Glencore forks out over US$1.1bn amid bribery and manipulation allegations

Switzerland-headquartered Glencore (LON: GLEN) has pleaded guilty to acts of bribery and commodity price manipulation spanning over a decade across the globe, forcing the company to fork out over US$1 billion in reparations.

The mining and commodity trading firm hopes the US$1 billion will alleviate its damaged reputation, which has been questioned in recent times about its actions in pursuit of profit.

Following UK and US investigations, Glencore reportedly paid over US$100 million in bribes to government officials in Brazil, Nigeria, the Democratic Republic of Congo and Venezuela.

Manhattan US attorney Damian Williams said bribery and manipulation became the norm in the corporate scene for Glencore.

“The scope of this criminal bribery scheme is staggering.”

“Bribery was built into the corporate culture,” he said.

“The tone from the top was clear: whatever it takes.”

Glencore chairman Kalidas Madhavpeddi said the bribery charges the company had pled guilty to were “unacceptable practices”.

“Glencore today is not the company it was when the unacceptable practices behind this misconduct occurred,” he said.

Glencore, founded by US fugitive Marc Rich, is one of the world’s largest companies, which dominates trading of oil, fuel, metals, minerals and food across the globe.

Origin of the allegations

Glencore was subject to investigation by the US in 2018, with details of the corruption in Africa also beginning to emerge last year after a former Glencore trader pleaded guilty to Nigerian officials to obtain favourable treatment from the state-owned oil company.

The Commodity Futures Trading Commission (CFTC) said the corruption and manipulation spanned from roughly 2007 through to 2018.

CFTC said Glencore traders would use codes such as “newspapers” or “chocolates” to refer to corrupt payments.

Two traders from the company pled guilty for taking part in the US cases, but top executives have still escaped unscathed without punishment to-date.

Glencore chief executive Gary Nagle said the company is doing its best to work through the current investigations.

“We acknowledge the misconduct identified in these investigations and have cooperated with the authorities,” he said.

“This type of behaviour has no place in Glencore, and the board, management team and I are very clear about the culture that we want and our commitment to be a responsible and ethical operator wherever we work.”

Huge bill

Glencore hopes to resolve the UK, US and Brazilian investigations this year and has set aside US$1.5 billion.

Investigations in Switzerland and the Netherlands remain ongoing.

In the US, the US$1.1 billion covers a US$700 million reparation relating to a bribery probe and a further US$486 million over allegations of market manipulation.

On top of this, about US$166 million in fines was agreed, which will be credited to a parallel investigation by the UK Serious Fraud Office.

In Brazil, Glencore has set aside US$40 million to resolve a bribery probe.

Natural Resource Governance Institute adviser Alexandra Gillies said the actions of the global player were detrimental to particularly lower economically developed countries around the world.

“These are some of the poorest countries in the world, countries where citizens have suffered the terrible costs of corruption for many years,” she said.

Many experts believe the US$1.5 billion bill is not enough, with Glencore expected to earn more than US$17 billion this year, alone – a meaning it would make-back the US$1.5 billion in less than five weeks.

Moving forward

The investigations have overshadowed Glencore’s former chief executive officer Ivan Glasenberg, who is now worth almost US$9 billion.

Although yet to be singled out for legal action regarding the bribery and commodity manipulation allegations, Mr Glasenberg passed over the leadership role last year to Gary Nagle.

RBC Capital Markets analyst Tyler Broda said Glencore has learned its lesson.

“It will continue to operate in challenging jurisdictions, where risks from variant legal regimes will remain, but the lessons learnt from this both from a monetary perspective, but more from the ESG implications the company has faced for the last few years, are not likely to be soon forgotten by management,” he said.

“Glencore’s trading business is now much more reliant on its own infrastructure and long-term partnerships for profitability than it was 10 years ago, and we think this, and a wider cultural shift around marketing’s place within a public company, makes the risks around new fines or investigations as low.”

A sentencing hearing in the UK is scheduled for 21 June.