Commodities in the Crosshairs: CFTC Joins DOJ and the SEC to Target Commodity Traders for Corrupt Practices Abroad
The U.S. Commodity Futures Trading Commission (“CFTC”) is entering the fight against foreign bribery and corruption. That is the clear message from recent announcements as the CFTC has made clear that it wants to join the U.S. Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”) and foreign authorities by targeting commodity firms that commit corrupt practices outside the U.S. Soon after making a highly publicized announcement in March 2019, the CFTC issued an alert in May 2019, in which it actively solicited—and promised to pay—whistleblowers who provided the CFTC with actionable intelligence about commodity firms foreign corrupt practices. Recent news reports suggest that the CFTC’s efforts may be part of a larger and more coordinated campaign as several commodity firms have announced that they are under investigation for alleged corrupt activities in Brazil, Venezuela, Switzerland and elsewhere. Given the increased attention on commodities traders, it is more important than ever that commodity firms pay special attention to the specific risks associated with their activities abroad.
The CFTC Joins the Foreign Corrupt Practices Fight
Enforcement of foreign bribery and corruption cases in the United States has traditionally been handled by criminal prosecutors at the DOJ and civil regulators at the SEC. As first reported in March 2019,1 however, CFTC Director of Enforcement James McDonald made a highly publicized announcement at the ABA’s National Institute on White Collar Crime that the CFTC also would begin enforcing the Commodity Exchange Act (“CEA”) against those who engage in foreign corrupt practices in commodities business.2 In his remarks, McDonald explained:
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. Bribes might be employed, for example, to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives. Corrupt practices might be used to manipulate benchmarks that serve as the basis for related derivatives contracts. Prices that are the product of corruption might be falsely reported to benchmarks. Or corrupt practices in any number of forms might alter the prices in commodity markets that drive U.S. derivatives prices.3
Acknowledging that the CFTC already had opened investigations into such conduct, McDonald also explained that the CFTC would coordinate its investigations alongside the DOJ and the SEC since such cases typically would also involve violations of the Foreign Corrupt Practices Act (“FCPA”), as well.4
Soon afterward, the CFTC made another announcement concerning foreign bribery. In May 2019, the CFTC issued a “Whistleblower Alert,” soliciting reports by individuals who suspect foreign corrupt practices by commodity traders and promising to pay monetary awards to those who provide original information that lead to a successful CFTC enforcement action resulting in more than $1 million in monetary sanctions.5
News Reports Demonstrate Commodity Firms Being Targeted Like Never Before
As the CFTC has increased its scrutiny of commodity firms who may be engaged in foreign bribery and corruption, several outlets reported that such firms are, in fact, under investigation by the CFTC, the DOJ, the SEC, and foreign authorities for alleged foreign corrupt practices. For example, in April 2019, Glencore PLC, a Swiss–based multinational commodity trading and mining company publicly announced that it was under investigation by the CFTC and DOJ.6 Later, in August 2019, Brazilian prosecutors entered into a cooperation plea agreement with Carlos Herz, an intermediary connected with the wide-ranging Petrobras scandal, who provided testimony against a number of individuals and commodity firms that bribed officials in Brazil.7 Among others, Herz alleged that bribes were paid through intermediaries by Glencore and at least two other commodity firms.8
Notably, the allegations against Glencore and other commodity firms concerning bribery in Brazil followed very similar bribery allegations that were lodged against them (and others) in a civil lawsuit that was filed in Miami, Florida in 2018.9 According to the publicly filed allegations in that suit and public reports concerning related litigation in Switzerland, the plaintiffs have alleged that the commodity firms also paid bribes in Venezuela in connection with the wide-ranging PDVSA scandal.10
What This Means for You
The CFTC’s increased activity and the recent news reports concerning international investigations into major commodity firms should serve as a wake-up call to companies, executives and traders who operate in the international commodity space, especially if the operations at issue take place in countries with notoriously high rates of corrupt activity. Given the increased level of scrutiny, commodity firms should ensure that their compliance efforts are operating effectively and they would be well-advised to seek counsel with specific experience and expertise in anti-corruption investigations and compliance matters.
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1 William E. Lawler et al., CFTC Announces New Enforcement Advisory Relating to Foreign Corrupt Practices, VINSON & ELKINS LLP, March 7, 2019, available at https://www.velaw.com/V-E-Report/CFTC-Announces-New-Enforcement-Advisory-Relating-to-Foreign-Corrupt-Practices/.
2 COMMODITY FUTURES TRADING COMM’N, Remarks of CFTC Director of Enforcement James M. McDonald at the American Bar Association’s National Institute on White Collar Crime, March 6, 2019, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opamcdonald2.
4 Id. The CFTC’s approach in such cases appeared in many ways to follow DOJ’s FCPA Corporate Enforcement and “Anti-Piling On” policies insofar as the CFTC also issued an Enforcement Advisory applying a presumptive declination to seek civil penalties in self-reporting cases (“absent aggravating circumstances”) and the CFTC would credit penalties and disgorgement paid to other authorities, where appropriate. See U.S. DEP’T OF JUSTICE, Deputy Attorney General Rod Rosentstein Delivers Remarks to the New York City Bar White Collar Crime institute (May 9, 2018), available at https://www.justice.gov/opa/speech/deputy-attorney-general-rod-rosenstein-delivers-remarks-new-york-city-bar-white-collar.
5 COMMODITY FUTURES TRADING COMM’N, Whistleblower Program Overview, available at https://whistleblower.gov/sites/whistleblower/files/2019-06/FCPA%20WBO%20Alert.pdf.
6 Glencore, Announcement re the Commodity Futures Trading Commission, April 25, 2019, available at https://www.glencore.com/en/media-and-insights/news/announcement-re-the-commodity-futures-trading-commission.
7 MLex, Glencore Executives targeted by Brazilian federal prosecutors investigating Petrobras bribery scheme, (Sept. 9, 2019), available at https://www.mlex.com/GlobalAdvisory/DetailView.aspx?cid=1127165&siteid=234&rdir=1
9 PDVSA U.S. Litigation Trust v. Lukoil Pan Americas LLC et al., 1:18-cv-20818-DPG, (S.D. Fl., Mar. 3, 2018) (district court case); PDVSA U.S. Litigation Trust v. Lukoil Pan Americas LLC et al., No. 19-10950 (11th Cir., Mar. 13, 2019).
10 Chambre pénale de recours [Court of Justice – Criminal Appeals] Dec. 4, 2018, P/3072/2018, ACPR/724/2018 (Republic & Canton of Geneva, Switz.).