How the mining companies Freeport McMoran Copper & Gold and GlencoreXstrata and their audit firms Ernst & Young, PricewaterhouseCoopers and Deloitte favour tax evasion in DRC
The Congolese Civil Society organisations working in the natural resources sector in general and in the mining sector in particular, carried out an independent investigation in order to highlight the conclusions of the provisional report drawn up by the Auditors and Consultants BDO-ECA (Binder Dijker Otte Et Co) following an investigation into and checking of assets held by Tenke Fungurume Mining Sarl and Kamoto Copper Company Sarl, carried out by the Government of the Democratic Republic of Congo in 2012.
This civil society investigation was carried out at a time when mining production in the Democratic Republic of Congo (DRC) had reached almost one million tonnes of copper, almost 100 000 tonnes of cobalt and 5 tonnes of industrial gold in 2013. In terms of copper production, it was the highest figure achieved in the country since 1960.
At the 2nd Mining Conference held in Goma in the presence of the Government, Civil Society raised the issue of the imbalances between growth in mining production and socio-economic effects.
The investigation was mainly carried out to understand why the country is not benefiting enough from its mining resources using the opportunity offered by the BDO audit report.
According to the provisional conclusions of the BDO-ECA Report, the company Kamoto Copper Company (KCC Sarl) had requested the report of this audit whereas in the case of Tenke Fungurume Mining (TFM Sarl), the accounting documents which would allow a reconciliation of the figures indicated in the fixed asset statements, were unavailable at the Fungurume site and at the Lubumbashi head office. They were archived at the registered office of the parent company in Phoenix (Arizona) in the USA. This practise is contrary to the laws and regulations in force in the Democratic Republic of Congo which require that financial statements and accounts be kept at the registered office for 10 years.
It was therefore not possible to confirm the investment figures declared by both the abovementioned companies, in other words 2.7 billion dollars for KCC and 3.1 billion dollars for TFM.
Within the framework of its investigation, Civil Society held discussions with several Government members both at national and provincial level (Katanga). It met with the General Tax Directorate, the General Management of Gécamines, the General Management of Tenke Fungurume Mining Sarl and the General Management of Kamoto Copper Copper Sarl, as well as the financial administrations of Katanga province.
At the end of this important enquiry, and prior to publication of the detailed report, the broad outline is as follows:
- The Congolese Government, as well as the tax and revenue services are not able to counter check the tangible and intangible assets declared by the mining companies, namely TFM and KCC. There is therefore a weakness in the management of the mining sector by the Government.
- Only the partners of public mining companies (investors) are aware of the mining projects' investment costs. Investment declared by KCC and TFM are over-valued and the depreciation of these investments are only known by the investors themselves. The Congolese State does not know how to and does not have the capacity to check the veracity of these investments. The Congolese Public Treasury and the nation are therefore suffering heavy losses.
- Gécamines, partner of both companies mentioned in the BDO-ECA Report confirmed their concerns to Civil Society with respect to the over evaluation of the investments by TFM and KCC. Since 2012 it has already carried out certification audits of investments made and loans contracted by some partner companies. The current audits have been suspended due to the lack of payment of auditors by Gécamines.
- The question of the existence of accounting documents at company head offices, which could prove the investments made in both companies is still an issue, as most of the accounts of Tenke Fungurume Mining Sarl are still kept in Phoenix (USA) and the accounts of Kamoto Copper Company in Switzerland, in English. Several companies do not have a Fixed Asset Register, making it possible to prove the existence and value of equipment and other mining infrastructure materials, which should form the basis of the audits.
- Initially, the TFM project investment was valued in its Feasibility Study at 2.5 billion US dollars for three phases. Currently the investment made by the Gécamines partners has reached 3,100 billion US dollars for two phases only. What will the final cost be for all the planned phases of the TFM project?
The KCC investment has also reached 2.7 billion US dollars without taking into account the value of the infrastructure inherited from Gécamines and the DRC Copper and Cobalt Project (DCP Sarl) investments prior to the merger.
- 6. A new issue has arisen regarding the reliability of the annual certified audit reports drafted by the firms Ernst & Young for Tenke Fungurume Mining Sarl and PricewaterhouseCoopers for Kamoto Copper Company Sarl, at the time of the merger of DCP and after the merger. The auditors of both of these companies are also the auditors of their parent companies (Katanga Mining Ltd and Freeport-McMoran Cooper&Gold).
- 7. The ore sales revenue is paid into the company accounts outside of the Congo. Similarly, all the large payments to sub-contractors are made abroad, by the parent companies (Freeport and GlencoreXstrata), which does not favour the circulation of revenue in the DRC.
Following this report, civil society recommends:
- Given that the investors have not made capital contributions and are not transparent in the management of investments and their depreciation, Civil Society is requesting the Government to:
- audit in particular the current level of repayment or depreciation of investments made in the TFM and KCC projects;
- require equitable sharing (equal portions), that is 50% for Gécamines and 50% for the partners if these investments have already been repaid or depreciated.
- Given that the audits by the firms Ernst & Young, Deloitte and PricewaterhouseCoopers for Tenke Fungurume Sarl and Kamoto Copper Company Sarl respectively, were not carried out on the basis of accounting documents and fixed Asset Registers, available at their head offices, Civil Society asks how these auditors were able to check the fixed asset accounts without having seen the accounting documents proving the certified values? These audit reports are therefore based on non-existent documents. Civil Society is requesting that Government reject the audits carried out by these three international firms on the basis of these observations.
- In order to ensure that 40 percent of the profits from the sale of ore remain and/or are repatriated to the country in compliance with the law, the Congolese State should demand that the ore sales revenue be paid into the mining companies’ bank accounts held in DRC and that they be free to carry out their different operations from the DRC.
Signed in Kinshasa on 22 May 2014
Organizations who participated in this survey:
- Action Contre l’Impunité pour les Droits de l’Homme (ACIDH)
- Association Africaine de défense des Droits de l’Homme (ASADHO)
- Commission Episcopale pour les Ressources Naturelles (CERN)
- Centre National d’Appui au Développement et à la Participation Populaire (CENADEP)
- Plateforme pour la promotion et la Défense des Droits Socio-Economique et Culturelle (DESC)
- Commission Justice, Paix et Sauvegarde de la Création (ECC/CJPSC)
- Femme et Justice Economique (FEJE)
- Laboratoire Anti-Corruption et Anti-Fraude (LACAF)
- Ligue Congolaise de Lutte contre la Corruption (LICOCO)
- Nouvelle Dynamique Syndicale (NDS)
- Plateforme des Organisations oeuvrant dans le secteur Minier au Katanga (POM)
- Organisation Concertée des Ecologistes et Amis de la Nature (OCEAN)
- Ressources Naturelles et Développement (RND)
- Réseau Ressources Naturelles (RRN)
- Southern Africa Resource Watch (SARW)