Revealed: Mining giant LKAB does business with crime-connected oligarch

Originally published in Svenska Dagbladet on February 22, 2020 in Swedish as “LKAB handlar med oligark anklagad för penningtvätt” 

Swedish government-owned mining giant LKAB buys coal from a company with immediate ties to Russian oligarch Iskander Makhmudov, SvD can reveal. Mr. Makhmudov has been suspected of money laundering for decades and has rumored connections to organized crime. LKAB admits wrongdoing – but continues to do business with Mr. Makhmudov. 

Over the past four years, LKAB has bought hundreds of thousands of tons of coal from Carbo One, a Russian company with close ties to Mr. Makhmudov. It has done so despite warnings from the Swedish Financial Supervisory Authority, which already in 2017 raised red flags concerning the company and its Russian owner after extensive money laundering was revealed in Nordic bank Swedbank. Revelations where Mr. Makhmudov appeared. 

Despite this, LKAB received their most recent – and last – shipment of coal from Carbo One as recent as December. The company’s communications director, Bo Krogvig, is self-critical when SvD presses him on the issue, saying he “can only explain this by the fact that it’s impossible to catch everything that happens in the world. We were not made aware of the debate surrounding the company.” 

According to Mr. Krogvig, the December shipment from Carbo One was LKAB’s last one from the Makhmudov-owned company. Instead, it will receive coal from Kuzbassrazrezugol, KRU. But what Mr. Krogvig fail to mention is that KRU, just like Carbo One, is owned by Mr. Makhmudov. According to company documents, KRU is a fully owned subsidiary of Russian companies founded and owned by Iskander Makhmudov. 

LKAB conducted two audits of Carbo One, according to company documents and Mr. Krogvig. The first one was made in 2016, when Carbo One was first brought on as a supplier to LKAB. The other one was made two years into their partnership. Mr. Krogvig does not give a clear answer when asked why the company was not made aware of the problems with Carbo One and its owner during these two audits. 

LKAB is 100 percent owned by the Swedish government and states their suppliers must adhere to a strict code of conduct. The code demands a solid commitment to business ethics, demanding companies to submit clear policies against corruption that ban money laundering before being allowed to do business with LKAB. The company says regular audits are made to ensure this actually happens. 

This code of conduct, however, has not stopped LKAB from doing business with KRU. The reason for this, Mr. Krogvig says, is because neither Iskander Makhmudov nor KRU is officially blacklisted by the authorities. “There are very few alternative suppliers for us, and the price is not the deciding factor. KRU is not under any sanctions”, Mr. Krogvig explains. 

The global coal market is dominated by a few large mining companies, several of which are based in Russia, and KRU is the fourth-largest supplier of coal in Russia. LKAB, famous in the industry for their high-quality iron ore, needs large quantities of coal, as one fourth of the company’s energy comes from the fossil fuel. 

According to the company itself, very few companies produce coal of the quality, and in the quantities, required by LKAB, which uses around 180,000 metric tons of coal per year. Mr. Krogvig says it’s a “significant risk” to depend on only one supplier, which is why his company turned to Carbo One and later, KRU.  

He admits conducting business in Russia is a high-risk proposition but does not say whether the company’s Russian suppliers are audited more often than others. He repeatedly admits LKAB has failed in living up to its own high standards when doing business with Mr. Makhmudov’s companies. 

“We commit to making more thorough audits in the future,” Mr. Krogvig promises when asked how LKAB will ensure that KRU will be conducting business according to LKAB’s strict supplier code of conduct. 

Marianne Bogle is corporate sustainability expert and chair of the non-governmental organization CSR Sweden. While she is disappointed with the mining giant’s conduct, she is far from surprised. 

“I think it’s awfully strange the Swedish government has companies that does business in murky waters such as these,” Ms. Bogle says, asking companies to “show some kind of spine” when discovering ethical missteps. “It’s very easy to talk about codes of conduct and other empty phrases, but when things fall apart, companies tend to get very bewildered, very quickly,” Ms. Bogle adds. 

Business codes of conduct are far from uncharted territory for LKAB, which has several available on their website. The company’s owner, the Swedish government, even has its own policy document specifying how the companies they own should work to make business more sustainable. The most recent version of the document even specifies the importance to work against money laundering. 

Ibrahim Baylan, the Swedish Minister of Enterprise, is clear on this when SvD tells him about the business LKAB has conducted. He says state-owned enterprises need to conduct business in a sustainable fashion by following international standards on business ethics and practices against corruption. 

According to sustainability expert Ms. Bogle, Sweden has long had a self-image of being a world leader in corporate social responsibility, or CSR, a wide-ranging concept which includes how businesses are responding to the societal and environmental impacts of their business. An image that does not necessarily correspond with reality, according to Ms. Bogle. She points to how Sweden, as an export-reliant nation, might have issues to combine the support of exporting enterprises while also promoting sustainability and social responsibility. 

The Swedish Minister of Enterprise, Mr. Baylan, tells SvD he assumes LKAB obeys the applicable laws when it conducts business: “If there are aspects of the company that needs improving, it is important that these come to light and will be resolved. I have full confidence the LKAB board and leadership will handle this in a professional and appropriate manner.” 

Neither KRU nor representatives for Mr. Makhmudov responded to several interview requests. 

Photos courtesy of LKAB.