The Justice Department is coming to the close of a record FCPA enforcement year despite the disruptions caused by the pandemic. The Vitol case also represents the first parallel prosecution involving the Commodities Futures Trading Commission. 

Aside from these points, there are a number of valuable lessons from the case:

High-Risk Energy Trading Markets:  Commodity trading markets presents significant corruption risks.  While such trading operations are subject to extensive compliance efforts, the commodity trading industry has had its share of scandals and enforcement actions.  These risks include potential bribery of foreign government owned oil and gas producers for valuable contract and tender information.   These relationships include other significant risks including market manipulation and antitrust violations.  Commodity traders have significant incentives and opportunities to engage in misconduct given the financial reward.  To mitigate the risks, commodity trading operations have to adopt robust monitoring strategies to incorporate anti-corruption risks in addition to the heavily-regulated market risks.

Petrobras and Petroecuador Scandals: The Petrobras and Petroecuador corruption scandals continue to reverberate through every sector of the energy industry, including valuable energy trading operations.  To the extent a company engages or has engaged these state-owned companies, risks have to be identified and mitigated.  While both companies have undertaken reforms and enhanced their compliance operations, the nature and extent of their risks require vigilance in the supervision of these business activities.

Confidential Information:  The Vitol enforcement action underscores the value of tender and confidential, business sensitive information.  In many cases, market information from a state-owned industry, especially involving oil and gas, is extremely valuable on its own.  Bribe payments for such information in a competitive bidding process is a high-risk and compliance programs have to focus on monitoring such information and identifying acquisition of such information without appropriate justification.  The tender process with government agencies creates numerous opportunities for bribery and internal controls surrounding tenders need to be fulsome, enforced and audited on a regular basis.

Third-Party Risks: As in all FCPA cases, the Vitol enforcement action includes a number of corrupt third parties.  The Statement of Facts outlines a common technique – a sham consulting contract, fake invoices, and unusual payment arrangements.  Given these three specific tactics, it is useful to imagine how these activities could have been detected and then stopped.

The “sham consulting contract” probably occurred without legal and/or compliance review.  Such review would include verification of the counter-party, the service to be provided and due diligence of the third-party for compliance.

The “fake invoices” probably were processed without verification of the services provided and/or the amount paid for such verified services.  The internal business approval process, along with compliance review or monitoring, and with the back stop of an accounts payable staff, appropriately trained to identify suspect invoices, could have detected and prevented payment of these fake invoices.

Finally, the unusual payment arrangements could have been detected if Vitol verified the payments by requiring some justification for payments made to shell companies, to offshore accounts or through U.S. based correspondent bank accounts.

Senior Executive Participation:  A recurring theme in this year’s FCPA enforcement actions is the involvement and lead role played by senior executives in carrying out bribery schemes.  Vitol is yet another example of senior executives setting up bribery schemes.  Such a trend begs the usual question – what steps did Vitol take to assess its C-Suite risks and mitigate those risks?

Gatekeeper Functions:  The Vitol bribery scheme, as described by the Justice Department, makes no mention of Vitol’s compliance, legal or internal audit functions.  Given the amount of money and the pervasive bribery schemes, the absence of any meaningful gatekeeper roles demonstrates that Vitol’s oversight and monitoring functions either were non-existent or ignored corruption risks.