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Glencore to pay $1.2bn in bribery and corruption fines

Mining and trading giant guilty of corruption on a “staggering” scale, say US authorities, while UK sentencing to come next month
Glencore to pay $1.2bn in bribery and corruption fines
  • Glencore will plead guilty to seven counts of bribery, according to the Serious Fraud Office 
  • US Department of Justice and Commodity Futures Trading Commission accept a combined $1bn in resolution payments

Mining and trading giant Glencore (GLEN) has tied up three major investigations in a day, agreeing to pay $1.2bn (£960mn) in fines across the US and UK on Tuesday. 

A three-year investigation by the UK's Serious Fraud Office (SFO) resulted in the company admitting bribery offences within its oil division. The SFO brought seven charges of bribery against Glencore on Tuesday – without naming individuals – covering $25mn paid across Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan. 

The SFO announced the company "indicated it [would] plead guilty to all charges". 

US authorities said Glencore had paid over $100mn in bribes across the countries above between 2007 and 2018 as well as Brazil, Venezuela and the Democratic Republic of Congo (DRC). The trading arm was the focus of the investigations. This is the original company - founded as Marc Rich & Co. in the 1980s - that joined the mining industry by taking over Xstrata a decade ago. 

US Attorney Damian Williams said Glencore had paid bribes to win contracts, avoid government audits and derail court cases, breaking the Foreign Corrupt Practices Act. “The scope of this criminal bribery scheme is staggering,” he said. "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." 

The resolutions came through agreements with the Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC), while a Brazil probe has also been closed. 

Glencore said the penalties would be $700mn to the DOJ and $486mn to the CFTC "to resolve market manipulation investigations". Of this total, up to $167mn will be "credited against other, parallel matters, including in the UK". The SFO sentencing will take place on 21 June. 

The company's shares were up 2 per cent in London on Wednesday morning. 

Glencore had said earlier this year it would be facing charges of this kind, putting aside $1.5bn to deal with the SFO case and others in the US and Brazil. Earlier on Tuesday afternoon, the company said its representatives would be appearing both in the Westminster Magistrates Court in London and in the US "in connection with proposed resolutions of the relevant investigations". 

After the US penalties were announced, Glencore said the $1.5bn put aside for fines remained accurate. A $40mn payout will go to Brazilian authorities. The CFTC penalty was based on Glencore traders putting in orders for fuel oil during specific pricing windows with S&P Global Platts in order to "artificially push the price assessment up or down". 

The SFO said it had been working with Dutch and Swiss investigators, who continue their investigations.

"We won’t stop fighting serious fraud, bribery and corruption, and we look forward to the next steps in this major prosecution," said SFO director Lisa Osofsky. 

The DOJ will appoint an independent monitor to keep an eye on Glencore's behaviour. 

The company's chief executive Gary Nagle acknowledged the "misconduct", and said that corrupt behaviour had "no place in Glencore". Chair Kalidas Madhavpeddi said the company committed to acting "ethically and responsibly across all aspects of its business". 

Glencore said it had cooperated with the investigations but the DOJ disagreed: "Glencore did not receive full credit for cooperation and remediation, because it did not at all times demonstrate a commitment to full cooperation, it was delayed in producing relevant evidence, and it did not timely and appropriately remediate with respect to disciplining certain employees involved in the misconduct". 

These investigations were opened under the tenure of previous chief executive Ivan Glasenberg, who remains a major shareholder. The company has also faced scrutiny for its mining activities in the Democratic Republic of Congo and dealings with Dan Gertler, who was sanctioned by the US Treasury in 2017. 

Analysts had held up the possible resolution of the various cases as positive for Glencore's share price this year, given the uncertainty over large fines or tougher penalties. Last week, Ben Davis at Liberum said the company's "re-rating potential" would be held back until the investigations were cleared. 

We have been less bullish on Glencore than other major miners because of the various corruption investigations. Overall, its asset mix is perfectly suited to 2022: nickel and cobalt production is highly valued, while coal is pumping up cash profits because of continued very high prices. But the air still needs to clear over these investigations, and until the UK penalties are clearer we will remain on the sidelines. Hold at 530p. 

Last IC View: Hold, 431p, 15 Feb 2022