The European Union's financing arm has frozen all lending to the Swiss commodities trading giant Glencore, citing "serious concerns" about governance at the FTSE 100 listed firm.
The European Investment Bank had loaned $50m (£30m) to Glencore's Zambian subsidiary Mopani Copper Mines for the renovation and modernisation of the Mufulira copper smelter in 2005. It said it would "decline any further financing" requests from the company, or one of its subsidiaries, as it conducts an internal investigation into allegations of tax irregularities at Mopani stemming from a leaked draft of an audit report by the accountancy firm Grant Thornton and Econ Poyry.
The EIB said that, as well as launching its own investigation, it had informed Olaf, the European anti-fraud office.
Glencore denied the allegations and said it looked forward to the results of the investigation. "We welcome the EIB taking a close look at Mopani since we are confident that we will be completely exonerated," the company said. "The allegations are based on an incomplete, draft desktop study that was circulated in Zambia several months ago. We publicly refuted the draft 'conclusions' of this document at the time."
The EIB, however, said that its decision to stop lending stemmed from governance concerns "which go far beyond the Mopani investment". But the lender did defend the environmental record of the smelter since it was privatised in 2000.
"Pollution was much higher before privatisation, and the latest information obtained confirms that the situation has improved since, including notably through the investment financed by EIB's loan," it said.
But Saviour Mwamba, a director at the non-governmental Centre for Trade Policy and Development, said the central issue was not Glencore, but rather EIB's ability to asses the impact of its loans to miners operating in poorer countries. "The problem is not with one company. The issues are not only unique to Glencore," he said. "There are systemic problems in the international financing system."