Maltese office was nonetheless making a killing.<\/p>\n\n\n\n

In the 2006 financial year, its first year of operation, it had profits of $29.9-million and it paid out a dividend \u2013 to Kon\u010dar, Lazovic and Schalamon \u2013 of $19.4-million. In the 2007 financial year its profits were $73.2-million.<\/p>\n\n\n\n

To understand how effective this profit shifting was, Samchrome profits have to be compared to Samancor in South Africa.<\/p>\n\n\n\n

According to Samancor\u2019s annual financial statements from 2008, also in the court file, the company had profit of R1.4-billion in the 18 months ending December 2007. The Samchrome Malta profit for just part of this period (the 12 months up to the end of June 2017) was roughly R500-million.<\/p>\n\n\n\n

In other words, the Malta marketing company was sucking up more than a third of Samancor\u2019s profits \u2013 allegedly in exchange for nothing.<\/p>\n\n\n\n

The outsized nature of the 9% commission being paid to Malta by Samancor is illustrated by the fact that, back in 2005, BHP Billiton initially acted as the marketing agent for a 2.5% commission after selling its share of Samancor to Kermas.<\/p>\n\n\n\n

The Samchrome Malta setup would have evaded taxes in South Africa, but also robbed the minority shareholders of Samancor including an employee share ownership scheme and other BEE partners brought onboard in 2006.<\/p>\n\n\n\n

If the allegation holds up, the company in which the workers own shares (Samancor) is effectively ceding profits to another company in Malta they have no stake in, allegedly in exchange for nothing.<\/p>\n\n\n\n

This, and other dealings that profited Kermas to the detriment of other shareholders, is the basis for Amcu\u2019s case.<\/p>\n\n\n\n

The Johannesburg high court is now being asked to make a precedent-setting order: for Samancor, a private company, to open its books and prove, if it can, that these allegations against Kon\u010dar and others are false.<\/p>\n\n\n\n