Spotlight on the London Stock Exchange
Report claims LSE is a haven for laundered conflict assets
In a damning report, the business and human rights organisation Rights and Accountability in Development (RAID) catalogues the inadequacies of the London Stock Exchange’s regulatory framework – detailing how companies can trade regardless of allegations about the nature of their activities, assets and associates.
Entitled Asset laundering and AIM: Congo, corporate misconduct and the market value of human rights, the report focuses on how the notorious Central African Mining and Exploration Company plc (CAMEC) was allowed to trade and flourish on London’s junior Alternative Investment Market (AIM) despite its close links to Robert Mugabe’s ZANU-PF party, the dubious provenance of its Congolese mining assets and the unsavoury reputation of key business associates.
RAID’s report is the first systematic examination of the extent to which corporate conduct in zones of conflict such as the Democratic Republic of the Congo (DRC) is taken into account by stock market regulations. RAID submitted a detailed report to the Exchange in June 2011 on compliance with AIM rules by CAMEC and its adviser, Seymour Pierce. A year later, and the Exchange has still not dealt publicly with the matters raised in the complaint.
“AIM’s lack of transparency means there is a black hole at the heart of its regulatory system”, said Tricia Feeney, RAID’s Executive Director.
At issue is whether the Exchange (which supervises AIM) has become a haven for laundered conflict assets: inadequate due diligence, conflicts of interest and the absence of reliable financial information are just some of the problems identified in RAID’s report.
RAID sets out the history of CAMEC’s AIM listing in the context of the unresolved legacy of the DRC’s wartime mining contracts, the continuing problem of corruption in the DRC’s lucrative minerals sector and the country’s poor human rights and governance record. It exposes the inherent conflict of interest in the role that nominated advisers – corporate finance firms, accountants or brokers –are expected play in regulating the market.
It also asks whether the UK Treasury allowed individuals on sanctions lists to profit from the sale of CAMEC’s assets in 2009 to the Eurasian Natural Resource Corporation (ENRC).
“London appears to be playing host to a number of companies that flagrantly flout the UK’s wider commitment to business and human rights”, commented Lisa Nandy MP, Chair of the All Party Parliamentary Group on International Corporate Responsibility.
The report is timely given the Financial Services Bill, which is currently under consideration by the UK Parliament. Under that bill, the Financial Conduct Authority (FCA) will be responsible for protecting investors and regulating markets.
“The London Stock Exchange has sought to water down some of the tougher amendments. Its priority seems to be more about safeguarding companies and advisers rather than holding wrongdoers to account. Much wider action is needed to rebuild trust in the integrity of UK markets,” said Feeney.
“London is revered as a financial capital for its security and stability. Yet we are falling behind other countries in our commitment to human rights and sustainability. All political parties have made much of the need for responsible capitalism and we are now presented with a perfect opportunity to take action in the Financial Services Bill”, added Nandy.
Along with its findings, the report concludes with a list of recommendations to enhance due diligence and protect human rights. In particular, RAID calls on:
- The London Stock Exchange to strengthen AIM rules by introducing requirements to strengthen ongoing due diligence (there should be mandatory extensive due diligence for all substantial transactions involving assets in conflict-affected or weak governance zones: to include, for example, thorough checks on the validity of titles and licences, the reputation of key managers, business partners and associates and the rigour of accounting practices) and by drawing up rules and transparent procedures for handling complaints;
- The London Stock Exchange to determine compliance or non-compliance with AIM rules in relation to the unanswered questions concerning the conduct of CAMEC and Seymour Pierce presented in RAID’s submission of May 2011; and
- The UK Treasury to make clear whether – and, if so, to what extent – any individual or entity on sanctions lists benefited from the sale to ENRC.
Furthermore, RAID recommends that the Financial Services Bill should:
- Give powers to the FCA – as proposed in the draft – to impose financial penalties or to issue public censures through a warning notice in relation to contraventions of regulatory requirements by the Exchange;
- Include a provision requiring disclosure of payments from oil, gas and mining companies to British and foreign governments; and
- Be amended to place a duty on the FCA, in its role as the UK listing authority, to require all energy (including mining, oil and gas) companies listed on the stock exchange to conduct human rights due diligence to identify, prevent and mitigate adverse impacts of their operations; companies should submit annual human rights impact reports to the Exchange which should also be publicly available.