Glencore’s Oil Market Manipulation and Bribery Case Is On The Wild Side

The Weekend Brief (TWB) is inspired by American rock band Mötley Crüe who just announced a new tour with rock guitarist, John 5. I suggest listening to the song Wild Side as you read TWB.

Press play: https://www.youtube.com/watch?v=IlRDZUaJ8fs

On 24 May 2022, Glencore International A.G. (herein referred to as “Glencore”) pled guilty to the United States Department of Justice’s (DOJ) claims that the Swiss mining and commodites trading company violated the Foreign Corrupt Practices Act (FCPA) and engaged in a commodity price manipulation scheme while the company was being run by former CEO Ivan Glasberg.

This was part of a multi-government effort from the United States, United Kingdom and Brazil — resulting in Glencore setting aside $1.5 billion for potential settlements over the corruption and bribery investigations into their oil trading schemes.

In the plea agreement, Glencore was forced to pay more than $428 million in criminal fines and more than $272 million of criminal forfeiture and disgorgement. By accepting a independent compliance monitor for three years, the DOJ has agreed to credit around $256 million of the payments made by Glencore to assist the DOJ in related investigations of other domestic and foreign perpetrators.

According to U.S. Attorney General Merrick Garland: “This represents the Justice Department’s largest criminal enforcement action to date for a commodity price manipulation conspiracy in oil markets. ”

In a separate case initiated by the Commodity Future Trading Commission (CFTC) there were charges of manipulative and deceptive conduct brought against three entities: Glencore International A.G. (Switzerland), Glencore Ltd. (New York), and Chemoil Corporation (New York).

This case was investigated for actions committed by Glencore and its subsidiaries due to oil price manipulation and foreign corruption in the United States and global oil markets from 2007–2018. These actions included manipulation or attempted manipulation of four S&P Globl Platts physical oil benchmarks and related futures and swaps in the United States — all for the purpose of profiting from market trades that exclusively benefitted Glencore executives and traders.

The CFTC’s order forces Glencore to pay $1.186 billion as a settlement for its manipulative and fradulent conduct in the global oil markets. According to CFTC Chairman Rostin Behnam, Glencore’s actions to manipulate and decieve traders and markets has caused a direct impact on consumers, alluding to how Glencore’s oil market manipulation scheme “can drive up the cost Americans pay at the pump or to heat their homes.”

It was noted in the CFTC’s order that there was direct intent by Glencore personnel to manipulate the price of fuel oil products in interstate commerce as well as create artifical prices so that Glencore’s trading positions could profit further from volatile oil markets.

In connection to the DOJ’s foreign bribery and corruption case, the CFTC also launched an investigation into Glencore’s fraud and corrupt payments to employees and agents of state-owned entities (SOEs) in Brazil, Cameroon, Nigeria and Venezuela. In addition, there were charges of misappropriation of confidential information from certain SOEs in Mexico.

In conclusion, it was asserted in the CFTC order that by conducting business with those countries’ SOEs, through bribery and corrupt payments, that Glencore had in fact secured unlawful competitive advantages in trading physical oil products — and they did so intentionally — with the result of several Glencore executives and oil traders receiving hundreds of millions of dollars in improper gains from such illicit activity.

On 21 June 2022, Glencore UK Energy Ltd., a UK subsidiary of Glencore, pleaded guilty to seven counts of foreign bribery in conjunction with oil operations in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria and South Sudan. At a Southwark Crown Court hearing in London, Glencore UK Energy Ltd. admitted to paying over $28 million in bribes in exchange for preferential oil access from those countries.

The UK’s Special Fraud Office (SFO) launched the investigation in 2019. Glencore’s foreign bribes were exposed by the SFO investigation, including increased cargoes, valuable grades of oil and preferable dates of delivery.

SFO Director Lisa Osofsky said: “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 US and other jurisdictions.”

Glencore is a member of the FTSE 100 index of Britain’s largest public companies. That’s why the SFO’s investigation into a Glencore UK subsidiary is crucial. For instance, the success of the UK’s Bribery Act could be at stake in determining whether or not Glencore’s foreign corruption violated Section 1(1) and (2) of the Bribery Act. If so, Glencore’s public contracts could potentially be affected.

It’s important to know that the SFO is carrying out its investigations to find out who is to be held accountable for the foreign bribes and corruption — not only the Glencore agents and employees of the UK subsidiary, but also Glencore’s top executives from the parent company in Switzerland. This is one of the key issues of the case.

The results have so far proved that the top executives should be held accountable for the actions committed by its subsidiaries.

According to the SFO: “Glencore has been convicted of seven counts of bribery under the Bribery Act 2010, five substantive charges under Section 1 and two under the corporate failure to prevent bribery offence, section 7.”

The “corporate failure to prevent bribery offence” held under Section 7 of the Bribery Act 2010 is the likely target of Glencore’s top brass in Switzerland. Any chance of getting those individuals charged in the case would have to fall under the guidelines and criteria of Section 7.

Glencore is a multinational commodities mining and trading corporation engaged in producing and trading thermal coal, crude oil and a variety of future-oriented metals including copper, cobalt, aluminum and ferrochrome. In this context, Glencore is undoubtedly one of the largest natural resource companies globally, along with mining processing facilities in some of the largest resource producing areas in the world.

The organization’s headquarters are based in Baar, Switzerland. Established in 1974, the company was formerly named after its founder Marc Rich, who then sold the company in 1993 when it was renamed to Glencore.

According to the 2022 Half-Year Report (H1 2022) released by Glencore on August 4, 2022, the company’s revenues from global operations reached $1.34 billion in H1 2022 — a 43% change year-over-year (yoy) from $934 million in H1 2021. Overall global revenues amounted to $2.3 billion at the end of 2021, so it is likely that Glencore’s global revenues will surpass the preceding year’s profits by a wide margin.

CEO Mark Nagle attributed this performance growth to a volatile energy market driving both industrial and marketing revenues for Glencore’s business operations, which reached an earnings before interest, taxes, depreciations and amortization (EBITDA) amount of $18.9 billion in H1 2022 — -Marketing EBITDA collected $3.7 billion; Industrial EBITDA collected $15.0 billion; and Oil exploration and production (E&P) assets collected $558 million.

The massive pop in the industrial EBITDA was attributed to Glencore’s thermal coal operations during record prices of coal market price benchmarks, including the acquisition of the Cerrejón coal mine located in La Guajira, Columbia, by which it acquired the remaining 66% stakes from BHP and Anglo American for $588 million in January 2022, giving Glencore full ownership of the Cerrejón mine.

In addition, Glencore bought out the remaining stakes of the Rolleston thermal coal mine located in Queensland, Australia, shortly after acquiring the Cerrejón mine, giving it full ownership of the Rolleston mine as well.

As one of the world’s largest miners and commodities traders, the company’s exposure to thermal coal, crude oil and critical metals such as cobalt and zinc, has brought Glencore’s profit margins to exceedingly new highs.

Reuters reported that Glencore’s profits would exceed $3.2 billion [£2.6billion] in just the first half of this year (H1 2022). This is nearly the amount of profits the company made in the whole year of 2021, when the company held record profits of $3.7 billion. Therefore, Glencore is on its way to have another historical year in profits from the mining and trading of global commodities, which have been exacerbated by the ongoing Russia-Ukraine Conflict.

Moreover, since Glencore is one of the only countries that still has a full-fledged coal business, it has given the company extreme flexibility to give investors more returns through corporate buybacks and dividends.

Spotlight On Corruption in the UK has been following the SFO’s investigation proceedings against Glencore Energy UK Ltd. On the case, they added that “compensation for the victims of their alleged corruption in West Africa” must be acknowledged and enforced. After the announcement of Glencore Energy’s conviction of foreign bribery in UK courts, Spotlight On Corruption put out a statement on Twitter:

“We also need to see @UKSFO move swiftly to ensure that senior executives who approved or encouraged this bribery scheme are in the dock, to ensure real accountability and effective deterrence.”

Spotlight On Corruption believes in the mission to stop bribery worldwide. It can effectively build trust in public institutions, while strenghtening democratic governments and sustainable development initiatives. On their homepage, the NGO highlights to readers how “Spotlight on Corruption shines a light on the UK’s role in corruption at home and abroad.”

In doing so, the organization researches how the UK’s 2010 Bribery Act is implemented and how changes to relationships with foreign governments are affecting successful anti-corruption outcomes in UK courts. For example, since the UK’s exit from the European Union — Brexit — the Bribery Act has come under fire from the public in regards to its effectiveness in alleviating foreign corruption and economic crimes.

Organizations such as Spotlight On Corruption are working endlessly toward the mission of stamping out foreign corruption all over the world, by means of monitoring governments and their relationships with one another in both domestic and international economic, legal and political frameworks.

As for me, the facts are not on Glencore’s side in this case from any angle you look at it. On the other hand, the CEO transition gives Glencore the opportunity to show the public a new face along with the new rhetoric around sustainability and anticorruption measures, according to the company’s ESG frameworks, even though the new CEO Mark Nagle is by no means a new face to Glencore.

https://www.youtube.com/watch?v=c76pzDJQGWM

Glencore’s executives should at least acknowledge that compensation for the victims is a top priority of the company’s proceedings following the outcome of the case, for which a settlement could be forthcoming, thereby setting the stage for acknowledging that the company is indeed combating corruption in its corporate practices for mining and trading around the world.

Former CEO Ivan Glasberg spoke to Bloomberg about the massive surge in commodities demand before stepping down as CEO. The circumstances are giving Glencore the momentum to push on with its productions around the world and I don’t see how any change of administrative practices are going to genuinely occur over such a short period of time — a period of time that is crucial for Glencore to significantly raise profits and revenues during commodity markets volatility.

Legal research and analysis has taken on a much more important role in today’s society due to the international nature of many of the world’s biggest corporations and businesses. Along with the development of a interconnected global economy, there are more and more legal cases to be identified and analyzed in many areas of law. The outcomes of these cases, such as the agreement between Glencore and the DRC to resolve all present and future claims of corruption, have produced effects across borders and legal jurisdictions, which is why legal cases are significant to civic societies, the global economy and international politics.

I’ll be publishing The Weekend Brief (TWB) regularly touching on aspects of the global markets (including stock markets) which are at the nexus of tech, industrials and global commodities. Please follow the publication Areas & Producers to read more content about the future of core areas and critical producers of the global economy.

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