Samancor Chrome is in the crosshairs of labour unions again over the possible retrenchment of more than 3,000 workers while it faces allegations of fraud and profit-shifting.
Last month Samancor said it would retrench workers as it grapples with deteriorating market conditions, depressed ferrochrome and chrome prices and increasing Eskom tariffs. In a statement, the mine said it expected its chrome production to fall by 29% this year and its ferrochrome production by 20%.
Samancor has since issued section 189 notices to unions at its operations and corporate office. "This will start the consultation process between the company and the unions. The process may potentially affect 2,438 employees at the company's mining operations and 599 employees at its smelters," it said.
Phakamile Hlubi-Majola, spokesperson for the National Union of Metalworkers of SA (Numsa), said Samancor had yet to set a date to consult with the unions on the retrenchments.
The looming retrenchments are only part of the problems Samancor is facing with unions. Numsa has also demanded that the miner carry out an independent forensic investigation into its employee share ownership programme, the Ndizani Trust.
Numsa's demand came after the Association of Mineworkers & Construction Union (Amcu) approached the high court in Johannesburg in October, seeking permission to litigate against Samancor, its current and former directors and its other entities.
The union, whose members form 6,000 minority shareholders as part of the trust, alleges in court papers that some of Samancor's executives have been involved in fraud and profit-shifting from 2005. At the heart of the court action is Amcu's allegations that Samancor's related company fees and transfers resulted in workers losing out on over $100m (R1.5bn) in dividends.
The $100m is part of $1.9bn Amcu is alleging in court documents that Samancor executives siphoned out of SA.
3,000
The number of workers Samancor Chrome may retrench
According to Amcu's court papers, these claims have yet to be proved in court and are based on whistleblower information.
The union has been unable to pinpoint how much the executives allegedly siphoned out of SA in sales commissions and management fees for some of its directors to British Virgin Island company Kermas BVI, the court papers say.
The alleged transactions include $125m transferred to a Kermas BVI bank account, which includes a 9% sales commission for which Amcu claims there was no "meaningful service provided".
Amcu has asked the court to order Samancor to account for the true value of the transactions. If the request is granted the union will be able to peruse the mine's accounts to track where the funds allegedly went.
In response to questions from Business Times, Samancor CEO Desmond McManus said there was no connection between the litigation against the company and its decision to realign its business by retrenching and lowering production.
Johan Lorenzen, an associate at Richard Spoor Attorneys, which is representing Amcu, said the court action was groundbreaking. "It is the first time that the full details of this conduct have been laid bare by a whistleblower and then acted upon in court," he said.
Samancor, which has operations in North West, Limpopo and Mpumalanga, has said that it commissioned an independent investigation into the issue and the outcome will inform any future action. The company, which has yet to file its responding papers, said it would also follow court processes.
Amcu says the retrenchments will not affect its litigation process against the mine. Lorenzen said Richard Spoor Attorneys was in the process of serving the executives with court papers and that it could take up to a year for a court date to be set.
In an affidavit that forms part of the court papers, Amcu general secretary Jeff Mphahlele stressed that the allegations had yet to be proved in court.
Mphahlele alleged that based on information from Miodrag Kon, a former director of Samancor, the company had lost the estimated $1.9bn due to transactions and agreements it had negotiated with related companies, which had not been at arm's length and, therefore, were in breach of international standards.
Dick Forslund, a senior economist at the Alternative Information & Development Centre, said mineworkers, who own 5.6% of Samancor, were missing out on their dividends and on other benefits like bursaries and community development.
A study by the policy and inclusive growth programme Southern Africa - Towards Inclusive Economic Development estimated that profit-shifting by multinational companies costs SA about R7bn a year in lost tax revenue.
The amount is about 4% of what the South African Revenue Service (Sars) collects from corporates, the study says.
To fight illicit financial flows, the government established the Inter-Agency Working Group (IAWG) in 2018.
The IAWG is made up of Sars, the Hawks, the National Prosecuting Authority, the National Treasury, the Financial Intelligence Centre, the Reserve Bank and the department of trade & industry.
For Logan Wort, executive secretary of the African Tax Administration Forum, establishing the IAWG is one of the best things the government has done. Wort said all countries should work on revising outdated laws and have stringent penalties for tax evasion as well as clear guidance on how avoidance can be limited.
He added that transparency on company beneficial ownership is also key.
"Many countries do not have beneficial ownership registries or provisions in their legislation that compels entities to disclose who the beneficial owner is of a particular asset," said Wort.
"Therefore, an asset can be moved and sold off or hidden without one knowing who the ultimate owner of that asset is."
Another solution is for countries to have exchange of information agreements, which would enable authorities to follow money that leaves their country. SA has agreements with a number of countries, including Germany, Mexico and China.
• This story was produced by Business Times. It was written as part of Wealth of Nations, a media skills development programme run by the
Thomson Reuters Foundation in collaboration with the Institute for the Advancement of Journalism. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.
