The former chief financial officer of Rio Tinto, Guy Elliott, has been charged with fraud, alongside the former chief executive Tom Albanese and the company itself.  Stefan Wermuth/Reuters
The former chief financial officer of Rio Tinto, Guy Elliott, has been charged with fraud, alongside the former chief executive Tom Albanese and the company itself. Stefan Wermuth/Reuters

Rio Tinto and top former chiefs charged with fraud



The US securities and exchange commission (SEC) on Tuesday charged the mining company Rio Tinto and two of its former top executives with fraud, saying they inflated the value of coal assets in Mozambique and concealed critical information while tapping the market for billions of dollars.

The UK's financial conduct authority (FCA) also said on Tuesday it had reached a settlement with Rio Tinto under which the company would pay a fine of £27 million (Dh130m) to settle claims that it breached accounting rules in connection with the Mozambique assets.

The Mozambican coal business, which relied on barging the product down the Zambezi River to port, was acquired for US$3.7 billion in 2011 from Riversdale Mining and sold a few years later for $50m.

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In a lawsuit filed in US federal court in Manhattan, the SEC said Rio Tinto, the former chief executive Thomas Albanese, and former chief financial officer Guy Elliott failed to follow accounting standards and company policies to accurately value and record the assets.

The SEC said that soon after the deal was completed, Rio Tinto learned that the acquisition would yield less coal, and of a lower quantity, than expected. The global miner could only transport and sell a fraction of the coal it had originally assumed, the SEC said.

By making misleading public statements, RioTinto and the executives were able to raise $5.5bn from US investors, the SEC said. They continued to solicit the investments even after executives of the Mozambique subsidiary told Mr Albanese and Mr Elliott that the unit was likely worth negative $680m, according to the SEC.

"There is no truth in any of these charges," Mr Albanese said.

Christina Mills, a spokeswoman for Mr Elliott, said he would vigorously contest the charges.

Rio Tinto said it would defend itself vigorously against the SEC's allegations. The company said the UK FCA had "made no findings of fraud, or of any systemic or widespread failure by Rio Tinto".

The SEC allegations are contained in court documents that also request a jury trial. The SEC said the rapid and dramatic decline in value of the coal business was concealed, in part because Rio Tinto had already disclosed huge losses in connection with its 2007 acquisition of Alcan.

"The Mozambique acquisition was expected to restore the market’s confidence in Mr Albanese’s deal-making acumen, but on-the-ground realities in Mozambique quickly undermined that narrative," the SEC said.

The SEC said the company knew its barging assumptions were unrealistic and railway capacity severely limited by the end of 2011, just months after securing the Riversdale assets.

"Defendants concealed the nature and extent of these adverse developments from Rio Tinto’s board of directors, audit committee, independent auditors, and the market," the SEC said.

The SEC said that if it had been disclosed, the developments would have triggered an impairment analysis. An impairment analysis would measure the difference in the expected cash flow from an asset and the value the company has booked the asset at.

By May 2012, Mr Albanese and Mr Elliott were informed of the negative $680m valuation, although the company carried the assets on its books at more than $3bn while also promoting its prospects to the market.

The SEC said the fraud continued until January 2013, when another executive discovered accounting irregularities. Mr Albanese subsequently resigned and the value of the Mozambique assets were lowered by more than $3bn.

The SEC is seeking to have Mr Albanese and Mr Elliott barred from acting as officers or directors of any public company.

The SEC also disclosed that the Australian Securities and Investments Commission was looking into Rio's accounting of the Mozambique assets.

Company%20Profile
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EXPATS
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SPECS

Engine: 4-litre V8 twin-turbo
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What is blockchain?

Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.

The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.

Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.

However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.

Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.

COMPANY PROFILE
Name: ARDH Collective
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Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
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Number of employees: 4