French authorities have opened an investigation into Sanjeev Gupta’s business empire, deepening the challenge facing the British metal magnate, once considered the “savior of steel”.
The Paris prosecutor’s office told the Financial Times that it was investigating Gupta’s French operations on allegations of “misappropriation of corporate assets” and “money laundering”.
France is home to several key assets in the GFG alliance, the collection of plants and smelters that Gupta amassed during a multi-billion-dollar acquisition funded by Greensill Capital. Greensill’s collapse in March plunged GFG into a crisis, prompting investigations into Germany and the British Office for serious fraud.
Prosecutors in Paris said they launched their investigation in July after suspicious activities were reported by public officials. They declined to provide details of the investigation.
GFG said it was “not aware of such an investigation and refuted any suggestion of infringement in its French operations”.
The investigation by French prosecutors comes to a report of an influential group of British MPs last week questioned Gupta’s stewardship of Liberty Steel, the UK’s third largest steelmaker, after identifying “a series of audit and corporate governance red flags” at GFG.
The investigation is a stark contrast to the warm welcome previously issued to Gupta by the French government. Bruno Le Maire, France’s economy minister, praised GFG’s transactions in the country as “exemplary” for the relocation and decarburization of the industry.
Some of the allegations involve Gupta’s efforts earlier this year to retain control of an aluminum smelter in Dunkirk, the largest in Europe and one of GFG’s most valued assets, according to people informed of the case.
Public officials have a agreement entered into by Gupta with commodity trader Glencore as he tried to fend off a takeover bid by American private equity firm American Industrial Partners, the people said.
In addition to accepting 40 percent of the smelter’s senior debt, Glencore will derive a financial benefit from every tonne of aluminum it sells, which could amount to a $ 10 million windfall for the commodity trader over the course of a year, the people added.
Officials who reported the deal were concerned about whether it was designed to benefit Gupta at the expense of the plant and halt AIP’s takeover bid, says one of the people briefed on the matter. AIP said last month it had taken control of the smelter. GFG responded with legal action.
Under French law, corporate assets are abused when one or more directors use the goods or credit of a company in “bad faith”, either for personal gain or in the interest of another business they own.
GFG said: “There was a commercial agreement with Glencore at market rates to ensure stable financing for the business.” Glencore said it had “entered into arm’s length commercial arrangements with Dunkirk that were actively negotiated and were the subject of due diligence and review”.
Officials also reported GFG’s use of € 25 million from the Dunkirk smelter to pay litigation costs arising from a dispute with Rio Tinto about the original purchase, according to people who were informed about the case.
The use of funds from the French business to settle the litigation costs was seen as an “abuse of corporate assets” which purely “benefited the shareholder”, the people added.
A further case reported by officials relates to the question of whether a French government-backed € 18 million loan granted to Liberty Aluminum Poitou, part of the GFG empire, from Greensill’s now insolvent German bank subsidiary , was deployed at the plant, the people said.
French media reported earlier this year that the Poitou loan was being investigated by local prosecutors, but that case has now been wrapped up by the Paris prosecutors in the broader investigation.
GFG said in a statement that it “complied with all the rules and invested € 45 million worth of shareholder funds in French downstream assets, including Poitou, while it was under our ownership”.