The London-listed mining company Ferrexpo has found that money donated by the company to a Ukrainian charity may have been “misappropriated” – but said that none of its directors or employees were implicated.
The company, which mines iron ore in Ukraine for the steel industry, has been embroiled in scandal for months after its previous auditors, Deloitte, demanded an investigation into $110m (£90m) in payments to Blooming Land, a Ukrainian healthcare charity.
Ferrexpo paid Blooming Land $24m in 2017 and $9.5m in 2018. In total since 2013 the company has paid $110m to the charity, which was meant to be used to support diabetes prevention, eyesight care and support for the elderly.
Ferrexpo has insisted that the charity is not a related party to Kostyantin Zhevago, its billionaire chief executive and owner of 50.45% of the company’s shares.
In a statement to the stock market on Friday, Ferrexpo said its review, including an investigation by the accountants BDO, had been unable to explain “a number of discrepancies” in the charity’s explanation of how it used donations. The “independent review committee” (IRC) that carried out the investigation comprised Ferrexpo’s non-executive directors, led by Steve Lucas, the former finance director of National Grid.
Ferrexpo’s statement said: “The IRC has been unable to conclude as to the ultimate use of all of the funds by the charity, a third party. Indications therefore remain that some of the funds could have been misappropriated.”
Deloitte in April issued a qualified opinion on the company’s twice-delayed full-year accounts over possible links between Zhevago and Blooming Land. It resigned two days later, saying that it could not carry on after Ferrexpo had initially rebuffed calls to launch an investigation into the discrepancies it had found.
The review committee said it was “satisfied that none of Ferrexpo’s directors, management or employees have had any involvement in any possible misappropriation of funds” – and added that the charity was not a related party to Zhevago under the UK’s listing rules because he did not have control over the charity’s operations.
Zhevago, who splits his time between Ferrexpo’s Swiss headquarters and Ukraine, is an influential figure in the country, where his company employs more than 10,000 people, although last month he lost his seat in Ukraine’s national legislature.
The scandal has hit Zhevago’s wealth, with Ferrexpo’s share price about a third lower than its April peak, before Deloitte’s resignation. Zhevago said last month that Ferrexpo shares had suffered because “representatives from the audit committee made absurd statements saying nonsense”, according to Bloomberg.
Ferrexpo declined to say how much of the money may have been misappropriated. It is understood that there is evidence that some of the money was used on heathcare programmes.
The board is considering its options for the next steps with regards to the money that is unaccounted for. It is understood this could include attempting to recover the donations from the charity as well as the $6.4m (£5.3m) costs of carrying out the investigation.
Ferrexpo still faces investigations by Ukrainian tax authorities over the charity. There has been no contact from British regulators.
