The Glencore Settlement: Lessons Learned (Part V of V)
The Justice Department has resumed FCPA enforcement with a bang. The new enforcement approach has been unveiled and the message for CCOs and corporate business leaders is clear — anti-corruption compliance should be a critical compliance priority. Companies that fail to do so will be severely punished.
The new DOJ approach stands as one of the most important events elevating the importance of corporate compliance over the last thirty years. However, DOJ’s new certification requirements are bound to be controversial because it strikes at a CCO’s most significant risk — personal liability. CCOs should take DOJ at its word — the certification requirement is intended to empower CCOs in the corporate governance landscape. This will be interesting to watch.
While the certification language includes acknowledgement that the certification statement is “material” and satisfies the obstruction of justice statute under 18 U.S.C. §1519, the likelihood of prosecution of a CCO will be rare (if at all) unless there is a blatant and intentional false representation. But relying on prosecutors to exercise proper prosecutorial discretion provides little comfort to CCOs who now will suffer increased anxiety.
CCOs will have to undertake their own due diligence process in reviewing a company’s global compliance program to confirm the accuracy of any certification. To the extent CCOs rely on reports prepared by third-party consultants and advisers (or even the independent compliance monitor) who assist companies in enhancing compliance programs, CCOs are likely to conduct their own close scrutiny of the company’s compliance program.
Aside from this overarching and significant issue, the Glencore enforcement action contains several significant lessons learned and issues for future consideration.
Remediation and Compliance Enhancement Factors: DOJ cited several interesting factors when crediting Glencore’s remediation including: (a) centralization of its compliance program; (b) adoption of third-party payment controls and post engagement monitoring controls; and (c) investing in increased compliance headcount and data analytics. DOJ has now credited a “centralized” compliance program indicating that it views a regional or local (country-by-country) compliance program that is not centrally managed and administered. This is a welcome development and makes sense for most (if not all) global companies.
Absence of Culture of Ethics and Compliance: Glencore’s multi-year course of conduct occurred in a corporate atmosphere where numerous actors (if not almost everyone) embraced blatant violations of anti-bribery, commodity trading and related laws and regulations. Glencore’s senior management supported this conduct for one reason — increased profits. Glencore has now suffered significant legal and reputational consequences. Glencore faces a tough road ahead.
Third-Parties and More Third-Parties: Glencore’s bribery schemes in seven separate countries were executed through the use of third-parties. In West Africa, Glencore relied on two significant third-parties who engaged in bribery on a regular basis. Notwithstanding its use of third parties to pay bribes, the settlement contains no reference to any post-onboarding monitoring or auditing of existing third parties. In addition, it is not clear that Glencore had a proper onboarding procedure for new third parties.
DOJ has long-required that companies engage in a robust onboarding, monitoring, testing and auditing program for managing third-party risks. Glencore, however, appeared to have little to no third-party risk management program.
Illegal Trading Schemes and Spoofing: Glencore’s non-existent culture of ethics and compliance permeated its trading activities related to physical and derivative trading. These illegal trading schemes were built around manipulation of applicable benchmarks through the submission of false bids for specific goods and selective reporting of transactions to the benchmark service. This was not a one-time occurrence. Rather, as reflected in the factual statement, Glencore employees submitted a significant number of false bids during a pricing window under a contract. This commitment of time and energy reflected the willingness of traders and employees to flout basic laws and regulations in order to increase profits.