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Published On: Tue, Sep 13th, 2016

US seeks individual scalps in probe of Och-Ziff bribery in Africa

LONDON — US prosecutors pursuing alleged bribery in Africa have a big prize in their sights — Och-Ziff, one of the world’s largest and most powerful hedge funds, as well as deal makers and money men on three continents.

However, a corporate fine stretching into the hundreds of millions of dollars may not be enough for the US authorities, who have specifically said they now want individuals to be called to account for corporate crime.

But, while Tokyo Sexwale’s Mvelaphanda is one of the partners in the joint venture implicated in the investigation, neither chairman Sexwale nor Mark Willcox, nonexecutive director of Mvelaphanda Group and CEO of Mvelaphanda Holdings, appears to be one of the individuals in the US justice department’s sights.

If investigators net some big fish, it will put individual executives on notice that they cannot disclaim responsibility for far-flung misbehaviour.

Och-Ziff, the $39bn New York-listed hedge fund run by Daniel Och, has already set aside $414m to pay penalties it expects to incur as part of a deal to settle alleged bribery in Africa following an investigation by the US Department of Justice and the Securities and Exchange Commission.

The two sides are in talks and US prosecutors are expected to insist an Och-Ziff subsidiary — but not the parent company — pleads guilty to violating anticorruption law, according to people familiar with the probe.

The investigators’ hand has been strengthened by the recent arrest of a Gabonese businessman, which appears to have furnished the authorities with a new trove of information about Och-Ziff’s African foray.

The settlement talks come a year after Sally Yates, US deputy attorney-general, issued a memo declaring that “the Department [of Justice] will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation”.

She was responding to criticism that prosecutors have been too ready to levy fines on companies while allowing individual perpetrators to avoid jail — effectively punishing current shareholders for the misdeeds of past executives.

It was not the first time a senior justice official had lamented prosecutors’ failure to jail more individuals. In overseas corruption cases, charges against senior corporate officers have been rare, the justice department’s critics note. The Och-Ziff case raises questions of whether investigators can establish individual responsibility in complex cases of alleged bribery.

Days after the hedge fund announced the provision for its anticipated settlement last month, federal agents charged Samuel Mebiame with violating the 1977 Foreign Corrupt Practices Act (FCPA), which bans overseas bribery.

The son of a former Gabonese prime minister, Mebiame works as a business fixer for investors in Africa. He was on a brief trip to the US and had been due to depart the day after the authorities swooped.

Prosecutors allege Mebiame spent years traversing Africa, lavishing millions of dollars in bribes on officials in Guinea, Chad and Niger as part of efforts to secure mining rights.

According to prosecutors’ filings, Mebiame — who remains in detention and whose lawyer declined to comment — was operating on behalf of a joint venture between an unnamed hedge fund and other investors. None of the parties was named. But people briefed on the investigation and the events described in the filing, said the hedge fund was Och-Ziff and the joint venture was called Africa Management Limited (AML).

AML was created in 2007 as a vehicle for investments in African mines. A blueprint seen by the Financial Times says Och-Ziff was to put in up to $300m in cash, with its partners contributing $900m in African mining assets.

Och-Ziff declined to say how much cash was committed.

The partners were both South African: Mvelaphanda, a conglomerate founded by the freedom fighter-turned-tycoon Tokyo Sexwale, and Palladino, veteran mining investor Walter Hennig’s vehicle.

The timing was bad: the commodity boom was turning to bust. But the venture’s staff in Johannesburg sought opportunities nonetheless and discussed their progress in regular conference calls with representatives of the three investors, people with knowledge of the venture say.

One was Hennig, for Palladino. The second was Willcox, a resource-industry deal maker who headed Mvelaphanda and was appointed CEO of the joint venture. The third was Och-Ziff’s man in London, Michael Cohen.

Cohen, a protege of Och with a penchant for shooting and a hard-charging style, had built Och-Ziff’s European operation from scratch. Under Cohen, Och-Ziff’s Vanja Baros, a private equity analyst who had responsibility for some of the African investments and, with his boss, served as a director of AML from 2007 to 2012.

The US investigation into Och-Ziff ranges well beyond AML’s activities, including contentious mining deals in Congo and Zimbabwe.

Yet the prosecutors’ account of Mebiame’s activities raises the question of what, if anything, these four individuals knew about the alleged bribery schemes. None has been accused of wrongdoing. Och-Ziff, Cohen and Baros declined to comment. Neither Hennig nor Willcox responded to requests for comment.

The prosecutors have said their information about Mebiame’s dealings is drawn from sources including “business records obtained from the hedge fund” at the centre of the case — a reference to Och-Ziff. In the criminal complaint, Mebiame is described discussing his alleged schemes with an unnamed “co-conspirator”, identified as the owner of a “Turks and Caicos entity”. Palladino is registered on those islands, suggesting the alleged co-conspirator is Hennig.

Nothing in the Mebiame complaint appears to describe Willcox, Baros or Cohen. But people briefed on the probe say Cohen is under investigation by the justice department as part of the Och-Ziff case. If the US believes there is evidence to pursue charges, it could seek his extradition from the UK — where he has been granted citizenship. Cohen left Och-Ziff in 2013, after the start of the US investigation; Baros has also departed.

The department’s push for individual prosecutions has generated concern among some defence lawyers, who say prosecutors are straining to establish culpability where there is none. But the department also has critics who bemoan its patchy record for bringing people rather than corporations to book.

“The fact remains that approximately 75% of [the department’s] corporate enforcement actions never result in any related individual prosecutions,” says Mike Koehler, a legal scholar who runs the FCPA Professor blog.

Since the Yates memo in September 2015, Koehler notes, there have been five corporate FCPA enforcement actions. None has involved related charges against individuals. The coming weeks will show whether the Och-Ziff case will buck that trend.

© The Financial Times Limited 2016