The Panama Papers – the leaked documents from the Panamanian law firm Mossack Fonseca – have thrown invaluable new light on the externalisation of billions of dollars in value from the Democratic Republic of Congo (DRC).

The practice took root in the giant country after relative peace descended on it in the years after Joseph Kabila was elected president in January 2001.

The DRC has some of the richest, biggest and most prolific mineral assets in the world. During the colonial era, its copper-cobalt mines, in particular, were renowned around the world. Bukavu, on the shores of Lake Kivu, was known, for good reason, as the African Riviera.

But the mines were run down, and essentially ruined, during the dictatorial, nationalising era of Mobutu SeseSeko, from 1965 to 1997.

After the turn of the century, the DRC was faced with stark opportunities. The short history since then shows that the majority of profitable mining assets have been used to enrich a small, but still-unidentified, number of Congolese and a small number of foreigners, many of whom are known by name.

Today, with some hindsight, the modus operandi can be regarded as relatively simple. A specific DRC mining asset (say ABC) is sold to an offshore entity, which then sells it on (known as a “flip”) at a massive profit to another entity. This entity then raises cash in Western markets and redevelops ABC as a legitimate mining asset.

These deals are conducted by entities registered in, or associated with, tax havens such as the British Virgin Islands and, of course, Panama.

Best-known participant

One of the best-known participants in the often unbelievably profitable DRC deals has been Daniel Gertler, an Israeli citizen. His name appears on more than 200 documents in the Panama Papers.

In March 2005, Gertler’s DGI (Dan Gertler International) formed a new firm, Global Enterprises Corporate (GEC), in partnership with Benjamin “Beny” Steinmetz’s Global Resources, with a former DRC mines minister, Simon Tuma-Waku, named as “special adviser”.

Steinmetz, also an Israeli citizen, is one of the biggest, if not the biggest, De Beers sightholder. His name appears on 282 documents in the Panama Papers.

The key assets in GEC (later renamed Nikanor) were the Katanga province’s KOV, Tilwezembe and Kananga brownfields projects. Nikanor’s primary activities were at KOV (the Kamoto East, Oliveira, Virgule and FNSR ore bodies). The objective at the massive ruined mine was to rebuild its facilities and produce 250 000 tonnes a year of LME A-grade copper cathode and 27 500 tonnes a year of cobalt products. Copper output could be increased over time to 400 000 tonnes a year, potentially ranking Nikanor as a world-class mine.

Following a preliminary agreement dated May 5 2004, a joint venture agreement was signed with the DRC copper-cobalt parastatal, La Generale Des Carriers et Des Mines (Gécamines), in September 2004. The final joint-venture structure was held 75% by GEC and 25% by Gécamines. The total investment required for the project was put at $600-million to $700-million.

At the time, news of the deal started something of a battle with the long-established Katanga copper-cobalt producer, George Forrest’s Kinross-Forrest, which later emerged as Katanga Mining, which owned assets adjacent to Nikanor’s. The assets of Nikanor and Katanga mining were operated as a single giant unit in times gone by, and many argued that the assets should never have been separated in this new process of “privatisation”.

At that stage, already, Gertler had been seen in the presence of Kabila and appeared to make no attempt to conceal their acquaintance. Gertler would fly into Kinshasa and leave the same night. Gertler, it would emerge, was also increasingly close to Kabila’s closest aide, Augustine Katumba Mwanke.

Immune to criticism

Following the signing of the Gécamines-GEC joint venture in September 2004, the anti-corruption Lutundula Commission recommended, when filing its report in June 2005, that ongoing negotiations over the KOV basket of assets, among others, be halted. But the world moved on and on October 13 2005, a presidential decree ratified the KOV agreement between Gécamines and GEC.

It should be noted that the DRC government invariably acts in a dictatorial manner, and is generally immune to criticism or scrutiny.

In July 2006, it emerged that Gertler and Steinmetz had placed GEC’S 75% share in KOV into a new Isle of Man corporate vehicle, Nikanor Plc. With JPMorgan Cazenove acting as advisers and brokers, Nikanor’s directors, headed by Jonathan Leslie, Rio Tinto’s former head of copper operations, hit the City of London with a road show in mid-July 2006.

Copper and cobalt mines in the DRC, such as this one in Kolwezi, Katanga province, have been used in lucrative asset-flipping deals. (Simon Dawson, Bloomberg)

The initial public offer raised £400-million, based on a prospectus promoting Nikanor’s 75% interest in the KOV assets contributed by Gécamines. Nikanor achieved a market capitalisation of $1.5-billion and was hailed as the most valuable yet listing on London’s Alternative Investment Market.

After Nikanor was listed in London, Gertler held 15% of the entity, worth $225-million. Steinmetz controlled nearly 60% of the shares, now worth about $900-million. For this value of more than $1-billion, Gertler had initially paid just $3-million. When questioned about this, Gertler said, through an agent, that numbers were irrelevant – “what counted was the money promised for investment”.

Besides what Nikanor raised in cash when it listed in London, it raised a further $777-million a year later. Much of the second tranche came by way of Glencore, the Switzerland-based commodities trader and resources investor.

Cayman Islands address

Glencore, a name that appears on 660 documents in the Panama Papers, would later confirm that it was allocated 50-million new Nikanor shares. Half of them were confirmed as having been applied for on behalf of Ruwenzori Limited, a special purpose vehicle, which, according to Nikanor, is “managed by RP Capital, in which a major shareholder is a discretionary trust, in which Dan Gertler is a potential ultimate beneficiary”. The Ruwenzori entity was traced back to an address in the Cayman Islands.

The lesson, as such, from the listing of Nikanor in London was that Gertler had paid $3-million for assets that had realised a market value of more than $1-billion. Had the DRC government taken this in hand, it would surely have devised a simple international tender procedure for its mining assets, as it continued to privatise?

What happened, in practice, was the opposite. Gertler’s activities increased and voyaged ever-deeper into the murky waters of tax havens and opaque-disclosure jurisdictions.

The DRC government and investors on international stock exchanges have been complicit in this.

One of the most aggressive attacks on free enterprise started in January 2010 when Gécamines revoked a contract with Canada-listed First Quantum for a joint venture in the Kingamyambo Musonoi Tailings SARL (KMT) copper project.

First Quantum had spent about $750-million redeveloping a copper re-treatment plant at KMT. Leaked evidence indicated that the majority stake in KMT had been sold in January 2010 to the Highwinds Group – Highwinds Properties, Pareas Limited, Interim Holdings and Blue Narcissus (each registered in the British Virgin Islands and each with a Gibraltar address). The Highwinds Group, as it turned out, was ultimately owned by Gertler. The sellers of KMT were the DRC government, Gécamines and La Société Immobilière Du Congo.

The leaked contract stipulated that Highwind would pay $60-million for the assets as a signature bonus. ENRC, a Kazakhstan-based entity, spent $689-million buying control of a stake in KMT when it bought control of Camrose, which owned the Highwinds entities. For Gertler, the stakes were apparently rising: here, for realising value of nearly $700-million, he had had to pay $60-million upfront.

As time goes by and other dots are joined, it may well be possible to unearth the individuals who benefitted from the $60-million paid to the four entities in Highwinds.

Some justice

There has been some justice, in a sense. During 2012, Fasken Martineau, a law firm, recovered a massive $1.25-billion in the case of First Quantum vs Highwinds and Others. The settlement went further in that ENRC also purchased First Quantum’s residual claims and assets in the DRC.

During April 2013, the United Kingdom’s Serious Fraud Office opened a criminal investigation into ENRC’s business practices. ENRC stated that the UK authorities were investigating whether it breached Britain’s rules for listed companies, specifically with acquisitions made in the DRC. In November 2013, ENRC delisted from the London Stock Exchange.

The DRC has long ranked at the forefront of illustrating the billion-dollar “leakages” associated with opaque concession trading.

Towards the end of 2010, the DRC government agreed to publish all mining and oil contracts. In 2011, it signed a decree requiring that contracts for any cession, sale or rental of the state’s natural resources be made public within 60 days of their execution.

In 2012, however, the International Monetary Fund stopped a loan programme after the DRC government failed to publish full details of yet another mining deal involving Gécamines for a stake in a major copper concession. The recipient was a company registered in the British Virgin Islands.

Following the IMF’s decision to halt three tranches of loans totalling about $225-million, the African Development Bank announced that it was withholding a planned $87-million in budget support. The World Bank had briefly suspended loans in 2010 because of related concerns over concession arrangements.

If government commitments are not serious, what other steps can be taken?

In its reaction to the Panama Papers, the African Union/United Nations Economic Commission for Africa (Uneca) high level panel said the law firm, Mossack Fonseca, had “worked with more than 14 000 banks, law firms, company incorporators and other middlemen to set up companies, foundations and trusts for customers”.

“The papers elaborately bring to light issues that the AU/Uneca’s high level panel on illicit financial flows from Africa vigorously underscored in the findings in its report released and endorsed by the African heads of state and government in January 2015.”

Thabo Mbeki, the chairperson of the panel, said: “The papers confirm the existence of a network of offshore accounts and complex investment vehicles that drive tax avoidance and evasion. Until now, warnings against such vehicles have been taken lightly. The staggering amount of illicit practices and the large number of global actors exposed by the Panama Papers demonstrate that governments of Africa and the rest of the world cannot avoid firm action.”

In a major 2013 study, the African Progress Panel, chaired by the former UN secretary general, Kofi Annan, stated that hundreds of offshore-registered companies were linked to investment in extractive industry concession trading in Africa. Many, the panel noted, are registered in traditional tax havens, such as the Cayman Islands, the British Virgin Islands and Bermuda.

Some are associated with shell companies registered in the UK; others are integrated into networks that extend from offshore private banking and trading centres in Switzerland and the United States.

Offshore trading makes it possible for investors to hide the real “beneficial owners”, or the ultimate beneficiaries, of companies. The panel stated that, by using multiple investment vehicles, a practice known as “layering”, compounds the problem. This arrangement, the panel stated, “is widespread in Africa”.

One company operating in Sierra Leone in 2011 operated through three separate offshore holding companies (two registered in Guernsey and one in Bermuda), with a primary owner registered in Bermuda, owned in turn by three separate holding companies (two of which were registered in London and one in China).

Mbeki argues that “we should not misconstrue the release of the Panama Papers as a time for celebration or an end in itself. To the contrary, it is rather a time for deep reflection and regret that we have allowed the practice to persist, which is made possible among others by the existence of tax havens/financial secrecy jurisdictions.

“Now is the time for the global community to act in a firm and comprehensive manner to end the illicit financial flows and close down the tax havens/financial secrecy jurisdictions.”

Mbeki said the fourth most-used tax haven by Mossack Fonseca is an African country. He does not name it but clearly it is Mauritius. Just as there is big money in trading concessions, so there is big money in handling the paperwork and money generated.

The African Network of Centres for Investigative Reporting (ANCIR) supported development of this story.