In today’s edition of Daily Compliance News:
After the Russian invasion of Ukraine, the world of business will never be the same again. Deputy Attorney General (DAG) Lisa Monaco recently said that the world’s “geopolitical landscape is more challenging and complex than ever. The most prominent example is of course Russia’s invasion of Ukraine.” It is “nothing less than a fundamental challenge to international norms, sovereignty and the rule of law that underpins our society.” This is even more so in the current business climate.
Over this five-part series, I will consider how business will never again be the same and how a confluence of events of events has changed business forever. I am joined in this exploration by Brandon Daniels, Chief Executive Officer (CEO) of Exiger. We will explore the irrevocable changes in Supply Chain, trade and economic sanctions, anti-corruption, cyber-security and environmental, social and governance (ESG). In Part 3, we continue our explorations of changes wrought by the Russian invasion of Ukraine, in the realm of anti-bribery and anti-corruption (ABC) compliance and enforcement.
The World Economic Forum estimates that over $3 trillion is lost annually to the global economy due to the scourge of corruption. Corruption does more than simply steal money from the world economy. According to the United States Strategy On Countering Corruption, (Strategy), “Corruption robs citizens of equal access to vital services, denying the right to quality healthcare, public safety, and education. It degrades the business environment, subverts economic opportunity, and exacerbates inequality. It often contributes to human rights violations and abuses, and can drive migration. As a fundamental threat to the rule of law, corruption hollows out institutions, corrodes public trust, and fuels popular cynicism toward effective, accountable governance.”
Writing for the World Economic Forum, Delia Ferreira Rubio, Nicola Bonucci and Rachel Davidson Raycraft linked the fight regarding economic and trade sanctions to bribery and corruption. They connected the monies stolen by oligarchs and strongmen through a variety of strategies to bribery and corruption. Taking this connection a step further, they noted “the close relationship between corruption and conflict”, as laid out in the UN Sustainable Development Goal (SDG) 16 – Peace, Justice and Strong Institutions. As with the Strategy, UN SDG 16, “is grounded in the principles of anti-corruption, including targets such as reducing illicit finance, corruption and bribery; and developing effective, accountable and transparent institutions at all levels.”
ABC enforcement is well-known and there are two decades of the modern era of Foreign Corrupt Practices Act (FCPA) enforcement. This modern era began after the connection was established between corruption and terrorism, most notably from the events of 9/11. However, now ABC is seen as a key component of both global security and global prosperity. The Biden Administration recognized these components when it announced that ABC is now seen as a National Security Threat to the US, when it announced its Strategy in December 2021.
The Strategy laid out five pillars of the US government’s increased emphasis on ABC enforcement and compliance. Pillar 1 spoke to modernizing, coordinating, and resourcing US government efforts to fight corruption. Pillar 2 dealt with curbing illicit financing. Pillar 3 was about holding corrupt actors accountable. Pillar 4 broadened the approach beyond a US-only perspective to discuss a broader multilateral anti-corruption architecture. Pillar 5 also enhanced a more holistic approach by discussing improving diplomatic engagement and leveraging foreign assistance to advance these goals.
All of this means more information and analysis, including search and data collection, by using “information more effectively to understand and map corruption networks and related proceeds, and dynamics, and tailor prevention and enforcement related actions, as well as build the evidence base around effective assistance approaches.” The next improved information sharing within the US government, private companies and across international boundaries. It also includes holding corruption actors accountable, curbing illicit financing and bolstering international cooperation and actions.
Another key area laid out in the Strategy was the increased focus on the “transnational dimensions of corruption.” This means more than simply looking at the usual geographic areas recognized as high risks of corruption by tackling transnational organized crime through “understanding and disrupting networks, tracking flows of money and other assets, and improving information and intelligence sharing across U.S. departments and agencies, and, as appropriate, with international and non-governmental partners.”
The Strategy set the stage for changes wrought by the Russian invasion of Ukraine. Daniels said that bribery and corruption are not “lone wolf crimes”; as they do not occur in a vacuum. They are almost always associated with attempts to hide illegal payments through money-laundering and often are done in conjunction with anti-competitive crimes such bid-rigging or similar acts. Moreover, bribery and corruption leads to constraints in the marketplace through awarding of business in decidedly non-legal manners. Daniels went on to state, “We don’t think of this as a cost of doing business for two reasons. One, because it does go alongside very often autocratic governments. Two, such actions go with it, such as disinformation.”
One of the consequences of the dramatic increase in economic and trade sanctions is that corruption will be the enhanced risk of bribery and corruption. This can occur as impacted businesses and sanctioned individuals look for ways to evade sanctions through the use of bribery and corruption. Some of the ways they will try to avoid and evade sanctions will be through smuggling, setting up shell companies, money laundering and self-dealing, all facilitated by bribery and corruption.
An unintended, but no less powerful example of the nefarious impacts of bribery and corruption, has been demonstrated by the Russian Army in the invasion of Ukraine. It has been the abject failure of the Russian Army to be able to keep a modern army functioning in the field. The Russian Army has been plagued by equipment that did not function and non-existent parts and stores which were all sold off on the Black Market by corrupt Russian government officials. In many ways, criminals simply siphoned away the stores of the Russian Army due to bribery and corruption.
Finally, as DAG Lisa Monaco stated, the role of compliance professionals as gatekeepers has dramatically changed. The Department of Justice (DOJ) clearly views corporate citizens as key allies in this fight. Rubio, Bonucci and Raycraft noted that gatekeepers “play an indispensable role in the enforcement and realization of laws and regulations that target illicit finance.” Anti-bribery and anti-corruption compliance has been forever changed by the Ukraine War as it is clear that “by controlling, distributing and managing wealth, gatekeepers control, distribute and manage global power – and, in effect, global security.” Anti-bribery and anti-corruption compliance and enforcement will never be the same again, literally on a worldwide basis.
Welcome to the only roundtable podcast in compliance as we celebrate our second century of shows. In 2021, Everything Compliance was honored by W3 as a top talk show in podcasting. In this episode, we have the quintet of Jonathan Marks, Karen Woody, Jonathan Armstrong, Tom Fox and Matt Kelly. In this episode, we take up the Glencore FCPA settlement. We conclude with our fan favorite Shout Outs and Rants.
1. Karen Woody takes a deep dive into the history of Glencore, from its founding by Marc Rich in the 1980s through the allegations of bribery, corruption and market manipulation which led to the FCPA and CFTC settlements. Woody shouts out the US National and state parks systems which provide much needed green spaces for Americans.
2. Matt Kelly takes a deep dive into CCO certification issue and what it might mean for individual CCO criminal liability going forward. Kelly has a dual shout out and rant. He shouts out to the Boston Celtics for having the greatest NBA Finals-Game 1 comeback to win the game. He rants about the DOJ failing to post the speech by AAG Kenneth Polite where he announced the new requirement for CCO certification.
3. Jonathan Marks explores the role of internal audit in contributing to the compliance failures and what IA can do to facilitate a culture change at the company. Marks also has a dual shout out and rant. He shouts out to the Philadelphia Phillies for firing manager Joe Girardi and rants about Glencore’s Press Release about their updated compliance which he rants “says nothing”.
4. Tom Fox considers the dual monitor aspect of the resolution and the requirements of the monitorships. Fox reads out the names of the students and teachers who were killed in the recent massacre in Uvalde, TX.
5. Jonathan Armstrong explores the settlement from the UK perspective and considers, what if any charges against individuals that the UK-Serious Fraud Office might bring. Armstrong shouts out to the Queen’s Platinum Jubilee and Sir Andy Murray for speaking out against the murder of school children. Murray is a survivor of a similar event in Scotland.
The members of the Everything Compliance are:
• Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com
• Karen Woody – One of the top academic experts on the SEC. Woody can be reached at kwoody@wlu.edu
• Matt Kelly – Founder and CEO of Radical Compliance. Kelly can be reached at mkelly@radicalcompliance.com
• Jonathan Armstrong –is our UK colleague, who is an experienced data privacy/data protection lawyer with Cordery in London. Armstrong can be reached at jonathan.armstrong@corderycompliance.com
• Jonathan Marks is Partner, Firm Practice Leader – Global Forensic, Compliance & Integrity Services at Baker Tilly. Marks can be reached at jonathan.marks@bakertilly.com
The host and producer, ranter (and sometime panelist) of Everything Compliance is Tom Fox the Voice of Compliance. He can be reached at tfox@tfoxlaw.com. Everything Compliance is a part of the Compliance Podcast Network.
Yet another Foreign Corrupt Practices Act (FCPA) recidivist was announced last week as the Securities and Exchange Commission (SEC) announced that Tenaris SA would pay more than $78 million to resolve charges of FCPA violations in connection with a bribery scheme involving its Brazilian subsidiary. Back in 2011, Tenaris entered into a Non-Prosecution Agreement (NPA) with the Department of Justice (DOJ) and a Deferred Prosecution Agreement (DPA) with the SEC as a result of alleged bribes the company paid to obtain business from a state-owned entity in Uzbekistan. Interestingly even though the company had received sanction from both the DOJ and SEC, there was nothing in the Cease and Desist Order (Order) which indicated that Ternaris self-disclosed this additional FCPA violation nor anything to indicate why it was not uncovered until many years after the bribery scheme was implemented and executed.
Background
According to the SEC Press Release, “the resolution with Tenaris is the result of an alleged bribe scheme involving agents and employees of its Brazilian subsidiary to obtain and retain business from the Brazil state-owned entity Petrobras. Specifically, the order finds that between 2008 and 2013, approximately $10.4 million in bribes was paid to a Brazilian government official in connection with the bidding process at Petrobras. The bribes were funded on behalf of Tenaris’ Brazilian subsidiary by companies affiliated with Tenaris’ controlling shareholder.”
Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit, said of the resolution, “Tenaris failed for many years to implement sufficient internal accounting controls throughout its business operations despite known corruptions risks. This failure created the environment in which bribes were facilitated through a constellation of companies associated with its controlling shareholder.”
The Bribery Scheme
The bribery scheme was created to create a business opportunity for Tenaris’ operating subsidiary in Brazil, Confab Industrial S.A. (Confab). The bribery scheme was created with a corrupt Petrobras official who “would use his authority to influence Petrobras to forgo an international tender process for certain contracts for pipes and tubes, thereby favoring Confab, by continuing its status as the only domestic supplier, and allowing direct negotiations with it. Confab would benefit through the elimination of international competitors which may have submitted lower bids and forced Confab to lower its price, if not lose the contract altogether.” In exchange the corrupt Petrobras official received “approximately 0.5% of Confab’s revenue from these contracts” which amounted to some $10 million in illegal payments.
The bribery scheme was effectuated through the formation of Uruguayan-domiciled shell company and creation of a bank account in its name, where bribery payments were deposited. During the relevant period, the bribes were paid into Uruguayan Company’s bank account for the benefit of Government Official. The funding for the bribes came from another Tenaris affiliated company, San Faustin SA, which had bank accounts in the US and elsewhere which funded the bribe. To hide the payments in the Tenaris books and records, fake contracts were executed between Uruguayan Company and the shell company in which payments were made to the Uruguayan Company “for purported past and future consultancy and advisory services that Uruguayan Company performed.” All of this was done with the knowledge of “a senior Confab employee about the bribe scheme including about the timing of bribe payments being deposited into the Uruguayan Company bank account.”
Thoughts
This matter really is a head scratcher. The first thing that jumps out is the time of the bribery scheme, which was 2008-2013. This overlaps the time frame from the 2011 NPA and DPA, which was for conduct from 2007-2010. Although the conduct at issues in those resolutions was centered on bribery and corruption in Central Asia and not Brazil and South America. It is more than difficult to understand how this bribery scheme was not uncovered when the company went through an allegedly comprehensive FCPA investigation for those resolutions.
Even more troubling is that the company continued engaging in bribery and corruption right through the signing of those settlements and the reporting periods set out in both; for two years under both the DPA and NPA. Under both agreements, Tenaris was to turn over evidence of any additional FCPA violations. Obviously Tenaris did not uncover the additional illegal actions, it certainly appears they did not look very diligently either.
Perhaps one answer is found in the undertakings section of the Order which states “During a two-year term as set forth below, Respondent shall report to the Commission staff periodically, at no less than six-month intervals, the status of its remediation and implementation of compliance measures related to the effectiveness of the anti-corruption policies, procedures, practices, internal accounting controls, recordkeeping, and financing reporting processes particularly as to preventing the use of unaccounted funds for illicit purposes to benefit Tenaris, including the use of funds available to Tenaris’ officers, directors, employees and/or agents as a result of their dual affiliation with Tenaris and San Faustin and related entities.” [emphasis supplied]
This sounds suspiciously like a slush fund was operating which allowed Tenaris’ officers, directors, employees and/or agents to make payments across different (but related) entities. Such payments could be easy to disguise and hard to trace. This might be a reason why Tenaris itself did not uncover the illegal payments and why it did not self-disclose to the SEC. This is also something that every Chief Compliance Officer (CCO) needs be on the lookout for your organization.
Tenaris is required to provide two separate follow-up reviews to the SEC. These reviews are to incorporate “comments provided by the Commission staff on the previous report, to further monitor and assess whether the policies and procedures of Respondent are reasonably designed to detect and prevent violations of the FCPA and other applicable anti-corruption laws (the Follow-up Reports).” Additionally, Tenaris is required to “undertake a final review to further monitor and assess the operation of its FCPA and anti-corruption compliance program and whether Respondent’s policies and procedures are reasonably designed to detect and prevent violations of the FCPA and other applicable anti-corruption laws.” One can only hope Tenaris will be more thorough under this requirement in the Order than it was under the prior NPA or DPA.
Where did the information which led to this recidivist Order derive? Obviously Brazilian prosecutors is one good guess. Another clue is found in the SEC Press Release which stated, “The SEC appreciates the assistance of the Superintendencia del Mercado de Valores (SMV) in Panama, the Brazilian Federal Prosecution Service, and the Procura della Repubblica presso il Tribunale di Milano, Italy.” Panama makes sense as a home of one of the Ternaris family of shell companies. but note the inclusion of prosecutors from Italy as well.
We can only hope that Tenaris does not become the first three time recipient of a FCPA enforcement action.
In May, 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 this concluding Part V, I want to explore some open questions and provide some lessons learned.
Cooperation Pays
One thing made clear in the Information was that there was some serious misconduct going on here, for multiple years, in multiple countries with multiple schemes. Yet, as laid out in the Plea Agreement, 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.
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. Additionally, Glencore did not have adequate internal controls in place at the time 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.
The key takeaway from the Glencore settlement is that as bad as a company’s conduct is, it can make a comeback and receive some credit under the FCPA Corporate Enforcement Policy. The discounted amount Glencore received drives that message home, but the settlement also specifies that if a company does not “demonstrate a full commitment” to cooperation it will not receive all possible cooperation credit. Additionally, although not specified in the Information or Plea Agreement, this lack of a full commitment may have also led to the robustness of the Monitor requirements which we will take up next.
Monitors
Glencore has been assigned two corporate monitors. One for its UK subsidiary where much of the conduct centered and a second for the corporate parent in Switzerland. Yet it is clear the DOJ does not fully trust Glencore yet. According to the Plea Agreement, Attachment D, “The Monitor’s primary responsibility is to assess and monitor the Company’s compliance with the terms of the agreement…to specifically address and reduce the risk of reoccurrence of the Company’s misconduct.” Additionally, the Monitor will evaluate “the effectiveness of internal accounting controls, record-keeping and financial reporting policies and procedures” as they “relate to ongoing compliance with the FCPA and other applicable anti-corruption laws.” The Monitor will also assess the “Board of Directors’ and senior management’s commitment to and effective implementation of the corporate compliance program described in Attachment C.”
While the Monitor can rely on company reporting and “Company-specific expertise”; it is only required to do so when “the Monitor has confidence in the quality of those resources.” Clearly the DOJ is leaving room for the Monitor to bring in its own resources, at the company’s expense, if the Monitor feels less than sanguine about how the company is moving forward. If the company is not moving forward in the right direction of providing sufficient information to the Monitor, the Monitor can respond accordingly, and the company has agreed to this. The Monitor will be looking at various operational issues of how Glencore implements the requirements of the settlement. These include where and with whom the company does business, its business partners, from third parties to joint venture partners and everything between and beyond; focusing on the business rationale for any such relationships. The Monitor will review and assess the company’s ongoing interactions with government officials and those of state-owned enterprises.
We have not seen this level of detail or robustness in a Monitor’s Mandate in quite some time. The Glencore Monitorship draws directly back to the remarks of Deputy Attorney General (DAG) Lisa Monaco in her October 2021 speech announcing a reorientation in FCPA investigations and enforcement. The monitorship mandate in the Glencore settlement is a direct outcome from this refocus and signals the formal end of the Benczkowski Memo and its clear distaste for monitorships. They are back, in a very big way and are clearly here to stay, at least during the Biden Administration.
CCO Certification
Although it was only announced formally on May 17, 2022, at Compliance Week 2022; the new requirement for Certification is formally incorporated into the Glencore settlement and is found at Attachment H of the Plea Agreement. The Glencore Chief Compliance Officer (CCO) will have to certify “the Company has implemented an anti-corruption compliance program that meets the requirements set forth in Attachment C.” Moreover, the certification attests that the Glencore compliance program “is reasonably designed to detect and prevent violations of the FCPA and other anti-corruption laws.” This certification is also required of the Chief Executive Officer (CEO).
This means the CCO is certifying the entire compliance program meets the standards of not simply best practices but also all the enhanced requirements set out in Attachment C. Of course, if there are either recidivist FCPA violations by Glencore or additional illegal actions uncovered during the pendency of the monitorship, it could well impact the certification. Also if the CCO does so attest, what happens if there is recidivist conduct during the time covered by the certification but only later discovered, even much later; similar to the conduct reported in the Tenaris FCPA enforcement action? Will there be criminal liability to a long-gone (or even current) CCO? At this point, it is an open question, but it does raise the stakes significantly for any CCO who does sign such a certification.
Culture, Culture, Culture
Glencore clearly had a business strategy based upon corruption. The corruption strategy was approved by, and payment of bribes were authorized at the highest levels of the company. While many of those executives have left the company, there was clearly an entire culture at play here. The question is whether the company will be able to turn things around enough to satisfy a Monitor, the DOJ and, at the end of the day, the Court who will oversee all of this.
The company made a start by publicly publishing its first Ethics and Compliance Report, for which it certainly should be commended. There is no better disinfectant than the light of day and if Glencore is committed to publicly reporting on its compliance, program it speaks directly to the change in culture that it is trying to undergo. It will no doubt take much time, effort and money but if Glencore is serious as it stated that “a strong Ethics and Compliance Programme grounded in our Values is critical to ensuring we are a responsible and ethical company, and a trusted business partner. We want to be transparent about the challenges we face, how we learn from them and how we use them as an opportunity to improve and push ourselves to do better”; it can become a global leader in ethics and compliance.
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:
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.
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.
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.
