Shell director resigns amid Rio Tinto fraud allegations

A director of Shell has resigned after being charged with fraud. Photo / File

A director of Shell has resigned after being charged with fraud in relation to his former job at global miner Rio Tinto.

Guy Elliott said he would step down from his non-executive director role at Shell with immediate effect after US regulator the Securities and Exchange Commission charged him in relation to a botched coal deal while he was chief financial officer at Rio.

Elliott has been charged with fraud alongside Rio Tinto and its former chief executive Tom Albanese over allegations they hid the true value of coal assets in Mozambique following a disastrous acquisition.

Rio took a US$3 billion writedown on Riversdale Mining in 2013. It bought the coal project in the southern African country for US$3.7b in 2011 but sold it for just US$50 million three years later, after realising it would be unable to ship coal downriver to port.

Yesterday the SEC said that Rio "failed to follow accounting standards and company policies to accurately value and record its assets" in its 2012 accounts.

The SEC also alleged that all three parties "concealed the adverse developments, allowing Rio Tinto to release misleading financial statements days before a series of US debt offerings", raising US$5.5b from its investors despite already knowing the Mozambique coal subsidiary was worth negative US$680m.

"Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch. They tried to save their own careers at the expense of investors by hiding the truth," said Steven Peikin, the co-director of the SEC's enforcement division.

The SEC charged that having already booked major writedowns following its US$38b takeover of Canadian aluminium group Alcan in 2007, Mr Albanese and Mr Elliott knew that disclosing a second failure would "call into question their ability to pursue the core of Rio Tinto's business model to identify and develop long-term, low-cost, and highly-profitable mining assets," according to the statement.

The miner recorded more than US$29b of charges after paying US$38b in 2007 for Alcan.

Rio said it "intends to vigorously defend itself against these allegations" and that it believes the charges are "unwarranted".

Mr Albanese, who was Rio's CEO between 2007 and 2013, said in a statement that "there is no truth in any of these charges." Mr Elliott, who was CFO from 2002 until his retirement in 2013, also refuted the allegations in a statement issued on his behalf, according to Bloomberg.

Separately the UK's Financial Conduct Authority announced it was fining Rio £27m for failing to carry out an "impairment review" of the Mozambique assets in its 2012 accounts, thereby breaching transparency rules.

The FCA said Rio had put out "inaccurate and misleading" results, given it conducted financial modelling of the assets, but then "decided that it would not carry out an impairment test, as required by international accounting standards, to assess whether an impairment was required to be recorded in its financial reporting of its 2012 half year interim results".

The regulator did not find evidence of fraud and has closed its case.

Commenting on Mr Elliott's resignation, Shell chairman Charles Holliday thanked him for his seven years of service and his "valuable contribution" to the board. "We sincerely hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the board," he added.

Rio's African misadventures do not end in Mozambique. It is also being investigated by authorities in the US, the UK and Australia over a $10.5m payment made to a French banker in 2011 for apparently interceding on Rio's behalf with the Guinean government over an iron ore project that later stalled.