Theft and corruption totaling over $500m (about R7.5bn now) is being alleged in court proceedings pitting workers against Samancor Chrome, one of South Africa's major privately owned mining and minerals processing companies, and its previous owner and chair, Croatian billionaire Danko Koncar.
It is alleged that Koncar and his associates spirited billions of rands abroad in a transfer pricing scheme, sold assets while secretly pocketing most of the proceeds, got paid secret management fees and anonymously earned facilitation fees as ostensibly independent middlemen between Samancor and an Australian mining company.
Koncar, Samancor executives and a number of alleged co-conspirators are yet to respond to allegations in court – and may throw a different light on the evidence presented so far.
The case is being brought by the Association of Mining and Construction Union (Amcu) and rests on testimony from a whistleblower, former Samancor director Miodrag Kon, who is supporting the court challenge with a treasure trove of internal documents and emails.
Kon has asked the court to keep his whereabouts secret "due to concerns regarding my personal safety".
He alleges in a court affidavit that Koncar, through his company Kermas, extracted as much as $500m in only five years between 2005 and 2010.
Amcu general secretary Jeff Mphahlele claims in a separate affidavit that the damage may ultimately have been as much as $1.9bn. He does not state the basis for the estimate, but it appears he also took into account what happened after 2010.
Mphahlele charges that had the money been paid out as dividends instead, a Samacor employee share ownership scheme would have received $100m.
Koncar bought Samancor with the assistance of International Mineral Resources (IMR), a company owned by three controversial Kazakh oligarchs, Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov. IMR partially paid for Koncar's acquisition of Samancor in 2005 and subsequently bought out his entire interest to own 77% by 2010.
Despite their support for him in 2005, evidence before the court shows that Koncar allegedly even ripped off the Kazakhs before getting bought out.
He went on to secretly control a Finnish multinational partially built on Samancor-related assets and run by ex-Samancor executives. Shenanigans there recently saw Finnish authorities slam Koncar with a mind-boggling fine of €110m (about R1.8bn).
Selling assets on the cheap
The crudest and most brazen alleged scheme to extract money from Samancor was the sale of 50% of a subsidiary, Tubatse Chrome, to Chinese state-owned conglomerate Sinosteel in 2007.
Sinosteel paid $225m, but a staggering $125m (R1.9bn now) of that did not go to Samancor at all. Instead it ended up in the London bank account of Kermas, Koncar's company registered in the British Virgin Islands.
Kon has provided Samancor's annual report for the 2008 financial year where the proceeds from the sale are recorded as R683m. At the most favourable exchange rate recorded in May 2007, the month of the deal, this came to $100m.
More damning is an email chain confirming receipt of payment which makes it clear that Samancor's banker Nedbank and the company's management were well aware of the money being diverted.
In the email chain a Nedbank manager alerts Wessel Erasmus, a Samancor veteran who became chief financial officer when Kermas took over, that $100m has been received in Samancor's account.
A few minutes later the Nedbank manager sends another email: "I can also confirm that Nedbank London has received USD 125m on the account for Kermas."
Samancor's Erasmus then forwards the good news to Koncar.
Jürgen Schalamon, the German Samancor chief executive installed by Kermas in 2005, was also copied into this discussion. He at the time had a 1% interest in Kermas in the British Virgin Islands, according to other documents in the court file.
The Sinosteel deal was accompanied by a confidential distribution agreement whereby Kermas became the sole marketing agent for Tubatse products and was guaranteed a steep 9% commission margin. This right, which got sold to a Sinosteel subsidiary for a 50/50 profit share, was just a smaller version of what was happening at Samancor itself.
The big profit shift
A more complex and audacious transfer pricing scheme accounts for most of the alleged damage at Samancor. It was also allegedly kept in place after Koncar sold the company to IMR – and allegedly remains in place to this day.
The scheme is a form of profit shifting where a company pays a related party far too much for services based in another jurisdiction, usually a tax haven.
Sometimes the service is even fictitious.
It is a form of tax evasion, but in the case of Samancor it was also allegedly a way for Koncar to steal millions from Samancor and its minority shareholders – with the complicity of at least two directors.
The alleged transfer pricing scheme started after Koncar's Kermas bought Samancor from BHP Billiton and Anglo American for $469m in 2005.
The evidence indicates that Samchrome was owned by another Maltese company, Chrome Holdings, which was in turn owned by Kermas. This is according to an email that Koncar sent his accountant.
Kermas technically belongs to Danica Zagmester, Koncar's cousin, but it is effectively his investment vehicle for a variety of holdings across the world. When Kermas set a up a secret agreement with IMR in 2005 to back the purchase of Samancor, Koncar was the sole signatory on behalf of Kermas.
Another director of Samancor, Branislav Lazovic, owned a 5% share in Kermas while Schalamon, the Samancor chief executive installed by Kermas, owned 1%.
Koncar's cousin apparently later bought out Lazovic to own 99% by 2010. Kermas was at this point already a player in the Russian and Turkish chrome mining sectors as well as refining in Germany.
According to Kon's affidavit in the court application, "Samchrome Malta had no employees. They performed no actual marketing services and gave little if any value. It sold almost all or all material through sub-agents."
Kon's claim that Samchrome had no employees is backed up by the complete absence of any employment related expenses in Samchrome's accounts. Even telephone costs were zero – strange for a company that is meant to be managing global trade for a major mining group.
Financial statements for Samchrome now contained in the court record show that the Maltese office was nonetheless making a killing.
In the 2006 financial year, its first year of operation, it had profits of $29.9m and it paid out a dividend – to Koncar, Lazovic and Schalamon – of $19.4m. In the 2007 financial year its profits were $73.2m.
To understand how effective this profit shifting was, Samchrome profits have to be compared to Samancor in South Africa.
According to Samancor's annual financial statements from 2008, also in the court file, the company had profit of R1.4bn in the 18 months ending December 2007. The Samchrome Malta profit for just part of this period (the 12 months up to the end of June 2017) was roughly R500m.
In other words, the Malta marketing company was sucking up more than a third of Samancor's profits – allegedly in exchange for nothing.
The outsized nature of the 9% commission being paid to Malta by Samancor is illustrated by the fact that, back in 2005, BHP Billiton initially acted as the marketing agent for a 2.5% commission after selling its share of Samancor to Kermas.
The Samchrome Malta setup would have evaded taxes in South Africa, but also robbed the minority shareholders of Samancor including an employee share ownership scheme and other BEE partners brought onboard in 2006.
If the allegation holds up, the company in which the workers own shares (Samancor) is effectively ceding profits to another company in Malta they have no stake in, allegedly in exchange for nothing.
This, and other dealings that profited Kermas to the detriment of other shareholders, is the basis for Amcu's case.
The Johannesburg high court is now being asked to make a precedent-setting order: for Samancor, a private company, to open its books and prove, if it can, that these allegations against Koncar and others are false.
This would be the first step towards a potential damages claim on behalf of workers for the $100-million calculated by economist Dick Forslund, who is working with Amcu on behalf of the Alternative Information and Development Centre, a Cape Town-based NGO and Richard Spoor attorneys, as the dividends workers were deprived of.
Cut us in
The transfer pricing arrangement would not be unique. The difference with Samacor is that it was not the company itself benefiting from tax evasion, but largely a single individual sucking out millions to the detriment of Samancor itself as well as other shareholders.
The alleged scam dawned on the other shareholders along the way. IMR (the oligarchs) bought 32.5% of Samancor from Kermas in 2017 and were involved in Kermas' acquisition of Samancor from the beginning. They nonetheless seemed to be in the dark about how 9% of the company's revenues were being given to their partner Koncar.
In February 2009 IMR seemingly realised that they were being fleeced. They directed a letter to Samancor asking for a signed copy of the Malta agreement.
"Would you also please let us have copies of all and any of the board resolutions by Samancor in which the marketing agreement was discussed prior to its conclusion as well as the enabling resolution (which we assume exists)."
IMR continued: "Would you also please advise whether any person (and more particularly Dr Danko Konchar) gave notice in terms of Section 234 of the Companies Act No 61 of 1973 (as amended) of his interest in Samchrome Limited, Malta?"
Emails also show how the largest member of Samancor's BEE consortium was incensed by being constantly cut out of the Malta largesse.
The BEE consortium called Batho Barena was put together in 2006 and the major BEE shareholder was Ehlobo Resources which had a 14% share in Samancor.
Ehlobo was created by Alistair Ruiters, formerly director general in the department of trade and industry. His partner in Ehlobo was Mohammed Bagus, also a veteran of the department.
In June 2008 Bagus emailed Ruiters to complain.
"We have been promised some cash from Malta since December 2006," wrote Bagus.
"We learnt… at the last board meeting that Malta has issued a dividend. You confirmed to me that Danko has taken $70m for himself. I asked the question to our entitlement to 4% of the economic interest in Malta and you indicated that this won't happen."
Bagus was at the time parting ways with Ruiters and Ehlobo. Ruiters would however stay on as a Samancor director and participate extensively in Koncar's other endeavours, ultimately becoming chief executive of the Finnish company Ruukki (subsequently renamed Afarak), which Koncar would build after leaving Samancor.
According to Kon's affidavit, and supporting documentation, even the 9% being siphoned off by Samchrome in Malta was not enough for Koncar and co.
A further email in the court record shows Samancor chief executive Schalamon negotiating a chrome ore sale with Mogale Alloys in 2007 where another Koncar marketing company called RCS sells the ore.
He wrote to Kurt Maske, then a BHP Billiton employee working at Mogale: "It is important NOT to mention RCS with anybody in Samancor 'cause as you know the parent company of Samancor also has other shareholders and in this case we are using not Samchrome as the agent for the [ferrochrome]."
Maske would later join Samancor and from there also join the Finnish Ruukki group alongside Koncar and his associates. Both RCS and Mogale were later acquired by Ruukki as well.
Enter the oligarchs
IMR, belonging to the three oligarchs, first bought 32.5% of Samancor from Kermas in 2007 and then bought out Koncar's stake entirely in November 2009 after demanding an explanation for the Maltese arrangement.
Their involvement predates this as they initially gave Koncar a loan to help pay for Samancor in 2005.
Their initial loan agreement however shows that it was always IMR that would control Samancor in the end.
A memorandum of agreement between Samancor and IMR stated that they would be "equal partners" in Samancor and that IMR would be treated as if it was a 45% shareholder despite not officially owning any shares. The reason for IMR not simply buying Samancor itself is unclear, but a source close to the lawsuit speculates it might have been to ensure Competition Commission approval.
In 2007 IMR not only bought out Kermas, but also Ehlobo's 14%.
It sold half of the 14% to Holgoun, a local BEE outfit belonging to husband-and-wife team Sivi and Vanessa Gounden. The other half was "warehoused", but it is unclear for whose benefit.
What followed IMR's buyout of Koncar and Ehlobo was not the end of the transfer pricing scheme, but a reconstitution of it to cut IMR into the action.
A new Samchrome was created in Dubai and took over the 9% commission.
A letter from Koncar to both Samchromes states: "To the extent necessary, SamChrome Dubai hereby agrees to abide by the existing transfer pricing rulings relating to the Distribution Agreement".
IMR, via Dubai, ultimately took over Kermas' role as the exclusive marketer of Samancor products. Malta has a 4% corporate tax rate while Dubai's rate is 0%.
The "king of chrome"
Koncar has had a storied career, owning and managing major mining and metals companies from Russia to Germany, South Africa and, most recently, Finland. He has been dubbed the "king of chrome" in his native Croatia and is reportedly the richest Croatian in the world.
He has evidently taken the kind of corporate maneuvering he carried out in South Africa to a whole new level.
This year he was slapped with the €110m fine by Finnish authorities for secretly taking control of Afarak, a listed Finnish mining and alloys group previously known as Ruukki.
This audacious scheme was first unveiled by the Panama Papers and involved Koncar exercising 70% of Afarak's voting rights through a network of ostensibly unrelated shareholders despite directly owning only 28% of the company.
Maintaining his known ownership below 30% was crucial since stock exchange rules force a shareholder to make a mandatory offer to buy out all other shareholders if they cross the 30% shareholding threshold. His fine stems from evading this requirement.
Koncar's time in South Africa is inextricably linked to Ruukki/Afarak. The Finnish company's major assets come from South Africa, mostly relate to Samancor and were brought to the table by Koncar immediately after he left Samancor behind.
Some of his colleagues in South Africa also joined him in packing their bags for Finland.
Back at Samancor there is also a slew of other serious allegations against Koncar following the same alleged pattern of self-dealing to the detriment of Samancor and its minority shareholders. At least one ultimately leads back to Finland – via Australia.
One of the suspect deals that allegedly enriched Koncar and other Samancor insiders was a series of dump reprocessing agreements with Australian mining company Sylvania.
In 2006 and 2008 Sylvania was awarded the rights to extract residual chrome (which would be sold to Samancor at prearranged prices) as well as platinum from Samancor's mine tailing dams. These deals were, according to Kon, improper in a way that not only implicates Koncar and Lazovic, but also Samancor executives and Ehlobo, the BEE partner.
With each new deal Sylvania issued shares to a mysterious facilitator called Portpatrick for "securing the rights". This was openly recorded in its annual reports without any clarification about who Portpatrick is or what it did. According to Kon, Portpatrick is in fact a front for Koncar and Lazovic.
He claims they ultimately got 14 million Sylvania shares via companies in Liechtenstein for giving the Australian outfit very generous access to Samancor's tailings – without telling the other shareholders about it.
The Sylvania deals appear also to have benefitted Ehlobo because the company simultaneously became the 26% BEE shareholder in Sylvania's South African operations. Its founder, Ruiters, was on the Samancor board as the deals were negotiated and was then a shareholder on the other end of the table.
Ruiters went on to become chief executive of Afarak, Koncar's Finnish company.
The case brought by Amcu for Samancor to open its books is in terms of section 163 of the Companies Act dealing with "relief from oppressive or prejudicial conduct or from abuse of separate juristic personality of company".
This section permits a shareholder, in this case Ndizani Workers' Trust, the employee share ownership scheme of Samancor, to take a company to court for a variety of actions against shareholders' interests.
Amcu specifically wants an accounting for all transactions related to the Malta and Dubai marketing companies as well as Sylvania and Sinosteel.
If the court grants that and the information confirms its suspicions, the union will use it both to sue for damages and seek and order for the replacement of Samancor directors.
However, the court papers were filed only on Wednesday, meaning Samancor, Koncar and company have yet to provide their version. Kon's damaging claims are likely to be fiercely contested.
The amaBhungane Centre for Investigative Journalism, an independent non-profit, produced this story. Like it? Be an amaB Supporter to help us do more. Sign up for our newsletter and WhatsApp alerts to get more.