In today’s edition of Daily Compliance News:
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In a long-anticipated and major enforcement action, the Justice Department and the Commodities and Futures Exchange Commission resolved a sprawling investigation with Glencore International A.G. and Glencore Ltd, a Swiss-based commodity trading and mining company. Both companies entered guilty pleas for FCPA violations and a commodity price manipulation scheme. Glencore paid over $1.1 billion to resolve these two major investigations. The resolution in the U.S. is part of a coordinated set of criminal and civil resolutions involving the United States, the United Kingdom, and Brazil.
In this episode, Michael Volkov reviews the settlement and the implications for future enforcement actions.
Last week, the Attorney General and a host of other Department of Justice (DOJ) officials announced the settlement of a massive Foreign Corrupt Practices Act (FCPA) and market manipulation case against Glencore plc (Glencore). Over this blog series, I have been reviewing the matter and mining it for lessons learned for the compliance community. Today, in Part IV, we take a dive into the settlement itself.
According to the DOJ Press Release, Glencore pled guilty to one count of conspiracy to violate the FCPA, agreed to a criminal fine of $428,521,173, and acknowledged criminal forfeiture liability in the amount of $272,185,792. Glencore also had charges brought against it by the UK Serious Fraud Office (SFO) and reached separate parallel resolutions with the Brazilian Ministério Público Federal (MPF). The DOJ agreed to credit the company over $256 million in payments that it makes to the CFTC, to the Court in the UK as well as to authorities in Switzerland, in the event that the company reaches a resolution with Swiss authorities within one year.
In a Market Manipulation case, separate and apart from the FCPA enforcement action, Glencore admitted to a muti-year scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the United States. Under the terms of the Commodities Future Trading Commission (CFTC) resolution, the company will pay a criminal fine of $341,221,682 and criminal forfeiture of $144,417,203. Under the terms of the Plea Agreement, the DOJ will credit over $242 million in payments that the company makes to the CFTC.
In other words, there was some serious misconduct going on here, for multiple years, in multiple countries with multiple schemes. Yet Glencore received a reduction of 15% based upon the FCPA Corporate Enforcement Policy and a 2-point reduction in the overall penalty calculation under the US Sentencing Guidelines. Both of these discounts led to a not-insignificant reduction from the overall penalty assessed.
First let us take up the areas that did not avail itself of under the FCPA Corporate Enforcement Policy. Glencore did not receive voluntary disclosure credit because it failed to self-disclose its legal violations to the DOJ. Although Glencore received partial cooperation credit, it did not receive full credit because it did not always “demonstrate a full commitment” to cooperation, was slow in providing documents and other evidence and was slow in its remediation. Additionally, it did not timely and appropriately remediate with respect to disciplining certain employees involved in the misconduct.
Moreover, Glencore did not have adequate internal controls in place at the time of the underlying incidents took place. Since that time, Glencore has taken remedial measures, certain of the compliance enhancements are new and have not been fully implemented or tested to demonstrate that they would prevent and detect similar misconduct in the future, mandating the imposition of an independent compliance monitor for a term of three years.
Even with these failures, Glencore received a substantial reduction of what it could have been required to pay. Based upon the calculations in the Plea Agreement, I estimate the total discount was in the range of $100 million.
Glencore agreed to continue to cooperate with the DOJ in ongoing investigations and prosecutions relating to the underlying misconduct, to modify its compliance program where necessary. The DOJ cited several additional factors crediting Glencore’s compliance remediation efforts, including (a) Glencore’s implementation of a centralized compliance function, hiring of a Chief Compliance Officer (CCO), and significantly increasing the compliance staff; (b) enhancing its business partner management, reducing the number of third-party representatives, adopting payment controls and post-engagement monitoring controls; and (c) investing in increased compliance headcount and data analytics.
Glencore itself, in a Press Release issued the day of the announced settlements, touted new additions to its compliance program. The company said that it has “bolstered its compliance structures and controls through a comprehensive programme built around risk assessment, policies, procedures, standards and guidelines based on international best practice, associated training and awareness initiatives as well as monitoring systems.” These initiatives included:
- Strengthening the Group’s Code of Conduct and launching a comprehensive global awareness and training campaign designed to embed Glencore’s Values throughout its business, set expectations and ensure accountability for all employees;
- Establishing a centralized, independent and empowered compliance function and, in 2020, appointing a new dedicated Head of Compliance;
- Making a significant investment in compliance systems and resources, as well as experienced personnel;
- Significantly enhancing and expanding the Group’s ethics and compliance training programs;
- Instituting a comprehensive business partner management programme, including significantly reducing the Company’s use of third-party business generating intermediaries and employing end-to-end controls to oversee their engagement;
- Implementing extensive monitoring and testing mechanisms, including through the use of data analytics, to assess whether our controls are entrenched and effective across the Group and ensure continuous improvement; and
- Engaging leading external advisors to review Glencore’s systems and verify that controls are working as intended.
It appears quite a bit of work went into not simply cleaning up Glencore but in improving its overall culture. Of course, there is quite a bit of work do and that will no doubt turn in large part on the effectiveness of the monitor. More on that and final thoughts in our next post.
Welcome to From the Editor’s Desk, a podcast where co-hosts Tom Fox and Kyle Brasseur, EIC at Compliance Week, unpack some of the top stories which have appeared in Compliance Week over the past month, look at top compliance stories upcoming for the next month, talk some sports and generally try to solve the world’s problems.
In this month’s episode, we look back at top stories in CW from May around ESG at FedEx and key enforcement actions. May was also a record month for traffic on the Compliance Week website. Kyle and Tom talk about the recently held Compliance Week 2022 Conference, which took place in DC. We talked about some of the highlights from presentations, from new vendors in the compliance space, and how great it was to be together in person again. Kyle previewed some topics that Compliance Week will report in June, including Return to Work issues from the compliance perspective, coverage of CW 2022, Russia sanctions, and new ideas from the compliance officer think tank held at CS 2022.
We conclude with a look at some of the top sports stories, including the NBA playoffs and the Celtics making it to the 2022 NBA finals. Tom talks about the Nick Saban/Jimbo Fisher feud over college football recruiting, and Kyle reminds us of the Celtics taking the long view on developing talent.
Richard Lummis and Tom Fox conclude their series on leadership lessons from Theodore Roosevelt. We will look at lessons from Roosevelt’s early years in New York up to his cowboying days in Montana; the second phase of his public career, from NYC Police Commission to Assistant Secretary of the Navy, San Juan Hill and the Vice Presidency; his leadership from his Presidency; his life in the post-Presidency and the election of 1912 and we will end with leadership lessons from his post Bull Moose Party life, World War I and event surrounding his death. In this fourth episode, we consider the leadership lessons learned from Roosevelt’s years after the end of his second term up through his run for President at the head of the Bull Moose Party in 1912.
Highlights of this podcast include:
Roosevelt goes big game hunting and holds meetings with political leaders across all of Europe. What led to the schism in the GOP and Roosevelt’s defeat at the GOP 1912 Convention? The formation of the Bull Moose Party and his survival of an assassination attempt. The election of 1912, his loss to Wilson but his overwhelming defeat of his former protegeé, William Taft. We conclude this episode with three key leadership lessons, including: 1. Change when the facts change; 2. Don’t be afraid of making unpopular decisions; and 3. Leaders are Learners.
Resources
Doris Kearns Goodwin’s 10 Leadership Lessons from the White House
6 Leadership Hacks From The Rise of Theodore Roosevelt
10 top Leadership Principles of Teddy Roosevelt
The Roosevelts: Eight presidential lessons in leadership
Lessons in Leadership from 100 years ago
Theodore Roosevelt on Leadership
10 Theodore Roosevelt Leadership Lessons
Sarah Dadush is a business and human rights law practitioner with a background in international development. She also teaches Contracts, Business & Human Rights, and Consumer Law at Rutgers Law School. Susan Maslow is an experienced business attorney with a focus on transactional corporate law, and a co-founder and partner at Antheil Maslow & MacMinn. They join host Gwen Hassan to discuss how contracts can be used as preventative measures against human rights violations.
Upon coming across the Model Contract clause 1.0 (also called standard contractual clauses), Sarah was taken by the idea of using contracts as a tool for improving the human rights performance of international supply chains. As contracts are well within the dominion of firms, there was something promising about using these legal links in the supply chain to serve a new purpose. Unfortunately, the 1.0 had a significant pain point, but the updated 2.0 intends to solve it.
This pain point, Susan shares, is that model clauses’ definition of non-conforming goods did not address the buyer’s desire to call them non-conforming or even use traditional contract remedies. Soccer balls that are black and white and perfectly stitched look like conforming goods, even if they were made with forced labor. “The first step in [our process] was to define goods that were tainted by forced labor, child labor, or other human rights abuses as defective,” she adds.
Resources
Sarah Dadush on LinkedIn
Susan Maslow on LinkedIn
AMM Law – Susan Maslow
In today’s edition of Daily Compliance News:
- Sheryl Sandberg steps down from Meta. (NYT)
- Iranian ire at corruption intensifies. (FT)
- SPAC forecasting rules cause pullback. (Reuters)
- BMC awarded $1.6 bn for IBM fraud. (Houston Chronicle)
Last week, the Attorney General and a host of other Department of Justice (DOJ) officials announced the settlement of a massive Foreign Corrupt Practices Act (FCPA) and market manipulation case against Glencore plc (Glencore). Over the next several blog posts, I will be reviewing the matter and mining it for lessons learned for the compliance community. Today, in Part III, we take a detour into the Commodity Price Manipulation Case and see how this matter should be studied by compliance professional.
In this case separate and apart from the FCPA enforcement action, Glencore admitted to a muti-year scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the United States. Under the terms of the Commodities Future Trading Commission (CFTC) resolution, the company will pay a criminal fine of $341,221,682 and criminal forfeiture of $144,417,203. Under the terms of the Plea Agreement, the DOJ will credit over $242 million in payments that the company makes to the CFTC.
According to the CFTC Press Release, Glencore’s manipulative and fraudulent conduct—including conduct relating to foreign corruption—defrauded its counterparties, harmed other market participants, and undermined the integrity of the US and global physical and derivatives oil markets. Platts physical oil benchmarks, including those that were the subject of Glencore’s manipulative conduct, serve as price benchmarks for end-users and market participants, and are incorporated as reference prices for the settlement of numerous derivatives. (For a copy of the CFTC Order, see link in the CFTC Press Release.)
According to the CFTC Order, Glencore had a global commodity trading business, which included trading in fuel oil. Between approximately January 2011 and August 2019, Glencore conspired to manipulate two benchmark price assessments published by S&P Global Platts (Platts) for fuel oil products, specifically intermediate fuel oil 380 CST at the Port of Los Angeles (Los Angeles Fuel) and RMG 380 fuel oil at the Port of Houston (US Gulf Coast Fuel Oil). The Port of Los Angeles is the busiest shipping port in the US by container volume. The Port of Houston is the largest US port on the Gulf Coast and the busiest port in the US by foreign waterborne tonnage.
As part of the conspiracy, Glencore employees sought to unlawfully enrich themselves and the company, by increasing profits and reducing costs on contracts to buy and sell physical fuel oil, as well as certain derivative positions the company held. The price terms of the physical contracts and derivative positions were set by reference to daily benchmark price assessments published by Platts—either Los Angeles Fuel or US Gulf Coast Fuel Oil—on a certain day or days plus or minus a fixed premium. On these pricing days, Glencore employees submitted orders to buy and sell (bids and offers) to Platts during the daily trading “window” for the Platts price assessments with the intent to artificially push the price assessment up or down.
In an example from the CFTC Order, if Glencore had a contract to buy fuel oil, employees submitted offers during the Platts “window” for the express purpose of pushing down the price assessment and hence the price of the fuel oil that Glencore purchased. The bids and offers were not submitted to Platts for any legitimate economic reason by company employees, but rather for the purpose of artificially affecting the relevant Platts price assessment so that the benchmark price, and hence the price of fuel oil that the company bought from, and sold to, another party, did not reflect legitimate forces of supply and demand.
Between approximately September 2012 and August 2016, Glencore Ltd employees conspired to manipulate the price of fuel oil bought from, and sold to, a corrupt counterparty (Company A) through private, bilateral contracts, by manipulating the Platts price assessment for Los Angeles Fuel. Between approximately January 2014 and February 2016, Glencore engaged in a “joint venture” with Company A, which involved buying fuel oil from Company A at prices artificially depressed by Glencore’s manipulation of the Platts Los Angeles Fuel benchmark. Finally, between approximately January 2011 and August 2019, company employees conspired to manipulate the price of fuel oil bought and sold through private, bilateral contracts, as well as derivative positions, by manipulating the Platts price assessment for US Gulf Coast Fuel Oil.
The CFTC also noted Glencore was involved in market manipulation through illegally obtaining confidential information by improperly obtained nonpublic information from employees and agents of the state-owned enterprises (SOEs), including Pemex in Mexico. This information was material to Glencore’s business and trading. Pemex agents who had access to confidential information and owed a duty to Pemex under Mexican law and Pemex internal policies to keep the information confidential—disclosed nonpublic information, “including information material to Glencore’s transactions with the SOE or to related physical and derivatives trading, to Glencore. Glencore traders in knowing possession of the confidential information then entered into related physical transactions and derivatives transactions.”
Finally, as we noted in yesterday’s recitation of the FCPA allegations, Glencore made corrupt payments to employees and agents working at SOEs in Brazil, Cameroon, Nigeria, and Venezuela. Glencore or its affiliates made the corrupt payments in exchange for improper preferential treatment and access to trades with the SOEs. Glencore’s conduct was designed to increase Glencore’s profits from certain physical and derivatives trading in oil markets around the world, including US physical and derivatives markets. Glencore also engaged in this corrupt conduct in connection with derivatives such as swaps and futures contracts subject to the rules of Commission-registered entities.
Tomorrow we will consider the settlement.
Is there a little voice in your heart telling you it’s time to take a different path, but your head doesn’t want to follow?
Are you afraid to show who you are because you think you have to be tough or show up a certain way?
Do you think you are the only one putting one foot in front of the other but feel like you are tripping over your own feet?
Well, my friend, you are not alone.
I was blessed to spend time with my friend Ashanti Branch, Founder and Director of Ever Forward, on #jammingwithjason. When you listen to this episode, you will see this man’s big heart, and he is one of my heroes who is doing some amazing things to change the world positively.
This is an authentic discussion where we talk about living our purpose, taking off our masks so the world can see who we are; you can’t put a price tag on changing lives for the better, emotional maturity, providing people space to be themselves, and so much more. You will relate to Ashanti’s story, and the fact that you are reading this means there is something you need to hear in this #podcast episode.
Learn more about Ashanti and the great work Ever Forward Club is doing at: https://everforwardclub.org/ and while you are there, donate so they can help more people 🙂
Create your mask at: https://millionmask.org/ and join the revolution of letting the world see who you are! You will know you are not alone.
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