The blockbuster settlement and plea agreement by Glencore tells the story of a multinational culture of corruption. Attorney and podcaster Tom Fox breaks down the gory details and offers insight into what this case might reveal about where FCPA enforcement is headed under the Biden Administration.
When Attorney General Merrick Garland has a press conference to announce a settlement, you know it’s significant. We were certainly treated to that when the AG and a host of other DOJ officials recently announced the settlement of a massive FCPA and market manipulation case against Glencore plc, a Swiss commodity and mining company.
The case against Glencore 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 detailed in a DOJ news 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.”
The resolution with the DOJ imposed $429 million in criminal penalties and forfeiture of $272 million. According to the FCPA Blog, which 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.”
Statements and reactions to Glencore’s guilty pleas
Assistant Attorney General Kenneth A. Polite Jr.: “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: “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: “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.”
Additional enforcement overseas
The matter also involved enforcement actions in multiple countries. In the UK, Glencore 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 news 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 U.S. 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 speech by Deputy Attorney General Lisa Monaco from October 2021. We will consider the implications as well in greater detail.
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 FCPA Action
According to the DOJ, “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.”
Notes on 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 corrupt 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, which would then resell the crude oil to Glencore UK subsidiaries for distribution throughout the UK and beyond. Payments were made through U.S. banks (thereby creating U.S. 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 funds 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 U.S. banks, adding to the U.S. 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.
Notes on the commodity price manipulation case
In this case, separate and apart from the FCPA enforcement action, Glencore admitted to a multi-year scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the U.S. Under the terms of the Commodities Future Trading Commission (CFTC) resolution, the company will pay a criminal fine of $341 million and criminal forfeiture of $144 million. Under the terms of the plea agreement, the DOJ will credit over $242 million in payments the company makes to the CFTC.
According to the CFTC news 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 U.S. and global physical and derivatives oil markets. 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 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 for fuel oil products, specifically intermediate fuel oil 380 CST at the Port of Los Angeles and RMG 380 fuel oil at the Port of Houston. The Port of Los Angeles is the busiest shipping port in the U.S. by container volume, while the Port of Houston is the largest U.S. port on the Gulf Coast and the busiest port in the U.S. 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 U.S. 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 U.S. Gulf Coast fuel oil.
The CFTC also noted that 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 the 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 the 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 U.S. 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.
In this matter, there was some serious misconduct going on, for multiple years, in multiple countries with multiple schemes. Yet Glencore received a reduction of 15 percent based upon the FCPA corporate enforcement policy and a two-point reduction in the overall penalty calculation under the U.S. 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 fall 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 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 the underlying incidents took place. Since that time, Glencore has taken remedial measures. Certain 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 and 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 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 statement issued the day of the announced settlements, touted new additions to its compliance program. The company said 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 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 in experienced personnel.
- Significantly enhancing and expanding ethics and compliance training programs.
- Instituting a comprehensive business partner management program, including significantly reducing the 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 controls are entrenched and effective and to ensure continuous improvement.
- Engaging leading external advisors to review 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 to do, and that will no doubt turn in large part on the effectiveness of the monitor.
Cooperation pays. 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 background 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, they 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 in Monaco’s 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.
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CCO certification. Although it was only announced formally in May of this year, 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 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 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 Glencore, 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 that 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.
Every CCO should study the Glencore enforcement action in detail. Will Glencore be able to clean up not only years of corruption but an entire business model built around it? We certainly hope so. If the company can come out of the plea agreement and monitorship with a new ethos, it will certainly be heralded as a success for the DOJ, Glencore and compliance.