The Global Magnitsky Effect: How will U.S. sanctions against Gertler affect the DR Congo’s extractive sector?

2017 ended rather dramatically for Israeli billionaire Dan Gertler, one of the most controversial businessmen in the Democratic Republic of Congo. On December 21st, U.S. President Donald Trump sanctioned him under the new Global Magnitsky Act, which allows the American president to sanction human rights abusers and corrupt actors. This is the first time a foreign government has overtly targeted the mining magnate for high-level corruption in Congo.

This is also the first time a government has imposed “tangible and significant consequences” for Gertler’s activities in the country. The sanctions intend to cut off Gertler and his businesses from the American financial system: American companies and individuals can no longer transact with sanctioned entities; dollar payments have become nearly impossible. Even foreign entities face serious risks if they continue to provide financial, material or technological support, or if they provide goods or services to the sanctioned entities: they, in turn, risk being sanctioned by the US administration. “It doesn’t get much worse for a businessman than U.S. sanctions,” an investment banker told Resource Matters.

In this report, Resource Matters analyzes the concrete consequences of the Global Magnitsky sanctions on Gertler’s multinational partners and on the rest of the extractive sector in Congo.

Glencore, the Swiss commodity trading giant, has two outstanding royalty contracts with Gertler-affiliated companies. Resource Matters estimates that these royalty payments were expected to amount to about $200 million in 2018 and 2019. Glencore told Resource Matters that neither Glencore nor its subsidiaries had paid any royalties to Gertler’s companies since the sanctions were enacted.

Glencore’s Congo projects owe Gertler-affiliated companies an estimated $197 million in royalty payments over the next two years. Further details and assumptions available in the report.

Likewise, Randgold, Congo’s foremost gold operator, announced that it has called ‘force majeure’ and said that it wanted to stop providing exploration services to the Société Minière de Moku-Beverendi, a gold company majoritarily owned by Gertler.

However, the legal conundrum for both of Gertler’s partners is not over yet. Neither company has provided a final update yet on whether they will definitively interrupt their business relationship with Gertler’s companies.

Nor have Congo’s political authorities taken a stance on the sanctions.  Gertler’s sanctioned companies still own two oil blocks in eastern Congo, which might now be frozen as long as the sanctions last. Will the government revoke these blocks and sell them on to a new investor? Or will it stand by one of the closest business associates of the regime, and look for alternative ways to raise funds? If the latter, the extractive sector as a whole could be subject to increased pressure.

The real impact of Magnitsky will depend on the ultimate decisions of Gertler’s current partners and the Congolese government as to how to deal with Gertler going forward. It will also depend on how closely the U.S. Treasury will monitor compliance, impose penalties and issue new sanctions on those that continue to support sanctioned entities.

Full report: Resource Matters – The Global Magnitsky Effect – Impact of U.S. sanctions against Gertler on Congo’s extractive sector – February 2018

Summary in French – Résumé en Français