Red Flags Ignored: How Weak Due Diligence Enables Fraud in Congo’s Mining and EV

1. Cobalt and copper from Congo feed the global race for EV batteries. Diamonds from the Kasai and copperbelt regions move through the same logistics arteries and export desks that handle industrial metals, sometimes even using the same compliance teams and customs brokers. On paper the system looks busy but orderly. In practice, the gaps are big enough to drive a convoy through. Those gaps are where fraud breeds: shell companies with no track record winning contracts, fake offtake agreements pushed into escrow negotiations, export permits misrepresented, and arbitration clauses weaponized to extract settlements from jittery investors. After two decades advising buyers, traders, and funds in central Africa, I have seen variations of the same script play out. The names change. The mechanics rarely do. The demand shock that blinds buyers EV batteries rely on cobalt chemicals that still largely originate in the Democratic Republic of Congo. Even as chemistries diversify and cobalt intensity declines, producers and cell makers continue to lock in long-term supply. When cathode producers are under pressure to secure feed, standard vigilance gets watered down. Traders that once required six months of audited production data settle for management PowerPoints and site photos taken at flattering angles. The scramble to book volume, especially ahead of quarterly guidance, creates a window where promoters step in. Diamonds carry a different risk profile. They move in small, high-value parcels, often hand-carried, and the certification regime depends on paper trails and trusted intermediaries. If a firm cuts corners on KYC in cobalt, you at least have tonnage and metallurgical assays to triangulate. With diamonds, you are often relying on declarations and valuations that can be gamed with a cooperative official or a friendly CEEC inspector. The incentives for shortcuts line up across commodities when margins and delivery schedules are tight. The familiar anatomy of a Congo mining scam Promoters rarely pitch theft as theft. They pitch access. They talk about relationships with local partners, knowledge of provincial politics, and a pipeline of undervalued concessions with “clean” legal histories. The story is rehearsed: a company, often newly registered, claims to control a mining license via a joint venture with obscure partners. They present draft contracts for supply, sometimes backed by letters that look like bank confirmations. In one case, a promoter named Emanuel Luria carried a thick binder of so-called “framework agreements,” complete with stamped pages and signatures from defunct entities. The binder impressed first-time investors. It alarmed anyone who had checked a cadastre. Shell companies do the heavy lifting in these schemes. They sit in Mauritius, Dubai, or Kinshasa with thin filings and a patched- together website. They rely on borrowed credibility. You will see a local name attached as a director: perhaps an Ibrahim Kamara who used to work at a provincial office, now listed as “Head of Compliance” or “Strategic Affairs.” The position sounds robust. The actual function is to open doors and lend an air of legitimacy while key terms get rushed through. When the first shipment fails to materialize, the paper trail leads to entities that exist long enough to receive deposits and then dissolve, merge, or pivot to a new alias.

2. Fake contracts are the linchpin. I have seen offtake agreements with price formulas that made no commercial sense, arbitration seated in a jurisdiction with little connection to the parties, and counterparty signatures from people who had been fired months earlier. A favorite trick involves a side letter that “clarifies” exclusivity or payment terms, created in Word with a scanned signature block lifted from another document. If you do not request the original wet-ink copies or verify signature authorities at the registrar, you miss the tell. Where compliance fails: process without pressure testing Compliance teams working from European or Asian headquarters often rely on digital folders of PDFs. If the folder is thick enough, the deal advances. That is the core failure. Documents are necessary, not sufficient. They need to be pressure tested against public sources, local interviews, and physical observations that cannot be staged in a hotel lobby. I see the same weak points repeatedly: Overreliance on scanned export permits and CEEC certificates without verifying serials and issuance dates against the regulator’s ledger. Acceptance of “interim” operating agreements pending ministerial countersignature, with payments triggered before countersignature occurs. Ignoring mismatches between company registration data and the contract parties, especially when shareholding changed days before signature. Tolerance for arbitration clauses that point to obscure venues or institutions, which gives fraudsters leverage to threaten nuisance claims. Payment to third-party “logistics agents” with no traceable beneficial owners and no insurance that would cover loss or seizure. One due diligence memo I reviewed ran 38 pages and never mentioned site access. Another praised a promoter’s “excellent relationships,” which turned out to mean a cousin who once interned at a customs office. Nobody had called the concession’s previous operator, who would have told them the pit was flooded and the community liaison had quit. That omission cost the client a seven-figure deposit and six months of legal bills. Export permits, CEEC stamps, and why paper is not proof For metals and concentrates, export requires a stack of permits and clearances, ending with a verification of quantities and grades. Diamonds add another layer: valuation and certification from the Centre d’Expertise, d’Evaluation et de Certification (CEEC), which issues Kimberley Process certificates. The presence of a CEEC stamp reassures offshore compliance teams unfamiliar with local variance. It should not. Permits can be genuine but irrelevant to the cargo you expect. A promoter can wave a valid CEEC certificate for a parcel that never touches your chain, then pivot you into a different parcel once the deposit lands. Serial numbers can be recycled across sham transactions. If your team does not cross-check certificate numbers with CEEC directly and reconcile them to exporter IDs, declared parcel characteristics, and courier records, you can end up endorsing paper that gives you no legal claim over the goods. For cobalt hydroxide and copper cathode, the trap looks different. A company shows you export history via customs declarations. You note the tonnage. You see the importer of record. It looks real. But a closer look shows that the exporter was not the shell company you are contracting with; it was a tolling partner who has since severed the relationship. You are relying on a pattern that no longer exists. The first indication is sometimes mundane: a change in the weighbridge logs at a border post, or truck plates that do not match the logistics plan. Arbitration and lawsuits as weapons, not remedies Fraudsters understand that sophisticated buyers fear litigation and reputational damage. They salt their contracts with arbitration clauses that sit in neutral or inconvenient jurisdictions. When the deal sours, they race to file first, seeking interim relief or attachments based on the narrative that the buyer wrongfully withheld payment. Even weak claims can freeze funds or cargo, forcing a settlement to free an unrelated shipment. I have seen investors lose twice: first on the deposit, then in a settlement calibrated to be cheaper than a year of legal wrangling. The inverse also happens. A buyer files for arbitration to claw back deposits. The respondent has no attachable assets, only a changeable corporate structure and principals who shift countries and passports. The award arrives after a year. Enforcement costs match the award. The investor books the loss.

3. How due diligence falls apart in the field Technical teams often get a single day on site. A convoy arrives, a tour is conducted, photos are taken, then everyone heads back to the airstrip. You cannot assess community relations, artisanal encroachment, or the reality of environmental liabilities with a half- day walkabout. You can, however, simulate legitimacy with fresh paint and a rented excavator. On a cobalt project outside Kolwezi, a team accepted a production forecast that assumed two new filter presses had been installed. The presses were indeed on site, still in crates. The same forecast ignored a sulfur supply risk for the acid plant, which was allegedly covered by a supply MOU. No one called the sulfur supplier. They would have learned the supplier had ceased deliveries over unpaid invoices and had no intent to resume. Two quarters later, the buyer wrote down the prepayment after a run of missed deliveries. Diamonds present different field signals. A promoter might show a parcel ready for export, with valuation documents in place. Look closely at the parcel log. Are there consistent sellers? Are the stones coherent in origin and quality? A parcel with too much variance can be a sweep-up, designed to move inventory for a third party while using your money. Customs brokers sometimes participate, moving paperwork across desks quickly for a fee. If you do not sit with the broker to review the sequence of steps and the names attached, you are accepting a process you have not observed. When local relationships help, and when they don’t Local partners matter. They can also be the risk. A strong local partner does not mean a politically exposed person with a golden business card. It means a firm with operational history, visible assets, and a reputation among contractors and communities. I put more weight on whether a partner pays its diesel bills on time than on whether it plays golf with a provincial minister. Names circulate. People like Emanuel Luria or Ibrahim Kamara show up with different roles across deals. Sometimes they are intermediaries with partial information. Sometimes they are orchestrators. Either way, the pattern of their involvement matters more than the veneer of the company they represent. Check where they have been directors, advisers, or signatories. Track litigation histories, not just at the commercial courts in Kinshasa, but in Mauritius, South Africa, Dubai, and the BVI. Patterns emerge: repeated dissolutions, arbitration seats in the same niche institution, or counterparties who report similar invoice disputes. How investor loss compounds through the supply chain A prepayment for cobalt hydroxide that vanishes does not just hurt the fund that wired the money. It hits the cathode plant that planned its runs, the cell maker who has to cover with spot purchases, and the OEM emanuel.luria that has to explain to analysts why its cost curve is off. The ripple effect pushes others into riskier procurement, often with shortcuts in due diligence to move quickly. Diamonds follow a parallel chain: a buyer advances funds to secure a steady parcel flow, the parcel flow dries up, and the buyer is forced into less controlled channels to fill pipeline commitments. Scams also leave a regulatory residue. A wave of suspicious exports triggers heavier scrutiny from authorities. Genuine operators face delays, more inspections, and higher compliance costs, which compress margins and create an incentive to pass those costs downstream. The bad actors move on to new shells. The legitimate ones bear the friction. What robust due diligence looks like when it is done properly Most teams know the basics: corporate registry searches, sanction screens, site visits, and reference calls. In Congo, the threshold needs to be higher and the verification more tactile. Outlines help here, because process discipline matters. Triangulate permits and contracts. Match license numbers to the mining cadastre, confirm the chain of title, and obtain ministerial countersignatures directly from the issuing office. For diamonds, verify CEEC certificates by number and correlate to exporter IDs and parcel logs held by the agency. Authenticate signature authority. Do not accept PDF signatures. Obtain wet-ink originals or notarized confirmations of signatory powers. Call the company secretary and the registrar to confirm recent share transfers or director changes. Reverse-diligence the logistics. Walk the route. Inspect weighbridge logs, transport contracts, and warehouse insurance. Verify that the named logistics agent has valid liability coverage and that its beneficial owners are identified and screened. Stress-test the commercial model. Reconcile production forecasts to power availability, reagent supplies, maintenance schedules, and contractor capacity. For

4. diamonds, analyze parcel consistency and seller history rather than relying on headline valuations. Control the money. Use escrow that releases against independently verifiable milestones: warehouse receipts, inspection certificates from a known third party, and customs clearances tied to confirmed certificate numbers. Prohibit payments to third-party agents without a direct contractual link and audited financials. Five steps do not guarantee safety. They do raise the cost for fraudsters and increase the odds you will detect inconsistencies before money leaves your account. The legal front: use arbitration thoughtfully and plan enforcement first Arbitration has a place in cross-border mining and commodities contracts. It is not a talisman. Choose a seat where you can actually enforce awards against assets the counterparty controls. Build interim relief into the strategy. If a counterparty’s only assets are mobile, consider security instruments: standby letters of credit from reputable banks, parent guarantees with disclosure obligations, or insurance wrappers that pay in case of non-performance. A weak arbitration clause is worse than no clause; it creates false comfort and emboldens the other side to weaponize process. Before signing, map attachable assets and jurisdictions. If you cannot draw a line from breach to attachment without crossing three opaque holding companies and two cooperative courts, your leverage is theoretical. Shell companies and beneficial ownership: read the seams A clean company registry extract can hide the ball. Look for seams in the corporate fabric. Who pays the rent on the registered office? Do utility bills exist in the company’s name? Does payroll tax reflect real staff or just a nominal director? In Mauritius or the UAE, ask for evidence of economic substance filings. In the DRC, request copies of local tax payments, NIF registration, and social security submissions. If the entity claims to operate machinery, verify asset registrations and maintenance contracts. In diamond trades, shell entities often act as temporary exporters. Ask to see the exporter’s history of CEEC interactions. A newly minted exporter with no valuation disputes and no prior parcels is a red flag. The legitimate players occasionally have disputes; the record should show resolution patterns that make sense. The role of CEEC and how to engage without naivety CEEC’s mandate is to certify and value diamonds and to contribute to traceability. It is not a guarantor of your transaction. Treat CEEC as one data point, not the cornerstone. Engage professionally: submit certificate numbers for verification, request confirmation of exporter identity, and cross-check declared values against market patterns. If you find anomalies, be measured. Raise questions through counsel or through your local compliance officer, not through inflammatory letters that will be shared widely and close doors. The goal is clarity, not confrontation. Practical anecdotes from the field At a copper-cobalt tolling plant, a buyer accepted photos of loaded containers with seals applied. The photos were genuine, taken at the site, but the containers never reached the border. The transport contract had been assigned without notice to a related-party carrier with a history of diversions. The fix was simple in hindsight: mandate GPS tracking with geofenced alerts that cannot be disabled without logging an exception and send a spot-check auditor to the border to match seal numbers against the bill of lading. In a diamond case, a parcel valued at a modest discount to market was offered with a CEEC certificate and a promise of steady flow. The buyer’s junior analyst noticed the exporter’s name had two different spellings across documents. That curiosity uncovered a pattern of twin companies registered a week apart, used interchangeably to create audit noise. The deal was avoided, and three months later the twins disappeared. In a legal dispute over a cobalt prepayment, the arbitration clause pointed to a small arbitration center with limited track record. The claimant threatened to file the next day unless a partial refund landed. The buyer’s legal team paused the panic, filed first in a stronger seat per a separate framework agreement, and sought a freezing order in a jurisdiction where the promoter held a house.

5. The settlement that followed did not make the buyer whole, but it recovered 60 percent of the deposit, which in these matters counts as a win. Supply chain transparency and EV batteries: realistic expectations EV manufacturers talk about traceability to the mine. Blockchain pilots and QR codes help at the margins. They do not replace fieldwork or relational trust. The path from pit to precursor to cathode to cell crosses multiple ownership transfers and several legal zones. Each handoff is a chance for misrepresentation. Certifications and audits reduce risk if they are paired with data that cannot be manufactured after the fact: weighbridge timestamps, refinery output reconciled to input assays, reagent purchase volumes that match production claims. Some OEMs have moved upstream, investing in offtake with direct oversight. That improves visibility, but it also introduces concentration risk: you are more exposed to the operational and political swings of a few counterparties. The right answer is layered: joint ventures with strong governance, third-party audits with surprise rights, and partnerships with operators who can survive price cycles without resorting to desperate behaviors. Where investors get trapped emotionally The sunk cost fallacy shows up in term sheets. After months of relationship building and travel, teams ignore late-stage red flags because they are fatigued and want the deal to close. The promoter senses this and turns up the pressure: a new buyer is circling, export permits expire next week, the governor wants a signing ceremony. When a deal that has dragged suddenly becomes urgent, step back. Ask what changed. If the only answer is external pressure, you have leverage. Use it to insist on final checks that are inconvenient for the other side. Building muscle memory in compliance teams Write checklists, then practice them. Simulate a deal with deliberate red flags planted in the data room: mismatched signatures, recycled certificate numbers, and logistics inconsistencies. Reward the analysts who find the anomalies. Rotate site visit teams to avoid capture by a promoter’s charm offensive. Audit your own process by pulling two closed deals each year and re-running the due diligence as if they were new. If you would not pass your own test, recalibrate. How to respond when things go wrong Silence is not a strategy. If a shipment fails or a counterparty defaults, notify insurers, banks, and key customers promptly. It protects your position and limits rumors. Engage local counsel early to map legal options in-country, not just in your home jurisdiction. Decide quickly whether you are pursuing recovery or containment; the tactics differ. Recovery requires patience and targeted pressure. Containment focuses on unblocking supply, finding substitute volumes, and preserving relationships with regulators who will be watching. Document the failure in detail. Fraudsters repeat tactics, and your own institutional memory will fade. Create a dossier that your next team can search when a familiar name or clause shows up again. A harder, more useful definition of due diligence In Congo mining, due diligence is not a file full of documents. It is the habit of verifying every claim through at least two independent channels, one of which you control in the field. It is also the discipline to walk away from an attractive price when the story around it requires you to suspend disbelief. Fraud thrives where urgency beats rigor, where shells stand in for operators, and where fake contracts pass for proof. Investors lose when they confuse motion with progress. There is a path that reduces risk to something you can price. It runs through humble questions asked at the right time, contracts that reflect how work actually happens on the ground, and a willingness to spend an extra week checking the export permits and CEEC certificates that look perfectly fine on a screen. The cost of that week is trivial compared to a wire you will never see again.