The Asia Resource Minerals plc (formerly Bumi plc) (the Company) was fined for failing to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with Listing Principle 2 (in force at the relevant time), impeding the Company’s ability to identify related party transactions (RPT) despite the “heightened risk” of the occurrence of RPTs in light of the group structure and the relationships of the director of its Indonesian coal mining subsidiary. An RPT policy prepared and approved prior to the Company’s admission was not implemented effectively at Company or subsidiary level, nor was adequate oversight and control over the subsidiary established in a timely manner. Failings included inadequate training (which was not compulsory and non-attendance was not properly followed up); over-reliance on directors of the Company and subsidiary and other senior individuals to identify and report potential RPTs; and the lack of an internal audit function until eighteen months after listing when a Head of Internal Audit was appointed. Consequently, there was a failure to obtain the guidance of a Sponsor in order to inform the Company’s assessment of whether the transactions constituted RPTs where there was sufficient uncertainty, in breach of LR8.2.3R. Such analysis was not carried out until a transaction review was completed in response to allegations of financial irregularity from an external source. Further to advice from the Company’s financial adviser on the output of this review, it transpired that three from a list of thirty-three transactions were, in fact, RPTs with a total value of US$12,700,00 or £8,054,111 (the Admitted RPTs), in respect of which the requirements of LR11.1.10R and LR11.1.11R had not been met, and the remainder were not RPTs (the Remainder Transactions). As part of its analysis, the FCA noted that the composition and nature of the group created a high risk of RPTs which should have lead the Company to conclude that it needed a robust RPT policy from the outset.
The publication of the Company’s annual accounts and report for the year ending 31 December 2012 (AFR) was delayed until 31 May 2013 by the ongoing review of certain transactions (in breach of DTR4.1.3R), precipitating a three month suspension of its shares until compliance with Listing Principles 2 and 4 could be confirmed. Despite an ongoing extensive internal investigation leading up to the AFR publication, the Company was unable to identify the ultimate beneficiaries and/or counterparties of certain transactions involving the Subsidiary, amounting to a value of US$225.3 million, referring to these as the Other Transactions in the AFR.
In this case, the starting point for the penalty calculation was the value of the Admitted RPTs (£8,054,111) on the basis that the Company’s revenue stream did not benefit from the transactions and, therefore, was not indicative of the harm. A scale of 1-100% was applied to reflect the fact that all the Admitted RPTs were impugned transactions, marking a departure from the 1-20% scale applicable to revenue outlined in the relevant guidance. The Remainder Transactions were not taken into account in respect of the calculation of the penalty, but they were a factor in determining the seriousness of the Company’s failings. Other indicia included the fact that the Company had not uncovered the breaches itself and that the Company remained unable to confirm the ultimate beneficiaries/counterparties of the Other Transactions despite an extended internal review. Accordingly the breaches were determined to be level 4 on the scale of seriousness, thereby adjusting the penalty to 75% of £8,054,111, which is £6,040,583. Aggravating factors such as a failure to take heed of the Exillion Energy plc Final Notice sufficiently quickly outweighed mitigating factors such as the remedial steps (which were not taken into account for the purposes of calculating the penalty), leading to an upward adjustment of 10% to £6,644,641. The FCA considered this figure to represent a sufficient deterrent, therefore no further increase was applied for deterrence. Following the application of a Stage 1 discount of 30%, the penalty was reduced to £4,651,200.
View FCA Final Notice: Asia Resource Minerals plc (formerly Bumi plc), 12 June 2015