The Brief: Glencore and subsidiaries recently resolved investigations by the Department of Justice and the Commodity Futures Trading Commission and agreed to pay total fines and monetary penalties in excess of $1.1 billion – amounting to the largest penalty and disgorgement ever ordered by the Commodity Futures Trading Commission.
On the one hand, Glencore’s story is seemingly novel—the fraud widespread throughout the organization and some penalties the largest on record. On the other hand, US authorities have maintained a long-standing focus on foreign bribery and corruption – but with ever growing fines and penalties and the continued expansion of US jurisdiction.
Glencore is a multinational commodities company headquartered in Switzerland: the business “produces and trades in zinc, lead, copper, aluminum, nickel, iron ore, oil products, coal, ferroalloys, and cobalt,” and it owns various mines and oil and gas production sites.
The U.S. Department of Justice (DOJ) (DOJ News) announced Glencore fines of over $1.1 billion to resolve the government’s investigations into violations of the Foreign Corrupt Practices Act (FCPA) and a commodity price manipulation scheme.
At the same time, the Commodity Futures Trading Commission (CFTC) (CFTC News) announced an order settling charges against Glencore for manipulative and deceptive conduct. Glencore is required to pay “the highest civil monetary penalty ($865,630,784) and highest disgorgement amount ($320,715,066) in any CFTC case.”
Regulators in the UK and Brazil have also engaged in resolution processes with Glencore.
The FCPA Resolution
Glencore plead guilty to what the DOJ calls a “decade-long scheme” to bribe officials for advantageous access to business, and then to conceal those bribes. According to U.S. Attorney Damian Williams for the Southern District of New York:
“Glencore paid bribes to secure oil contracts. Glencore paid bribes to avoid government audits. Glencore bribed judges to make lawsuits disappear. At bottom, Glencore paid bribes to make money—hundreds of millions of dollars. And it did so with the approval, and even encouragement, of its top executives.”
The DOJ alleges that this activity took place in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo: in total, the company paid “more than $100 million” to intermediary companies, including entities in Venezuela and Nigeria, with the knowledge that the money would be used to pay bribes and provide kickbacks.
For example, in the Democratic Republic of the Congo (DRC), Glencore used its own subsidiary mining companies to pay about $27.5 million to DRC officials “in order to secure improper business advantages by reducing liabilities related to government audits and litigation costs.” In this case, Glencore relied on an intermediary, employing a tax consultant to create false invoices for services; Glencore then paid these with the knowledge that the money would be passed to officials at a DRC government agency responsible for auditing mining companies, among other officials.
The CFTC similarly found that Glencore’s conduct involved fraud and corrupt payments to employees and agents of certain state-owned entities (SOEs), including in Brazil, Cameroon, Nigeria, and Venezuela, and misappropriation of confidential information from employees and agents of certain SOEs, including in Mexico. Glencore or its affiliates made the corrupt payments in exchange for improper preferential treatment and access to trades with the SOEs.
Market Manipulation Resolution
Glencore also entered a plea of guilty to one count of conspiracy to engage in commodity price manipulation. And in a parallel civil enforcement action, the CFTC ordered Glencore, Glencore Ltd., and Chemoil Corporation to pay a total of $1.186 billion, including a civil monetary penalty of $865,630,784 and a disgorgement of $320,715,066, the highest of any CFTC settlement, for manipulative and deceptive conduct in the United States and the global oil market.
Glencore employees engaged in this scheme by placing orders during a trading day designed to push prices up or down according to their benefit. Thus, as the DOJ says, the “price of fuel oil that Glencore bought from, and sold to, another party, did not reflect legitimate forces of supply and demand.”
The CFTC found that Glencore’s conduct “defrauded its counterparties, harmed other market participants, and undermined the integrity of the U.S. and global physical and derivatives oil markets.” Glencore’s manipulation affected a measure known as the Platts physical oil benchmark, which is a measure published by S&P Global that assesses the value of crude oil. It’s an important measure globally, since it is used as a reference point to set oil prices.
CFTC Chairman Rostin Behnam explains, “[w]hen individuals and entities seek to disrupt the reliability of benchmarks, they interfere with the proper functioning of the markets that directly impact consumers…without question, manipulating oil markets can drive up the cost Americans pay at the pump or to heat their homes.”
By Way of Background – A Look Back
The Department of Justice (DOJ) is part of the Executive Branch; the agency “enforces federal laws, seeks punishment for the guilty, and ensures the fair and impartial administration of justice.” Created in 1870 by an act of Congress, the Department of Justice was originally created to handle the burgeoning amount of litigation in the post-Civil War United States.
The DOJ began enforcing foreign bribery (and other crimes) after the FCPA was signed into law in 1977 by President Jimmy Carter. Since that time, the DOJ has consistently grown its enforcement of the FCPA, with fines increasing significantly in the last 20 years.
The Commodity Futures Trading Commission (CFTC) was established as an independent agency by an act of Congress in 1974. The mission statement of the CFTC is “to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation”— the Commission is empowered to protect investors against fraud and corrupt practices and to promote markets that are competitive and efficient; essentially, it protects supply and demand. Unlike the Securities and Exchange Commission (SEC), which regulates stocks, bonds, and other securities, the CFTC regulates commodities, such as oil. But like the SEC, the CFTC is seen as another agency empowered to regulate foreign bribery and corruption.
The CFTC’s and DOJ’s actions underscore the massive scale of Glencore’s years-long engagement with corruption and market manipulation. Though Glencore’s size and scale, and the record-setting fines and penalties can be distracting for some, all companies, and employees of companies, of any size need to take note of these resolutions, the growing list of US agencies investigating foreign bribery and corruption, and the expanding reach of the US authorities.