In 2019, the U.S. Commodity Futures Trading Commission (CFTC) issued an enforcement advisory concerning companies and individuals “that timely and voluntarily disclose to the Division violations of the Commodity Exchange Act involving foreign corrupt practices, where the voluntary disclosure is followed by full cooperation and appropriate remediation.” (See here).
Some claimed that the CFTC was going to begin investigating and prosecuting Foreign Corrupt Practices Act violations. This was false as the CFTC advisory clearly concerned violations of the Commodity Exchange Act.
Shortly thereafter, Glencore disclosed that the “CFTC is investigating whether Glencore and its subsidiaries may have violated certain provisions of the Commodity Exchange Act and/or CFTC Regulations through corrupt practices in connection with commodities.”
Earlier this week, in connection with the DOJ’s Foreign Corrupt Practices Act enforcement action against Glencore (see here for the prior post detailing the net $443 million FCPA enforcement action), the CFTC also announced an enforcement action against the company based on certain of the same conduct.
Like the DOJ enforcement action, the CFTC enforcement action also involved a prong concerning a commodity price manipulation conspiracy. This post, like the prior post about the DOJ enforcement action, does not concern this prong of the CFTC enforcement action.
The CFTC’s enforcement action against Glencore in connection with a related FCPA enforcement action is not the first.
As highlighted in this prior post, in December 2020, in connection with the Vitol FCPA enforcement action, the CFTC brought a related enforcement action against Vitol for its “fraudulent and manipulative conduct – including conduct relating to foreign corruption.” According to the CFTC, the Vitol enforcement action was “the first action brought by the CFTC involving foreign corruption.”
In summary fashion, this CFTC order against Glencore states:
“Glencore’s conduct during the Relevant Period [2007-2018] also involved fraud, 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 misappropriation of confidential information from employees and agents of certain SOEs, including in Mexico. Glencore or its affiliates made the corrupt payments in exchange for improper preferential treatment and access to trades of oil and oil products with the SOEs. Glencore’s conduct was intended to and did secure unlawful competitive advantages in trading physical oil products and related derivatives to the detriment of its counterparties and market participants, including those located in the United States.
Glencore’s manipulative, fraudulent, and corrupt conduct involved traders and other personnel throughout its oil trading group, including senior traders, desk heads, and supervisors up to and including the global head of the oil group, and resulted in hundreds of millions of dollars in improper gains.
Glencore’s manipulative and deceptive conduct undermined the legitimate forces of supply and demand and the integrity of the global physical and derivatives oil markets, including in the CFTC regulated U.S. derivatives markets and related physical markets.”
Under the heading “Fraud and Corrupt Practices,” the order states:
Misappropriation of Confidential Information
At various times during the Relevant Period and the Charging Period, directly and through intermediaries, Glencore improperly obtained nonpublic information from employees and agents of the SOEs, including in Mexico. This information was material to Glencore’s business and trading, such as transactions with the SOE as well as derivatives trading. SOE agents who had access to confidential information—and who owed a duty to the SOE under law and applicable employment 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 and otherwise used the information in their business, including U.S.-based transactions and business.
Glencore traders understood the sensitivity of improperly obtained confidential information and took steps to maintain it in confidence and ensure that the SOE would not learn they had it in their possession. For example, as one Glencore staff cautioned a Glencore trader regarding improperly obtained information: “this is confidential and [the SOE] doesn’t know we have this [information] available.”
Glencore traders considered the information material to certain of Glencore’s trading and business decisions such as in formulating business and negotiation strategies. For example, in or around October 2013, Glencore personnel including a U.S.-based Glencore trader used information obtained from an SOE explicitly acknowledged as “confidential” to analyze the economics of a potential project relating to the SOE and determine potential positions that Glencore could take in negotiations with the SOE. This economic analysis was prepared for a meeting with the global head of the Glencore oil department, among others. At times, the confidential information was disseminated among Glencore oil traders and personnel, including Glencore traders in the United States, London, and Singapore, for use in related physical and derivatives transactions and otherwise in their business.
Corrupt Payments for Preferential Treatment and Trades
At various times during the Relevant Period and the Charging Period, Glencore, by and through its traders and agents, made corrupt payments to employees and agents working at SOEs of Brazil, Cameroon, Nigeria, and Venezuela. [According to a footnote, similar conduct occurred during the Relevant Period in Equatorial Guinea and Ivory Coast.] 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 engaged in this corrupt conduct in connection with derivatives such as swaps and futures contracts subject to the rules of Commission-registered entities, as well as trades with U.S. counterparties, and at times during the Relevant Period and the Charging Period, Glencore personnel engaged in aspects of the scheme from the United States. The corrupt conduct was widespread within Glencore’s oil business, and supervisors were aware of and at times directly involved in the corruption.
To conceal the corruption, the corrupt payments at times were in large amounts of cash, and in some instances, corrupt payments also were invoiced through third-party companies, with deceptive invoices to Glencore for euphemistic costs or services such as “advance payment,” “marketing services,” or “commission.” Glencore traders and intermediaries at times used coded language such as “filings,” “newspapers,” or “chocolates” when referring to the corrupt payments.
Regarding trading involving Nigeria and Cameroon, from at least as early as 2007 through at least 2015, Glencore made corrupt payments to SOE agents over several years amounting to millions of dollars in exchange for preferential treatment and access to more than 100 oil cargo trades, including crude oil. Regarding trading involving Venezuela, from at least in or around 2012 to in or around 2014, Glencore via an intermediary made corrupt payments to SOE agents relating to demurrage and late fees arising from trades of oil and oil products with the relevant SOE. Regarding Brazil, during the Relevant Period, Glencore made corrupt payments via intermediaries to SOE agents in exchange for, among other things, preferential treatment and access to trades.”
Based on the above (as well as the separate findings related to a commodity price manipulation conspiracy), the CFTC found that Glencore violated Section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1 which “prohibit the use or attempted use of any manipulative or deceptive device, untrue or misleading statements or omissions, or deceptive practice, in connection with any swap or contract of sale of any commodity in interstate commerce, or for future delivery.”
According to the Order:
“[T]the civil monetary penalty obligation and the disgorgement obligation (collectively, the “Monetary Sanction”) of one billion, one hundred eighty-six million, three hundred forty-five thousand, eight hundred fifty dollars ($1,186,345,850) will be offset, up to eight hundred fifty-two million, seven hundred ninety-seven thousand, eight hundred ten dollars ($852,797,810), by the amount of any payment made pursuant to the resolutions concerning manipulation and corruption between Respondents and the United States Department of Justice dated on or around May 24, 2022 (the “Criminal Resolutions”).”