Related News

FSB fires warning to commodity traders over liquidity risks

Jansma to become Trafigura CFO as Salmon steps down

Trafigura bags US$560mn ECA-backed deal to supply gas to Japan

Trafigura upsizes samurai loans

EU supply chain law overcomes latest hurdle after text watered down

Following the revelations of commodity trading giant Vitol’s widespread bribery schemes in Latin America, an NGO has called for more stringent and “tailored” regulations to be imposed on Swiss commodity traders.

Earlier this month, Vitol agreed to pay US$135mn to US and Brazilian authorities after admitting it had bribed officials in Brazil, Mexico and Ecuador, muscling out competitors and gaining contracts from the countries’ state-owned oil firms in the process.

The US Department of Justice (DoJ) investigation charged Vitol with paying out millions to officials at Brazilian state-owned oil company Petrobas, as well as Ecuador’s Petroecuador and Mexico’s Pemex, over a 15-year period.

In Brazil alone, court documents accuse the world’s largest independent oil trader of paying more than US$8mn in bribes through its employees and agents to officials at Petrobas from 2005 to 2014.

These “corruptly obtained” contracts helped Vitol and its affiliated companies earn at least US$33mn, court documents show.

The unravelling of bribery schemes in Brazil have come to light as part of a wider probe into the ‘Carwash’, or ‘Lava Jato’, bribery scandal, which has seen dozen of politicians and businesspeople arrested since the review began in 2014.

As well as Vitol, commodity trading giants Trafigura and Glencore are also being subjected to critical examination as part of the Lava Jato probe, as reported by the Financial Times.

Elsewhere, as recently as July this year, Vitol was found to have paid bribes to officials at Petroecuador and Pemex, with court documents showing that the firm handed over US$2mn as part of a scheme to win and retain contracts for the purchase and sale of oil products from 2015 to 2020.

Anne Fishman, a commodities and finance policy analyst at Swiss NGO Public Eye, says that the Vitol case highlights how “corruption practices are not a thing of the past”, and calls for Swiss authorities to do more to curb malpractices among traders.

Glencore, Trafigura and Vitol are all either headquartered in Switzerland or have significant operations in the country.

As such, Fishman tells GTR that the Swiss government should look to bring in “tailored” and “binding” regulations for commodity traders in Switzerland, a move which was also recommended by a 2018 OECD anti-bribery report on the country.

As for the fine levied by the DoJ, Fishman welcomes the move by a foreign authority to sanction a Swiss entity such as Vitol.

“As a reminder, the maximum fine for proven acts of corruption cannot exceed SFr5mn in Switzerland, a derisory amount in relation to the profits made by traders,” she explains.

Vitol has agreed to pay a US$135mn criminal fine for the bribery charges, US$45mn of which will be credited to Brazilian authorities, with the payment resolving a parallel investigation being run by the South American country into Vitol.

Meanwhile, Vitol must also cooperate with the DoJ on any ongoing investigations, enhance its compliance programmes, and report to the US authorities on the implementation of these programmes.

Speaking about the settlement, Russell Hardy, Vitol’s CEO, says: “Vitol is committed to upholding the law and does not tolerate corruption or illegal business practices. As recognised by the authorities, Vitol has cooperated extensively throughout this process.”

 

The Brazilian bribery playbook

The majority of the bribery payments exposed in the DoJ case relate to Brazil, where Vitol paid over US$8mn in bribes to gain access to confidential pricing information and steal an advantage over competitors.

As part of one scheme, court documents show Vitol paid bribes to a Brazilian official in exchange for information on the bids being tendered by competitors for certain contracts.

Vitol then used this so-called “last look” information to find out the exact price it would need to bid to win a given Petrobras tender, widely referred to in emails sent between employees at the trader as the “gold number”.

Meanwhile, in another scheme outlined in the court document, it was revealed that a consultant acting on behalf of Vitol engaged in back-channel negotiations with a Houston-based Petrobras official.

The parties then held staged negotiations, ultimately settling on a pre-arranged price that allowed for bribes to be paid from Vitol to the Petrobras officials. Several of the co-conspirators communicated using alias email accounts and code names, including “Batman”, “Tiger”, “Phil Collins”, “Dolphin”, “Popeye” and “Beb.”

More than 30 transactions were carried out with Petrobas in this manner, the court document notes, with Vitol paying the Petrobas employees by setting up sham “consulting agreements” with companies controlled by one of its “consultants”.

These middlemen would then pay the bribes to the Petrobas employees via wire transfers or in cash.

Speaking about how a bribe is paid in a typical case involving commodity traders, Ed Davey, an investigative journalist at anti-corruption organisation Global Witness, says that a company would typically do so through an agent or a consultant based in the country or region.

“They use these middlemen. And the advantage of using a middleman is you can pay them as a consultant to get you a deal, and turn a blind eye to how they may have got that deal. You’re one handshake away from any bribery payment.” Agents or consultants would typically source their deals from state-owned companies, he adds.

Referring to Global Witness’ investigation into the Carwash scandal, Davey adds that its team found Glencore, Trafigura and Vitol had all repeatedly paid large sums of money to middlemen.

“We showed beyond doubt that all three commodity traders were paying large sums of money to people who they should have been running a mile from as they’d already been convicted of various bribery offences.”

 

The damaging effects of bribery

Fishman at Public Eye points to the “many” international cases as evidence that bribery remains widespread in the commodities space today.

The DoJ, for example, was also involved in the trial of a dual US-Venezuelan citizen in 2018 as part of an investigation into bribes paid to Venezuela’s state-owned energy company, Petroleos de Venezuela SA.

She also points to the bribery offences by another major commodity trader, Gunvor, which was found criminally liable for corruption in the Republic of Congo and Ivory Coast by Swiss prosecutors in late 2019.

Fishman adds that “due to the lack of regulatory and reporting requirements, it is highly likely that many instances of bribery go undiscovered in this sector”.

Global Witness’ Davey, who was a member of the team that helped expose the Carwash scandal in Brazil, agrees that the Vitol case “is not an isolated incident”. And he says that the historical use of bribery by large commodity traders has been “incredibly damaging to economies, especially in the developing world”.

“It gnaws away the rule of law in countries where the rule of law can be fragile. It denies the populations of these countries much-needed resources for their infrastructure, which is often crumbling, or failing. And it amounts to theft of a country’s natural resources, because you’re not paying the country a fair price for what is underneath their feet,” Davey adds.