In case you wondered why the CEO of ThyssenKrupp Industrial Solutions resigned last week in Germany, it’s because of Midwest Fertilizer Company’s greenfield plant in Indiana – and the (alleged) shenanigans involved in securing the Midwest EPC contract from Fatima Fertilizer Company in Pakistan.

ThyssenKrupp announced the resignation of Jens Michael Wegmann without much explanation, except to acknowledge some unnamed wrong-doing, and its deviance from best practices.

“I made a mistake which I greatly regret and I am now paying the consequences. I realize that my conduct in my dealings with a sales partner was not in line with thyssenkrupp’s values and that I can no longer credibly drive the necessary changes at Industrial solutions. For this reason I am standing down as CEO of thyssenkrupp Industrial Solutions today – irrespective of legal issues and the findings of the ongoing internal investigation …” said Jens Michael Wegmann in a statement.

The Executive Board of thyssenkrupp AG has acknowledged this step. “We thank Jens Michael Wegmann for his outstanding work … In standing down he has shown that he accepts his responsibilities. For us, compliance is an elementary component of good corporate governance and means much more than just abiding by the law. Compliance is a question of mindset affecting every thyssenkrupp employee every day.”
ThyssenKrupp press release, 11/10/2016

ThyssenKrupp Industrial Solutions (TKIS) – the engineering and construction arm of the broader German conglomerate, ThyssenKrupp – is a major and well-respected player in technology licensing as well as engineering, procurement, and construction (EPC) work across the global nitrogen fertilizer industry.

However, according to an in-depth article in Der Spiegel, published a week before the resignation, Wegmann accepted lavish gifts from the company’s local sales agent in Pakistan. The agent, Asadullah Kazmi of Capital Strategies Group, was set to receive a multi-million dollar commission in return for landing the EPC award for TKIS.

This all took place in 2014 and 2015, but the news is coming out now because of a lawsuit. The best details always come out in the court filings.

After discussing, at a party, Kazmi’s problem finding long-term storage for his white Ferrari, Der Spiegel reports that Wegmann offered to “park it in his garage,” inviting Kazmi to ship it to Germany for Wegmann to look after. Kazmi declined Wegmann’s invitation. A month later, Kazmi also declined Wegmann’s low-ball offer to buy the car.

Shortly afterwards, to keep Wegmann “calm” after the car discussion ended badly, Kazmi gave Wegmann a package containing a gift from Kazmi’s wife to Wegmann’s – a gold bracelet that cost some thousands of dollars (525,000 rupees).

As I understand compliance, the aim is not simply to avoid conflicts of interest, but to avoid even the appearance of conflicts of interest. So, Wegmann’s resignation can be explained by these exchanges alone.

But then it comes to the Midwest Fertilizer opportunity.

Kazmi was apparently an old school friend of Fatima Fertilizer Company’s CEO, Fawad Ahmed Mukhtar. Initially, the discussions were limited to securing a deal for TKIS to build one nitric acid plant, for 230 million Euros. The going rate for setting up a major deal like this was apparently a 1% commission.

However, when Fatima awarded ThyssenKrupp the EPC for the whole plant – a contract worth in excess of $2 billion – Kazmi’s 1% commission began to look very nice indeed.

Naturally, the size of this commission – and its existence – was later disputed by TKIS, which is what led the sales agent to bring a lawsuit in Germany, suing TKIS for his alleged $20 million commission.

I don’t know what will come of the alleged $3 million kickback that I understand TKIS alleges Kazmi had offered to pay to Fatima’s CEO out of that $20 million commission. Without knowing local laws and the jurisdiction of such a matter, it isn’t clear to me whether any group will have liability on this.

Kazmi, so der Vorwurf, habe Mukhtar drei Millionen Euro versprochen, wenn TKIS den Auftrag für den Bau der gesamten Fabrikanlage in den USA erhalte.
Der Spiegel, Ein Ferrari, ein Goldarmband und 20 Millionen Dollar, 11/03/2016

This story of corporate malfeasance may appear like business as usual or, even, rather minor compared to other recent and ongoing ammonia industry scandals, of which there are plenty. To name a small sample of proven or alleged instances: Yara and the Gaddafis, or Dmitry Mazepin’s corporate raiding of Togliattiazot, or KBR’s bribery scandal in Kazakhstan (not to forget Nigeria).

The problems here are, it might appear, merely an inappropriate private conversation about a white Ferrari, the ill-advised acceptance of a gift of expensive jewelry, and a disagreement about commission fees.

Certainly it was enough to force Wegmann’s resignation within the week. Speaking personally, his swift resignation does a lot to reassure me that this is not, in fact, just business as usual for ThyssenKrupp.

What impact all this will have on the Midwest EPC contract, or progress on the greenfield, time will tell. However, I see no reason why it should derail the project.

The far larger challenge will be for Midwest to reach financial close. As far as I can tell, judging by the complete lack of progress over the last year, the project has already been derailed for some time. What updates I have are in the Research Note for Mt Vernon, IN.