The U.S. Department of Justice (DOJ) announced last Tuesday a $1.18 billion dollar agreement was reached by Glencore International A.G. and Glencore Ltd. (collectively Glencore), part of a British-Swiss world-spanning, commodities and mining company, headquartered in Switzerland to resolve a four-year investigation into a violation of the Foreign Corrupt Practices Act (FCPA) and a “commodity price manipulation scheme.” This is one of the largest FCPA penalties in recent years.
Glencore plead guilty as part of “coordinated resolutions with criminal and civil authorities in the U.S., U.K., and Brazil.” Along with the monetary settlement amount, new terms were attached to the client remediation agreement that foreshadows new issues for companies involved in FCPA violations.
The DOJ imposed a criminal fine of over $428 million and more than $272 million in criminal forfeiture and disgorgement in a plea agreement to resolve one count of conspiracy to violate the FCPA. It also mandated oversight by two independent compliance monitors for 3-years.
In a separate resolution, Glencore also agreed to plead guilty to one count of conspiracy to commit price commodity manipulation and pay over $485 million (a fine of around $341 million and forfeiture of about $144.4 million) to resolve DOJ and Commodity Futures Trading Commission (CFTC) joint market manipulation investigations. In 2019, the CFTC announced in a press release an Enforcement Advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices as a “[reflection of] the enhanced coordination between the CFTC and our law enforcement partners like the [DOJ].”
A third resolution to resolve an investigation in relation to civil violations of the Commodity Exchange Act and CFTC regulations by the CTFC resulted in an agreement, as noted in CFTC press release that: “Glencore is required to pay a total of $1.186 billion, which consists of the highest civil monetary penalty ($865,630,784) and highest disgorgement amount ($320,715,066) in any CFTC case.”
A credit of around $256 million was allotted by the DOJ to “resolve related parallel investigations by other domestic and foreign authorities.” Separate bribery charges were announced by the U.K. Serious Fraud Office upon Glencore Energy UK Limited and is pending a sentencing hearing.
A resolution was also signed by Glencore with the Brazilian Federal Prosecutor’s Office (“MPF”) in connection with a bribery investigation where they agreed to pay around $39.6 million.
Cooperative investigations by the UK SFO, Swiss and Dutch authorities are ongoing.
The settlement included a 15% full cooperation and remediation credit, but did not receive the full percentage allowable as, according to the DOJ, the company “did not consistently demonstrate a commitment to full cooperation; it delayed producing relevant evidence, and did not timely and appropriately remediate with respect to disciplining certain employees involved in the misconduct.”
The DOJ investigation into Glencore started in 2018. After the 4-year investigation, the DOJ stated in a 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).”
Over nearly a decade, from 2007 to 2018, Glencore and its subsidiaries, made $7.96 million in payments to intermediary companies to “secure improper advantages to obtain and retain business with state-owned and state-controlled entities in West Africa.” The bribes were made through “sham consulting agreements, paying inflated invoices and using intermediary companies.” The company also admitted conspiring, in the DRC, to offer and pay millions to third-parties with a portion “to be used as bribes to DRC officials, in order to secure improper business advantages.” Glencore further acknowledged the use of bribes in Venezuela and Brazil.
Glencore was found, from around 2007 through 2018, to have sought increased profits from its physical and derivative oil products trading by “manipulating or manipulating or attempting to manipulate U.S. price-assessment benchmarks relating to physical fuel oil products, and related futures and swaps, to benefit [their] trading positions, manipulate prices in interstate commerce, and “create artificial prices,” according to the CFTC’s statement and concurred by the DOJ.
It was also found that Glencore engaged in fraud, and made corrupt payments (e.g., bribes and kickbacks) to employees and agents of certain state-owned entities (SOEs), including in Brazil, Cameroon, Nigeria, and Venezuela, and misappropriated “confidential information from employees and agents of certain SOEs, including in Mexico.” Glencore, along with its affiliates, also was said to have made “corrupt payments in exchange for improper preferential treatment and access to trades with the SOEs...[obtaining] unlawful competitive advantages” resulting in “hundreds of millions of dollars in improper gains.”
Along with the 3-year corporate monitorship, Glencore has been assigned 2 monitors: one for its corporate headquarters in Switzerland and one for its UK subsidiary. Glencore was also required, as part of its resolution, for its CEO, CFO and CCO to obtain compliance certifications. This is a brand new requirement, only recently announced during Compliance Week 2022 in May.
U.K. citizen Anthony Stimler purportedly worked as a trader for Glencore. He was charged, in 2021 by the DOJ with one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering. According to the DOJ, Stimler and co-conspirators, from 2018-2018m paid foreign officials at a state owned and controlled Nigerian oil company millions of dollars in bribes to award oil contracts and purportedly garner more profitable grades of oil on more favorable terms of delivery.
Ivan Glasenberg holds the largest individual stake in Glencore, the world's biggest commodity trader, according to Forbes. In 1983, after graduating university, Glasenberg teamed up with Mark Rich, who was at the time the biggest trader in commodities in the world, according to The Guardian. That same year, Rich was indicted on 65 criminal counts, including wire fraud, tax evasion, racketeering, and trading with Iran at the time of the oil embargo and hostage crisis. Rich fled to Switzerland when he learned of the indictment, but told Glasenberg he still had a job for him at Mark Rich & Co. in Johannesburg. In 2001, U.S. President Bill Clinton granted him a controversial pardon hours before leaving office. In 1993, Rich had lost control of the company in a management buyout and Mark Rich & Co. was renamed Glencore. Glasenberg became CEO in 2002, a position he held until his retirement last year in 2021.
A robust compliance program with strong executive due diligence would have gone a long way toward preventing bad actors from becoming involved in Glencore, or forming partnerships. Glencore, however, seems to have had a legacy of unethical, and illegal behavior. As reported in Tom Fox’s Episode 101 “The Glencore Edition” on his Everything Compliance podcast:
“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.”
Tom Fox hits on a several key points here. Namely that of corrupt actions by executives and corrupt culture. He adds, “There is not 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.”
Glencore has reportedly taken significant steps to enhance its ethics and compliance program, incorporating standard “risk assessment, policies, procedures, standards and guidelines based on international best practice, associated training and awareness initiatives as well as monitoring systems.”
Glencore speaks to the importance of building a company culture of integrity and compliance, no matter how long or how short a time the company has been in business. The DOJ, along with other international government offices, are coming down hard on breaches of ethics and criminal malfeasance. This company was not based in the United States, but was still held accountable due to some transactions that took place in the country. This shows that a company can be held accountable in multiple international jurisdictions for acts of malfeasance by it, or its executives, employees, and partners.
The newly imposed monitor requirements being imposed in 2022 as part of the settlement requirements bring new questions as well.
Tom Fox notes the imposed monitorships “ties to the DAG Lisa Monaco speech from October 2021” and points out that, according to Attachment D of the Plea Agreement, “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 recurrence of the Company’s misconduct,” 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,” and assess the Board and senior management commitment and effectiveness in implementing the requisite compliance program.
While clearly, Glencore should, as well as any company, be held accountable and make good on any unethical and even criminal actions, this does set up a moving target to comply with. How are things such as the effectiveness of internal accounting controls, record-keeping and financial reporting policies and procedures or a Board of Directors’ and senior management’s commitment measured? Is some subjectivity or is there a specific, definable rule of measure that can be knowledgeable to both parties?
Other questions arise in the requirement of the CEO, CFO, and COO to obtain compliance certifications. This a new requirement by the DOJ.
Mitigating violations is the purpose of a robust compliance program, but detecting and preventing violations of the FCPA is a tall order. Tom Fox remarks that this “means the CCO is certifying the entire compliance program meets the standards of not simply best practices but also all the enhanced requirements,” and that if there are “recidivist violations” or “additional illegal actions uncovered during the pendency of the monitorship” or later: “Will there be criminal liability [to the CCO]?” This is similarly noted by Michael Volkov in his article, DOJ Puts its New Stamp on FCPA Settlements: Unraveling the Glencore FCPA Settlement, the “DOJ is requiring both the CEO and CCO to certify at the end of the term of the Compliance Monitor” that the compliance program implemented was “consistent with the specific requirements mandated in the plea agreement.” Adding that, “Both certifications [by CEO and CCO] raise significant questions about potential liability for the executives if Glencore fails to disclose all conduct required under the plea agreement and to institute an ethics and compliance reasonably designed to detect and prevent future violations.” He further states that the “form certifications contain language confirming that such statements if false would be prosecutable under the False Statement statute, 18 USC §1001, and for obstruction of justice under 18 USC §1519.”
Establishing and maintaining a robust compliance program which includes an ethical company culture is a key takeaway from the Glencore settlement. That ethical culture needs to be based on a robust compliance program, and one that is frequently being reassessed. This is supported by the Glencore settlement in the DOJ’s requirement of an annual review of the company’s “anti-corruption compliance policies and procedures” should be conducted “to ensure their continued effectiveness, taking into account relevant developments in the field and evolving international and industry standards.” Hiring ethical employees, starting with executives, by hiring for integrity and vetting them through comprehensive executive due diligence, ought to be a critical part of any robust compliance program and a key to establishing an ethical culture. They should set the tone at the top for the culture, and keeping bad actors out of the company, is much better than dealing with them once they have free reign.