Former Glencore Trader Pleads Guilty To FCPA And Related Offense
As highlighted in this prior post, for approximately two years Glencore (a commodities company incorporated in the United Kingdom and headquartered in Switzerland with common stock that trades on the New York based over-the-counter market) has been under scrutiny for conduct in Nigeria, the Democratic Republic of Congo, and Venezuela (as well as perhaps other countries).
Earlier this week Anthony Stimler pleaded guilty to FCPA and money laundering offenses. Stimler is described as a United Kingdom citizen and resident who was a trader at a Glencore subsidiary who worked on the West Africa desk from in or around 2002 until in or around 2009 and then again from in or around June 2011 until in or around August 2019. According to the DOJ “In that role, Stimler had responsibility for crude oil purchases from, among other places, Nigeria, and acted on behalf of Company 1 [Glencore] in procuring crude oil from Nigeria.”
In summary fashion, the criminal information alleges:
A Reminder Why Congress Chose To Exempt Facilitating Payments From The Reach Of The FCPA’s Anti-Bribery Provisions
Recently, the U.S. State Department released 2020 “Investment Climate Statements.” The annual reports cover over 170 foreign markets and are prepared by “economic officers at U.S. embassies and diplomatic missions” to help U.S. companies make informed business decisions.
Corruption is prominently mentioned in most country investment climate statements.
However, this “2020 Mongolia Investment Climate Statement” particularly caught my eye – not because Mongolia is a prominent market for U.S. businesses – but rather because the statement provides a nice reminder why Congress chose to exempt facilitation payments from the reach of the FCPA’s anti-bribery provisions.
With Chi Guilty Verdict, Focus Shifts To Kinemetrics And Guralp Systems
The DOJ recently announced that Heon-Cheol Chi (Chi) of South Korea, “the Director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources (KIGAM) was convicted … following a four-day jury trial of laundering bribes that he received from two seismological companies based in California and England through the U.S. banking system.”
As noted here, according to court documents the companies are Kinemetrics (a California company that designs technologies, products, and solutions for monitoring earthquakes and their effects on people and structures) and Guralp Systems Ltd. (a U.K. company that designs, manufactures and delivers products, services, systems and solutions for a wide range of applications for the seismological research community as well as the the oil & gas, civil engineering and energy sectors.)
With the Chi guilty verdict, focus shifts to Kinemetrics and Guralp Systems and when asked if there would be an FCPA enforcement action against these companies a DOJ spokesperson informed me via e-mail that “the investigation is ongoing.”
Across The Pond, Rolls-Royce Also Resolves A $625 Million U.K. Enforcement Action
This recent post went in-depth into the $170 million Foreign Corrupt Practices Act enforcement action against Rolls-Royce. As mentioned in the post, the FCPA enforcement action against Rolls-Royce was part of a broader $800 million global resolution that also included a U.K. Serious Fraud Office component as well as Brazil law enforcement action.
The approximate $625 million U.K. enforcement action comprised the bulk of $800 million global resolution (that would seem to make sense, Rolls-Royce is after all a U.K. company) and is summarized below including the several failure to prevent bribery counts under the Bribery Act.
“Corporate Bribery Is Not The Simple, Safe Issue It Seems At First Blush”
I tend to read the news with Foreign Corrupt Practices Act goggles on. It’s an occupational hazard that sometimes is annoying, but often rewarding.
Although the FCPA was not mentioned in a recent Wall Street Journal article “Can Moguls Untangle Nigeria’s Power Lines?,” the article is interesting from so many angles relevant to the issues discussed on this website and highlights that FCPA issues are multi-faceted legal and policy issues involving multiple actors and are often not as simple as some seem to suggest.
Indeed, the article reminded me of one of my favorite statements from the FCPA’s legislative history by Theodore Sorensen:
“Corporate bribery abroad is not the simple, safe issue it seems at first blush. […] [T]here will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence […] Reasonable [persons] and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions.”
(See here for the “Story of the Foreign Corrupt Practices Act”)
Prior to discussing the article, I want to make crystal clear that the recent Wall Street Journal article does not accuse any companies or individuals of any wrongdoing, nor am I. Rather, I am merely using the general issues discussed in the article to highlight various issues relevant to the FCPA and related issues.
The article highlights how Nigeria’s electrical system is dismal and in disrepair. According to the article, “the result: Nigeria produces less than half as much electricity as North Dakota for 249 times more people. Blackouts strike 320 days a year.” If the electrical system is modernized, the article notes, “airlines will be able to land after sunset” and “schoolchildren will do their homework after dark.”
Let’s assume for purpose of this post, that in connection with the modernization of Nigeria’s electrical system, Company A involved in the project (a company that is otherwise viewed as selling the best product for the best price) makes an improper payment to a Nigerian “foreign official” to motivate the “foreign official” to select the company’s product for the modernization. This conduct leads to an FCPA enforcement action against Company A and those who claim all FCPA enforcement actions must involve a “victim” will say that the Nigerian people have been victimized, their human rights violated, and some will even request that the FCPA settlement amount be diverted to the Nigerian “victims.”
Without in any way countenancing the above hypothetical payments, I struggle to find any “victims” from a modernized Nigerian electrical system.
Some will say, but wait, because of the improper payment, inferior product will be incorporated into Nigeria’s electrical system (the lines will crumble, electrical fires will ensure, people will be injured). At least so goes the conventional rhetoric surrounding bribery issues. Yet recall that Company A is otherwise viewed as selling the best product for the best price and its goods are used the world over because they are the best.
Some will still say, but wait, because of the improper payment, the Nigerian government ended up paying more for the electrical upgrade then it would have paid but for the hypothetical improper payment. But what if the Nigerian government selected Company A’s product because it was actually cheaper because, by selecting Company A, the Nigerian government availed itself of low interest loans from the Export-Import Bank of the U.S. which titled the balance in favor of Company A?
Again, without in any way countenancing the above hypothetical payments, I struggle to find any “victims” when a foreign government pays a lower price for a better product and indeed is incentivized to choose the product by the U.S. government.
What about the role of the U.S. government?
Is the U.S. government not seeking to influence an act or decision of a foreign official to favor a U.S. company through low interest loans? After all, the Export-Import Bank low interest loans in Nigeria are in furtherance of President Obama’s $7 billion “Power Africa” initiative. (See here).
As noted in this prior post, the U.S. government bears some responsibility when it comes to certain circumstances that result in FCPA scrutiny. Indeed, several FCPA enforcement actions (see here, here and here for instance) have involved conduct in connection with U.S. government financing programs. There is an irony of course in the U.S. government encouraging companies to do business in certain countries because it serves U.S. interests. Then when the company does business in that country and encounters business conditions that the U.S. government no doubt knew it was going to encounter, the company then becomes the subject of a U.S. law enforcement inquiry.
Reading the recent Wall Street Journal article about transforming Nigeria’s electrical system with FCPA goggles on was rewarding in that it reminded me of the multi-faceted legal and policy issues involving multiple actors that are often relevant to the issues discussed on this website.
As Theodore Sorensen said “corporate bribery abroad is not the simple, safe issue it seems at first blush.”