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Glencore faces new corruption investigation with CFTC probe

Like the banking sector, commodity traders are facing increased scrutiny for questionable business practices in resource-rich countries. Now Glencore, the world's largest commodity trader, is facing a US investigation for possible corruption.

Bloomberg
Photo: Bloomberg

Glencore Plc is under investigation by the US Commodity Futures Trading Commission for possible corrupt practices, the latest legal headache for the world's biggest commodity trader.

It is another sign that the industry is coming under intense scrutiny by authorities for business practices in resource-rich countries around the world. There is now a multitude of bribery and corruption investigations in jurisdictions ranging from Brazil to the US, drawing comparisons with the early 1980s when Glencore's founder Marc Rich was prosecuted for tax evasion.

Glencore is among the trading houses being investigated by the Justice Department, Federal Bureau of Investigation and Brazilian authorities in the Car Wash scandal. The company has also been subpoenaed by the Justice Department for documents relating to possible corruption and money laundering in Nigeria, the Democratic Republic of the Congo and Venezuela.

"This will not help the recently recovering sentiment from investors around Glencore shares but we are not sure that this extension, other than potentially expanded scope, really changes anything," said Tyler Broda, an analyst at RBC Capital Markets in London.

Glencore shares dropped 3.5 percent to 310.20 pence at 11:11 a.m. in London. The stock has suffered as investors fear the potential for big fines stemming from the investigations, falling 11 percent since July.

There is also the toll of lawyer fees. In its annual report, Glencore disclosed USD 24 million in legal costs last year related to the Justice Department investigation.

On Thursday, Glencore said the CFTC had notified it of investigations into whether the company violated parts of the Commodity Exchange Act or regulations on corrupt practices related to commodities. Glencore believes the CFTC's probe is similar in subject matter to the inquiry by the Justice Department.

CFTC spokeswoman Erica Elliott Richardson did not return a request for comment.

For the commodities industry, the CFTC investigation will almost certainly add to the perception among executives that authorities are zeroing in on its past dealings. Some of the biggest commodity trading houses have already said they plan to use fewer intermediaries in foreign countries, an area of the business that has faced scrutiny for facilitating bribery.

"The industry – like the banking industry was – is under a bit of a microscope," Trafigura Chief Executive Officer Jeremy Weir said in March in Geneva.

The CFTC investigation also marks a change for the regulator, which has not traditionally enforced foreign bribery laws.

James McDonald, the director of enforcement at the CFTC, said last month in a speech that the agency was investigating overseas fraud and manipulation under the Commodity Exchange Act. While he did not refer to any specific investigation, he gave several examples of types of behavior the regulator was looking into, including:

Paying bribes to secure business in connection with activities like trading, advising, or dealing in derivatives. Using corrupt practices to manipulate benchmarks that serve as the basis for derivatives contracts.

"Companies and individuals engaging in foreign corrupt practices should recognize that this sort of misconduct might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC," he said in the speech in New Orleans.

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