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US SEC charges Rio Tinto with fraud, UK fines £27m over Mozambique coal assets

EBR Staff Writer Published 18 October 2017

British-Australian mining giant Rio Tinto and two of its former executives have been charged with fraud by the US Securities and Exchange Commission (SEC) for inflating the value of African coal assets.

Separately, Rio Tinto has been fined £27m by the UK Financial Conduct Authority (FCA) for breaching Disclosure and Transparency Rules.

In 2011, Rio Tinto purchased the Mozambique coal assets for $3.7bn and sold them for $50m in 2014.

In the lawsuit filed in the federal court in Manhattan, SEC alleges that Rio Tinto and its former chief executive Thomas Albanese and ex-chief financial officer Guy Elliott failed to follow accounting standards to accurately value and record the Mozambique assets.

The US SEC said that Rio Tinto, soon after completion of the deal, found the projects would produce less coal, and of a lower quality, than expected.

SEC said: “Instead, as the project began to suffer one setback after another resulting in the rapid decline of the value of the coal assets, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto’s Board of Directors, Audit Committee, independent auditors, and investors.”

Rio Tinto, however, said it intends to “vigorously defend itself against these allegations”.

The miner had raised $5.5bn from the US investors by making misleading claims, the SEC said.

SEC Enforcement Division co-director Stephanie Avakian said: “As alleged in our complaint, Rio Tinto’s top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion dollar transaction was a failure.”

Similarly, UF FCA found in that Rio Tinto breached the Disclosure Rules by failing to carry out an impairment test and to recognise an impairment loss on the value of mining assets in Mozambique.

FCA Enforcement and Market Oversight executive director Mark Steward said: “Rio Tinto should have been aware of its obligation to carry out the impairment test and the resulting material impairment should have been reported to the market at its half year results in 2012.

“Reflecting the size of the company, this is the largest fine imposed to date by the FCA for a breach of rules relating to a firm’s official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensuring our markets function fairly and effectively.”

According to FCA, Rio Tinto agreed to settle the case at an early stage in the investigation and therefore qualified for a 30% reduction in penalty of £39m.