BHP Billiton Ltd., the world’s largest mining company, found evidence of possible breaches of anti-corruption laws after the U.S. Securities and Exchange Commission requested information for an investigation.
BHP identified “possible violations of applicable anti- corruption laws involving interactions with government officials,” Melbourne-based BHP said today in a statement. The U.K.’s Serious Fraud Office said it’s looking at the matter after being approached by BHP, which found evidence of possible breaches by the mining company’s employees.
The company said the probe into the termination of some minerals exploration projects didn’t involve its business in China, where four Rio Tinto Group executives were jailed last month for bribery. The projects concerned are in Cambodia and the Philippines, the Sydney Morning Herald said. U.S. regulators have increased scrutiny of corporate governance and compliance following the 2008 collapse of Lehman Brothers Holdings Inc.
“We are getting more serious on responsibility,” said Albert Hung, who helps manage A$1.7 billion ($1.6 billion) at Alleron Investment Management Ltd., which has BHP in its top 5 holdings. “It’s not just the mining sector.”
BHP, which didn’t disclose the location of the projects, declined 62 pence, or 2.8 percent, to 2,118 pence by the close of London trading. The stock dropped 0.2 percent earlier in Sydney. BHP also trades on the New York Stock Exchange, which is why the SEC has jurisdiction over the company.
The projects concerned are a bauxite prospect in Cambodia and a nickel and cobalt prospect in the southern Philippine province of Surigao del Norte, the Herald reported, without saying where it got the information. Both projects were terminated before December 2008, it said. Ruban Yogarajah, a spokesman for BHP in London, declined to comment on the report.
BHP’s Chief Executive Officer Marius Kloppers is spending $10 billion on exploration and capital spending this fiscal year as metal prices and demand recovers from a global slump.
The SEC couldn’t “confirm or deny the existence or non- existence of any investigation,” John Nester, a Washington- based spokesman, said in an e-mail. Its mission is to “protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation,” according to its Web site.
“The company has approached the SFO to report that it has uncovered evidence of possible violations of anti-corruption laws by its employees,” David Jones, a spokesman for the U.K. regulator, said by e-mail. “We are not in a position to provide any further details at this stage.”
The Australian Securities and Investments Commission couldn’t comment, spokeswoman Georgie Morell said.
“This is obviously an event that BHP will wish had not occurred and may have implications for its ability particularly to undertake exploration activities in the relevant jurisdiction,” Michael Bush, National Australia Bank Ltd.’s head of fixed income credit research, wrote today in a note.
The SEC and Department of Justice encourage self-reporting, or voluntary disclosure, and a company’s cooperation is an important consideration in determining whether to prosecute, Christopher Stephens, Hong Kong-based senior partner for China of Orrick, Herrington & Sutcliffe LLP, said by e-mail.
“The DOJ may also decide that even apparently isolated transgressions in one country may merit a global investigation of industry practices,” Stephens said. The government may take into account recent convictions of the four Rio Tinto employees in China and decide a broader investigation is needed, he said. “If that’s the case, look for these cases to continue for years.”
BHP has provided evidence to other, unidentified agencies, said a person with direct information of the investigation that began in August last year. The projects aren’t necessarily located in the U.S., said the person. The projects were stopped for commercial reasons, the company said.
“The fact that the investigation applies to expired mineral exploration tenements is infinitely preferable to if it had applied to marketing or sales activities, which would have potentially far wider ranging implications,” National Australia’s Bush said. The development is unlikely to have any significant credit or ratings implications, he said.
“It is not possible at this time to predict the scope or duration of the investigation or its likely outcome,” BHP said in the statement. The company spent $346 million on minerals exploration and $587 million on petroleum exploration in the nine months to March 31, the company said in the report.
“We are limited in what we can comment on as the matter is still under investigation,” BHP said today in an e-mail. “We can confirm that the SEC’s requests for information primarily relate to certain terminated minerals exploration projects and not any activity in China, BHP Billiton’s marketing activities or the sale of any of the company’s products.”
Davis Polk & Wardwell LLP, a New York-based law firm, has been retained to assist, the company said. BHP has hired the law firm Herbert Smith LLP to advise them on the SFO matter, according to SFO spokesman David Jones.
BHP and Rio are seeking approval from global regulators for a proposed iron ore joint venture in Australia to save at least $10 billion in costs. This is opposed by European and Asian steelmakers on concern it will lessen competition.
It’s important that the news isn’t related to China or BHP’s marketing activities, said UBS AG analyst Glyn Lawcock. “The last time BHP terminated an exploration project was more than a year ago.”
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