PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
From: Conrad Ashby, Responsible Partner, and Steven Hollander, Lead Associate, White Collar & Investigations Practice, Calderwood & Harkness LLP
To: Patricia Sung, General Counsel & Corporate Secretary, Torchlight Mining Corp.; Dr. Eleanor Fiske, Chair, Audit Committee; Warren Ogilvy, Audit Committee Member; Marguerite Chen, Audit Committee Member
Date: March 24, 2025
Re: Voluntary Self-Disclosure Analysis — DOJ Criminal Division FCPA Corporate Enforcement Policy — Torchlight Mining Corp.
C&H Matter No.: 1039-00005
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I. Executive Summary
This memorandum sets forth our analysis and recommendations regarding whether Torchlight Mining Corp. ("Torchlight" or the "Company") should voluntarily self-disclose ("VSD") to the United States Department of Justice ("DOJ") Fraud Section, Criminal Division, potential violations of the Foreign Corrupt Practices Act ("FCPA"), 15 U.S.C. §§ 78dd-1 et seq., arising from payments totaling approximately $4,730,000 made through Torchlight's West African subsidiary operations in the Republic of Ganara between approximately April 2019 and October 2024. As detailed below, these payments were made through an offshore intermediary and directly from local subsidiary accounts to government officials and other recipients in connection with the procurement of mining permits and environmental approvals for the Company's Kousseri and Dembélé concessions.
At this juncture, the DOJ has not yet issued any grand jury subpoenas, target letters, or other formal compulsory process to Torchlight or any of its subsidiaries. However, on February 14, 2025, the DOJ Fraud Section transmitted a voluntary document preservation request to the Company, indicating that the DOJ is aware of the matter and has opened a preliminary inquiry, likely following a referral from the Securities and Exchange Commission ("SEC"). Separately, the SEC has commenced a formal investigation under File No. HO-14892, pursuant to a formal order of investigation dated January 22, 2025, and served a document subpoena on Torchlight on February 3, 2025. The Company publicly disclosed the existence of the SEC investigation in a Form 8-K filed on February 7, 2025.
The purpose of this memorandum is to provide the Audit Committee with a comprehensive analysis to inform a decision regarding VSD, which we recommend be made no later than May 30, 2025, well in advance of the previously discussed internal target date of June 30, 2025. Specifically, this memorandum evaluates: (a) the DOJ's FCPA Corporate Enforcement Policy framework and the criteria governing VSD credit; (b) the potential credit and benefits that VSD would confer upon the Company; (c) the cooperation obligations that are attendant to VSD and their practical implications; (d) the potential outcomes under both a VSD scenario and a non-disclosure scenario; (e) disgorgement and penalty exposure under each scenario; and (f) our strategic recommendations regarding the path forward.
Based on our analysis, the total estimated government exposure — encompassing potential DOJ criminal fines, SEC disgorgement, prejudgment interest, and SEC civil penalties — ranges from approximately $14.19 million to $19.63 million in the absence of VSD. VSD could materially reduce this exposure, potentially resulting in a declination with disgorgement (best case, approximately $5.44 million) or a significantly reduced criminal resolution through a non-prosecution agreement or deferred prosecution agreement with a fine reduction of 50% or greater (moderate case, approximately $9.46 million to $10.17 million). Accordingly, VSD could yield potential savings of approximately $4.0 million to $14.2 million relative to the non-VSD high-end scenario.
For the reasons set forth in detail below, Calderwood & Harkness LLP ("C&H") recommends that Torchlight voluntarily self-disclose to the DOJ Fraud Section under the FCPA Corporate Enforcement Policy. We recommend that the Audit Committee authorize management to proceed with VSD preparation targeting a submission no later than May 30, 2025, and authorize C&H to begin informal outreach to the DOJ Fraud Section.
II. Background and Procedural Posture
A. Overview of the Investigation
Calderwood & Harkness LLP was formally engaged by Torchlight Mining Corp. on March 5, 2025, pursuant to an engagement letter executed by Patricia Sung, General Counsel & Corporate Secretary, on behalf of the Company, to conduct an internal investigation into potential violations of the FCPA and related laws in connection with the Company's West African operations. The engagement was authorized by the Audit Committee of the Board of Directors at a special meeting held on February 28, 2025. Prior to C&H's engagement, the Company's in-house legal team conducted a preliminary assessment of the allegations under the supervision of Ms. Sung and Nadia Berenson, Vice President of Compliance.
The Company. Torchlight Mining Corp. is a corporation organized under the Canada Business Corporations Act, with its principal executive offices located at 200 King Street West, Suite 3400, Toronto, Ontario M5H 3T4, Canada. The Company's common shares are listed on the Toronto Stock Exchange under the ticker symbol "TMC." In addition, the Company's American Depositary Receipts ("ADRs"), each representing one common share, are listed on the New York Stock Exchange under the ticker symbol "TRCH." As of March 1, 2025, the Company's market capitalization was approximately CAD $5.8 billion (based on approximately 166.7 million shares outstanding at a closing price of approximately CAD $34.80 prior to the February 2025 market reaction). For the fiscal year ended December 31, 2024, the Company reported consolidated revenue of approximately CAD $2.1 billion. By virtue of its NYSE-listed ADRs, Torchlight qualifies as an "issuer" within the meaning of the FCPA, 15 U.S.C. § 78dd-1, and is subject to the Act's anti-bribery, books and records, and internal controls provisions.
The Subsidiaries. Torchlight's West African operations are conducted through a tiered subsidiary structure. Torchlight Ganara Holdings Ltd. ("TGH") is a wholly owned subsidiary of Torchlight Mining Corp., incorporated in the British Virgin Islands. TGH, in turn, holds 100% of the shares of Torchlight Ganara Mining S.A. ("TGM"), the Ganaran operating entity that holds the mining permits and concessions at issue and employs the local and expatriate workforce. TGM is registered under the laws of the Republic of Ganara and operates gold and base-metals mining operations in the Kousseri and Dembélé regions.
The Misconduct Under Investigation. The investigation centers on approximately $4,730,000 in suspected improper payments made through TGH and TGM to government officials and intermediaries in the Republic of Ganara between approximately April 2019 and October 2024. These payments were made in connection with the procurement of mining permits, environmental approvals, and related regulatory authorizations for the Company's Kousseri and Dembélé concessions. The payments were channeled primarily through an offshore intermediary, Crestfield Advisory Partners Ltd. ("Crestfield"), a Mauritius-incorporated entity, and supplemented by direct cash withdrawals and in-kind benefits disbursed from TGM's local bank accounts. The payments were disguised in Torchlight's books and records as consulting fees, community relations expenses, procurement costs, and other legitimate-appearing expenditures.
Key Subjects. The internal investigation has identified the following individuals as the primary subjects of the inquiry on the company side:
• Marcus Delacroix — Former Vice President, Africa Operations, Torchlight Mining Corp. Mr. Delacroix was a senior executive who reported directly to the Company's Chief Executive Officer and was responsible for overseeing all of Torchlight's mining operations across the African continent, including the Ganaran operations. Mr. Delacroix resigned from the Company on November 15, 2024, following the commencement of the Company's preliminary internal review. He is currently residing in Lyon, France. Mr. Delacroix has retained separate counsel, Helen Whitmore of Whitmore & Sharpe LLP, Washington, D.C. As discussed further below, Ms. Whitmore has indicated that Mr. Delacroix will decline to participate in a voluntary interview with C&H.
• Raymond Osei-Bonsu — Former Country Manager, TGM. Mr. Osei-Bonsu served as the senior in-country manager for the Ganaran operations, overseeing day-to-day mining activities and maintaining relationships with local government authorities, contractors, and community leaders. Mr. Osei-Bonsu was terminated for cause on January 8, 2025, following the Company's determination that he had been directly involved in facilitating certain of the suspected payments. Mr. Osei-Bonsu is a citizen and resident of the Republic of Ganara. He has retained separate counsel, Barrister Emeka Okoro of Okoro Law Chambers, Republic of Ganara.
Key Intermediary. The investigation has also identified the following intermediary entity and its principal as central figures in the suspected payment scheme:
• Crestfield Advisory Partners Ltd. — A Mauritius-incorporated entity that served as Torchlight's purported "government relations advisory" firm in West Africa. Crestfield was engaged by TGH pursuant to a Government Relations Advisory Agreement dated April 12, 2019 (the "Advisory Agreement"). Crestfield is operated by Jean-Philippe Renard, a French citizen based in Dakar, Senegal. As discussed below, Crestfield presents significant red flags: it has no public-facing website, no identified employees other than Renard, and its registered address in Mauritius is a registered-agent address. Mr. Renard was the sole point of contact for Crestfield and communicated extensively with Mr. Delacroix, including through personal email accounts that were outside the Company's information governance systems.
B. Government Investigations
Multiple government agencies in the United States — and potentially Canada — have opened or are considering investigations into the conduct at issue.
Securities and Exchange Commission. The SEC's Division of Enforcement commenced a formal investigation into Torchlight's West African operations. The SEC's formal order of investigation (File No. HO-14892) was issued on January 22, 2025. On February 3, 2025, the SEC served a document subpoena on Torchlight, seeking a broad range of documents relating to the Company's operations in the Republic of Ganara, including all contracts with agents, consultants, and intermediaries; all communications between Company personnel and government officials or their representatives; financial records for TGH and TGM; and compliance-related records including policies, training materials, and due diligence files. In response to the SEC investigation, Torchlight filed a Form 8-K with the SEC on February 7, 2025, publicly disclosing the existence of the investigation and the potential for material financial exposure. The Company is in the process of preparing its first rolling document production to the SEC, which is currently targeted for mid-April 2025.
Department of Justice. The DOJ Fraud Section, Criminal Division, has opened a preliminary inquiry into the matter, which we understand commenced in approximately January 2025 following a referral from the SEC. On February 14, 2025, the DOJ Fraud Section transmitted a voluntary document preservation request to Torchlight through its General Counsel. The request was addressed to Ms. Sung and identified the matter as relating to "potential violations of the Foreign Corrupt Practices Act in connection with Torchlight Mining Corp.'s operations in the Republic of Ganara." The matter has been assigned to personnel within the FCPA Unit of the Fraud Section under Assistant Chief Margaret Calloway. Notably, the DOJ has not issued any grand jury subpoenas, civil investigative demands, target letters, or other formal compulsory process to the Company or any of its subsidiaries, officers, directors, or employees. The DOJ's inquiry remains at a preliminary stage, which is a critical consideration in evaluating whether a VSD would be deemed "voluntary" under the FCPA Corporate Enforcement Policy.
Canadian Exposure. Torchlight, as a Canadian corporation, is also potentially subject to the Corruption of Foreign Public Officials Act, S.C. 1998, c. 34 ("CFPOA"), Canada's principal foreign anti-bribery statute. The Company has separately engaged Bartlett Keene & Ostrander LLP ("BKO"), under the direction of Richard Bartlett III, to advise on potential CFPOA exposure and Canadian securities disclosure obligations. BKO is monitoring the matter for potential referral to the Royal Canadian Mounted Police ("RCMP"), which is the principal enforcement agency for CFPOA violations. C&H and BKO entered into a common interest agreement dated March 10, 2025 to facilitate the privileged sharing of information between the two firms in connection with the parallel U.S. and Canadian aspects of the investigation.
C. Status of Internal Investigation
The Company's internal investigation is in its early stages but is proceeding on an accelerated timeline. The following key steps have been taken or are underway:
Forensic Accounting. Pinnacle Forensic Advisory LLC ("Pinnacle"), under the direction of Dr. Leonard Strauss, a Certified Fraud Examiner and former FBI financial analyst, was retained on March 12, 2025 to conduct a comprehensive forensic accounting review of payments made through TGH and TGM, with a particular focus on: (i) all payments to Crestfield Advisory Partners Ltd.; (ii) cash withdrawals and disbursements from TGM's local bank accounts; (iii) in-kind benefits provided to government officials; (iv) general ledger entries under GL codes 7200, 7310, and 7450; and (v) fund flows between Torchlight's corporate accounts, TGH's accounts at Meridian Commercial Bank (BVI) (Account No. 7740-2281-0056), and TGM's accounts at Regency International Bank (Republic of Ganara) (Account No. GAN-4419-8837). Pinnacle's estimated fees for the engagement are $1.8 million to $2.4 million, depending on the scope and complexity of the forensic analysis.
E-discovery. Marlowe Asset Management Digital Forensics Inc. ("Marlowe Asset Management"), under the direction of Rachel Hartley, was retained on March 14, 2025 to manage the collection, processing, hosting, and review of electronic data in connection with the investigation. Marlowe Asset Management has identified approximately 1.625 terabytes of data across 23 custodians, including current and former employees of Torchlight, TGH, and TGM. The custodian list includes, among others: Marcus Delacroix (to the extent Company-controlled data exists), Raymond Osei-Bonsu (same), Patricia Sung, Nadia Berenson, Chidera Achebe (current CFO, Africa Operations), Kwame Mensah (current Finance Director, TGM), Claire Fournier (current SVP, Legal Affairs), and Hans Vandermeer (current VP, Procurement, Africa Operations). Data sources include Company email (Ashgrove Software), network file shares, Aldermere Systems sites, local hard drives, mobile devices (where retrievable), and physical documents located at the Toronto headquarters, the TGH registered office in the BVI, and TGM's offices in Ganara.
Litigation Hold. A comprehensive litigation hold notice was issued on March 17, 2025 to all relevant custodians and departments, including instructions to preserve all documents and electronically stored information potentially relevant to the investigation. The litigation hold supersedes and supplements the voluntary preservation steps taken by the Company following the DOJ's February 14, 2025 preservation request.
Witness Interviews. C&H has scheduled two waves of witness interviews:
• First Wave (April 7–11, 2025, Toronto): Interviews of current Torchlight employees based in Toronto, including members of the finance, compliance, legal, and procurement departments with knowledge of the Ganaran operations and the Crestfield engagement.
• Second Wave (April 28 – May 2, 2025, Republic of Ganara, via video): Interviews of current TGM employees based in Ganara, to be conducted via secure videoconference in coordination with Ndong & Keïta Cabinet Juridique ("Ndong & Keïta"), Torchlight's Ganaran counsel, to ensure compliance with local law requirements for interviews conducted on Ganaran territory.
Interim Report. An interim investigation report to the Audit Committee is targeted for May 15, 2025. This report will summarize findings from the first and second waves of witness interviews, the preliminary results of Pinnacle's forensic accounting review, and the initial document review findings.
Delacroix Interview. Mr. Delacroix, through his counsel Helen Whitmore of Whitmore & Sharpe LLP, has indicated that he will decline to participate in a voluntary interview with C&H. This decision is anticipated and is consistent with the advice defense counsel typically provides to individual subjects in matters of this nature. While Mr. Delacroix's refusal to cooperate with the internal investigation is a complication, it does not prevent the Company from pursuing VSD; the Company's obligation is to disclose all facts known to it, not to compel former employees to submit to interviews.
III. The DOJ FCPA Corporate Enforcement Policy — Framework
A. Overview of the Policy
The DOJ Criminal Division maintains a specific enforcement policy governing corporate FCPA cases: the FCPA Corporate Enforcement Policy (the "CEP" or the "Policy"), which was first announced in November 2017 as a pilot program, subsequently codified in the Justice Manual at JM 9-47.120, and revised most recently in 2023. The CEP represents the DOJ's most detailed articulation of the standards and incentives governing corporate cooperation in FCPA cases and provides a structured framework for evaluating the benefits and obligations associated with voluntary self-disclosure.
The central feature of the CEP is a presumption of a declination — meaning the DOJ will presumptively decline to prosecute a company — where the company satisfies all three prongs of the Policy: (1) voluntary self-disclosure of the FCPA violation; (2) full cooperation with the DOJ's investigation; and (3) timely and appropriate remediation of the underlying misconduct. This presumption of a declination can be overcome only where there are "aggravating circumstances" involving the seriousness of the offense, such as involvement of executive management, a significant profit to the company from the misconduct, pervasiveness of the misconduct within the organization, or criminal recidivism. Even where aggravating circumstances are present and a declination is not warranted, the CEP provides for substantial reductions in criminal penalties for companies that self-disclose, including a reduction of at least 50% from the low end of the applicable fine range under the United States Sentencing Guidelines and the potential avoidance of an independent compliance monitor.
The CEP is specific to the FCPA context and is administered by the Fraud Section's FCPA Unit. It supplements — and in some respects provides more generous terms than — the DOJ's broader corporate enforcement policies applicable to other types of white-collar offenses. For Torchlight, the CEP provides the most directly applicable framework for evaluating the VSD decision.
B. Voluntary Self-Disclosure — Definition and Requirements
The first prong of the CEP — voluntary self-disclosure — requires that the company affirmatively disclose the misconduct to the DOJ prior to an imminent threat of disclosure or government investigation. The CEP defines "voluntary self-disclosure" by reference to several criteria:
Timing — Prior to Imminent Threat. The disclosure must be made before the company faces an imminent threat of disclosure by a government agency, media outlet, whistleblower, or other external source. A disclosure made after the DOJ has already initiated a formal investigation, issued subpoenas, or otherwise compelled production is not considered "voluntary." However, the mere fact that another agency (such as the SEC) has commenced an investigation does not automatically disqualify a disclosure to the DOJ as "voluntary," so long as the DOJ itself has not yet taken formal investigative steps.
Reasonably Prompt Disclosure. The disclosure must occur "reasonably promptly" after the company becomes aware of the misconduct. The CEP does not prescribe a specific time period, but expects that companies will take reasonable steps to assess the allegations internally and then disclose to the DOJ without undue delay. A disclosure that comes months or years after the company first learns of the misconduct, without a legitimate explanation for the delay (such as the time needed to conduct a meaningful internal investigation), may not receive full VSD credit.
Disclosure of All Known Facts. At the time of the initial disclosure, the company must provide all relevant facts known to it regarding the misconduct. The initial disclosure need not reflect the results of a completed investigation — the DOJ understands that internal investigations take time — but the company must share the substance of what it knows at the time and commit to providing rolling updates as the investigation progresses.
Application to Torchlight. The critical question for Torchlight is whether a disclosure at this juncture would qualify as "voluntary" within the meaning of the CEP, given the existing SEC investigation and the DOJ's February 14, 2025 preservation request. We assess the relevant factors as follows:
DOJ Formal Investigation Status. The DOJ Fraud Section has not initiated a formal investigation of Torchlight. It has not issued grand jury subpoenas, civil investigative demands, target letters, or any other form of compulsory process. The voluntary document preservation request issued on February 14, 2025, while indicating that the DOJ is aware of the matter and has opened a preliminary inquiry, does not constitute the commencement of a formal investigation. The distinction between a preliminary inquiry and a formal investigation is significant under DOJ policy: a preservation request is a precautionary measure that does not reflect a determination to investigate or prosecute.
SEC Referral. We understand that the DOJ's awareness of the matter likely stems from a referral by the SEC, which is standard practice when the SEC identifies potential criminal violations in the course of its enforcement activities. The fact of an SEC referral does not, by itself, disqualify a VSD to the DOJ. The CEP evaluates voluntariness based on the status of the DOJ's own investigation, not the investigation of a parallel agency. Multiple companies have received VSD credit from the DOJ after the SEC had already commenced its own investigation, so long as the company approached the DOJ proactively before the DOJ took formal investigative action.
Strength of Voluntariness Argument. A disclosure made now — before the DOJ has issued any subpoenas or taken any formal investigative steps — would have a strong claim to "voluntary" status under the CEP. The longer Torchlight delays, the greater the risk that the DOJ will move from a preliminary inquiry to a formal investigation, at which point the window for VSD will close. We note that the February 14, 2025 preservation request suggests that the DOJ may be preparing to take further steps, and there is no guarantee that the current preliminary posture will persist indefinitely.
In sum, while the SEC investigation and DOJ preservation request introduce some complexity, we believe that a VSD made in the near term would be deemed "voluntary" by the DOJ, particularly if the Company can demonstrate that it has been conducting a diligent internal investigation and approached the DOJ proactively before any formal DOJ process was initiated.
C. Full Cooperation Requirements
The second prong of the CEP — full cooperation — is an ongoing obligation that attaches once the company self-discloses and continues throughout the course of the government's investigation. The CEP defines "full cooperation" broadly to include the following requirements:
Timely Disclosure of Relevant Facts. The company must provide timely disclosure of all facts relevant to the wrongdoing at issue, including facts about the individuals involved in or responsible for the misconduct. This requirement encompasses not only the facts learned during the internal investigation but also the identities of culpable individuals, regardless of their seniority or position within the organization.
Proactive Identification of Culpable Individuals. The CEP places particular emphasis on the company's obligation to identify all individuals substantially involved in or responsible for the misconduct. This is consistent with the DOJ's broader emphasis on individual accountability in corporate criminal cases. In the present matter, this obligation would require Torchlight to identify, at a minimum: Marcus Delacroix (Former VP, Africa Operations), Raymond Osei-Bonsu (Former Country Manager, TGM), Jean-Philippe Renard (principal of Crestfield Advisory Partners Ltd.), and the government officials who received the corrupt payments — specifically, Hon. Boubacar Diallo (Former Minister of Mines & Natural Resources), Amadou Traoré (Director, Environmental Permitting), and Col. Ibrahim Konaté (Former Regional Prefect, Kousseri Province).
Production of All Relevant Documents. The company must make timely production of all relevant documents, including documents located abroad. For Torchlight, this requirement implicates documents held by TGH in the British Virgin Islands, documents held by TGM in the Republic of Ganara, and banking records held at Meridian Commercial Bank (BVI) and Regency International Bank (Republic of Ganara). Cross-border document production will require coordination with the Company's BVI counsel, Hargrove Whitfield LLP (Catherine Whitfield), and the Company's Ganaran counsel, Ndong & Keïta Cabinet Juridique (Maître Salif Ndong), to ensure compliance with applicable local legal restrictions, including data protection and bank secrecy laws that may limit the scope or manner of production.
Making Personnel Available for Interviews. The company must make its officers and employees available for interviews by DOJ personnel. With respect to current employees — including Chidera Achebe, Kwame Mensah, Claire Fournier, Nadia Berenson, Patricia Sung, and Hans Vandermeer — the Company can direct them to cooperate, subject to their individual rights to counsel. With respect to former employees — specifically Marcus Delacroix and Raymond Osei-Bonsu — the Company has no ability to compel their participation, particularly given that both are separately represented by independent counsel. Mr. Delacroix has already indicated through counsel that he will decline voluntary interviews. The Company's inability to compel former employees to participate in interviews does not preclude full cooperation credit, so long as the Company makes good-faith efforts to facilitate cooperation and does not obstruct the government's efforts to contact these individuals.
Ongoing Updates. The company must provide updates on the status and findings of its internal investigation in a timely manner. This typically involves periodic in-person or telephonic meetings with DOJ personnel (commonly referred to as "proffers" or "update sessions") at which the company's counsel presents the results of the investigation to date.
No Privilege Waiver Required. The CEP expressly states that a company is not required to waive the attorney-client privilege or work-product protection in order to receive cooperation credit. However, the obligation to provide factual information is distinct from privilege — the company must disclose the underlying facts discovered during the investigation, even if those facts were uncovered through privileged communications between the company and its counsel. The company may decline to produce privileged legal advice or attorney mental impressions, but it may not use privilege as a shield to withhold relevant facts.
D. Timely and Appropriate Remediation
The third prong of the CEP — timely and appropriate remediation — requires the company to demonstrate that it has taken meaningful steps to address the misconduct, prevent its recurrence, and strengthen its compliance infrastructure. The CEP identifies several elements of appropriate remediation:
Effective Compliance Program. The company must implement or enhance an effective compliance program that is reasonably designed to detect and prevent FCPA violations. The DOJ evaluates compliance programs under the framework set forth in the DOJ Criminal Division's "Evaluation of Corporate Compliance Programs" guidance, which examines factors such as the design, implementation, and effectiveness of the program; the company's culture of compliance; the adequacy of compliance resources and personnel; risk assessment processes; training programs; third-party due diligence; and internal reporting mechanisms.
Appropriate Discipline. The company must take appropriate disciplinary action against employees responsible for the misconduct. In the present matter, Mr. Delacroix resigned from the Company on November 15, 2024, and Mr. Osei-Bonsu was terminated for cause on January 8, 2025. These personnel actions, while not taken in the specific context of a VSD, are consistent with the remediation expectations of the CEP. The Audit Committee should consider whether additional personnel actions are warranted as the investigation progresses and additional facts come to light.
Disgorgement of Profits. The company must agree to disgorge profits resulting from the misconduct. As discussed in Section VII below, disgorgement calculations in FCPA cases can vary significantly depending on the methodology employed by the government, and VSD and cooperation may provide an opportunity to negotiate the disgorgement calculation.
Additional Remedial Steps. The company should demonstrate recognition of the seriousness of the misconduct through additional steps, which may include enhancements to internal controls, revisions to policies and procedures, improvements to third-party due diligence processes, and investment in compliance training and monitoring.
We note that C&H is developing a separate memorandum setting forth detailed remediation recommendations for the Audit Committee's consideration. That memorandum will address specific enhancements to the Company's compliance program, internal controls, and governance structures, and is expected to be delivered in connection with the interim investigation report targeted for May 15, 2025.
IV. Summary of Suspected Misconduct and Financial Exposure
A. The Alleged Payment Scheme
Based on the preliminary findings of the internal investigation — including the Company's initial review of available documents and financial records, the whistleblower complaint, and the work performed by in-house counsel prior to C&H's engagement — the suspected payment scheme operated as follows:
Crestfield Advisory Partners Ltd. The primary conduit for improper payments was Crestfield Advisory Partners Ltd., the Mauritius-incorporated intermediary engaged by TGH pursuant to the Government Relations Advisory Agreement dated April 12, 2019 (the "Advisory Agreement"). The Advisory Agreement was signed on behalf of TGH by Marcus Delacroix, then VP of Africa Operations, and on behalf of Crestfield by Jean-Philippe Renard, its sole principal. The Advisory Agreement provided for the following compensation structure:
• Monthly Retainer: $15,000 per month;
• Success Fees: $100,000 per permit or regulatory approval successfully obtained with Crestfield's assistance;
• Quarterly Expense Reimbursement: Reimbursement of documented expenses, capped at $25,000 per quarter.
Between April 2019 and October 2024, a period of approximately 66 months spanning 22 full quarters, the contractual maximum payable to Crestfield under the Advisory Agreement was approximately $2,040,000, calculated as follows:
• Monthly retainers: $15,000 × 66 months = $990,000
• Success fees: $100,000 × 5 permits/approvals = $500,000
• Quarterly expenses (maximum): $25,000 × 22 quarters = $550,000
• Contractual maximum: $2,040,000
However, total payments to Crestfield during this period amounted to $3,210,000, spread across 24 invoices — exceeding the contractual maximum by $1,170,000. The excess payments were variously described in invoices as "supplemental advisory services," "strategic relationship management," and "special project fees," none of which have a basis in the Advisory Agreement or any documented amendment thereto. Critically, 14 of the 24 Crestfield invoices exceeded the $50,000 single-approval threshold under Torchlight's Delegation of Authority Policy without the required dual authorization. No due diligence file on Crestfield exists in Torchlight's records. There is no evidence that a competitive selection process was conducted before Crestfield's engagement. Furthermore, 37 communications between Delacroix and Renard were conducted via personal email accounts (Northgate Software addresses), outside the Company's email system and information governance controls.
Based on preliminary forensic analysis and the pattern of payments, we estimate that approximately 75% of the total Crestfield payments — approximately $2,410,000 — were diverted by Renard to government officials in the Republic of Ganara in exchange for favorable action on Torchlight's mining permit applications and regulatory filings.
Direct Payments from TGM Local Accounts. In addition to the Crestfield channel, the investigation has identified two categories of direct payments from TGM's local bank accounts in the Republic of Ganara:
• Cash Withdrawals: Cash withdrawals from TGM's account at Regency International Bank (Account No. GAN-4419-8837), coded under General Ledger code 7450 ("Community Relations Expenses"), totaling $890,000 over the investigation period. These withdrawals were approved by Raymond Osei-Bonsu in his capacity as Country Manager. Documentation supporting these withdrawals is sparse or nonexistent — in many cases, the only supporting documentation is a handwritten voucher bearing Osei-Bonsu's signature and a vague description such as "community engagement" or "local stakeholder meeting."
• In-Kind Benefits: In-kind benefits provided to government officials and their family members, including the purchase of vehicles, payment of international travel expenses, and other personal benefits, booked across GL codes 7200 ("Vehicle & Transportation") and 7310 ("Travel & Entertainment"), totaling approximately $630,000.
Total Suspected Improper Payments. The total amount of suspected improper payments is calculated as follows:
We note that these figures are preliminary and subject to revision as the forensic accounting review by Pinnacle progresses. The $4,730,000 figure represents our current best estimate of total exposure and will be refined in the interim report targeted for May 15, 2025.
B. Identified Government Official Recipients
The investigation has identified the following government officials of the Republic of Ganara as recipients of suspected improper payments:
Hon. Boubacar Diallo — Former Minister of Mines & Natural Resources. Minister Diallo served as the Republic of Ganara's Minister of Mines & Natural Resources from approximately 2017 to 2023 and had direct authority over the issuance of mining licenses and concession agreements. Based on the preliminary forensic analysis, Minister Diallo received approximately $1,850,000 in corrupt payments through Crestfield and intermediary bank accounts. Crestfield's Renard is believed to have served as the principal intermediary for payments to Minister Diallo, with funds routed through at least two offshore accounts prior to reaching accounts controlled by or for the benefit of Minister Diallo.
Amadou Traoré — Director, Environmental Permitting. Mr. Traoré served as the Director of the Environmental Permitting Office within the Ministry of Environment and Sustainable Development and was responsible for reviewing and approving environmental impact assessments for mining projects. Mr. Traoré received approximately $620,000 in corrupt payments channeled through Crestfield and via direct wire transfers from TGM's local accounts.
Col. Ibrahim Konaté — Former Regional Prefect, Kousseri Province. Col. Konaté served as the Regional Prefect of Kousseri Province, the administrative jurisdiction encompassing the Kousseri mining concession. As Regional Prefect, Col. Konaté exercised significant authority over local land-use decisions, security arrangements, and community relations matters affecting the mining operations. Col. Konaté received approximately $340,000 in cash and in-kind benefits, including at least two vehicles and multiple international trips, provided directly by TGM personnel.
Other Officials and Unidentified Recipients. Approximately $1,920,000 in suspected improper payments cannot yet be attributed to specific individuals. These payments include a portion of the Crestfield funds for which Renard's records (to the extent available) do not clearly identify the ultimate recipients, as well as certain of the cash withdrawals from TGM's local accounts for which documentation is insufficient to determine the payee. The forensic accounting review will seek to identify additional recipients as the investigation progresses.
Summary of Identified Recipients:
C. Mining Permits Obtained
The suspected corrupt payments were made in connection with the procurement of the following mining permits and regulatory approvals, all of which were essential to Torchlight's West African operations:
1. Kousseri Mining License (KCC-2019-0047) — Issued September 14, 2019. A 25-year mining license covering 14,200 hectares in Kousseri Province, authorizing gold and base-metals extraction. This license was the foundational permit for Torchlight's Ganaran operations. Notably, the license was obtained approximately four months faster than the statutory average processing time for mining licenses in the Republic of Ganara, which the investigation is examining as a potential indicator of corrupt influence.
2. Kousseri Environmental Impact Approval (ENV-KCC-2020-113) — Issued March 27, 2020. Environmental impact approval for the Kousseri concession, issued by the Environmental Permitting Office under the authority of Director Traoré.
3. Dembélé Exploration License (DRE-2021-0092) — Issued July 8, 2021. An exploration license covering 8,750 hectares in the Dembélé region, authorizing geological surveys, test drilling, and mineral sampling.
4. Dembélé Mining License Upgrade (DRE-M-2023-0018) — Issued February 14, 2023. An upgrade of the Dembélé exploration license to a full mining license, authorizing commercial extraction operations at the Dembélé site.
5. Kousseri Expansion Permit (KCC-2019-0047-A1) — Issued April 3, 2024. An amendment to the original Kousseri mining license, adding 3,200 hectares to the concession area (bringing the total Kousseri area to 17,400 hectares) and authorizing expanded extraction operations.
These five permits collectively enabled the entirety of Torchlight's mining operations in the Republic of Ganara. For the fiscal year ended December 31, 2024, the Company's West African operations generated revenue of approximately CAD $387 million, representing approximately 18.4% of Torchlight's consolidated revenue of approximately CAD $2.1 billion. The cumulative revenue generated by the Ganaran operations since 2019 is substantially higher, though precise figures will require further analysis by Pinnacle.
D. Potential FCPA Violations
Based on the facts currently known, the suspected conduct gives rise to potential violations of all three substantive provisions of the FCPA:
Anti-Bribery Provisions (15 U.S.C. § 78dd-1). Torchlight, as an "issuer" with ADRs listed on the NYSE, is subject to the anti-bribery provisions of the FCPA, which prohibit the payment of anything of value to a foreign official for the purpose of influencing an official act or securing any improper advantage in order to obtain or retain business. The suspected payments to Minister Diallo, Director Traoré, Col. Konaté, and other government officials — made through the Crestfield intermediary and directly from TGM accounts — were made for the purpose of obtaining and retaining mining permits and regulatory approvals, which constitutes the obtaining or retaining of business within the meaning of the statute. The payments were authorized or directed by Delacroix, a senior officer of Torchlight, and facilitated by Osei-Bonsu, TGM's Country Manager, using Renard and Crestfield as intermediaries. The use of instrumentalities of interstate commerce (U.S.-dollar-denominated wire transfers processed through U.S. correspondent banks) provides additional jurisdictional bases for FCPA liability.
Books and Records Provisions (15 U.S.C. § 78m(b)(2)(A)). The FCPA's books and records provisions require issuers to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. The suspected payments in this matter were systematically mischaracterized in Torchlight's books and records. Payments to Crestfield were recorded as legitimate consulting fees and advisory expenses. Cash withdrawals from TGM's local accounts were booked under GL code 7450 as "Community Relations Expenses." In-kind benefits were distributed across GL codes 7200 and 7310 as vehicle, transportation, travel, and entertainment expenses. In no instance were the payments recorded as what they appear to have been: payments to government officials or their intermediaries to influence official action.
Internal Controls Provisions (15 U.S.C. § 78m(b)(2)(B)). The FCPA's internal controls provisions require issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management's general or specific authorization and that transactions are recorded as necessary to maintain accountability for assets. The investigation has identified pervasive internal control failures in connection with the Crestfield engagement and the TGM cash disbursements, including:
• Fourteen of twenty-four Crestfield invoices exceeded the $50,000 single-approval threshold under Torchlight's Delegation of Authority Policy without the required dual authorization;
• No due diligence file exists in Torchlight's records for Crestfield Advisory Partners Ltd., notwithstanding Torchlight's Third-Party Due Diligence Policy, which requires documented background checks, beneficial ownership verification, and compliance certifications for all agents and consultants engaged on behalf of the Company;
• No competitive selection or bidding process was conducted before Crestfield's engagement;
• Thirty-seven communications between Delacroix and Renard were conducted via personal email accounts (Northgate Software), outside the Company's email system, information governance controls, and records retention policies;
• Cash withdrawal vouchers from TGM's local accounts lacked adequate supporting documentation and were approved solely by Osei-Bonsu without the secondary approval required for disbursements exceeding $10,000; and
• Quarterly expense reimbursements to Crestfield routinely exceeded the $25,000 contractual cap without documented justification or approval.
E. Quantification of Government Exposure
The following quantification is preliminary and based on the facts currently known. It is intended to provide the Audit Committee with an order-of-magnitude estimate of potential financial exposure to assist in the VSD decision-making process. Actual outcomes will depend on many factors, including the final findings of the internal investigation, the government's own investigation, negotiations with the DOJ and SEC, and the application of various sentencing and penalty frameworks.
1. DOJ Criminal Penalties. Under the United States Sentencing Guidelines ("U.S.S.G."), the criminal fine for an FCPA anti-bribery violation is typically calculated as twice the gross gain to the defendant or twice the gross loss caused by the offense, whichever is greater. See U.S.S.G. § 2C1.1. Using the total suspected improper payments of $4,730,000 as a proxy for gain, the baseline fine calculation is:
$4,730,000 × 2 = $9,460,000
This calculation represents a simplified baseline. The actual fine range under the Sentencing Guidelines depends on a number of additional factors, including the base offense level, specific offense characteristics (such as the number of bribes, the involvement of high-level officials, and the aggregate value of the payments), the organization's culpability score (which accounts for factors such as the involvement of high-level personnel, prior misconduct, obstruction, and cooperation), and applicable multipliers. An alternative calculation based on the offense-level fine table and culpability multipliers could yield a different range — potentially higher or lower than $9,460,000. For purposes of this memorandum, we use $9,460,000 as the baseline DOJ fine estimate, which we believe represents a reasonable midpoint of the likely range.
2. SEC Civil Remedies. The SEC has several remedial tools available in FCPA enforcement actions:
Disgorgement. The SEC may seek disgorgement of ill-gotten gains, which in FCPA cases is typically calculated based on the amount of the improper payments or the profits derived from the corruptly obtained business. Using the total suspected improper payments as the basis, estimated disgorgement is $4,730,000.
Prejudgment Interest. The SEC routinely seeks prejudgment interest on the disgorgement amount, calculated from the date of the misconduct to the date of resolution. Using an estimated average interest rate of 5.0% and an average time period of approximately 3 years (reflecting the midpoint of the 2019–2024 payment period), estimated prejudgment interest is approximately $709,500 ($4,730,000 × 5.0% × 3 years).
Civil Penalty. For Tier III violations (violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement that directly or indirectly result in substantial losses or create a significant risk of substantial losses to other persons), the SEC may impose a civil penalty up to the greater of the gross amount of pecuniary gain to the defendant or a statutory per-violation cap. In FCPA cases, SEC civil penalties have frequently been calculated at an amount equal to the disgorgement, i.e., up to $4,730,000.
3. Total Government Exposure Range. The total estimated government financial exposure, combining DOJ criminal penalties and SEC civil remedies, ranges as follows:
Low End:
High End:
Total Estimated Government Exposure Range: $14.19 million to $19.63 million.
This range does not include the substantial investigation costs that the Company will incur regardless of the VSD decision. Current estimated costs include: Calderwood & Harkness LLP estimated legal fees of $4.5 million to $6.2 million; Pinnacle Forensic Advisory LLC estimated fees of $1.8 million to $2.4 million; Marlowe Asset Management Digital Forensics Inc. fees (not yet fully estimated); local counsel fees for BVI, Ganaran, and Canadian counsel; and potential costs associated with remediation efforts, compliance program enhancements, and any independent compliance monitor that may be imposed. Total investigation and remediation costs could range from $8 million to $12 million or more.
V. Analysis of VSD Versus Non-Disclosure Scenarios
This section presents a comparative analysis of the two principal scenarios available to the Company: (A) making a voluntary self-disclosure to the DOJ Fraud Section under the CEP, and (B) declining to self-disclose and instead responding to government inquiries as they arise.
A. Scenario 1: Voluntary Self-Disclosure
1. Benefits and Credit Under the CEP. The CEP provides substantial and well-defined benefits for companies that meet all three prongs (VSD, full cooperation, and timely remediation):
Presumption of Declination. As discussed above, the CEP establishes a presumption that the DOJ will decline to prosecute a company that satisfies all three prongs, absent aggravating circumstances. A declination — even one accompanied by disgorgement — is the most favorable outcome achievable in an FCPA enforcement matter. It means no criminal charges, no guilty plea, no deferred prosecution agreement, no non-prosecution agreement, no probation, and no independent compliance monitor. The Company can state publicly that the DOJ declined to prosecute.
Reduced Penalties if Declination Not Granted. Even where the presumption of declination is overcome due to aggravating circumstances (which we address in Section VIII below), the CEP provides for a reduction of at least 50% from the low end of the applicable fine range under the Sentencing Guidelines. This is a significantly more generous credit than is available to companies that do not self-disclose. In addition, companies that self-disclose will generally not be required to plead guilty and will typically resolve the matter through a non-prosecution agreement ("NPA") or deferred prosecution agreement ("DPA") rather than a plea agreement.
No Independent Compliance Monitor. Where a company that self-discloses demonstrates effective remediation, the CEP generally does not require the appointment of an independent compliance monitor. This is a significant benefit, as monitorship costs can range from $5 million to $20 million over a typical two-to-three-year term, and monitors impose substantial operational burdens on the company's day-to-day business activities.
Favorable Resolution Vehicle. Companies that self-disclose are typically offered resolution through an NPA or DPA, rather than a guilty plea. An NPA is the most favorable criminal resolution short of a declination: it does not require the filing of criminal charges and does not result in a conviction. A DPA requires the filing of an information but defers prosecution and ultimately results in dismissal if the company complies with its obligations during the deferral period.
2. Potential Outcome with VSD. We project the following range of potential outcomes if Torchlight pursues VSD and meets the full cooperation and remediation requirements of the CEP:
Best Case — Declination with Disgorgement. In the most favorable scenario, the DOJ would decline to prosecute Torchlight and the matter would be resolved solely through the SEC enforcement proceeding. Torchlight would disgorge $4,730,000 to the SEC (plus potential prejudgment interest of approximately $709,500), and the SEC might impose a reduced or nominal civil penalty, or no penalty at all, in light of the VSD and cooperation. Total estimated exposure under this scenario: approximately $5,439,500 ($4,730,000 disgorgement + $709,500 prejudgment interest).
Moderate Case — NPA/DPA with Reduced Fine. In a moderate scenario — for example, where the DOJ determines that aggravating circumstances (such as the involvement of senior management or the duration of the scheme) overcome the presumption of declination — the DOJ would resolve the matter through an NPA or DPA with a criminal fine reduced by at least 50% from the low end of the Sentencing Guidelines range. The DOJ fine would be reduced from $9,460,000 to $4,730,000 or less. In addition, the DOJ would credit amounts disgorged to the SEC against the criminal fine. Total estimated exposure under this scenario:
This moderate-case estimate reflects a potential total reduction of approximately $4.46 million to $9.47 million compared to the non-VSD high-end scenario of $19.63 million. Even compared to the non-VSD low-end scenario of $14.19 million, the moderate-case VSD outcome represents a potential savings of approximately $4.0 million to $4.73 million.
3. Cooperation Obligations. Pursuing VSD will trigger specific and ongoing cooperation obligations that the Audit Committee should understand and endorse:
Disclosure of Individual Conduct. Torchlight must disclose all known facts about the conduct of Marcus Delacroix, Raymond Osei-Bonsu, Jean-Philippe Renard, and the recipient government officials (Diallo, Traoré, Konaté, and others as identified). This disclosure will include the roles these individuals played in the payment scheme, the amounts paid, the manner of payment, and any efforts to conceal the payments. The Audit Committee should be aware that this disclosure may contribute to individual criminal prosecutions of these persons by the DOJ or foreign authorities.
Making Employees Available. Current employees can be directed to cooperate with government interviews, subject to their individual rights to counsel. The following current employees are likely to be requested for interviews: Chidera Achebe (CFO, Africa Operations), Kwame Mensah (Finance Director, TGM), Claire Fournier (SVP, Legal Affairs), Nadia Berenson (VP, Compliance), Patricia Sung (General Counsel & Corporate Secretary), and Hans Vandermeer (VP, Procurement, Africa Operations). Former employees — Delacroix and Osei-Bonsu — are beyond the Company's control and are separately represented; the Company's obligation is to facilitate, not compel.
Forensic Accounting Results. Torchlight must share the results of Pinnacle's forensic accounting review with the DOJ on a rolling basis. The Company should expect the DOJ to request access to Pinnacle's work product, data analyses, and supporting documentation.
Cross-Border Document Production. The Company must produce documents held by TGH in the British Virgin Islands and TGM in the Republic of Ganara. This will require coordination with Hargrove Whitfield LLP (Catherine Whitfield), the Company's BVI counsel, regarding the production of TGH corporate records and banking records held at Meridian Commercial Bank (Account No. 7740-2281-0056). It will also require coordination with Ndong & Keïta Cabinet Juridique (Maître Salif Ndong) regarding the production of TGM records and banking records held at Regency International Bank (Account No. GAN-4419-8837). Both jurisdictions may have data protection, bank secrecy, or other local laws that restrict or condition the cross-border transfer of certain categories of records. These issues must be analyzed and addressed in advance of any production to the DOJ.
Preservation of Evidence. The Company must take all reasonable steps to preserve relevant evidence and must not impede the government's collection of evidence, whether through the destruction of documents, the alteration of records, or the coaching or coordination of witness testimony.
4. Risks of VSD. While we recommend VSD, the Audit Committee should be aware of the following risks associated with self-disclosure:
Accelerated Government Scrutiny. VSD will invite immediate and sustained DOJ engagement with the Company and its investigation. The DOJ will expect regular updates, access to witnesses, and timely document productions. This engagement will require significant management time and attention, as well as substantial legal and forensic resources. The Company should be prepared for an intensive period of cooperation lasting 12 to 24 months or longer.
Parallel Ganaran Enforcement. A VSD to U.S. authorities may trigger awareness by the Ganaran government of the scope and nature of the misconduct. This creates a risk of parallel enforcement actions in the Republic of Ganara, including potential revocation or suspension of the Kousseri and Dembélé mining licenses, local criminal prosecution of TGM personnel, and regulatory investigations by the Ministry of Mines & Natural Resources or its successor agencies. Ndong & Keïta is analyzing the applicable Ganaran anti-corruption statutes and the potential regulatory consequences. The timing and messaging of any VSD to U.S. authorities must be carefully coordinated to minimize the risk of adverse in-country consequences.
Additional Market and Shareholder Reaction. Following the Company's February 7, 2025 Form 8-K disclosure, Torchlight's share price declined 22.0%, from CAD $34.80 to CAD $27.15 per share, resulting in a loss of approximately CAD $1.28 billion in market capitalization (based on approximately 166.7 million shares outstanding and a per-share decline of CAD $7.65). A VSD to the DOJ, if publicly disclosed (whether through an 8-K, press release, or media reports), may generate additional negative market reaction, at least in the short term. Over the longer term, however, a VSD may be viewed positively by the market as evidence of proactive corporate governance and may contribute to a more favorable and expeditious resolution.
Shareholder Litigation Risk. The Company is currently facing governance inquiry letters from Kingsley Institutional Partners LP, an 8.2% shareholder (approximately 13.67 million shares), under the direction of Annette Kingsley. A VSD and its accompanying disclosures could provide additional ammunition for derivative or securities fraud class action lawsuits. Information disclosed to the DOJ in connection with VSD may become available to plaintiff shareholders through FOIA requests, public court filings, or the eventual public resolution documents (NPA, DPA, or SEC administrative order).
D&O Insurance Implications. Torchlight maintains directors' and officers' liability insurance through Dalton & Mercer Inc., Policy No. DM-0092-FCPA-2024, providing $50 million per occurrence and $100 million in the aggregate, subject to a $2.5 million self-insured retention. A proactive VSD could theoretically be characterized by the carrier as an acknowledgment of wrongdoing, potentially affecting coverage determinations for individual directors and officers. C&H sent notice of claim to Robert Dalton Jr. at Dalton & Mercer on March 8, 2025, and we recommend coordinating closely with the carrier in advance of any VSD to preserve coverage rights and address any reservation-of-rights issues. We note, however, that a VSD does not constitute a legal admission of liability by the Company or by any individual director or officer, and the carrier's obligations under the policy should not be affected by the Company's decision to cooperate with the government.
B. Scenario 2: No Voluntary Self-Disclosure
1. Potential Outcome without VSD. The alternative to VSD is to decline to self-disclose and instead respond to the DOJ investigation reactively — complying with subpoenas and preservation requests as they are issued, but not proactively approaching the DOJ with information about the misconduct. Under this scenario, the Company would forgo the benefits of the CEP and face the full range of potential penalties.
Investigation Will Proceed. It is important to emphasize that declining to self-disclose will not prevent or delay the DOJ investigation. The DOJ is already aware of the matter through the SEC referral, has assigned FCPA Unit personnel (Assistant Chief Margaret Calloway), and has issued a voluntary preservation request. The investigation will proceed regardless of whether Torchlight self-discloses. The only question is whether the Company will be in a position to claim VSD credit when the investigation reaches its resolution.
Full Fine Range. Without VSD credit, Torchlight will face the full fine range under