April 22, 2010
Malcom Maiden
The Age (Australia)
BHP Billiton learned last August that its acquisition of exploration rights in Asia years earlier was the subject of a US Securities and Exchange Commission investigation, and it found out because the SEC told it so.
BHP sat on that information until yesterday, when it used a routine quarterly announcement to reveal that it had checked out the matter, had found evidence pointing to ''interactions'' with government officials that may have breached anti-corruption laws, and had passed that information on to the authorities.
The questions raised by this are: why didn't BHP brief the markets last August; and why did it choose not to announce the probe separately yesterday.
And the short-term answers are: BHP didn't reveal the SEC investigation last August because its legal advice was that under its continuous disclosure obligations it did not need to; and it revealed the investigation yesterday inside another, regular announcement because it believed the matter did not warrant immediate, separate disclosure.
As unsatisfying as those answers might be, they suggest one thing: BHP at this stage is confident that it is not headed into the same kind of nightmare that Rio Tinto has been in for more a year since the detention, charging and conviction of four of its Shanghai-based executives for taking bribes and obtaining commercial secrets about China's steel industry. That confidence is going to be tested as the facts emerge.
BHP was precise and sparing with what it said yesterday in a single paragraph at the bottom of page three of its March-quarter exploration and development report.
It said that the SEC had requested information as part of an investigation into ''certain terminated minerals exploration projects'' and that as a result it had uncovered evidence of possible violations of anti-corruption laws involving ''interactions'' with government officials. The group said it was co-operating with the investigation while continuing its own examination, and said it could not predict where the affair was headed, or how long it would take it to get there.
Separately, a spokesman created distance from the Rio debacle, saying that the investigation did not relate to any activity in China, or the sale and marketing of BHP products.
It is believed that the SEC is looking mainly at the $US1 million acquisition of bauxite mineral rights in Cambodia in 2006 by a consortium led by BHP and Mitsubishi. The purchase of mineral rights in the Philippines may also be a focus.
A British anti-corruption advocacy group, Global Witness, reported in February last year that the $US1 million payment seemed not to have been booked by the Cambodian government, which recorded revenue of only $US443,866 from mining concessions that year.
BHP defended the deal at that time as being above board, and in an interview Global Witness director Gavin Hayman congratulated the mining group for being ''transparent'' and responding to inquiries.
Last August, however, BHP was contacted by the SEC and asked to use its own resources to inquire into the Cambodian deal. BHP took the position that the SEC's approach was not material, and its own investigation was complicated by the fact that the projects had already been shut down after being rated as non-goers commercially. But what it found raised enough questions about how BHP gained mineral rights for it to make renewed contact with the SEC.
Even then, however, BHP waited a short time before announcing the SEC probe, and its discovery of possible breaches of anti corruption laws. The group's position is that its
re-examination of the payments has raised questions about them, rather than revealed them to have been illegal, something that would have required immediate disclosure.
Despite BHP's apparent confidence, news of the probe comes at a challenging time for the mining group. It is in the midst of attempting to persuade competition regulators in Australia, Europe and the US to approve its proposed Pilbara iron ore merger with Rio, and it is also preparing for the imminent release of a tax report from Ken Henry that will almost certainly recommend a new tax on mining company super-profits.
The issues it potentially faces are similar to those Rio is dealing with in the wake of the Chinese court's finding that four of its employees obtained commercial secrets.
Regulatory inquiries are under way in the US, Australia and Britain to determine whether Rio should bear some responsibility for what the Chinese court says happened. If the SEC concludes that anti-corruption laws were breached as BHP and its partners acquired minerals rights, similar questions will be asked of BHP about whether the breaches were renegade acts, or sanctioned.
At the very least it looks as though the auditing trails that support BHP's comprehensive ban on preferential payments will need to be overhauled. The group's code of conduct expressly forbids improper payments, and defines them exhaustively. There are already enough doubts about what happened to suggest that its policing of those rules failed.
mmaiden@theage.com.au
BHP sat on that information until yesterday, when it used a routine quarterly announcement to reveal that it had checked out the matter, had found evidence pointing to ''interactions'' with government officials that may have breached anti-corruption laws, and had passed that information on to the authorities.
The questions raised by this are: why didn't BHP brief the markets last August; and why did it choose not to announce the probe separately yesterday.
And the short-term answers are: BHP didn't reveal the SEC investigation last August because its legal advice was that under its continuous disclosure obligations it did not need to; and it revealed the investigation yesterday inside another, regular announcement because it believed the matter did not warrant immediate, separate disclosure.
As unsatisfying as those answers might be, they suggest one thing: BHP at this stage is confident that it is not headed into the same kind of nightmare that Rio Tinto has been in for more a year since the detention, charging and conviction of four of its Shanghai-based executives for taking bribes and obtaining commercial secrets about China's steel industry. That confidence is going to be tested as the facts emerge.
BHP was precise and sparing with what it said yesterday in a single paragraph at the bottom of page three of its March-quarter exploration and development report.
It said that the SEC had requested information as part of an investigation into ''certain terminated minerals exploration projects'' and that as a result it had uncovered evidence of possible violations of anti-corruption laws involving ''interactions'' with government officials. The group said it was co-operating with the investigation while continuing its own examination, and said it could not predict where the affair was headed, or how long it would take it to get there.
Separately, a spokesman created distance from the Rio debacle, saying that the investigation did not relate to any activity in China, or the sale and marketing of BHP products.
It is believed that the SEC is looking mainly at the $US1 million acquisition of bauxite mineral rights in Cambodia in 2006 by a consortium led by BHP and Mitsubishi. The purchase of mineral rights in the Philippines may also be a focus.
A British anti-corruption advocacy group, Global Witness, reported in February last year that the $US1 million payment seemed not to have been booked by the Cambodian government, which recorded revenue of only $US443,866 from mining concessions that year.
BHP defended the deal at that time as being above board, and in an interview Global Witness director Gavin Hayman congratulated the mining group for being ''transparent'' and responding to inquiries.
Last August, however, BHP was contacted by the SEC and asked to use its own resources to inquire into the Cambodian deal. BHP took the position that the SEC's approach was not material, and its own investigation was complicated by the fact that the projects had already been shut down after being rated as non-goers commercially. But what it found raised enough questions about how BHP gained mineral rights for it to make renewed contact with the SEC.
Even then, however, BHP waited a short time before announcing the SEC probe, and its discovery of possible breaches of anti corruption laws. The group's position is that its
re-examination of the payments has raised questions about them, rather than revealed them to have been illegal, something that would have required immediate disclosure.
Despite BHP's apparent confidence, news of the probe comes at a challenging time for the mining group. It is in the midst of attempting to persuade competition regulators in Australia, Europe and the US to approve its proposed Pilbara iron ore merger with Rio, and it is also preparing for the imminent release of a tax report from Ken Henry that will almost certainly recommend a new tax on mining company super-profits.
The issues it potentially faces are similar to those Rio is dealing with in the wake of the Chinese court's finding that four of its employees obtained commercial secrets.
Regulatory inquiries are under way in the US, Australia and Britain to determine whether Rio should bear some responsibility for what the Chinese court says happened. If the SEC concludes that anti-corruption laws were breached as BHP and its partners acquired minerals rights, similar questions will be asked of BHP about whether the breaches were renegade acts, or sanctioned.
At the very least it looks as though the auditing trails that support BHP's comprehensive ban on preferential payments will need to be overhauled. The group's code of conduct expressly forbids improper payments, and defines them exhaustively. There are already enough doubts about what happened to suggest that its policing of those rules failed.
mmaiden@theage.com.au
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