West Australian mining magnate Chris Ellison will step down from the company he founded almost 20 years ago over alleged tax evasion, which the company says damaged its reputation and confidence in his leadership.

Mineral Resources' board has ordered Mr Ellison to pay $8.8 million in financial penalties, and decided not to pay almost $10 million in planned executive remuneration.

In October the Nine Newspapers reported allegations of tax evasion involving a company in the British Virgin Islands (BVI) — a territory where companies do not pay income tax.

In response, Mineral Resources' board of directors hired international law firm Herbert Smith Freehills to investigate the matter.

In a statement released on Monday, the company revealed its investigation found Mr Ellison did not disclose he had a financial interest in one of the BVI companies that a Mineral Resources subsidiary bought almost $4 million in mining equipment from in the early 2000s.

"There can be no doubt that the actions, decisions and behaviours of Mr Ellison have been profoundly disappointing and require sanction and penalty," Mineral Resources chair James McClements said.

But the statement added that Mr Ellison voluntarily disclosed the income from the BVI company to the Australian Tax Office in 2021.

And in May 2023, paid the ATO almost $4 million in unpaid taxes.

Work to find a successor to Mr Ellison was already underway, but the company has decided to speed up the process so a new managing director can start within the next 12–18 months.

Investigation finds financial benefits not disclosed

Herbert Smith Freehills was also asked to look into other financial matters involving Mr Ellison.

It found company funds had also been used to benefit entities in which Mr Ellison's daughter had an interest, without Mineral Resources' knowledge.

"From time to time, financial benefits have been provided to related parties of Mr Ellison," the company's statement said.

"Including … rent relief afforded to entities in which Mr Ellison's daughter has an interest."

Ellison apologises

Mr Ellison said he had accepted the board's decision and was deeply sorry for his actions.

"I acknowledge that I made mistakes, some of which were driven by my wish to keep private certain events that cause me great personal embarrassment," Mr Ellison said in the company's statement.

In a previous statement to MinRes shareholders, Mr Ellison admitted to operating overseas entities and not disclosing revenue from these ventures.

But he said the matter had since been settled, and all outstanding tax, penalties and interest had now been paid to the ATO. 

Company creates ethics committee

The tax scandal is set to have long-term impacts on how Mineral Resources operates going forward.

It announced it will establish an independent ethics and governance committee to ensure transparency over future business dealings.

In its statement on Monday, the company said the new committee would continue some of the investigation's work by "reviewing related party transactions involving Mr Ellison".

It also revealed further changes to the company's leadership.

Chair James McClements will also leave the company at or before the next annual general meeting.

That decision is not related to the investigation into Mr Ellison, but the company said it was appropriate to fast-track this process for an orderly leadership transition.

Analysts scathing

Resources and governance experts said the episode reflected poorly on the broader culture at MinRes.

Corporate governance expert and University of Western Australia academic Raymond da Silva Rosa said he was astonished by the nature of the report and its findings.

"This is very serious, particularly in relation to the ASX principles and governance," Professor da Silva Rosa said.

"The bluntness of the language used by both the board and ASX, that's quite rare."

He said the 18-month time frame for Mr Ellison's departure highlighted the company's dependency on him, and the absence of a likely successor.

Mining industry analyst Tim Treadgold said the detail reflected how the company was being run.

"It does answer a lot of the questions," he said.

"But the key question is how could it have gone on so long? And what were the other directors doing?

"It's a classic, 'Who knew what and when, and why didn't you tell us?'"

He said the financial penalties would not hurt Mr Ellison, but the scandal could leave the company vulnerable to takeover.