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 II, we consider the bribes paid by Glencore in violation of the FCPA.
The case involved massive bribery and corruption perpetrated by Glencore in multiple countries by multiple subsidiaries, involving multiple executives at the highest levels of the company. The resolution with the DOJ imposed $429 million in criminal penalties and forfeiture of $272 million. According to the FCPA Blog (who as usual broke the story for the compliance community), “as part of the U.S. resolution, a subsidiary of Glencore also agreed to plead guilty and pay $485.6 million to resolve market manipulation investigations by the DOJ and the Commodity Futures Trading Commission. After crediting about $166 million of that payment to amounts to be paid in the UK and possibly other countries, penalties assessed in the United States will be just over $1 billion.”
According to the Information, Glencore engaged in a conspiracy for over a decade to pay more than $100 million to third-party intermediaries, while intending that a significant portion of these payments would be used to pay bribes to officials in several countries including Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).
According to the DOJ Press Release, “Between approximately 2007 and 2018, Glencore and its subsidiaries caused approximately $79.6 million in payments to be made to intermediary companies in order to secure improper advantages to obtain and retain business with state-owned and state-controlled entities in West Africa, including Nigeria, Cameroon, Ivory Coast, and Equatorial Guinea. Glencore concealed the bribe payments by entering into sham consulting agreements, paying inflated invoices, and using intermediary companies to make corrupt payments to foreign officials.”
Nigeria
In Nigeria, Glencore and its UK subsidiaries entered into multiple agreements to purchase crude oil and refined petroleum products from Nigeria’s state-owned and state-controlled oil company. Glencore and its subsidiaries engaged two intermediaries to pursue business opportunities and other improper business advantages, including the award of crude oil contracts, while knowing that the intermediaries would make bribe payments to Nigerian government officials to obtain such business. In Nigeria alone, Glencore and its subsidiaries paid more than $52 million to the intermediaries, intending that those funds be used, at least in part, to pay bribes to Nigerian officials.
What is most striking about reading the Information is how mundane the actions of Glencore were in this massive bribery and corruption scheme. The scheme itself went on for over 10 years and was directly supported by executives at the highest levels of the company. The schemes involved the creation of sham third parties which used sham contracts to make sham payments that were designed to be paid as bribes to corrupt Nigerian officials. Although not clear from the Information, it appears that one entity, identified as ‘West African Intermediary Company’, was engaged to identify corruption Nigerian officials to bribe. They were called ‘business opportunities.’
Illegal payments were made to access oilfields and to purchase crude oil itself. Often the latter was done by undervaluing the pricing for a cargo of crude oil or outright bribery to get the crude oil itself. Bribe payments were called “newspapers or journals or pages”. Another scheme was called the ‘Swap Agreement’ where money was funneled to the West African Intermediary Company who would then resell the crude oil to Glencore UK subsidiaries for distribution throughout the UK and beyond. Payments were made though US banks (thereby creating US and FCPA jurisdiction) disguised as campaign contributions and hidden in Switzerland and Cyprus banks.
Cameroon, Ivory Coast and Equatorial Guinea
In Cameroon, Ivory Coast and Equatorial Guinea, Glencore paid over $27 million in bribes over a multi-year period. The same basic bribery schemes, sham third parties, contracts and payments, were used involving the West African Intermediary Company to pay bribes to corrupt government officials. However, there was an interesting wrinkle for bribes paid in these countries which was the maintenance of a “Cash Desk” in both London and Baar, Switzerland. From these offices cash payments were made to officials in these countries.
Democratic Republic of Congo
In the DRC, Glencore admitted that it conspired to corruptly offer and pay approximately $27.5 million to third parties, while intending for a portion of the payments to be used as bribes to DRC officials to secure improper business advantages. The improper business advantages were around audits required of Glencore’s mining operations in the country. When Glencore received an audit notice from the DRC government, the company would simply pay a bribe to have the audit notice quashed and no audit would occur. Additionally, Glencore paid a straight $500,000 to have a corrupt judge wrongfully dismiss a lawsuit against the company. The bribe was paid through a corrupt lawyer, who falsely billed the company for $500,000 worth of never-delivered legal services and then used the monies to pay the bribe.
Brazil and Venezuela
Glencore also admitted to bribery of officials in Brazil and Venezuela. In Brazil, the bribes were paid in the heyday of Petróleo Brasileiro S.A. (Petrobras) before Operation Car Wash blew the lid off the corrupt culture of Brazil’s national energy concern. The primary scheme in Brazil was to overpay for crude oil from Petrobras in terms of a “price that included a built-in delta” which represented the bribe amount. Here a corruption agent was used to facilitate this bribe and all communications were through personal email accounts that somehow eluded oversight or employer monitoring. Once again payments were made through US banks adding to the US jurisdiction. In Venezuela, the scheme was a bit different as the goal was not the obtaining of crude but late payments due Glencore from Petróleos de Venezuela, S.A. (PdVSA) and demurrage fees as well. Bribes were paid to PdVSA officials to secure out of line payments.
Tomorrow we will consider the Commodity Price Manipulation Case.
Tag: corruption
“The rule of law requires that there not be one rule for the powerful and another for the powerless; one rule for the rich and another for the poor. The Justice Department will continue to bring to bear its resources on these types of cases, no matter the company and no matter the individual.” That was Attorney General Merrick B. Garland, who announced the resolution of an enforcement action involving Glencore plc and related entities.
When Attorney General Merrick Garland has a Press Conference to announce a settlement you know it is significant. We were certainly treated to that last week when the AG 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 I, we review and announcement and basic facts of the matter.
The case involved massive bribery and corruption perpetrated by Glencore in multiple countries by multiple subsidiaries, involving multiple executives at the highest levels of the company. As stated in the DOJ Press Release, “Glencore, acting through its employees and agents, engaged in a conspiracy for over a decade to pay more than $100 million to third-party intermediaries, while intending that a significant portion of these payments would be used to pay bribes to officials in several countries, including Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).”
The resolution with the DOJ imposed $429 million in criminal penalties and forfeiture of $272 million. According to the FCPA Blog (who as usually broke the story for the compliance community), “as part of the U.S. resolution, a subsidiary of Glencore also agreed to plead guilty and pay $485.6 million to resolve market manipulation investigations by the DOJ and the Commodity Futures Trading Commission. After crediting about $166 million of that payment to amounts to be paid in the UK and possibly other countries, penalties assessed in the United States will be just over $1 billion.”
As was noted by U.S. Attorney Damian Williams, “The scope of this criminal bribery scheme is staggering. 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 criminal charges filed against Glencore in the Southern District of New York are another step in making clear that no one – not even multinational corporations—is above the law.”
Assistant Attorney General Kenneth A. Polite, Jr. said that “Glencore’s guilty pleas demonstrate the Department’s commitment to holding accountable those who profit by manipulating our financial markets and engaging in corrupt schemes around the world. In the foreign bribery case, Glencore International A.G. and its subsidiaries bribed corrupt intermediaries and foreign officials in seven countries for over a decade. In the commodity price manipulation scheme, Glencore Ltd. undermined public confidence by creating the false appearance of supply and demand to manipulate oil prices.”
U.S. Attorney Vanessa Roberts Avery said: “Glencore’s market price manipulation threatened not just financial harm, but undermined participants’ faith in the commodities markets’ fair and efficient function that we all rely on. This guilty plea, and the substantial financial penalty incurred, is an appropriate consequence for Glencore’s criminal conduct, and we are pleased that Glencore has agreed to cooperate in any ongoing investigations and prosecutions relating to their misconduct, and to strengthen its compliance program company-wide. I thank both our partners at the U.S. Postal Inspection Service for their hard work and dedication in investigating this sophisticated set of facts and unraveling this scheme, and the Fraud Section, with whom we look forward to continuing our fruitful partnership of prosecuting complex financial and corporate criminal cases.
FBI Assistant Director Luis Quesada added, the “guilty pleas by Glencore entities show that there is no place for corruption and fraud in international markets. Glencore engaged in long-running bribery and price manipulation conspiracies, ultimately costing the company over a billion dollars in fines. The FBI and our law enforcement partners will continue to investigate criminal financial activities and work to restore the public’s trust in the marketplace.”
The matter also involved enforcement actions in multiple countries. In the UK, Glencore also had “charges brought against it by the U.K.’s Serious Fraud Office (SFO) and reached separate parallel resolutions with the Brazilian Ministério Público Federal (MPF) and the Commodity Futures Trading Commission (CFTC). Under the terms of the plea agreement, the department has agreed to credit the company over $256 million in payments that it makes to the CFTC, to the Court in the U.K. as well as to authorities in Switzerland, in the event that the company reaches a resolution with Swiss authorities within one year.”
SFO Director Lisa Osofsky, said in a Press Release, “This significant investigation, which the Serious Fraud Office has brought to court in less than three years, is the result of our expertise, our tenacity and the strength of our partnership with the US and other jurisdictions. “We won’t stop fighting serious fraud, bribery and corruption, and we look forward to the next steps in this major prosecution.”
Interestingly, the plea agreement requires Glencore to retain two compliance monitors for three years. This is a very significant development, which ties to the DAG Lisa Monaco speech from October 2021. We will consider the implications as well in greater detail.
Tomorrow we will consider the bribery schemes.
The global economy has suffered two significant shocks — first, the pandemic sent shockwaves through every organization, and second, the war in Ukraine. Both of these events exposed the importance of risk management, especially with regard to supply chain and distribution operations. Hence, the renewed focus on third-party risk management and the repetitive description of “holistic” third-party risk management. Reality forces change, and we are now experiencing significant adjustments to overall risk management procedures. At the top of every list has to be third-party risk management beyond legal and compliance risks — we have new disruptive risks that have to be identified, quantified, or ranked and then addressed.
Michael Volkov outlines the new reality and opportunities stemming from holistic third-party risk management in this episode.
In today’s edition of Daily Compliance News:
- FTC fines Twitter $150MM. (NPR)
- Shocking sanitary conditions at shut down baby formula plant. (NYT)
- Illinois corruption probe yields secret recordings. (The Center Square)
- Disney drawn into Anaheim corruption probe. (WSJ)
In the Episode, I am joined by John Warren Vice President and General Counsel at the Association of Certified Fraud Examiners. We discuss the 2022 ACFE Report to the Nations, which is the most comprehensive report on the global scourge of fraud. It is a fascinating look of how fraud occurs, where is occurs and the steps you can take to prevent it.
Some of the highlights include:
- What is the ACFE Report to the Nations? How often is it released? What are you trying to capture?
- What are some of the big picture findings of the Report?
- What is the annual cost of global fraud?
- Why are hotlines so critical to fraud detection?
- What is the fraud tree?
- What are the 5 critical areas of occupational fraud reviewed?
- What does the Report to the Nations tell us about corruption?
- What detection/prevention areas are the most effective for corruption?
You can download a copy of the ACFE 2022 Report to the Nations by clicking here.
In today’s edition of Daily Compliance News:
- JPMorgan shareholders disapprove of CEO pay package. (Reuters)
- Allianz pleads guilty. (NYT)
- DOJ to require CCO certification. (Compliance Week)
- Top Nigerian accountant arrested in $193MM theft. (Bloomberg)
In today’s edition of Daily Compliance News:
· A Virtual currency put on sanctions list. (WSJ)
· Business travel rebounds. (Bloomberg)
· Feds move to seize Armenian politician mansion in LA. (LATimes)
· Twitter shareholders sue to stop Musk purchase. (Reuters)
