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Issues To Consider From The Glencore Enforcement Action

This previous post [1] highlighted the recent net $443 million Foreign Corrupt Practices Act enforcement action against Glencore.

This post [2] highlighted the CFTC’s related enforcement action against the company.

This post [3] discussed how the executive officer certification in the FCPA enforcement action sets up Glencore personnel to fail.

This post continues the analysis by highlighting additional issues to consider from the Glencore FCPA enforcement action.

Timeline

Glencore disclosed in early July 2018 that it had received a subpoena from the DOJ regarding FCPA compliance and other issues. (See here [4] for the prior post).

Thus, from start to finish, Glencore’s scrutiny lasted (the fairly typical) approximate four years.  I’ve said it many times, and will continue saying it until the cows come home, if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective the enforcement agencies must resolve instances of FCPA scrutiny much quicker. Indeed, who can forget a high-ranking DOJ official stating – around the same general time that Glencore initially disclosed its scrutiny – that FCPA investigations should be “measured in months, not years [5].”

This is particularly true in the Glencore matter given the following language from the DOJ:

“The defendant received credit for cooperation … because it cooperated with the Offices’ investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the defendant also received partial credit for its cooperation pursuant to the FCPA Corporate Enforcement Policy … by, among other things, providing information obtained through its internal investigation, which allowed the government to preserve and obtain evidence as part of its own independent investigation, making regular and detailed factual presentations to the Offices, producing a significant amount of documents located outside the United States to the Offices in ways that did not implicate foreign data privacy laws, collecting and producing voluminous evidence and information to the Offices, accompanied by translations of documents, and producing an analysis of complex trading activity conducts by the company’s outside foreign accounting firm; in addition, the defendant also provided to the Offices all relevant facts known to it, including information about the individuals involved in the conduct …”.

Jurisdiction

Glencore was charged with conspiracy to violate the FCPA’s anti-bribery provisions pursuant to the dd-3 prong of the FCPA.

This prong has the most stringent jurisdictional element (compared to the dd-1 and dd-2 prongs of the FCPA) in that it requires “while in the territory of the United States, corruptly … mak[ing] use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of” a bribery scheme.

The criminal information refers to bribery schemes “in order to obtain or retain business in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of Congo.”

As to Nigeria, the information alleged that “Glencore agents, including Stimler [an individual previously charged in 2021 – see here [6]] and Executive 2, while in the territory of the United States, approved bribe payments to be made through West Africa Intermediary Company. For example, on or about January 18, 2011, while in the territory of the United States, Executive 2 approved a payment of $325,000 to West Africa Intermediary Company, intending that all or part of those funds would be used to bribe Nigerian officials in connection with the purchase of fuel oil from an NNPC subsidiary.”

Elsewhere, the information alleges:

“On or about April 20, 2015, while in the United States, Stimler received an e-mail from NIC Employee 1 in which Nigeria Intermediary Company offered to make a payment for the benefit of a Nigerian official of approximately $50,000 per oil cargo for four cargoes of NNPC oil to be delivered to Glencore UK Ltd. in May and June 2015. On or about April 20, 2015, while in the United States, Stimler replied to Nigeria Intermediary Company’s e-mail, expressing interest on behalf of Glencore in receiving one of the June 2015 NNPC oil cargoes.”

These are the only allegations in the 27 page criminal information to invoke the “while in the territory of the United States” jurisdictional element of dd-3 and all allegations relate to a Nigerian bribery scheme.

The Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of Congo bribery schemes alleged in the indictment contain no “while in the territory of the United States” allegations.

Obtain or Retain Business

The Glencore enforcement action contained allegations about a Venezuelan bribery scheme involving PDVSA.

If you are an astute follower of FCPA enforcement actions (and by frequently visiting this site you most certainly can be), you are probably guessing that PDVSA did not have money to pay Glencore amounts that Glencore was legitimately owed.

This general fact pattern has appeared in several FCPA enforcement actions involving Venezuela and PDVSA (see here [7], here [8]and here [9] for instance).

The five paragraphs of the criminal information concerning the Venezuelan bribery scheme allege:

“Beginning in 2011 and through approximately 2014, Glencore, through certain of its employees and agents, including Venezuela Intermediary Company and others, caused corrupt payments to be made to, and for the benefit of, a Venezuelan official, in order to secure improper business advantages.

As part of its business dealings in Venezuela, Glencore and its subsidiaries sold oil products to, and purchased them, from PDVSA. If PDVSA did not pay Glencore’s invoices on time, PDVSA incurred interest that was owed to Glencore because of late payments. Additionally, if PDVSA did not load or discharge a Glencore vessel with an agreed upon time frame, PDVSA incurred demurrage (i.e. a charge payable to Glencore for the delay).

By in or about 2011, PDVSA owed millions of dollars to Glencore and its subsidiaries related to late payments for accrued interest and demurrage. Due to difficulties in obtaining payment from PDVSA, Glencore used intermediaries, including Venezuela Intermediary Company, to assist in obtaining payment priority from PDVSA over other similarly situated companies. Glencore paid the intermediaries a percentage fee based on the total amount of money obtained from PDVSA.

For example, on December 11, 2012, Glencore Energy UK Ltd. paid Venezuela Intermediary Company’s invoice in the amount of $18,605.19 as a fee for recovering a late interest payment from PDVSA.

In total from 2012 through 2014, Glencore paid at least approximately $1,286,057 to Venezuela Intermediary Company, with the intent that a portion of the payments be used as bribes to, and for the benefit of, a PDVSA official, in order to obtain payment priority from PDVSA. Glencore and its subsidiaries obtained a total of approximately $11,981,164 in payments from PDVSA through Venezuela Intermediary Company.”

The FCPA’s anti-bribery provisions are not an all-purpose corporate ethics statute, but rather a limited statute with specific elements that must be met for there to be a violation.

Among the required elements is “obtain or retain business.” The FCPA’s anti-bribery provisions capture the authorizing or payment of money or anything of value, to a foreign official, for purposes of:

(A)       (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B)       Inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality

in order to assist … in obtaining or retaining business for or with, or directing business to, any person.

In other words, “in order to secure improper business advantages” is not sufficient to meet the required element – the required element is “obtain or retain business.”

In this way, the Venezuelan allegations in the Glencore enforcement action are clearly deficient.

From Where Does This Standard Come From?

While one might like to think that all aspects of an FCPA enforcement action (including resolution dynamics) are grounded in actual law, the truth is far different.

Reading certain FCPA enforcement actions, one wonders from where the DOJ comes up with certain standards.

For instance, the DOJ cited the following remedial measures by Glencore:

“(e) the defendant engaged in remedial measures, including: (i) terminating and separating certain employees who were involved in the conduct; (ii) established a centralized compliance function, hiring a Head of Compliance, and significantly increasing the number of employees in compliance functions; (iii) enhancing its business partner management, including reducing the number of third-party business partners engaged and implementing due diligence procedures, payment controls, and post-engagement monitoring measures; (iv) investing in increased head count and data analytics to support real time compliance monitoring and risk assessment and continuous improvement; and (v) requiring global anti-corruption compliance and business ethics training as well as additional risk-based training for high-risk and control employees, directors, and business partners.”

Nevertheless, the DOJ imposed a monitor on Glencore as a condition of settlement (an act by the DOJ not governed by any actual legal standards).

The supposed reason?

As stated by the DOJ:

“(g) because certain of the defendant’s 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, the imposition of a Monitor is necessary to reduce the risk of recurrence of misconduct;”

From where do these supposed standards even come from?

What is next?

“Because this enforcement action was resolved on a Thursday, the imposition of a Monitor is necessary …”.

Fine, that may not be the best analogy, but you get the point – the DOJ is just making things up and the things made up are not tethered to any actual legal standard.

Piling On

As highlighted in this prior post [10], in 2018 the DOJ announced a non-binding policy discouraging “piling on” by instructing DOJ “components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”

This prior post [11] discussed how discouraging “piling on” sounds great, but it all depends on what “piling on” means.

As highlighted many times on these pages, much of the largeness of modern FCPA enforcement has resulted from corporate enforcement actions against foreign companies (based in many instances on mere listing of securities on U.S. markets and in a few instances – such as Glencore – on sparse allegations of a U.S. nexus in furtherance of an alleged bribery scheme).

A substantial majority of these enforcement actions have been against companies headquartered in countries that, like the U.S., are parties to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions [12] (OECD Convention). In other words, “peer” countries with mature FCPA-like laws governing the conduct of their companies coupled with reputable legal systems to prosecute such offenses.

Given this reality, as well as the specific provision in Article 4 of OECD Convention that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution,” is it “piling on” when the U.S. brings FCPA enforcement actions against such foreign companies for their interactions with non-U.S. officials?

Consider the Glencore enforcement action.

Glencore is a U.K. company, the conduct at issue involved officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of Congo, and Glencore was subject to enforcement actions based on the same core conduct in the U.K. and Brazil.

Yes, similar to prior analogous enforcement actions, the DOJ did provide credits or offsets for foreign law enforcement actions based on the same conduct.

However, let’s call a spade a spade. The U.S. FCPA enforcement action against Glencore was “piling on.”

In the minds of some [13], FCPA enforcement has become a convenient cash cow for the U.S. government. The Glencore enforcement action only amplifies these concerns.

From a historical perspective, it is worth noting that part of the FCPA reform discussion in the 1980’s were bills –introduced by Democrats – seeking to waive the FCPA’s provisions “in the case of any country which the Attorney General has certified to have (1) effective bribery or corruption statutes; and (2) an established record of aggressive enforcement of such statutes.” (See S. 1797, Competitive America Trade Reform Act of 1985, introduced on October 29, 1985 by Senator Gary Hart (D-CO) and H.R. 3813, Competitive America Trade Reform Act of 1985, introduced on November 21, 1985 by Representative Vic Fazio (D-CA)).

While waiving the FCPA’s provisions – as those bills sought to do – does not seem like a good idea, perhaps the time has come with the maturity of the OECD Convention – for U.S. enforcement agencies to adopt a policy of not bringing FCPA enforcement actions against foreign companies from peer OECD Convention countries.

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