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Glencore at the “Core” of massive bribery and price fixing

(Editor – Thanks to the AFR for this investigative journalism) Inside Glencore’s epic $2b bribery shame

Glencore’s massive bribery and corruption settlement could call into question the “special sauce” the market believes the company has.  

It sounds like something out of a B-grade movie.

The year is November 2008, and a trader in the London office of resources giant Glencore emails an agent in West Africa. The message is simple: use part of a $US90,000 payment the trader has sent to bribe Nigerian officials to falsely undervalue a cargo of oil to Glencore’s benefit.

Glencore CEO Gary Nagle says the company’s culture has changed.  

The trader tells the agent the amount will cover the officials in “newspapers (sic) reading material”, which is code for corrupt payments. The West African agent responds: “The newspapers will be delivered.”

It’s a simple but telling example of the bribery and corruption charges Glencore pleaded guilty to on Tuesday night in a co-ordinated prosecution by regulators in the United States, Britain and Brazil.

The scale of the scandal at Glencore, a $120 billion London-listed giant and the biggest coal producer in Australia, is breathtaking.

Between 2007 and 2018, Glencore and its subsidiaries paid about $US100 million in bribes to officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, the Democratic Republic of Congo, Brazil and Venezuela to secure oil contracts, access confidential information, and secure preferential treatment.

In Nigeria and Cameroon alone, Glencore paid bribes and kickbacks between 2007 and at least 2017 in exchange for preferential treatment and access to more than 100 oil cargo trades.

The bribes were paid often with the knowledge of top executives and, on occasion, from cash desks inside Glencore’s London and Switzerland offices; the cash desk at its office in Baar, Switzerland, didn’t close until 2016.

“To conceal the corruption, the corrupt payments at times were in large amounts of cash, and in some instances, corrupt payments also were invoiced through third-party companies, with deceptive invoices to Glencore for euphemistic costs or services such as ‘advance payment’, ‘marketing services’, or ‘commissions’,” the US Commodity Futures Trading Commission says in its orders.

“Glencore traders and intermediaries at times used coded language such as ‘filings’ ‘newspapers’, or ‘chocolates’ when referring to the corrupt payments.”

The misconduct didn’t stop there. Glencore also admitted that it manipulated US oil markets until as recently as mid-2018, submitting buy and sell orders during trading windows in order to push prices up or down – delivering Glencore profits, but causing counterparties to lose money and muddying the market for all participants.

Glencore will pay fines and penalties of up to $US1.5 billion ($2.12 billion) in what is one of the biggest cases of its kind.

Glencore chairman Kalidas Madhavpeddi said that “Glencore today is not the company it was when the unacceptable practices behind this misconduct occurred”, while CEO Gary Nagle said the behaviour had “no place at Glencore”. Neither apologised in their written statements, and neither was personally involved in the scandal.

Glencore’s shares rose following the announcement, as investors bet the cloud hanging over the company for almost five years has finally been resolved.

Besides, as Bloomberg calculated, the fines only account for about five weeks of earnings.

The bribery allegations, first revealed by the company in 2018, created controversy in the last few years of the reign of Glencore’s former chief executive and talisman Ivan Glasenberg, who retired last year after 19 years at the helm.

Glasenberg was never implicated in any wrongdoing, and his successor, Nagle, who has been with the company since 2000, will be hoping these settlements finally put the matters to bed.

Glencore pleads guilty to decade of bribery and manipulation

But the shame of this bribery scandal should burn inside Glencore for a long time to come.

The market has long viewed Glencore’s special sauce as the unique understanding it has of complex and opaque commodity markets, thanks to its role as both trader and producer. The bribery scandals suggest that at least on some occasions, the company’s unique advantage was unfairly gained.

Perhaps investors, who have seen Glencore’s share price soar by 70 per cent in the past 12 months, will be unfazed. But Glencore’s counterparties and its regulators may take more convincing that the group has changed.

Dash Editor

Self-confessed confused news junkie, with lifelong additions to coffee, great conversations, perfection in all its forms, cold wine, hot music and puppy dogs.

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