Pressure on SFO To Charge Glencore Execs After Plea: David Stern comments in Law360.
This article was published by Law360 on 26 May 2022.
The announcement by the commodities giant that it will enter a guilty plea to bribery charges comes at a crucial time for the Serious Fraud Office (SFO). Glencore agreed to pay more than $1.1 billion in penalties, in a global deal with prosecutors in the U.S., Britain, and Brazil on Tuesday, after pleading guilty to bribery and market manipulation charges in America. The commodities giant, which has subsidiaries in Africa, South America, and Australia, also indicated it will soon plead guilty to similar charges in London.
The announcement comes at a crucial time for the SFO. The agency's future is being debated amid fresh scrutiny into a recently quashed criminal conviction and findings that it conspired with the former head of white-collar crime at Dechert LLP in an investigation.
That outcome is a feather in the agency's cap. But the fact that the U.S. Department of Justice led the investigation and will take the biggest share of the penalties suggests the SFO might lack the appetite for bringing criminal charges against senior executives, David Stern, barrister at 5 St. Andrew's Hill, said.
"The SFO is taking advantage of the spoils coming its way from the U.S.," Stern said. "The tendency of the moment is to steer away from prosecuting individuals for large-scale wrongdoing."
In the U.K., Glencore said it will admit to paying in excess of $25 million for preferential access to oil and favorable prices in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan. The company faces seven counts of bribery under the Bribery Act 2010, including five charges of paying bribes and two charges of failing to prevent bribery.
Although a Glencore oil trader pleaded guilty to criminal conspiracy charges in the U.S. in March 2021, helping the DOJ crack the case, neither that agency nor the SFO have yet to publicly charge any senior executives with wrongdoing.
The apparent absence of charges stands out, as Glencore has pleaded to a statement of case in the U.S. federal court that six U.K.-based former senior executives and oil traders — whose names have not been released —facilitated and approved bribery to government officials from a "cash-desk" in London.
But some potential suspects allegedly routed payments through New York bank accounts, raising questions about whether the DOJ will prosecute officials for events that mostly took place overseas.
The oil and gas operations of Glencore, a British-Swiss company, are based in London, and James Bolton-Jones, an anti-corruption advocate with Spotlight on Corruption, said that it is "essential" executives stood trial.
"Without senior executives in the dock, $1.2 billion in global fines won't be a strong enough deterrent, as it represents only a fraction of Glencore's worldwide revenues," Bolton-Jones said.
Doubts about the SFO's capacity to handle international fraud cases have beset the agency in recent years. An appellate court quashed the convictions of two managers at energy consultancy Unaoil, who were imprisoned for eight years for bribery in Iraq due to misconduct. The findings sparked a formal review into the SFO's handling of the investigation that could determine the future of SFO director Lisa Osofsky.
Prosecutions of individuals that followed deferred prosecution agreements with companies have also fallen apart in recent years, including cases against Barclays traders and former executives at supermarket giant Tesco. A case against Serco, a contractor for government services, also collapsed.
"The press for the SFO of late has not been good," David Stern said. "There's been limited U.K. activity, and the overall perception is that it was quite hampered by COVID-19. When you're dealing with such big cases, you need people in the same room."
Under the terms of the U.S. plea agreement with Glencore, authorities in Britain are expected to get $136 million in fines, although the exact amount will be set by a London judge at a hearing on 21 June 2022.
"The SFO appears to be very much a junior partner and bit-player in this settlement with the DOJ, as only11.5% of this amount has been set aside by Glencore to cover its U.K. fine, despite the company being listed on the London Stock Exchange," Bolton-Jones said.
In the U.S. plea, prosecutors said that Glencore manipulated two oil benchmarks at two ports over an eight-year period, maximizing profits on oil contracts and derivatives by pushing benchmarks up or down with fake bids, a practice known as spoofing. Prosecutors also accused the company of paying bribes for oil contracts, avoiding audits, and making lawsuits go away by paying off judges.
The case is the third corporate guilty plea the SFO has secured in recent months, following an admission of bribery by energy services company Petrofac in October. In that case, the company's former head of sales pleaded guilty and cooperated with prosecutors in London over the company's "systemic, serious and grave" use of corrupt agents to bribe officials to land multi-billion-dollar contracts in Iraq, Saudi Arabia, and the United Arab Emirates.
"The plea will encourage the SFO to pursue investigations of this nature to demonstrate their credibility as a law enforcement agency," Frances Murray, a partner with Russell Cooke, said.
The conviction stands in contrast to the difficulties the agency has had in trying to convict companies in other economic crime cases, where it must prove that individuals constituting "the directing mind and will" of the company knew about the wrongdoing.
Nicholas Lord, a professor of criminology at the University of Manchester, said that individuals charged in England are more likely to contest prosecutions, given the obstacles the SFO has with meeting the evidential threshold for convictions, persuading juries of the criminal intent of individuals operating on behalf of their organizations and administrative errors.
"U.S. direction in these global cases can be fundamental to how they turn out, so in some ways, the SFO is reliant on U.S. enforcement activity where it sometimes appears to be undermined," Lord said.
It's not unusual for competition between prosecutors in big international cases, Murray said. "These cases are often multi-faceted, and the collaboration internationally ensures evidentially the threshold for charging and prosecuting is met," she said.
Lord also noted that U.S. involvement may have been essential for Glencore to plead because of the difficulties with U.K. corporate criminal liability laws.
"That said, given we now have an indication of a guilty plea by Glencore in the U.K. too, and that U.K.-based individuals were involved, holding implicated individuals to account ought to be prioritized by the SFO, as doing so is important for social fairness," he said. It would act as a symbolic deterrence to other senior executives, he added.
U.S. prosecutors said that Glencore did not receive full credit for cooperating with the investigation because the company did not always commit to helping the investigations, delayed producing evidence and failed to promptly discipline employees.
As with Petrofac, the pervasive bribery at Glencore is most likely why the SFO and DOJ opted to charge the company rather than let it sign a deferred prosecution agreement, Stern said.
"Corporates are having to learn the lesson that prosecuting authorities are no longer complete pushovers that do a DPA at all costs," he added.
David Stern has a wealth of experience in business crime, commercial insurance and financial regulation. He is ranked in Chambers & Partners as a leader in the field of Financial Crime (London) as well as the Legal 500 for Business and Regulatory Crime (including Global investigations) (London).