Confirmation that Mongolia's anti-corruption authority has opened an "investigation" of the historic 2015 $US4.4 billion project financing deal for the Oyu Tolgoi copper mine has sucked Rio Tinto into the vortex of a controversy that started with a Swiss investigation into the contents of a bank account connected to a former Mongolian finance minister.

Ever since it became clear last month that Swiss authorities were taking serious interest in Bayartsogt Sangajav and how he came to fill a Swiss bank account with $US10 million back in September 2008, Rio has been able to take public comfort in the fact that whatever the circumstances were, they occurred at a time before the multinational miner had the capacity to influence negotiations between the government of Mongolia and Oyu Tolgoi's Canadian-listed developer, Ivanhoe Mines.

At the time the claimed payment was made, Rio owned about 10 per cent of Ivanhoe. The Anglo-Australia stepped its way to control by 2012 and, to announce the changed circumstances, it changed Ivanhoe's name to Turquoise Hill.

Confirmation on March 27 from Swiss authorities that neither Rio nor any of its employees was "currently" subject to the continuing corruption investigation appeared to endorse the security of Rio's preferred comfort zone.

Because it now appears that Mongolia's Independent Authority Against Corruption (IAAC) is attempting to link government approvals of a landmark 2015 Oyu Tolgoi refinancing deal with the Swiss investigation into the circumstances that delivered $US10 million to an account connected with Bayartsogt.

There are some that choose to believe that the IAAC's sudden concern over the 2015 agreement is a political confection more than a matter of substance. This view is born from the fact that the activities of the IAAC are formally overseen by the President rather than the parliament.

The presidential incumbent, who was elected in a seemingly chaotic succession of ballots in June 2017, is the Democrat Party's Khaltmaagiin Battulga. But the Prime Minister elected by the parliament last October is Ukhnaagiin Khurelsukh. A well as being a colourful chap whose nick-name has been "The Fist" ever since he punched a colleague in 2012, he is a leading member of Mongolia's People Party.

But if this is politics then they sure do play a hard game in Ulaanbaatar.

On March 31, Bayartsogt was detained by Mongolia's IAAC, apparently as the next logical step in the criminal investigation by the Swiss Office of the Attorney that has seen it take control of the bank account that has been the focus of its inquiries.

But, as they say, there is more.

At the same time as IAAC moved on the man who formally signed of on the 2009 deal that delivered Ivanhoe 66 per cent of Oyu Tolgoi, it also made two more arrests.

The IAAC arrested and detained a former high-level official of the Mongolian tax department, Ariunsan Baldanjav. And it did the same to B. Byambasaikhan, the former chief executive of Erdenes Mongolia LLC, which is the Mongolian sovereign wealth fund that owns the state's 34 per cent of the mine.

Mongolian state television has reported that the prosecutor's office has also submitted a request to interrogate ex-prime minister Saikhanbileg Chimed on his return from the US and it has flagged requests to arrest "several other" officials involved in either or both of the 2009 and 2015 deals.

The IAAC's reported intent is to test whether the authorities involved in those deals had "abused their power".

Now, among many jobs of standing that include running the Mongolian Archery Association, B. Byambasaikhan is also the chairman of the Business Council of Mongolia. Last week the council issued a strongly worded defence of its chairman, who has temporarily stepped down from his official duties.

A statement released in the name of the council's executive committee expressed deep concern on the way the IAAC matters were being reported in the media, "where it appears there is a linkage between the Swiss Bank account matter of 2009 and the signing of the Oyu Tolgoi Underground Development Plan (so-called Dubai Agreement)".

The background here is important.

Having taken control of Ivanhoe and the operation of the Oyu Tolgoi project that flowed from the Canadian's 66 per cent stake in the project, Rio became the primary source of development finance for Mongolia's biggest ever foreign investment.

Then, in May 2015, Rio and the government agreed on the planned underground expansion that will see Oyu Tolgoi become one of the world's biggest copper mines. With the security that came of that agreement, Rio was finally able to lock down a long-based project financing agreement in December 2015. That deal was worth $US4.4 billion.

The facility was supported by a broad syndicate of international financiers that included export credit agencies from Australia, Canada and the United States and 15 commercial banks. Along with EFIC's contribution, the Australian contributors to the funding package were ANZ and NAB.

And who was the Rio executive that was the ultimate overseer for the project finance negotiations? Well, that task fell to the then head of Rio's copper division. His name? Jean Sebastien Jacques.

Jacques, of course, is now Rio's chief executive.

Jacques has made a wonderful fist of the business he took over from Sam Walsh in March 2016. The financials look ever better and the prices achieved in the retreat from coal have been, frankly, pretty staggering. But not all of the winds Jacques inherited have been as kind.

Regulators in Britain, the US and Australia are investigating a $US10.5 million success fee that was paid to the French investment banker that led negotiations with the government of Guinea over the two disputed iron ore leases that host Rio's rich but isolated Simandou project. And that same troika has reviewed the path Rio took to impairing the $US3.7 billion acquisition of coal mines in Mozambique in 2011-12.

Rio paid a $US35 million settlement with the Serious Fraud Office to end the matter in Britain. But the Mozambique matter has left Rio and two senior executives accused of fraud by the US SEC and of misleading and deceptive conduct by the Australian Securities and Investments Commission.

And, even if we discount its latest dramas in Mongolia, things have been tough for Rio there too over the past six months or so. A January blockade on the Chinese side of the border resulted in Oyu Tolgoi seeking protection of force majeure from contracted customers.

Then, just as that situation was resolved, the government confirmed a $US150 million tax dispute with Oyu Tolgoi and its decision to trigger a call in the original investment agreement that requires the miner to build its own power station by 2021. Rio says that could cost up to $US1 billion.
by Matthew Stevens