Sam Walsh, New CIPS President, Caught Up In Rio Tinto Payments Investigation

Obtaining and retaining mining rights in the developing world is a tricky and often murky business. Such rights can be worth billions to the mining companies, and when the resources are found in some of the poorest countries in the world, it is obvious that there is the potential for corruption.

Many firms look to more positive routes to win the coveted contracts. We have commented previously about how Anglo-American use procurement as a lever, developing a local supply chain that both helps the mining firm in the short term and provides a long-term boost to the local and national economies. That can also be a competitive advantage for the firm when it competes for mining rights.

But the Current CIPS President, Sam Walsh, is now caught up in a murkier set of events. Rio Tinto, the firm of which he was CEO from 2013 to his retirement earlier this year, has suspended a senior executive, Alan Davies, who runs its energy and minerals division. The firm and external regulators are investigating payments of $10.5m made to an adviser in relation to its giant Simandou iron ore project in Guinea.

That whole project has a dubious history. Rio bought the concession 15 years ago, but lost half of the rights in 2008, when the Guinea government transferred them to BSG Resources, owned by Israeli billionaire Beny Steinmetz. BSG sold half its stake to Brazilian firm Vale; Rio Tinto sued BSG and Vale (but didn’t win) claiming they had bribed the Guinea government.

Anyway, the current case concerns payments of $10.5 made to François Polge de Combret, a high-powered French banker, ex adviser to Valery Giscard d’Estaing, and (most relevantly) a university contemporary of Alpha Condé, the Guinean president.

In a series of leaked emails from 2011, Davies said that Mr de Combret’s assistance was essential to the project going “smoothly”, adding: “I am extremely worried if we lose the direct connection to the president that I have cultivated with François.” Davies asked Walsh, then head of the iron ore unit, to approve the payment and he passed on the request to the CEO, Tom Albanese.

What did de Combret actually do? That is not clear from the emails. “These services were of the most unique nature, and we will never fully be able to judge the potential outcome if he was not assisting.”

The implication is that some of this money was destined to go to politicians as bribes rather than for genuine “consulting fees”. Certainly, $10.5 million is  a lot to pay for what sounds like pretty nebulous help in developing a relationship with the President.

But let’s face it, we’ve seen the Ministry of Defence paying £5000 a day for standard advice on cost savings; you can easily pay £10K a day for a McKinsey or similar partner, or for a top barrister. And if you were engaging a professional services firm on a contingent fee basis, then the sky is the limit. Look at how much top investment banks or lawyers can make in success fees if they are on the right side of a transaction such as an acquisition or merger.

It is of course somewhat different if money is going towards subverting democracy and the democratic process; that’s what bribery of elected official is, in essence. And with the Bribery Act in the UK and the Foreign Corrupt Practices Act in the US, there is more focus on this than ever before.

Going back to Walsh, he appears to have supported the idea of the payment, but suggested that some of the payment should be held back until the first shipment of iron ore was made - a very sensible commercial step, as befits someone who had worked in procurement earlier in his career. And that is, of course, why we are featuring this case, for Walsh became the 2106/17 President of the Chartered Institute of Procurement and Supply just 15 days ago.

Walsh has not made any comment on the case, and it is far too early to judge what might happen. But if the  authorities do find there is a case to answer here, we will have to see what happens to his CIPS position. Let’s face it, that is probably the least of his concerns right now. But this is all very uncomfortable for the Institute, given the high ethical standards that it rightly promotes amongst its members and the firms that go through CIPS accreditation and training.

When CIPS announced his appointment, the note said this:

“Another key part of Mr. Walsh’s role as CIPS President will be to increase CIPS’s global reach, while raising awareness of issues such as supply chain corruption and sustainability”.

Well, we suppose this is one way of “raising awareness” - just not quite what was expected.

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