![COLUMN | What the Glencore conviction tells us about corruption and bribery in oil and gas: shareholders pay, individuals escape penalty [Offshore Accounts]](http://media.assettype.com/bairdmaritime%2Fimport%2Fwp-content%2Fuploads%2F221107-Offshore-Accounts1-1.jpg?w=480&auto=format%2Ccompress&fit=max)
Last week the Swiss-headquartered and UK-listed mining company and trading house Glencore was sentenced in the UK for seven counts of bribery.
Glencore pleaded guilty to the charges that the company's agents and employees had paid bribes of US$29 million to win contracts to sell oil on behalf of various state-run energy companies between 2011 and 2016. As a result, the judge, Mr Justice Fraser, announced that Glencore Energy UK must pay fines and restitution of £280 million (US$313 million) as well as all the costs of the Serious Fraud Office (SFO), which led the investigation.
The judge said Glencore had benefited from its criminal conduct by over US$100 million, which will be confiscated and is included in the total penalty above. Glencore has 30 days in which to make payment.
In June, Glencore admitted to massive bribery in Africa, as we mentioned here. Glencore accepted guilt in this wide-ranging corruption scandal, which stretched across multiple jurisdictions over many years, and involved both kickbacks to win oil shipments in Nigeria, Equatorial Guinea, Ivory Coast, South Sudan, and Cameroon, and the manipulation of American fuel oil price benchmarks.
Following these investigations, Glencore agreed to pay out a total of around US$1.1 billion as a settlement with the authorities in the US, and another US$40 million as a settlement with the Brazilian government. This sentencing hearing has now confirmed the penalties due in the UK.
The total penalties are less than 15 per cent of Glencore's first half profits of US$12 billion (here) and a drop in the ocean compared to the company plans to return US$8.5 billion to its shareholders in 2022 through dividends and share buybacks.
Rather ironically in light of these large profits and payouts, the British judge said that Glencore's fine must be "sufficiently large to have a financial impact… otherwise, there is a risk that companies such as Glencore will see penalties for bribery as… merely a potential extra cost of doing business".
In June, Glencore CEO Gary Nagle, who joined the company in the year 2000, said he was completely unaware these bribes were being paid over many years. Strange, that. He nonetheless apologised.
Nagle's predecessor Ivan Glasenberg had been CEO of Glencore from 2002 until 2021. Mr Glasenberg oversaw the company when, Mr Justice Fraser said, "the facts demonstrate not only significant criminality but sophisticated devices to disguise it," and that "offending that was sustained over prolonged periods of time".
After the conviction, Glencore's non-executive chairman Kalidas Madhavpeddi issued a statement (here).
"The conduct that took place was inexcusable and has no place in Glencore," wrote Mr Madhavpeddi. "The company is committed to operating a company that creates value for all stakeholders by operating transparently under a well-defined set of values, with openness and integrity at the forefront. The company has taken significant action towards implementing a world-class Ethics and Compliance Programme built around risk assessment, policies, procedures, standards and guidelines based on international best practice, associated training and awareness initiatives as well as monitoring systems."
So many buzzwords and such contrition there!
Mr Madhavpeddi's predecessor as chairman of Glencore was Tony Hayward, the "unlucky" former CEO of BP. Mr Hayward resigned after the Deepwater Horizon blowout and pollution incident in 2010, which incurred BP over US$50 billion in penalties and clean-up costs and resulted in the deaths of eleven men on the drilling rig. Mr Hayward was appointed to the Board of Glencore at the time of the Company's IPO in May 2011, and was appointed as Chairman in 2013.
Really? Can we consider this episode closed?
No. Emphatically, NO.
For a start, there are still criminal investigations in process in both Switzerland and the Netherlands, so Glencore may yet be hit with further fines and penalties.
The British conviction includes the first ever use of substantive bribery offences for a company, meaning senior individuals at Glencore authorised the bribery instead of simply failing to prevent it. So, who were these people who authorised the bribery?
The United States Department of Justice (DOJ) Statement of Facts on the Glencore case (here) gives anyone who knows Glencore well, or anyone who worked there, a pretty clear picture of who they were. There's a senior executive in Glencore's oil and gas division who holds a British passport, and who joined Marc Rich and company in or around 1987, and worked in a senior role from 2005 to 2018. There's another Briton who had responsibility for the sale and purchase of oil for Glencore worldwide from 2007 to 2019, referred to as "Executive 1" in the DOJ filing. Have they been prosecuted?
This is the glaring omission in the whole US$1.5 billion Glencore bribery scandal. The company, an abstract entity that cannot operate without human involvement, has confessed and been found guilty in multiple jurisdictions of crimes.
What about consequences for the individuals concerned?
On the receiving end, the many beneficiaries of Glencore's bribes are laying low, with one prominent exception.
Glencore admitted paying bribes of €10.5 million (US$10 million) to induce officials of the Cameroonian state companies Société Nationale des Hydrocarbures (SNH) and the Société Nationale de Raffinage to let it trade their oil on favourable terms. SNH denies any wrongdoing and said that it as a company never received the bribes.
Well, obviously… because the kickbacks were being pocketed by its managers in a personal capacity, not offered by Glencore as a rebate to its customers, at a corporate level, which would not be illegal.
Cameroon's anti-corruption agency said in May that it was investigating the case, but, so far (Spoiler alert!), no results of the investigation have been issued. Akere Muna, a Cameroonian lawyer and former Vice Chairperson of Transparency International, told Reuters (here) that the Cameroonian authorities "just have one thing to [do]. Ask Glencore, 'Who did you pay?' That is taking them forever. Glencore is still doing business in Cameroon!"
In Nigeria, the situation is clearer. Nigeria made written representations to the British court that it was "an identifiable victim of Glencore's admitted criminal activity", because two of the charges to which Glencore Energy had pleaded guilty relate to payments made by the company to Nigerian National Petroleum Corporation (NNPC) officials between 2010 and 2015. The American DOJ's Statement of Facts identifies, but does not name, the two key NNPC officials who participated in Glencore's bribery scheme.
Since the DOJ has already obtained a conviction from Glencore as bribe-payer under a plea agreement, it shouldn't be too difficult for the authorities to identify who they are.
Hell, a quick search on Linkedin for people working at NNPC between 2010 and 2015 would probably provide a quick shortlist of suspects… But you don't have to look yourself.
Bloomberg reported last year (here) that one of the individuals in question is Nigeria's oil minister at the time, Diezani Alison-Madueke. She became minister after a trail-blazing career in Shell, and, in 2014, she was elected as the first female President of OPEC. Throughout her career, Alison-Madueke has demonstrated convincingly that Nigerian women can be just as corrupt as Nigerian men.
In 2017, prosecutors from the DOJ's team dedicated to fighting kleptocracy (the theft of state assets) filed a case in Texas to seize nearly US$145 million worth of items, including a 65-metre-long yacht named Galactica Star, valued at US$80 million, an apartment in New York allegedly worth US$50 million, and other residential properties in California. The DOJ claimed that these properties and the boat had been purchased using funds embezzled from NNPC for the benefit of none other than the minister herself, Ms Alison-Madueke.
American prosecutors claim that companies set up by friends of the minister were awarded contracts by the minister herself to sell large allotments of Nigerian oil on global markets on behalf of NNPC. The companies won contracts to sell crude oil cargoes from NNPC worth about US$1.5 billion, the prosecutors allege, and the proceeds of those sales were diverted for the personal benefit of Alison-Madueke and her co-conspirators, hence the yacht.
Which company bought 15 of those cargoes in 2013 and 2014, totalling seven million barrels of oil, and paid more than US$800 million for the privilege?
I think you can guess. Glencore, of course.
Bloomberg reported that US$272 million "was diverted into an account at a Nigerian bank used for the purchases for Alison-Madueke."
Glencore trader Anthony Stimler has admitted that in late 2013 he agreed to pay more than triple the usual fees to an intermediary company that would be passed on as yet more bribes for obtaining favourable grades and loading dates of the Nigerian oil. Three months later, Bloomberg reported that he and a colleague made another US$500,000 payment so that Glencore would be eligible to buy additional Nigerian cargoes of crude.
So, Ms Alison-Madueke received bribes to sell oil to Glencore, and then stole the proceeds of the sale. Nice!
After she left her ministerial role in 2015, Ms Alison-Madueke moved to London. The UK was a country with which she was very familiar, as she had obtained an MBA in 2002 from Cambridge University's Judge Business School under a British government Chevening scholarship, according to Nigerian newspaper the Daily Sun (here). Her husband is a retired admiral in the Nigerian Navy.
You couldn't make this stuff up.
She has been charged with corruption by Nigerian authorities, but has so far has not been extradited back to her homeland, although US$21 million was recovered from her Nigerian bank accounts, and Galactica Star was sold by the DOJ. The yacht has been renamed Illusion, appropriately enough.
Alison-Madueke is under investigation by UK authorities as well and Corruption Watch has highlighted her multi-million UK properties that are currently under restraint by the British authorities (here).
Nice.
On the Glencore side, the mind boggles at some of the findings of the UK investigation, which suggest complicity for the crimes, if not full responsibility, went very high in the company. Anthony Stimler has admitted that when Ms Alison-Madueke, the corrupt Nigerian oil minister, approached NNPC's oil buyers for a monthly donation of US$300,000 to pay for election expenses, he sought and received approval from his superiors in Glencore to make the payment.
But, with the sole exception of Mr Stimler, nobody else has been found guilty either for paying bribes on Glencore's behalf. Stimler resigned from Glencore in 2019, pleaded guilty to his participation in the bribery in an American court in 2021, and is awaiting sentencing. He is the only (former) Glencore employee to be prosecuted in this scheme.
The SFO has admitted that it did not even bother to interview former Glencore CEO Glasenberg, let alone Hayward or Murray. This is absurd. No wrong-doing by them is suggested, of course, but these directors might be able to throw light on who was responsible, and how the company's internal procedures and controls worked.
Or not, as the case may be.
The SFO reported that two Glencore employees transported US$800,000 in cash by private jet to South Sudan in August 2011, just after the country gained independence from Sudan. In Glencore's accounts it was reported that the money was to be used for a new office and company cars in Juba, South Sudan's capital, but the cash was in fact used to pay bribes to officials to secure access to the nation's oil production for Glencore to sell. A further US$275,000 in cash was sent later by Glencore.
The SFO detailed how a Glencore oil trader on the West Africa desk withdrew a total of US$6 million in euros in cash from what was described as the company's "cash desk" at its headquarters in Switzerland.
This cash was used to pay bribes on 25 separate occasions between 2012 and 2015, the SFO found. Those cash withdrawals had to be signed off by senior employees, one of whom was a Glencore "business ethics officer" and another who was a member of the company's "business ethics committee".
Can you imagine a company where the finance department permits employees to sign for wads of tens of thousands of euros in cash to pay bribes, and where such practices weren't condoned very high up in the organisation?
The internal controls of handing over hundreds of thousands of euros in cash, renting a private jet, and then transporting it around Africa are mind-boggling.
But Stimler said that Glencore's oil trading department was making profits of close to US$200 million in 2017. Note that that profit would likely be after the payment of bonuses to staff. This is where it gets interesting – there are many more people in Glencore than just Stimler who benefited from Glencore's corruption, from the seven million barrels of cheap Nigerian crude it sold for a high margin. What about the people flying the cash around in private jets for a start, and those who received bonuses facilitated by the corrupt payments?
What's happened to them?
So far, nothing.
The SFO's lawyer has stated that up to eleven former Glencore staff members could be under investigation by UK prosecutors but that a decision to prosecute would not be taken until April next year (here).
Too little too late. The investigators need to be talking to all the Glencore senior managers and directors. So far the SFO has spent less in investigation costs (just over US$5 million) than Amber Heard spent defending herself unsuccessfully in the defamation case brought against her by her ex-husband Johnny Depp (US$6 million – here)
The case of SBM shows how little will the authorities in many western jurisdictions have to follow up against individuals even where their employers have admitted massive bribery.
Finally, happily, we can close the book on the affair of the SBM whistleblower Jonathan Taylor. Last month, the Monaco Appeal Court threw out the appeal by the Monegasque Public Prosecutor against the country's Investigating Judge's decision to end an investigation into Mr Taylor. So, Mr Taylor no longer has the threat of arrest or imprisonment hanging over his head.
His case highlights the risks of being a whistleblower, and the dangers of reprisal by employers in many jurisdictions around the world. For many countries, reporting that a crime has been committed by a large company is considered a worse offence than the original crime that is being reported. It is seen as disloyal and trouble-making, and bad for the business reputation of the country where the wrongdoing company is based. For some countries, brushing problems under the carpet is better than tackling corporate malfeasance.
The emperor may have no clothes, but prosecutors would prefer to prosecute those who inconveniently point this fact out, rather than the emperor himself for the crime of public nudity.
The root cause of Mr Taylor's legal problems was that he had raised the millions of dollars of bribes his company was paying to win FPSO contracts in Brazil and West Africa with the authorities. We covered the multiple corruption cases against SBM Offshore, which resulted in the company paying out more than US$800 million in criminal fines and other restitution payments in the Netherlands, Brazil, Switzerland and the US here.
In 2014, SBM Offshore had made a complaint of "attempted extortion" to Monaco's Public Prosecutor against Mr Taylor as part of the negotiations which led to him leaving the organisation after his whistle-blowing. SBM is the biggest private sector employer in the principality and even though it claimed later it was no longer interested in pursuing the case, the prosecutor was unwilling to let the claim drop. The charge of "attempted extortion" carries a maximum sentence of five years in Monte Carlo.
In 2020, whilst visiting Croatia on a family holiday, Mr Taylor was detained under house arrest for almost a year after Interpol issued an arrest warrant on behalf of the Monaco authorities, and he had to launch an expensive and time-consuming legal fight to clear his name whilst under house arrest, which resulted in him eventually travelling to Monaco to meet with the investigator upon his release.
Whilst Monaco's prosecutor has been steadfast in its pursuit of Mr Taylor, the authorities there have to date brought not one single charge against SBM or any of its former or current executives.
Two of its former CEOs have been convicted of criminal offences, but not in Monaco itself. British national Tony Mace was sentenced in 2017 by a US court to three years in prison for fraud-related offences, while his predecessor French national Didier Keller was found guilty in Switzerland in 2019, fined approximately €500,000 (US$496,840 at present rates), and given a suspended sentence.
Current SBM CEO Bruno Chabas and former "ethics" officer and now Supervisory Board member Sietze Hepkema both paid US$60,000 to settle criminal proceedings in Brazil in 2016. Hepkema was formerly Amsterdam senior partner and joint head of global corporate practice at London-based international law firm Allen and Overy.
In 2019, SBM was also found guilty of the extremely serious charge of misleading the markets in 2014 by the Amsterdam Financial Markets Authority. After a three-year appeal process, one of the two charges was confirmed, and the company was ordered to pay €1 million (US$990,000).
In his correspondence with us, Mr Taylor made the point that, "disappointingly, no executives of the company were named or suffered penalties."
Indeed, blaming companies for crimes, and finding "them" guilty is easy. It lets the individuals who actually did the dirty work off the hook.
One of the failures of authorities across the world after the Global Financial Crisis of 2008-2009 was that banks were fined billions of dollars, but not one single director, CEO, nor CFO of a major bank in the US, Canada, the UK, France, Belgium, or the Netherlands went to prison. In the US, only Kareem Serageldin, a former executive at Credit Suisse, was sentenced to jail time for mismarking bond prices to hide losses. This failure of holding individuals accountable, whilst they personally profited from the malfeasance they and their colleagues had committed, still rings true today.
It's good that Glencore has been fined for its bribery. It would be better if both those who personally paid and received the bribes were also held accountable, too.
Perhaps the SFO could even speak to Ivan Glasenberg (net worth US$7 billion – here) on his time running Glencore and what he knew or didn't know about the corruption occurring on his watch?
He made literally billions running the company, so what did he know about what was going on?
Background Reading
For an overview of some of the major oil and gas corruption cases, see our coverage of Leighton Offshore, SBM, Sonangol, Wood Group, Petrofac, Galp and others in 2021 here. The claims of Petrofac's Chairman that everything is different in the company now is almost line for line what the Glencore Chairman said.
See the UK Serious Fraud Office's press release on the Glencore sentencing.
A short history of Glencore – well worth reading – from NZZ is here. This details the foundation of the company by fugitive oil trader Marc Rich and its subsequent transformation into a publicly-listed company on the London Stock Exchange under former CEO Ivan Glasenberg.
For a longer history of Glencore and the other trading houses, we recommend our summer reading pick, the book The World for Sale: Money, Power and the Traders Who Barter the Earth's Resources by Javier Blas and Jack Farchy.
The full Volcker Report into the Oil for Food bribery scandal regarding oil sales from Iraq under Saddam Hussein is here. Strange how the same trading houses and companies are found to be behaving criminally over and over for several decades, and nothing seems to change.
For the scope of the British Bribery Act (2010) and how it is intended to be applied, see here.
"Meet our New CEO, Gary Nagle" in Glencore's, er, lively, video here.
