After impoverishing millions around the world for decades, Glencore finally gets slapped by US courts

An employee stands by a logo for Glencore Agriculture in Glencore Plc's offices in Rotterdam, Netherlands, on Tuesday, April 25, 2017. Since taking over Glencore Agriculture in 2002, Chris Mahoney has overseen the transformation of the unit into a standalone enterprise that generates more revenue from owning fixed assets in strategic locations than simply trading. Photographer: Simon Dawson/Bloomberg

By Phillip van Niekerk

9 Mar 2023

The prosecution of one of the world’s largest white-collar criminal enterprises wrapped up last week in the United States.

Multinational commodities giant Glencore was last week ordered by a US judge to pay $700-million in fines, bringing to $1.5-billion the total that the company has had to cough up so far for decades of misdeeds.

Glencore pleaded guilty last year to violating the Foreign Corrupt Practices Act in seven countries over a decade and to commodity price manipulation.

US Attorney-General Merrick Garland commented that “the rule of law requires that there not be one rule for the powerful; one rule for the rich and another for the poor”.

This was indeed one of the largest settlements ever in a corruption and commodities fraud case — but still just a drop in the bucket when compared to the $34-billion in earnings before interest, taxes, depreciation and amortisation that Glencore announced just three weeks before.

A simultaneous attempt to carve out a victim’s compensation fund for the people of the Democratic Republic of Congo (DRC) from the Glencore payout proved fruitless, though the government in Kinshasa did get $125-million.

J Peter Pham, a former US special envoy for the Great Lakes, pointed out that the penalty that Glencore is paying is dwarfed by the value that it gained through its bad conduct.

Glencore claims to have cleaned up its act and reformed itself, yet it offers a compelling case study of how corporations have corrupted Africa and kept the continent poor.

At the time of the Glencore guilty plea, US attorney Damian Williams characterised Glencore’s conduct in these words:

“The scope of this criminal bribery scheme is staggering. Glencore paid bribes to secure oil contracts. Glencore paid bribes to avoid government audits. Glencore bribed judges to make lawsuits disappear. At bottom, Glencore paid bribes to make money — hundreds of millions of dollars. And it did so with the approval, and even encouragement, of its top executives.”

And yet none of the top executives was charged, even though its South African-born CEO Ivan Glasenberg retired in 2021 as the third-richest man in Switzerland.

Glencore was long known as the biggest company that no one had ever heard about, and reporting on its fortunes was largely relegated to the business press whose main concern was how the investigation might impact the company’s share price.

US Attorney General Merrick Garland participates in a press conference with law enforcement partners, at the Justice Department in Washington, DC, USA, 24 May 2022. Garland announced a multi-national firm, Glencore, has agreed to plead guilty and pay penalties to resolve investigations into the violation of the Foreign Corrupt Practices Act and a commodity price manipulation conspiracy. EPA-EFE/MICHAEL REYNOLDS

An empire based on bribery

Glencore’s charges in Africa were split between the manipulation of prices in oil and commodity producers like Nigeria, Cameroon, Ivory Coast and Equatorial Guinea; and bribery to acquire copper cobalt assets in the DRC.

In the DRC, its partner in crime was the Israeli Dan Gertler, whom the US Office of Financial Assets Control accused of amassing a fortune “through hundreds of millions of dollars worth of opaque and corrupt mining and oil deals”. Gertler was sanctioned under the Global Magnitsky Act in 2018.

The profits that Glencore and its shareholders earned through these schemes was money that could have been spent on education or clinics or development. That it was done in league with local politicians and officials removes none of the stains.

To understand the full depth of the enterprise one needs to be reminded of how long it went on.

As far back as 1992, the US House Committee on Government Reform accused the forerunner of Glencore, Marc Rich + Co Investment AG, of developing a trading empire that was “based largely on systematic bribes and kickbacks to corrupt local officials”.

Rich, himself a refugee from the Nazi Holocaust, was the pioneer of modern-day commodity trading, credited with creating the spot market for crude oil trading in the 1970s.

The essence of the business model was a willingness to do whatever it took, whatever the company could get away with, to drive up profit margins.

Commodity trading is a high volume, low margin, high-risk business in which all participants strive to achieve certainty of supply and to expand margins through, for instance, long-term preferential marketing deals and creative tax accounting.

But Rich’s genius was in political opportunism: making hay out of political crises, embargoes and conflicts. He bought grain from the Soviet Union after the invasion of Afghanistan; bypassed the Arab blockade to get oil to Israel; and moved oil from Iran into international markets after the fall of the Shah.

In an interview with the writer Daniel Ammann, one of Rich’s close associates disclosed they had made a $2-billion profit by evading the UN embargo to supply oil to apartheid South Africa.

The company set itself up in Switzerland, a robust financial centre with minimal restraints on business. Switzerland has extremely moderate tax rules, providing a convenient transit point for transfer pricing, and an ironclad respect for confidentiality.

Until 2002, Switzerland was not a member of the United Nations and this allowed Rich to argue that his trade with outlaw states, in violation of UN sanctions, did not break any laws. Furthermore, bribery itself was not outlawed in Switzerland until 2002.

In the 1980s and 1990s, Rich was pursued by the US Department of Justice for tax fraud and for aiding Iran. He spent decades as a fugitive from the law before President Bill Clinton controversially pardoned him on his last day in office.

Though he successfully evaded arrest by the FBI, the blows to Rich’s reputation took their toll and top management bought out the company in 1994 and changed its name to Glencore.

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It’s in its DNA

Rich left the company, but not much else changed. Glencore was propelled forward by traders to whom he had taught the business. Glasenberg, who became CEO in 2002, was a protégé. So too was Aristotelis Mistakidis, the man who established Glencore’s reputation in copper and was forced out in 2018 as the sacrificial lamb for Glencore’s missteps in the DRC.

The point is that the trail of criminality for which Glencore stands accused was not a random collection of unconnected events, but a pattern of activity fundamental to its business model.

The playbook consisted of behaviour that repeated itself over and over and over again in multiple jurisdictions:

Bribing of foreign officials;

Bribing of regulatory insiders to acquire privileged pricing intelligence and access to deals;

Deployment of middlemen as cut-outs in corrupt deals;

Transfer pricing from high-tax to low-tax geographies;

Aggressive tax avoidance;

Market manipulation through artificial constriction of supply; and

Profiteering off international sanctions.

Glencore was able to do this by surrounding itself with highly paid lawyers, accountants, fixers and public relations experts.

The company was expert at disguising the sleazy end of the business by moving money through an opaque web of front companies and accounts in multiple countries and offshore havens, and paying off political sponsors through disguised “loans” to intermediaries such as Gertler.

An employee stands by a logo for Glencore Agriculture in Glencore Plc's offices in Rotterdam, Netherlands, on Tuesday, April 25, 2017. Photographer: Simon Dawson/Bloomberg

Even after Glasenberg took Glencore public on the London Stock Exchange in 2013, the company kept its secrets.

While Glencore was assuring shareholders that it would never countenance corruption in its operations, it was engaged in a crime spree so extensive that took years for the DOJ and law enforcement agencies in the US, Brazil, and the UK to unravel. Switzerland and the Netherlands are still investigating.

It was only because of dogged work done by investigative journalists and by NGOs such as Global Witness, that the story was uncovered, piece by piece.

The extent of subterranean activity shielded from shareholders was exposed in November 2017, when millions of confidential documents from the Appleby law firm were leaked to the International Consortium of International Journalists.

The offshore financial data, which became known as the Paradise Papers, included a trove of documents from the “Glencore Room” that lifted the veil on how the company used financial havens to divert millions of dollars to evade taxes and to make corrupt payments.

A rules-based order

The point of all this is not to drag on endlessly about Glencore. The company claims to have turned a corner. As part of its agreement with the US government, it has installed independent legal monitors to oversee its activities.

Prosecutors said the relative leniency of the sentences, which are below US sentencing guidelines, reflected credit for Glencore investing “significant resources” in improving ethics and compliance.

There was at the end of the day some accountability, which is not the case with companies from China which do not have anti-corruption laws like those that are common now in almost all the OECD countries.

Nor is this meant to be a rave against the mining industry. Quite the opposite. African countries need foreign capital. They need technology. They need big companies committed to codes of conduct, good jobs and safe environmental practices.

Mostly they need companies willing to be part of a rules-based order that are prepared to contribute to benefiting local populations and to paying fair taxes. Africa will be helped by an agreement, at the urging of the Biden administration, to apply cross-border tax rules that will impose a minimum tax rate of 15% on foreign multinationals. About 140 countries have signed up.

This will include a top-up tax on profits booked in countries that have lower rates that will diminish the attraction of offshore havens.

For now, the challenge is that with a commodities boom, Africa is being picked apart by small operators, many of them foreign, using local artisanal miners to scratch the surface or dig down into old mines for a world market hungry for gold or EV battery minerals.

The issue with Glencore’s behaviour is that it broke the rules repeatedly and in the process made Africa poorer.

Glencore gets to keep the Kamoto and Mutanda mines in the DRC, two of the world’s most extensive copper deposits and the world’s largest cobalt reserves, despite the murky dealings behind their acquisition.

And the DRC, with all its mineral wealth, remains one of the poorest countries in the world with a gross national income of around $500 per person per year. DM

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Africa

An empire based on bribery

It’s in its DNA

A rules-based order