A secret business deal between the government of Guinea and a multinational firm with a U.S. partner aided by the Obama administration???s wrongheaded foreign policy could cost American businesses billions. Congress ought to investigate to protect American investors, expose any political shenanigans and prosecute the guilty.
The London Sunday Times first cracked the story June 3 of the secret $25 million loan between an offshore company, Palladino Capital 2, and the cash-strapped West African country. The funds, according to the loan agreement, were to finance the start-up of Guinea???s state mining company, Heritage, but the cash allegedly disappeared and the terms of the loan include a default clause which gives the lender a juicy 30 percent stake of Guinea???s mushrooming mining assets.
A thirty percent share is especially significant given Guinea???s new mining code engineered by advisors billionaire trader George Soros and Palladino???s South African owner Walter Hennig. The 2011 code gives 15 percent of all mining assets to Heritage, including another 20 percent at market rates. That means foreign mining operators forfeit billions of dollars in assets and profits atop an 8 percent customs tax.
Further, the $25 million loaned by Hennig???s Palladino, according to former Guinean mines minister Mahmoud Thiam who spoke with South Africa???s Mail & Guardian, was a quid pro quo — a bribe — in return for Guinea President Alpha Conde???s campaign support.
Perhaps word the money was for a political payoff prompted Palladino???s May 24 loan recall. Or the recall could be part of the secret deal to cash in on the loan by claiming a 30 percent share of Heritage, but now the cat is out of the bag.
Mohamed Fofana, the current minister of mines and the official who signed the 2011 loan with Palladino, rejects the allegations. He claims the money went to Heritage Company, not Guinea???s government coffers and it is in the bank waiting to be invested. He also rejects the allegation he ever agreed to ???a $25 million loan in exchange for a third of our mineral resources.???
Fofana has a problem with the truth, however. His rejection is refuted by the signed and sealed ???Credit Agreement,??? a copy of which Human Events acquired. The April 12, 2011 document is between the Republic of Guinea and Palladino Capital 2 Limited. Page 3 reads Guinea ???solicited the lender??? seeking $25 million to finance the creation of Heritage Company and page 9, paragraph 11.1 states the ???lender may take??? 30 percent of the shares of the ???Heritage Company??? if Guinea defaults ???after a formal notice??? and ???within sixty (60) working days of the request by the Lender.???
This case warrants U.S. Congressional investigation to identify American interests and to protect our foreign investments. Congress should ask the following questions.
First, was the $25 million loan a violation of U.S. law? The answer depends on the true purpose of the loan and whether a U.S. entity was involved in the transaction.
The U.S. Foreign Corrupt Practices Act makes it an offense to offer money to a foreign official to influence that official in his official capacity. Clearly, Guinea???s former mines minister Thiam alleges the money is a bribe to the nation???s president in exchange for a 30 percent share of Guinea???s mining concessions.
Thiam further alleges the president???s son Mohamed Conde and Palladino???s Samuel Mebiame, who signed the $25 million loan for the lender, tried to raise campaign funds in return for access to state mineral assets, according to the Mail & Guardian.
There is also a U.S. entity connected to the lender. Hennig???s Palladino partners with U.S. investment fund managers Och-Ziff Capital Management in African Global Capital. They formed the joint venture in 2008 ???as a platform to invest in both private and public markets across Africa, with a bias towards natural resources and related businesses,??? the partners said in a joint statement.
Second, is there a relationship between the $25 million loan and Guinea???s new mining code? That is important because it would demonstrate Palladino???s motivation for making the loan, to wit insider information about Guinea???s plans to nationalize mining assets. Mining receipts account for 70 percent of Guinea???s income.
In March 2011 President Conde invited financier George Soros and former British Prime Minister Tony Blair to advise him on how to best manage Guinea???s mining assets. They recommended rewriting the mining code, seizing a portion of foreign company assets and renegotiating unfavorable provisions in existing contracts.
Palladino also consulted with Guinea officials regarding the new mining code. In fact, Palladino???s consultations regarding its interest in Guinean mineral assets culminated in a signed agreement with Guinea in March 2011 just before the $25 million loan was executed. The new mining code was published in September, six months after the loan that includes the default 30 percent proviso.
Third, is there a relationship between the Obama administration???s decision to reinstate favorable trade relations with Guinea and the $25 million loan? That is important because it addresses factors that may influence the administration???s foreign policy decisions that potentially enrich some parties at the expense of other American businesses.
In October 2011 Obama restored privileged U.S. trade partner status under the African Growth and Opportunity Act (AGOA) with Guinea after revoking them following Guinea???s 2008 coup. The published criteria for that decision include hosting free and fair elections, establishment of the rule of law and combating corruption.
Restoring AGOA status is desirable for Guinea because the U.S. Government restores trade preferences and other benefits such as political risk insurance to American firms through the Overseas Private Investment Corporation. Guinea understandably wants the jobs that come with AGOA status and the protection OPIC offers because it incentivizes American businesses by mitigating risk in Guinea???s volatile markets.
But granting Guinea favorable trade status was a bad decision based on the published criteria. Even though Guinea???s 2010 election was largely free and fair, the country still suffers from numerous problems. Human Rights Watch cautioned that Guinea has seen new security force abuses, including killings, a concentration of power in the executive, weak implementation of the rule of law, and rising ethnic tensions. Further, Guinea is creating regional insecurity, particularly in its role as a hub for transnational narcotics trade.
It is possible political lobbying and donations trumped what should have been an unfavorable trade status decision possibly due to its nexus with the $25 million loan. Specifically, Och-Ziff Capital Management which is partnered with Palladino, the $25 million lender and possible big winner in the case of loan default, had a financial incentive to encourage restoration of favorable trade status with Guinea. Further, it had the opportunity to influence the administration???s decision.
Public records indicate Och-Ziff uses the services of Washington lobbyists Fierce, Isakowitz & Blalock to promote its interests with the U.S. Government, which included five reported meetings with White House staff in 2011. Also, Daniel Och and Dirk Ziff and their families, according to public records, are big donors to Democrat Party campaigns and especially Obama, which argue for additional clout.
Congress should determine whether Och-Ziff or other parties unduly influenced the administration???s Guinea trade status decision and whether that decision has any direct or indirect impact on Guinean mining operations.
Congress must ask these tough questions to determine the truth. Clearly, the secret deal could hurt American mining businesses, exposes the administration???s wrongheaded foreign policy, and may violate our foreign corruption laws.