Through often costly and intrusive probes and hefty penalties, enforcement actions brought pursuant to the Foreign Corrupt Practices Act (FCPA) can have a significant impact on a target company’s operations, profitability and reputation. Commodities trading firms, in particular, face the additional threat of suspension or restriction of their registration and exchange trading privileges by the Commodity Futures Trading Commission (CFTC), when found to be in violation of the Commodity Exchange Act (CEA).
Robust and tailored compliance programs lessen the risk that employees or agents engage in misconduct and provide some mitigating impact to the potentially deleterious effects of a government-led anti-corruption inquiry. Investments in strengthening compliance and internal controls is prudent for commodities trading firms because a confluence of factors suggests that in the medium term, there is likely to be an increase in anti-corruption regulatory scrutiny for these companies.
First, the vast majority of enforcement actions brought by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) under the FCPA have involved entities or individuals operating in the commodities sphere. Of the more than 300 enforcement actions brought since the FCPA’s enactment in 1977, 93 – or almost a third – have involved the oil and gas industry alone. Oil and gas, due in part to the fact that this industry has multiple and recurring touch points with foreign government officials on lengthy and complex projects, has the most recorded FCPA enforcement actions of any industry.
Other industries that rank highly in the number of separate enforcement actions brought by regulators include industrial goods at 58, basic metals at 31, and utilities at 9. Indeed, just in 2021, a majority of the total enforcement actions brought by the SEC and the DOJ have involved entities or individuals operating in the commodities space.
For example, enforcement actions have included bribery and money laundering by employees at a European energy trading company, payment of millions of dollars in bribes through intermediaries to foreign officials in multiple countries on behalf of a global commodity trading and mining company, a bribe payment by a Canadian startup energy company to Chadian government officials, laundering of millions of dollars in bribes in connection with efforts to obtain contracts with oil and gas companies with operations in Venezuela, and a bribery scheme involving a contract to build and operate an electrical power plant in Ghana.
Second, in recent years the CFTC has signaled an intention to engage more deliberatively in foreign anti-corruption enforcement. In a March 2019 press release, James McDonald, then the Commission’s Enforcement Director, announced an Enforcement Advisory on self-reporting and cooperation with other law enforcement agencies for violations of the CEA involving foreign corrupt practices. McDonald stated, “[c]ombatting misconduct that affects our financial markets has truly become a team effort, and that is particularly true with respect to foreign corrupt practices. . .We at the CFTC will do our job as part of the team to identify this type of misconduct in our markets and hold wrongdoers accountable, working closely with our enforcement partners domestically and abroad.” Subsequently, amid reports of several ongoing anti-corruption investigations of global commodities firms, the CFTC Enforcement Division did in fact bring an action jointly with the DOJ against a trading firm for fraudulent and manipulative conduct, including corruption.
The Biden Administration’s recent elevation of anti-corruption efforts (including the elimination of illicit activity in the US and global financial systems) to a core national security interest is widely expected by legal observers to result in a significant uptick in FCPA enforcement activity generally.
In June 2021, President Biden ordered a six-month inter-agency review process which is expected to conclude with recommendations for improvements and increased collaboration in anti-corruption and anti-money laundering enforcement efforts across all key federal agencies. CFTC’s role as a member of the Financial Stability Oversight Counsel, headed by the Treasury Secretary, and its role as a major player in high-profile enforcement actions involving benchmark rate abuses in the global markets, positions this agency to play an important role in what is likely to be an increased regulatory focus on market integrity and the rooting out of fraud, corruption and money laundering from the financial markets.
In sum, the fact that commodities firms operate in an industry that has long been the focus of US enforcement authorities, the CFTC’s recent foray into collaborating with other agencies on foreign corruption matters, and the increased importance of such enforcement within the current administration all signal a new and active period of heightened anti-corruption scrutiny for commodities trading firms.
DLA Piper has experience in assisting commodities trading companies in the development and enhancement of their regulatory compliance programs to mitigate FCPA compliance risk and can advise commodity trading firms in enforcement actions brought by the SEC, CFTC and DOJ. If you would like to discuss how any aspects of this impact your business, please contact either of the authors.