The Voice Journal, a weekly newspaper based in Rangoon, was threatened with a lawsuit last week by furious bureaucrats upset with an explosive story suggesting that Burma's notoriously corrupt Ministry of Mines engaged in a massive fraud when it resold to Chinese interests what was previously Canadian multinational Ivanhoe Mine's 50 percent stake in Burma's largest mine.

Reports of fraud involving the Monywa copper project should come as no surprise to longtime observers of Burma's natural resources industry. Since Ivanhoe and its founder, billionaire Robert Friedland, first entered into a 50-50 partnership with the Ministry of Mines in the early 1990s, my organization, the Canadian Friends of Burma (CFOB), has been extremely concerned by the secretive manner in which they together operated the massive copper project just outside Monywa.

It was a pleasant surprise therefore to read good, hard-hitting reporting about the Ministry of Mines and the Monywa project coming from The Voice Journal. The ministry's swift response to the report by The Voice, which cited an internal government audit, was something one would expect from a rotten agency that for many years operated as the private funding arm of a brutal military regime, using offshore accounts in Singapore to hide substantial royalties from the national budget.

The Burmese democracy movement and the international media has a duty to stand by The Voice and its journalists who are currently facing financial peril merely for reporting what many in the business community in Burma already knew—that the ministry has been knee deep in blatant theft of the country's natural resources wealth.

Recently disclosed American diplomatic cables made available by Wikileaks give support to The Voice's claims that the Ministry of Mines and other government-controlled entities were engaged in a massive fraud regarding funds resulting from the sale of the Monywa assets.

While the whole story of the Monywa swindles is far from complete, both the cables and the leaked details of the government audit come to together to form a detailed picture showing that the Ministry of Mines and a group of regime insiders conspired to engage in a massive fraud. This fraud was made possible in part by the secretive nature with which Ivanhoe Mines, a firm listed on both the Canadian and US stock exchanges, chose to dispose of its Burmese assets.

According to the leaked cables, infamous Burmese regime crony Tay Za served as a broker in a series of transactions that saw Ivanhoe's 50 percent stake in its joint venture sold first to a government-controlled entity in violation of Burmese sanctions and then resold at a steep profit by the Than Shwe regime to a consortium led by Chinese weapon’s firm Norinco and its subsidiary Wan Bao.

The cables say that Tay Za played a “pivotal role” in the negotiations over the fate of the copper project and was set to receive a US $50 million fee for his involvement in the deal. Tay Za, a close ally of Snr-Gen Than Shwe, is the subject of American, Canadian and EU sanctions.

The information contained in the cables strongly suggests that for more than four years, Ivanhoe deliberately misled its own shareholders about its ongoing involvement in Myanmar Ivanhoe Copper Company Limited (MICCL), a joint venture between Vancouver-based Ivanhoe Mines and state-owned Mining Enterprise No. 1 (ME-1).

The leaked cables indicate that Ivanhoe’s senior management was directly involved in the daily operations at MICCL long past the firm’s supposed withdrawal from Burma in early 2007. This is in glaring contradiction to Ivanhoe’s previously stated claim that the firm stopped being involved in MICCL’s activities after Ivanhoe transferred its MICCL stake into a so-called “third party blind trust” in February 2007.

The Monywa copper project was for many years Burma’s largest mine and one of the top sources of revenue for the Burmese regime. The US embassy in Rangoon spent a considerable amount of time focusing on this controversial project. There are more than a dozen cables that mention MICCL and many quote its general manager, Glenn Ford (sometimes misspelled in the cables as Glen).

A January 2009 cable written by the US embassy in Rangoon and marked “confidential” quotes Ford as telling US diplomats, “In September 2008, ME-1 began negotiating with the Chinese consortium over the purchase of MICCL, using regime crony Tay Za as a broker. Ford told us the Chinese agreed to pay USD 250 million for the mine and equipment, USD 50 million to Tay Za in consulting fees, and an additional USD 100 million to upgrade the mine.”

Ford informed US embassy staff that “Ivanhoe plans to sell its share of MICCL to ME-1 for $100 million, who in turn will sell the entire company to the [Chinese] consortium for $250 million.”

That same January 2009 cable states, “According to Andrew Mitchell, Ivanhoe Representative in Burma, Ivanhoe agreed to sell its shares to ME-1 because the company is desperate to divest. While it would be easier and more profitable to negotiate directly with the Chinese, Ivanhoe is afraid the GOB [Government of Burma] would block the sale. In early 2008, Ivanhoe and ME-1 agreed on a USD 100 million purchase price. However, ME-1 lacked the money to pay Ivanhoe directly [so] it needed to sell [to] MICCL first (technically selling what it did not own).”

Subsequent developments suggest both Ford’s and Mitchell’s statements to the US diplomatic staff were indeed accurate and Ivanhoe’s assets were first transferred to the Burmese regime before going to the Chinese consortium.

In August 2011, Ivanhoe finally acknowledged that the “independent third-party” had sold its stake in MICCL for $103 million. If Ivanhoe’s 50 percent stake was then resold by the Burmese regime to Norinco and the Chinese consortium along with ME-1’s other half of MICCL for a combined $250 million as Ford said would happen, it would mean the Burmese regime received a $25 million dollar markup for Ivanhoe’s stake in MICCL.

The Voice Journal, citing a leaked government audit, suggests that the Ministry of Mines sold a 50 percent stake in MICCL to Union of Myanmar Economic Holdings Ltd. (UMEH); however, Norinco's subsidiary Wan Bao Mining paid the Ministry of Mines even though the stake was under the control of UMEH.

In February 2007, Ivanhoe Mines announced that it had transferred its 50 percent stake in MICCL to an “independent third party trust” in return for a guarantee that when the trust sells the stake, Ivanhoe will then be paid. Ivanhoe claimed in a June 2010 “statement” posted on the Ivanhoe website: “Since the divestment in 2007, Ivanhoe Mines has had no involvement in the ownership and operation of MICCL and the Monywa Copper Project. The sole purpose of the Monywa Trust is to sell the Myanmar assets acquired from Ivanhoe Mines in 2007.”

In August 2011, when Ivanhoe finally acknowledged that its 50 percent stake in MICCL was sold by the “third party trust,” Ivanhoe made the bold claim in a press release that “Ivanhoe Mines had no involvement in discussions between the Monywa Trust and its service provider with potential purchasers or with the ultimate sale of the interest.”

The Wikileaks cables suggest, however, that both of the aforementioned statements made by Ivanhoe are false. The Wikileaks cables reveal that even after the supposed creation of the “third party blind trust,” Ivanhoe was dealing directly with MICCL, the Burmese regime, Tay Za and potential Chinese buyers for its stake in MICCL, thus violating Western sanctions.

An embassy cable dated September 2008 which again quotes Glenn Ford states, “For the past year, Ivanhoe has been negotiating through regime crony Tay Za with a consortium of three Chinese companies—WanBo [sic] Copper, Norinco Copper, and Aluminum Corporation of China (Chalco)—that want to purchase its contract. Ford informed us that the negotiations are going well and that the Minister of Mines has indicated the GOB will approve the sale. He opined that the consortium's connections to Tay Za play a pivotal role in the negotiations with the GOB.”

Wan Bao Copper and its Burmese subsidiary Wan Bao Mining (Myanmar) Copper Co are owned and controlled by China North Industrial Corp, the same Chinese quasi-state entity that also controls both Norinco International and Norinco Copper.

Subsequent cables which also quote Ford reveal that the Burmese regime vetoed Ivanhoe’s attempts to directly sell to the Chinese and Ivanhoe was instead compelled by the regime to sell its stake back to ME-1, enabling the Burmese state-owned enterprise to in turn sell the stake to the Chinese group at a higher price. A cable dated February 2010 that again quotes Ford explains that Ivanhoe’s dealing directly with the Chinese consortium was halted when “In May 2009, the GOB unilaterally ceased negotiations and announced plans to purchase Ivanhoe's shares itself, according to Ford.”

While Ivanhoe said that it had no direct involvement in MICCL after February 2007, a September 2008 cable indicates that Ivanhoe had been paying for operations at the mine for more than a year after supposedly shifting its 50 percent stake in MICCL to the “blind trust.”

The cable states: “Ford told us that Ivanhoe has been covering the mine's operating costs since 2006, estimated at more than USD 50 million, but it is no longer willing to do so. In April, MICCL halted all production at S&K mine. According to Ford, MICCL has no plans to resume operations until the GOB allows Ivanhoe to divest.”

A January 2009 cable indicates that Ford was still receiving instructions from Ivanhoe Mines head office in Canada despite the firm’s claims to the contrary. The cable states: “According to Ford, Ivanhoe Headquarters instructed him to produce a small amount of copper every six months to prevent the one-year timeframe from elapsing.”

Ford’s statement to the US embassy representatives revealing that Ivanhoe’s stake in MICCL was going to be sold first to a Burmese state-owned enterprise before being re-sold to Norinco suggests that Ivanhoe willfully disregarded its supposed Burmese divestment policy.

When the blind trust was created in February 2007 Ivanhoe claimed its stake in MICCL would not be sold to “excluded persons” who the firm defined in repeated regulatory filings as “residents or entities controlled by citizens or residents of Myanmar (Burma) or the United States.”

Tom Albanese, the CEO of Rio Tinto that currently owns 51 percent stake in Ivanhoe, revealed at a Rio Tinto shareholders meeting held in 2011 that Ivanhoe’s blind trust was administered under Canadian law. Attempting to deflect a question about Ivanhoe’s controversial actions in Burma, Albanese claimed, “Since the Trust was administered under Canadian law, what it did was none of Rio Tinto's concern.” (This statement was recorded by Roger Moody, a long time critic of Robert Friedland and Rio Tinto who attends the Rio Tinto shareholders meeting every year. See here for a related report.)

How a “trust” administered under Canadian law would be allowed to sell Ivanhoe’s 50 percent stake in MICCL back to the Burmese regime’s state-owned mining enterprise is something that must be examined by the Canadian government. Under Canada’s present sanctions policy, it would be illegal for a Canadian firm to sell something like Ivanhoe’s 50 percent stake in MICCL to any entity controlled by the Ministry of Mines, UMEH, or a group controlled by Tay Za, who is also black-listed.

As longtime Ivanhoe shareholders, the publicly controlled Canadian Pension Plan and its Quebec equivalent the Caisse Depot have a fiduciary responsibility to look into what happened to Ivanhoe's Burmese assets. In particular, the Caisse, a publicly run entity controlled by the Province of Quebec, must examine what happened given the massive 5.8 percent stake the Caisse currently owns in Ivanhoe.

Back in 2009, CFOB issued a press release after we learned that Gerald Nugawela, a self-described former employee of Ivanhoe, had stated in an a US Securities and Exchange Commission filing for his new firm that he had taken part in the sale of Ivanhoe’s Burmese assets to the Chinese Aluminum Company (Chinalco is also referred to as Chalco in the US cables).

Following our press release, Ivanhoe posted an open letter to CFOB on its website attacking our organization’s credibility. The letter, dated April 2009, was written by Ivanhoe’s then President and Chief Executive Officer John Macken and not only denied that a sale had taken place but also that any Chinese aluminum firm was involved in any way in bidding for Ivanhoe’s stake in MICCL.

Ivanhoe’s open letter stated: “Ivanhoe Mines is assured that Gerald Nugawela is not, and never has been, involved in any way, shape or form with the Monywa Trust’s 2007 acquisition, and subsequent offer for sale, of the interest in MICCL that formerly was held by Ivanhoe Mines. Ivanhoe Mines also is assured that the Monywa Trust is not associated with any Chinese aluminum business.”

Macken instead chose to attack CFOB and claimed that our reporting on the matter was part of what he termed a “disinformation campaign.”

Contrary to Macken’s denial, the Wikileaks cables show that Ford told the US embassy that the Chinese Aluminum Corporation had in fact been involved in the consortium negotiating with Ivanhoe. Going by the information disclosed in the leaked cables, it's clear that Nugawela’s brokering of the sale to Chinalco and its partners was vetoed by the Burmese regime, which wanted ME-1 to get Ivanhoe’s MICCL stake.

Several of the cables mention a Chinese aluminum company’s involvement in the bidding for MICCL. It's clear that this is Chinalco, but even on the odd chance that it was some other Chinese aluminum company, Macken’s claim that no Chinese aluminum firm of any kind was involved in the bidding for Ivanhoe’s Burmese assets is also untrue.

According to the MICCL website which was available online until the end of 2011 but appears not to have been updated since 2010, Andrew Mitchell continued to serve as a board member of MICCL for at least three years after the so-called transfer of Ivanhoe’s Burmese assets to the “trust”. Mitchell was described in a US embassy cable dated January 2009 as an “Ivanhoe Representative in Burma”.

While Ivanhoe claimed to be in the dark about MICCL's activities after the blind trust was created, the MICCL website showed that as recently as 2010, Douglas Kirwin, Ivanhoe’s executive vice-president for exploration, remained a director of MICCL, along with Mitchell representing Bagan Copper Holdings, the entity formerly known as Ivanhoe Myanmar Holdings Limited (the British Virgin Islands-based holding firm that held Ivanhoe's stake in MICCL). Oddly enough, Ivanhoe ignored Kirwin’s continued role, with MICCL failing to mention it in any financial reports or corporate filings published after 2007.

Burma’s state-owned newspaper, The New Light of Myanmar, also shows that Kirwin continued to travel to Burma after 2007 and on at least two occasions in September 2009 and September 2010 gave presentations to the Myanmar Geosciences Society.

At both of Kirwin's presentations he was accompanied by fellow MICCL board member Mitchell. Dr. Mitchell, an Oxford trained geologist, was described in The New Light of Myanmar in September 2010 as still being a representative of Ivanhoe Myanmar Holding Ltd (IMHL).

Why Mitchell, a British national, chose to continue working as an Ivanhoe representative and serve on the MICCL board even after the EU had officially placed MICCL on the EU sanctions list is another question that needs to be answered.

A cable dated September 2008 reveals that Ford was of the opinion that the Chinese consortium’s “connections to Tay Za play a pivotal role in the negotiations with the GOB.”

Another cable, dated June 24, 2009, states that Tay Za’s right-hand man, “Lu Lu, a.k.a. Kwan Lu Chan, Chan Kwan Lu, and Zaw Min, is Vice-Chairman of Air Bagan and regime crony Tay Za's top assistant and advisor,” was brokering the deal on behalf of Tay Za.

The cable describes Lu Lu as in the following terms: “Known in business circles to be cunning and ruthless, Lu Lu boasts to businessmen that he taught Tay Za 'all he knows'.”

The June 2009 cable also quotes Ford as telling the US embassy staff “that Lu Lu, working on Tay Za's behalf, acts as liaison with several Chinese companies interested in acquiring MICCL's shares in the Monywa copper mines.”

The cable quotes a businessman based in Burma named George Soon, who provided more details about Tay Za’s relationship with Norinco, alleged weapons sales and the MICCL deal.

The cable states: “Rumors abound that Tay Za has long smuggled Chinese weapons into Burma via his aviation and trading businesses. Soon alleges that Lu Lu, who has close ties to the senior management of Chinese firm Norinco (an alleged arms dealer that has business dealings in Burma), is the mastermind behind Tay Za's involvement in the arms trade. According to Soon, Lu Lu introduced Tay Za to Norinco officials and has secured several business agreements between Htoo Trading and Norinco, including a partnership for a gold mine in Mandalay Division and a broker contract for Norinco's planned purchase of MICCL.”

Exposing and punishing the group of Than Shwe loyalists who engaged in massive fraud is an important step on the road to Burma obtaining democracy. Thanks to both the Wikileaks cables and The Voice Journal's brave decision to publish excerpts from a leaked a government audit, this scandal has been exposed.

Ivanhoe's role in this affair must not and cannot be ignored. Financial regulators in both the US and Canada where Ivanhoe's shares are traded must investigate who at Ivanhoe knew about the involvement of Tay Za in the transfer of the firm's stake in MICCL.

Furthermore, Ivanhoe must be brought to task for a curious accounting trick that it performed in late 2007, nearly seven months after it officially shifted its Burmese assets into the “blind trust.” In regulatory filings both in the US and Canada, Ivanhoe claimed it was “prudent to record a US $134.3 million write down” in the value of their 50 percent stake in MICCL, reducing the value of the firm's Burmese assets to nothing.

While Ivanhoe had previously claimed that the Monywa area represented one of the most lucrative copper deposits in the world, the firm now justified the write down by saying “it was determined that IVN's non-involvement in the Monywa Copper Project operations since it was transferred to the Monywa Trust, the lack of knowledge of the project's current activities and the fact that no sale had been achieved in almost a year since the asset was transferred to the Monywa Trust, indicated that the carrying value of the investment is impaired.”

The aforementioned statement was made in the firm's regulatory filings, which meant that it is extremely misleading, if not downright false. Although labeling their stake in MICCL as worthless conveniently meant that Ivanhoe no longer was compelled to disclose in three years worth of regulatory filings that it still owned assets in Burma, the legality of this action is something that must be examined by both US and Canadian regulators.

We now know thanks to the Wikileaks cables and Glenn Ford's repeated conversations with embassy officials that Ivanhoe was in fact involved in the regular operations of the Monywa Mine long after Ivanhoe's stake was officially transferred to the “blind trust.” When Ivanhoe acknowledged in August 2011 that its supposedly worthless stake had finally been sold for $103 million, many questions were left still unanswered.

Although we may never know for sure what led the staff at Burma's Ministry of Mines to believe that they could get way with deliberately misallocating more than $100 million, it is not beyond the realm of possibility they were inspired by Ivanhoe's own attempts to cook the books.

Tin Maung Htoo is the executive director of Canadian Friends of Burma. The opinions expressed in this guest commentary are those of the author and do not necessarily reflect the views of The Irrawaddy.