Glencore, the world’s largest mining company admits to a decade of corruption

Alec: [00:00:03] From Equity Mates media. This is the dive. I'm your stand in host Alec Renehan. Yes, it is a different voice hosting the dive this week as Sasha takes a well-deserved break. Last week, we saw the world's biggest mining company admit to a giant bribery scandal. Glencore, the Swiss and British commodity trading and mining company, pled guilty in the US, the UK and Brazil to spending hundreds of millions of dollars to bribe officials in numerous countries and to running a scheme to manipulate oil prices. For such a big scandal. We felt it had got remarkably little coverage, so we wanted to unpack exactly what happened at Glencore. And now that they're pleading guilty, we wanted to ask, will this change anything in broader corporate culture? It's Monday, the 30th of May. And today, I want to know what the hell happened at Glencore. To do this, I'm joined by my colleague here at Equity Mates Darcy Cordell. Darcy, welcome.

Darcy: [00:01:07] Thanks, Alec. Nice to be with you. 

Alec: [00:01:08] Now, Darcy, before we get into the specifics of Glencore, I think people would be surprised to hear that a joint Swiss and British company was bribing government officials in 2022. We like to think that that side of business has largely been stamped out, especially for a European company. How prevalent is bribery today? 

Darcy: [00:01:28] It's a good question, Alec. I was quite staggered at this story, and I'll start with a stat that frames this conversation. According to the World Bank, in 2020, 16.4% of companies globally had experienced at least one bribe request. Now that doesn't mean they paid it. Most of them wouldn't. But 16% of global companies have had a request. 

Alec: [00:01:49] It's pretty staggering. 

Darcy: [00:01:49] It's really staggering. And adding to that, if we search bribery in the Financial Times, some very well known companies appear in the headlines. 

Alec: [00:01:57] We need to stress these are headlines that we haven't written and they're just allegations. But hit me with some of the company names. 

Darcy: [00:02:04] Coca Cola, Airbus, the SEC accused advertising group WPP of bribery, Louis Vuitton, Ericsson, and in the Wall Street Journal, Microsoft and Honeywell, some really well-known companies. 

Alec: [00:02:18] Yeah, they are some really well-known companies. 

Darcy: [00:02:19] And moving away from the anecdote into the data, there are suggestions that corruption is not actually getting better. 

Audio clip: [00:02:26] Corruption costs the world nearly $3 trillion every year. 

Darcy: [00:02:31] The Corruption Perceptions Index is put together by Transparency International, and it ranks countries on their perceived levels of public sector corruption. In 2021, the global average remained unchanged for the 10th year, and that was at 43 out of a possible 100 points. Despite multiple commitments, 131 countries have made no significant progress against corruption in the last decade. Two thirds of countries score below 50, indicating that they have pretty serious corruption problems, while 27 countries are at their lowest score ever. So corruption remains a problem throughout the world, but particularly in developing countries where the World Economic Forum suggests that corruption cost developing countries $1.36 trillion every year. 

Alec: [00:03:19] So does some pretty startling stats there. And as we turn to what happened with Glencore, what the news of the week is, I think the summary is whatever we think about corruption in 2022, whatever we think about bribery from companies, it is still rampant, especially in the developing world. But some big and well-known companies have been at least accused of bribery. 

Darcy: [00:03:44] Yeah. And companies that you just wouldn't associate corruption or bribery with. So this story is a big one. 

Alec: [00:03:49] So let's get to Glencore, a company that people probably aren't familiar with, although it is a giant of a company. So Darcy, tell me about Glencore. 

Darcy: [00:03:59] So Glencore is not just any commodity and trading mining company, it is the largest mining company in the world measured by revenue. Glencore brings in over $200 billion revenue a year. Do you want to know the next biggest? 

Alec: [00:04:12] It hit me.

Darcy: [00:04:13] BHP and Rio Tinto with around 40 billion USD each. 

Alec: [00:04:17] Yeah. Wow. Okay, so Glencore's about five times the size. 

Darcy: [00:04:20] It really puts it into perspective. Glencore employs 135,000 people in operations across 35 countries. Glencore is Australia's largest coal producer, with 17 mining operations across New South Wales and Queensland and it's listed on the London Stock Exchange with a market cap of £69 billion. It sits comfortably inside Britain's FTSE 100 index, which includes 100 of the biggest companies listed in the UK.

Audio clip: [00:04:46] Glencore controls 24% of the world's barley, 10% of its wheat, 50% of its copper and 60% of its zinc. It also invests in oil, gas, coal, aluminium, iron ore, rice. And sugar. At some point, what's on your dinner plate and inside the appliances you use has probably passed through Glencore's hands.

Alec: [00:05:08] So this is no small company we're talking about here. And Darcy, this investigation has been going on for a while. The US started their investigation in 2018 and the UK followed in 2019, but we've only had the admission of guilt this week.

Audio clip: [00:05:24] The commodities giant Glencore has agreed to plead guilty to corruption charges. That's here in Britain and also to the United States. The Justice Department is announcing charges in two separate districts and in two separate criminal cases involving Glencore, one of the world's largest mining. 

Audio clip: [00:05:40] Glencore was accused of using bribes to secure preferential access to oil in several African countries. 

Darcy: [00:05:47] So there are two separate charges and Glencore is admitted to both. The first relates to corruption in emerging markets where Glencore paid bribes to secure oil contracts and avoid government audits. 

Audio clip: [00:06:00] Glencore paid over $100 million in bribes to government officials in Brazil, Nigeria, the Democratic Republic of the Congo. Venezuela. The bribery scheme here spanned the globe. Glencore pay bribes to secure oil contracts. Glencore paid bribes to avoid government audits. Glencore paid bribes to judges to make lawsuits disappear. 

Darcy: [00:06:21] In the US, the Department of Justice said its case against Glencore related to a, quote, decade long scheme by Glencore and its subsidiaries to make and conceal corrupt payments and bribes. 

Audio clip: [00:06:33] Why did Glencore do it? 

Darcy: [00:06:34] Now, one of the lawyers who brought the case against Glencore uses some incredibly strong language. Damien Williams, a US attorney, said Glencore paid bribes with the quote approval, even encouragement of its top executives. 

Audio clip: [00:06:47] They did it to make money, hundreds of millions of dollars and they did it with the approval and even the encouragement of top executives. And as we allege in the charges filed today, Glencore tried to cover up the bribery scheme with code words and bribes paid through third party consultants. It didn't work. Work. It didn't work. 

Alec: [00:07:06] Darcy That's pretty staggering when you talk about bribing government officials, bribing judges, all to secure oil contracts and avoid government audits. The scale of this scheme is really quite mind blowing, but that's only one of the two charges that they've pled guilty to. 

Audio clip: [00:07:23] In addition, it was alleged the company engaged in market manipulation by directing traders to submit orders that would push the benchmark price of oil in the direction it wanted. 

Darcy: [00:07:33] Glencore admitted to conspiring to manipulate between 2011 to 2019 fuel benchmarks set by price reporting agency S&P global Platts, which allowed it to reduce costs and boost their profits artificially. 

Alec: [00:07:48] So on one hand, the first scheme that they pled guilty to was about bribing officials without actually mining for commodities or producing oil to get contracts and to avoid government scrutiny. On the other hand, the second charge was about conspiring to fix the oil price, the price that we see reported, and to help their business to boost their profits or reduce their costs. Two pretty massive things to plead guilty for, especially for a really well-known company, and especially because they were doing it over years. So now that they're admitting it, Darcy, I'm expecting big punishments for senior executives, regulators to really crack down on this behaviour and to change things for the better. So I'm excited to for you to tell me all about that. But first, let's take a quick break to hear from our sponsors. Welcome back to the dive. I'm your fill in host Alex Lenihan as Sasha Kelly takes a well-deserved break and I'm joined by my colleague here at Equity Mates Darcy Cordell. Today, we've been discussing the massive but underreported bribery case at Glencore, the world's largest mining company, as measured by revenue. Now, Darcy, before the break, you were telling me about the two charges that Glencore have pled guilty to, on one hand, bribing government officials around the world hundreds of millions of dollars over many years. And on the other hand, the second charge of conspiring to fix oil prices. Big charges that they're pleading guilty to. So tell me about their punishments. 

Darcy: [00:09:23] So the punishment was announced last Tuesday by the United States Attorney General, Merrick Garland, and it followed months of negotiations between Glencore and prosecutors in the US, Britain and Brazil. 

Alec: [00:09:34] Now hold on, Darcy. Negotiation? 

Darcy: [00:09:36] This is where it gets interesting, a negotiation. Think of it like a plea deal when someone's facing a criminal charge, the sentence for selling drugs is three years in prison. But if you don't fight the charges and plead guilty now, we'll give you a year. 

Alec: [00:09:49] Right. Okay. So Glencore basically struck a plea deal with all of these government regulators. 

Darcy: [00:09:55] Yeah, that's the negotiation that they had with the US government. And as part of pleading guilty, Glencore agreed to pay $700 million to resolve US bribery investigations and 485 million to resolve the market manipulation investigations. 

Audio clip: [00:10:10] In connexion with the first plea. Glencore has agreed to pay approximately $700 million in penalties for its decade long scheme to bribe foreign officials in seven different countries. The second plea involves Glencore's U.S. commodities trading arm, which engaged in a scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the United States. Over the course of eight years, Glencore has agreed to pay approximately $485 million in penalties.

Darcy: [00:10:41] So it is paying a little over $1 billion to resolve the US investigation. The company's announced it will plead guilty in the UK as well, but we don't know what the punishment will be there yet. In February, Glencore told investors it had set aside $1.5 billion to cover these potential fines. And Glencore recently suggested they didn't expect fines to exceed that number that they had set aside. 

Alec: [00:11:05] So, Darcy, that's it. Glencore pays one and a half billion dollars and they're good basically. 

Darcy: [00:11:12] So Brazilian, Dutch and Swiss authorities are also investigating, but they'll likely end up with fines as well. But Alec, do you want to know the fact that will leave a bad taste in your mouth? 

Alec: [00:11:23] I probably don't. But I mean, we're in this deep in. 

Darcy: [00:11:26] The same investor update in February where Cleanco told investors they were setting aside that $1.5 billion to cover the fines. They also told investors they'd be returning $4 billion in dividends and buybacks after announcing a record profit. 

Alec: [00:11:41] Yeah. Okay, that does leave a bad taste. So Glencore has a record profit. They say they tell shareholders that they're going to be paying them out $4 billion and they also say they're putting aside 1.5 billion to pay fines relating to a years long bribery settlement. It really puts it in perspective, doesn't they?

Darcy: [00:12:02] You know, years and years of bribery and it looks like it might not even put a dent in the balance sheet. 

Alec: [00:12:08] So that's the company. The company is paying a fine. But how about the senior executives? You said earlier that the US investigators were speaking about senior executives approving or perhaps even encouraging. That's their words, not ours, they say. So what's going to happen to these senior executives that oversaw the schemes? Will they face personal punishment? We do have to remind or we shouldn't have to remind ourselves. Bribery is a crime. 

Audio clip: [00:12:34] None of the company's top executives have faced charges to date. The U.S. Justice Department officials told reporters on Tuesday that investigations remain ongoing. Glencore also faces probes by Swiss and Dutch authorities.

Darcy: [00:12:48] There's not even talk about finding them personally or taking away their ability to be company directors. Ivan Glasenberg, the CEO of Glencore from 2002 to 2020. He's got a net worth of $9 billion. He could personally pay the fines that Glencore are being charged by the US government. It really feels like a pretty weak punishment, all things considered. 

Alec: [00:13:08] It really does, Darcy. And, you know, we're not here to question the wisdom of global market regulators, but I think people should probably be asking that question. What's next at Glencore? They've admitted to this historic bribery. They are paying a fine. The senior executives are, I guess, getting on with the job. Ivan Glasenberg has stepped down and as a new CEO at the helm. What's next for the company? 

Darcy: [00:13:36] So you'll love that. Glencore's released a 13 page investor letter sharing details on their revamped ethics and compliance programme. As part of this, it's increased compliance spending more than tenfold since 2016 and quadrupling its full time compliant staff, including hiring a dedicated head of compliance in 2020. 

Alec: [00:13:55] So Darcy, just to put that in context, we said earlier that the US open their investigation in 2018, the UK opened their investigation in 2019 and Glencore then in 2020 decided, oh, we might need a full time head of compliance. 

Darcy: [00:14:10] I don't know what to say here, Alec, but it's pretty baffling. 

Audio clip: [00:14:13] This represents the Justice Department's largest criminal enforcement action to date for a commodity price manipulation conspiracy in oil markets. Glencore made hundreds of millions of dollars in profits from these crimes, including $272 million from the foreign bribery scheme and $144 million from the Commodity Price Manipulation Scheme. And these crimes exacted great costs across the globe, perpetuating transnational corruption and manipulating oil prices in two of the largest fuel markets in America. 

Darcy: [00:14:48] And as part of the deal with the US Department of Justice, Glencore is going to spend the next three years being scrutinised by an independent monitor. It also said it had appointed new board members, revamped its code of conduct and retrained employees on anti-corruption, bribery and market conduct policy. But really, aside from a beefed up compliance team and a new CEO, it appears to be business as usual. 

Alec: [00:15:12] It really does sound like business as usual. Darcy And I'm feeling this is going to be a thoroughly unsatisfying episode in terms of big company admits they've done something very wrong and the world keeps turning. But look, we started this episode with some surprising figures on bribery. Do we think that this Glencore case will change the behaviour of other companies? Do we think it will change culture? Has it sent a message? 

Darcy: [00:15:38] It's hard to tell from the outside looking in, but there are reasons to think this case hasn't exactly sent a strong message to the world. Firstly, a look at Glencore's share price over the past six months shows investors are relatively unfazed by these admissions of corruption. The share price is up almost 50% over the past six months and 60% in the past year. And secondly, the punishment feels a lot like the cost of doing business. Remember, they brought in over $200 billion in revenue last year. $5 billion in profit and returned $4 billion to investors in the form of those dividends and share buybacks. That really puts the $1.5 billion fine in context. So there's some hope that it sends a message to other companies. But the CEO that was in charge during this bribery period, Ivan Glasenberg or any of his top executives at the time, and not facing any personal charges. So it's unlikely to send a strong message or create a strong disincentive for the future. 

Alec: [00:16:35] Yeah, well, Darcy, look, that might be an unsatisfactory note to end it on, but I think the fact that we're talking about it and that more news organisations are looking at it is at least a step in the right direction. At least people are aware that these stories are happening. But look, thank you for joining us for today's episode of The Dive. If there's a story you want us to talk about, contact us at the dive at Equity Mates dot com or follow us on all the social media channels. All those details are in the show notes. Now remember to write and review us on your favourite podcast app. Every podcast asks, but it really does help. And with Sasha Kelley on a well-deserved break this week, if you could give us a review and tell Sasha that you miss five stars and leave a note for Sasha. We would greatly appreciate that. And I'm sure she would love it because she's definitely listening wherever she is on holidays. Look. That's it for today. Thanks for joining me, Darcy. We'll be back in your podcast feed on Wednesday.