arbitration / adr news

Mining giant Vale accused of knowing 'something wrong' in Guinea iron ore deal

18 February 2022

BRAZILIAN mining giant Vale withdrew a $1.85bn High Court claim against billionaire Beny Steinmetz over an iron ore venture in Guinea just days before Steinmetz’s lawyers were due to present evidence which alleges that the Vale board knew there was “something dodgy” in a deal to procure mining licences in the country, City A.M. understands. 

In 2019 Vale had successfully contended in the London Court of International Arbitration that, after the Guinean government removed licences for the lucrative Simandou region due to suspicions of bribery, Steinmetz and his vehicle BSGR had effectively lied to Vale about how the licences were procured. 

That triggered a claim in the High Court by Vale to recover the $1.85bn arbitration award which Steinmetz had yet to pay.

The trial began in late January and had been due to last 11 weeks but earlier this week Vale unexpectedly withdrew their claim, with the firm’s lawyer saying they realised the claim was out of time.  

City A.M. understands that Steinmetz’s defence team was set to present evidence that Vale’s board knew there was “something wrong” with the deal.  

Sources with knowledge of the case revealed that recently recorded conversations with Juan Carlos Martins, the firm’s Head of Iron Ore at the time, would be played in court in which he reflected on the more-than-decade-old agreement.  

Martins is said to have told a business intelligence operative from commercial investigations firm Black Cube claiming to be a potential partner on a new project that the firm, including the then-CEO, knew that there “was something wrong” and that “all the board knew about the question marks” before signing off on the deal.  

In one description of the deal, Martins told the operative that it was like getting a “beautiful girl, you bring her to your room, she’s naked, marvellous, and then she says: ‘a little problem, maybe I am with AIDs.’” 

Martins told his purported prospective partner in the Black Cube recordings that he and others at the firm knew Steinmetz didn’t get the deal “because of his beautiful blue eyes” and that he told the board that “we are entering this business, but we are closing our eyes.”  

The deal, Martins said, was important for Vale as the only “open door” in Africa and that the then-Brazilian President Lula da Silva – later embroiled in a series of corruption scandals – was supportive of the deal and that “the government has a lot of participation” in Vale’s activities.  

Martins said in the recordings that Steinmetz had “very good relationship(s) all over the world, and well-looking and good speech and so and so. But we know that something was wrong, we have no doubt about it (sic).” 

Another former Vale employee, Alex Monteiro – who led the due diligence on the deal – also told the intelligence operatives in secret recordings that “there was the smell of something that could have been done wrongly” and that his team recommended putting the money in escrow until the new Guinean government was in place and had runs its own “diligence, its investigation.”  

Monteiro told the operatives he told the CEO “do not pay one penny to the guy,” meaning Steinmetz. 

Monteiro said Vale viewed the due diligence process as “armour” against any future investigations.  

However Vale’s case in the high court relied on the fact, upheld in the arbitration proceedings,  that they had no knowledge of anything improper in the deal until the Guinean government vetoed the licences.  

In 2021 Steinmetz was sentenced to five years imprisonment by a Swiss court for bribery in connection with the award of the Simandou licences. Steinmetz maintains his innocence and his appeal is due to be heard in September 2022. However in the High Court proceedings his defence is based on the assertion that Vale was aware that there was “something dodgy” in the deal to procure the licences. 

However Vale told City A.M. that “Vale was never aware of any corruption practice by Steinmetz or BSGR prior to the formation of the joint venture in 2010.”

A Vale spokesperson told City AM:

“Benjamin Steinmetz has created fallacious versions and made false statements against Vale in relation to Simandou’s case, in a clear attempt to reverse the role of victim and try to evade his responsibilities for illicit acts. Through an unusual speech and skewed deductions of documents, Steinmetz tries to attribute to Vale the knowledge of corrupt practices by BSGR in the acquisition of Simandou’s mining rights in 2008 while denying that he committed the crime.”  Mr. Steinmetz needs to clarify or rather confess once and for all if he did commit corruption in the acquisition of mining rights in Simandou or not – a fact which he vehemently denies in every opportunity he gets – because it might be seen as an absurdity the fact he alleges that Vale knew about shady actions on his part that, according to him, never happened. To compel Vale to acknowledge something that allegedly has never happened is preposterous.” 

It is common knowledge that the due diligence process is carried out by private parties based on publicly available information. The firms that carried out the anti-corruption due diligence on BSGR did not have the typical resources that public investigative authorities do have. 

Even the public investigative authorities involved, with all the government authorities resources and power to enforce them, could only conclude that crimes had been committed after 2013, three years after the joint venture was created. The same occurred with the FBI, which arrested an associate of Benjamin Steinmetz in 2013 through the usage of wiretapping and third-party collaboration; with the Government of Guinea, which safely concluded there had been corrupt practices only in 2014, when it then revoked BSGR’s mining rights; and with the Swiss Courts, which convicted Benjamin Steinmetz to 5 years of imprisonment and imposed a fine of 50 million Swiss francs for corruption and forgery related to the acquisition of Simandou’s mining rights.

As clarified in several opportunities, Vale was never aware of any corruption practice by Steinmetz or BSGR prior to the formation of the joint venture in 2010. Emails mentioned by Steinmetz report only rumors, which were completely dispelled by Vale, with the support of specialized international law firms, through a deep anti-corruption due diligence. It should be added that Steinmetz himself submitted an anti-corruption declaration to Vale, assuring that the mining rights in question were legally obtained.

That was the conclusion of the London Court of International Arbitration in 2019 after Vale submitted the aforementioned emails and it awarded Vale’s arbitration proceedings against BSGR. After reviewing hundreds of pieces of evidence, the arbitrators concluded that Vale conducted prior to the formation of the joint venture with Benjamin Steinmetz’s company a detailed and complete anti-corruption due diligence, as well as that BSGR and Steinmetz made false and intentionally concealed from Vale bribery and corruption practices in the acquisition of Simandou’s mining rights for the specific purpose of ensuring Vale’s investment in the business.”

Source: City A.M.