DOING BUSINESS WITH THE DRC: CAVEAT EMPTOR

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001365

SIPDIS

SIPDIS

DEPT PASS TO USTR (WJACKSON),OPIC (JEDWARDS)

E.O. 12958: DECL: 08/15/2016
TAGS: ETRD ECON KCOR EPET PGOV CG
SUBJECT: DOING BUSINESS WITH THE DRC: CAVEAT EMPTOR


Classified By: ECONOFF W.BRAFMAN FOR REASONS 1.4 b/d


1. (SBU) Summary. An increasing number of attempts to defraud
potential American investors and traders have come to Post's
attention in the past few months. While most are occurring
in the extractive industries sector, driven by high global
market prices, other sectors are not immune. Blatantly
fraudulent documents and requests for bribes and illegal
gratuities are common in such deals. As the transitional
government's tenure comes ever closer to its end, and with
corrupt officials attempting to line their pockets, the
business climate becomes slightly more risky.

THE COPPER RUSH
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2. (U) Some commodity prices are hovering at all-time highs,
attracting many to the sector in search of a seemingly quick
and easy profit. (Note: August 29, the three-month copper
price was about USD 7500 per ton on the London Metals
Exchange. End note.) As a result, even persons with little
knowledge of the DRC's extractive industries sector are
trying to enter the market and find a way to make a profit.


3. (C) Two such proposed transactions have come to the
attention of EconOffs in the past month. The sale documents
and terms have clearly demonstrated that neither proposed
sale is legitimate. For example, one person who identified
himself as an American businessman contacted the Econ Section
and asked that it review documents for a purchase from an
alleged Congolese copper trading company (seller). The
seller incorporated Gecamines (the DRC's copper mining
parastatal) into its title, apparently trying to appear
official, incorporating the national flag, and listing
Olivier Kamitatu, a prominent DRC politician, as the
financial director. (Note: In March, the Econ Section
received a separate inquiry in connection with another
evidently bogus offer from the same Congolese company, who
was then offering to sell a quantity of copper cathode beyond
the current processing capacity in the DRC. End note.) The
seller offered the buyer 3500 metric tons of copper cathode
sheets, asking only for an advance payment of shipping costs,
payable via Western Union. The address provided on the
documents was false, as was the seller's website.

THE PETROLEUM SECTOR TOO
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4. (C) Fraud and bribery, combined with a relative rush of
activity, are also marking the petroleum sector. The
petroleum potential of Africa's west coast, from the Gulf of
Guinea to Angola, has brought a variety of interested
investors to the DRC, including several Americans. EconCouns
and EconOff met July 5 with two Americans who said they have
been trying since 2001 to invest in the DRC's petroleum
sector via the company they formed (B&B). (Note: One of the
entity's current partners was initially in the DRC trying his
hand at the diamond business, a venture he described as
disastrous. End note.) Their effort is a text book example
of the difficulties and hazards of trying to do business in
the DRC, and gives a revealing picture of the pervasive
culture of corruption, while leaving open the question of who
is attempting to scam whom.


5. (C) In the course of B&B's attempts to conclude deals, the
partners report they have been asked for bribes, been nearly
defrauded, dealt with four different energy ministers, and
have been strung along for years. They said that in one
instance, like scenes out of a Hollywood movie, an elaborate
hoax was set up in which a Congolese man posed as the
Minister of Energy, while others pretended to be part of his
staff. B&B met several times with these impostors at the
Ministry of Energy, and was about to pay USD 500,000 to the
alleged Minister, before claiming to uncover the con as a
result of information received from the Econ Section. Despite
this setback, B&B signed two Memoranda of Understanding
(essentially just agreements to negotiate further) in 2005
for offshore and onshore blocks with the real Minister of
Energy. These deals are now at an impasse, despite B&B's
persistence during repeated trips to the DRC.


6. (C) In addition to the attempted hoax, B&B's principals
said they have encountered blatant requests for bribes during

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virtually every meeting with GDRC officials. Some officials
told B&B that payments would support political campaigns.
Further, B&B partners commented that they have yet to meet
any GDRC officials who have substantive knowledge of the
petroleum sector and that they have met only one official -
the Minister of Interior - who expressed even a modicum of
concern for the DRC's welfare. Frustrated, the B&B partners
said that they have begun to consider giving up on the DRC.


7. (C) Another American in the petroleum business has
recounted to EconOffs a similar story of encountering a
corrupt, inept system. A businessman identifying himself as
Board Chairman (Chair) of EnerGulf, a Toronto Stock
Exchange-listed company, met with EconOffs in November 2005.
EnerGulf's Chair said the company was on the verge of
obtaining exploration rights for two onshore blocks in the
DRC, near Cabinda. Some days later, the company found itself
ensnared in a web of double dealings amid a flurry of
negotiations for several DRC onshore blocks, just before the
then-Minister of Energy was replaced. (Comment: It is likely
that the Minister knew of his impending removal and that the
timing of the negotiations was not coincidental. End
comment.) EnerGulf's Chair said that his company's Congolese
attorney had also represented other parties in negotiations
with the GDRC and had shared EnerGulf's confidential
information. He also said that the Energy Ministry officials
made contradictory promises to various negotiating parties.


8. (C) Unlike B&B, however, EnerGulf may already have been
defrauded. EnerGulf ultimately obtained an agreement for a
share of just one onshore block and paid USD 500,000 as a
"signing bonus" for the exploration rights, in addition to
USD 50,000 to purchase "geological data" from the DRC.
Despite persistent efforts, it has been unable to get the
presidential decree needed to approve the project, and the
Bretton Woods institutions have since asked that the GDRC
refrain from signing new extractive industries' sector
contracts, at least through the end of the 2006 (septel).

COMMENT
--------------


9. (C) The questionable transactions and the misadventures of
potential investors not only highlight the DRC's entrenched
corruption, but also confirm that this is no place for an
inexperienced investor probably tempted at least in part by
the prospect of rapid good returns. Many businesspersons
come to the DRC thinking that they will take advantage of
high commodity prices and disorganized, seemingly
unsophisticated government. What they often find that is
they who are taken advantage of. End comment.
MEECE