Suspicions rise over Cameroon diamond deal

By Park Si-soo

On Dec. 17 last year, the Ministry of Foreign Affairs and Trade (MOFAT) said in a press release that a Korean firm had won the right to develop a diamond mine in Cameroon.

MOFAT said the estimated amounts of diamonds in the mine in Yokadouma, 520 kilometers east of the African state’s capital Yaounde, was 420 million carats, citing two separate research reports of the area. One was conducted from 1995 to ‘97 by the United Nations Development Program (UNDP) and the other one in 2007 by Korea’s Chungnam National University.

The total reported was nearly 2.5 times the actual diamond production worldwide in 2007.

It underscored the visit of high-ranking officials to Cameroon to play a supporting role in striking the deal, touting it as a “model form of successful resource diplomacy,” initiated by the private sector and championed by the government.

The diplomatic coup hit the headlines of many vernacular papers, immediately sending the stock price of the firm, C&K Mining, to a record high.

However, the fanfare was short-lived.

Currently the deal is under intense scrutiny. The state financial watchdog and the Board of Audit and Inspection have launched a sweeping investigation into the contract in a snowballing stock price rigging scandal which allegedly involves the mining company’s chief, government officials and mining experts.

Minister of Foreign Affairs and Trade Kim Sung-hwan said it’s “deeply regrettable” that the deal was promoted by MOFAT.

Suspicion looming

The contract came under doubt in February as the state Financial Supervisory Service (FSS) launched an investigation on rumors that some officials had earned illegal gains through the much-publicized contract.

The watchdog said they were suspected of having presented exaggerated or fabricated information regarding diamond reserves in the mine to the foreign ministry, which later issued the press release based on the data. The release immediately triggered a buying spree of the company’s shares.

Amid soaring demand, the suspects seemingly earned illegal gains by selling their stake in the company at much higher prices, the FSS claimed.

As of Sunday, the mining firm’s stock price was 11,800 won ($10.2) per share, up from 3,400 won before the release. The company has claimed it will start to produce diamonds in full swing from later this year.

Among the suspects was Park Young-joon, former vice minister of knowledge economy. He visited Cameroon in early May last year as the government’s chief negotiator and discussed the matter with the country’s prime minister.

The FSS and market insiders say the mining firm’s successful bid was largely owed to Park’s visit. He is known as a close friend of Oh Deok-kyun, chairman of C&K International, which owns C&K Mining.

Park is also suspected of having pressed the foreign ministry, along with Kim Eun-seok, a senior diplomat in charge of energy and resource diplomacy, to issue a press release regarding the bid. Both Park and Oh vehemently deny the allegations.

In his autobiography titled “Are You Mr. Africa?” released last month, Park said, “I was told by Cameroon’s prime minister upon arrival there that the country will cooperate with a medium-sized Korean firm to develop the diamond mine. It sounded already determined so I had no reason to raise questions about it.”

He also emphasized his innocence in the book, saying, “I told my entourage that anybody who buys shares of the company ahead of the deal’s public release to make money will face consequences.” Park resigned from office in May.

New findings

New findings have put a fresh spin on the scandal.

Investigators discovered that Cho Joong-pyo, a former senior official at the Prime Minister’s Office, and his family members had been given the right to purchase 260,000 newly-issued shares of C&K Mining from its owner ahead of its announcement of the successful bid.

Cho worked at MOFAT before moving to the Prime Minister’s Office. He worked for C&K Diamond as a business advisor after retiring from the public post in January 2009. Cho’s family reportedly profited more than one billion won by purchasing the firm’s stake when it was at rock-bottom and selling it for higher prices in the wake of the news of the successful bid.

An executive of a TV station, known only as “K,” was confirmed to have received stocks worth 1.27 billion in early 2009, whose current value is now around 20 billion won. The executive is reportedly a close friend of former vice minister Park.

Amid the escalating scandal, Park told a recent parliamentary inspection of state affairs, “If I did something wrong, I will take full responsibility for it.”

Cho admitted to having received stock from the company but denied his involvement in the scandal. “I’ve never met with Park personally,” he told lawmakers last week.

Kim Eun-seok, a senior diplomat accused of having pressed MOFAT to distribute the controversial press release, said it was the first successful bid of this kind so he had demanded that the ministry promote it with no strings attached.

Doubtful reserves

Skepticism has bitten into the estimated volume of diamonds in the Cameroon mine.

MOFAT said in the press release that the reserve there was estimated to total 420 million carats, citing reports from the UNDP and Korea’s Chungnam National University.

Yet it later turned out that the figure was solely based on the university’s 2007 research. The researched was conducted at the request of C&K Mining. Experts uncovered no UNDP report with concrete figures of estimated diamond reserves in the area.

“The Cameroon government formally acknowledged the estimation so I trusted it,” Kim said. “Credit Suisse Bank, a leading bank in Switzerland, lent $10 million to the company with its stakes offered as collateral.”

Stirring the pot of confusion was wife of geologist Kim Won-sa who led the university research. His wife served as an executive of the company in 2008.

The wife, surnamed Oh, sold her 50,000 shares of the firm to its chairman in February 2009. The research began in early 2007 but the geologist died of a stroke in October 2008. His wife was not immediately available for comment.

“She was hired (as an executive) to show the company’s recognition of her husband’s contribution to the project,” a spokesman for CNK International said. “But she profited little by selling her stake.”

Last week, MOFAT said the Cameroon government was partially to blame for the scandal. “The Cameroon government formally acknowledged diamond reserves cited in a report from C&K Mining. So we trusted it,” MOFAT said in a statement. “The ministry issued the release to shed light on our diplomatic achievement in Africa. There was no intention to influence the stock market.”

A joint probe into the scandal by the Board of Audit and Inspection and the Financial Supervisory Service is underway. The conclusions will be announced in three months.