Wednesday, 1 December 2021

US Regulators hit Rio with £28m fine and fraud charge

Rio-Tinto

LONDON: US regulators have charged Rio Tinto and two of the mining giant’s former executives with fraud, alleging they tried to cover up a failed investment in Mozambique six years ago.

The company vigorously denies the allegations by the Securities and Exchange Commission (SEC) against itself and its former chief executive Tom Albanese and chief financial officer Guy Elliott but has agreed to pay a record £27 million fine to the UK’s Financial Conduct Authority.

This is the largest penalty of its kind imposed by the City watchdog and reflects the seriousness of the breach by Rio, which failed to promptly disclose to investors the fall in value of the mining operations it bought in Mozambique for $3.7 billion in August 2011 and which it later sold for $50 million.

An employee talks to a visitor at the reception desk of the Rio Tinto Limited Shanghai Representative Office in Shanghai August 5, 2010. REUTERS/Stringer

According to both regulators, the acquisition immediately came unstuck when Rio discovered the quantity and quality of coal in the mine was less than it had thought and its application to transport the coal by barge along the Zambezi rive to the coast was blocked by the Mozambique government.

Despite internal financial modelling by Rio indicating this had destroyed the value of the acquisition, the company decided not to carry out an impairment test as it was meant to do under international accounting standards. As a result the assets were recorded at their acquisition price in the 2012 interim results published 12 months after the transaction and the losses were only brought to light in January 2013 when the company announced it had written off around 80% of its investment.

According to the FCA, at the time the company wrongly argued it would have been premature to revalue the assets until it was clear how they would be developed. ‘This demonstrated a serious lack of judgement,’ it said.

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