The U.S. derivative regulator’s settlement with oil trader Vitol Inc.'s U.S. unit portends more of its foreign bribery enforcement actions coming under the Biden administration.
The Commodity Futures Trading Commission partook in the U.S. government and Brazilian authorities’ more than $160 million settlement over claims that Vitol and its affiliates bribed foreign officials. It marks the CFTC’s first foreign bribery enforcement action.
The CFTC’s involvement is noteworthy because the agency doesn’t have the authority to enforce the main U.S. anti-bribery law, the Foreign Corrupt Practices Act. The agency announced in March 2019 that it will use the Commodities Exchange Act and other tools to pursue foreign corruption in market manipulation. But the CFTC hadn’t announced a case before Vitol.
Commodities traders “will likely sit up and take notice” of the Vitol settlement because of the expansive use of the CFTC’s powers to get at conduct that normally falls under anti-bribery laws, said Anne Termine, head of Covington & Burling LLP’s futures and derivatives practice in Washington and former CFTC chief trial attorney.
Vitol and its affiliates bribed state-owned oil company officials in Brazil, Mexico and Ecuador to gain trading advantages in oil products and related derivatives, and separately tried to manipulate benchmarks for fuel oil prices, the CFTC order said. The Houston-based energy trading firm didn’t admit or deny the CFTC’s allegations.
The activities described in the agency’s order include not just manipulative schemes to influence the market, but also insider trading, misappropriation of information, and obtaining improper preferential treatment as a result of bribes.
That “kitchen sink” approach to alleged wrongdoing in the commodity markets answers some of the questions raised about how far the agency intends to go under its March 2019 policy, Termine said.
Generally, the CFTC only oversees derivatives markets, but it has authority to enforce fraud or manipulation of the underlying commodities markets.
While the Vitol case marks an expansion of the CFTC’s authority into activities normally policed under the FCPA, it also bears the hallmarks of the agency’s more typical market manipulation cases, said Aitan Goelman, a partner at Zuckerman Spaeder LLP in Washington.
“It’s really a manipulation case with kind of a foreign corruption backdrop,” said Goelman, a former CFTC enforcement director.
Anti-manipulation cases involving global price benchmarks or energy and derivatives markets are right in agency’s “wheelhouse” and don’t require corrupt foreign payments to pursue, Goelman said.
“If someone’s trying to conduct trades in one market to move the trades in another market, that is something the CFTC does and should do, whether or not that has a foreign corruption angle,” Goelman said.
The CFTC can stretch its limited enforcement resources by piggybacking on the Justice Department’s FCPA investigations involving derivatives market misconduct, Goelman said. The Securities and Exchange Commission also has FCPA authority.
In the Vitol case, the company agreed to pay $90 million to the DOJ for two FCPA violations and $45 million to Brazilian state oil producer Petroleo Brasileiro SA, known as Petrobras. The CFTC will get $28.8 million in penalties and disgorgement.
The CFTC, Justice Department and authorities in Brazil and Switzerland are also investigating Glencore Plc., the world’s largest commodity trader, Bloomberg News has reported.
The timing of the Vitol case is significant because it is “occurring under the auspices of the Trump administration, where there really has been less aggressiveness as it relates to this type of conduct,” said Michael Himmel, chair of Lowenstein Sandler LLP’s white collar criminal defense practice in New York.
The incoming Biden administration is likely to ramp up enforcement against foreign corruption to similar levels seen during the Obama years, Himmel said.
The CFTC will likely join the DOJ and SEC in such enforcement activities. But the regulator’s limited jurisdiction over commodities markets means it will have to be selective in the foreign corruption-related cases it pursues, said Tarek Helou, partner at Wilson Sonsini Goodrich & Rosati in Washington and former supervisor of Justice’s FCPA unit.
Commodities firms like Vitol typically deal with only commodities trading in each sector, such as oil or metals.
This market dynamic means the CFTC would likely only bring foreign bribery charges related to the purchase and sale of the targeted commodities and the transaction’s affect on derivatives markets, Helou said.
“By contrast, DOJ and SEC have jurisdiction over the same conduct that the CFTC has jurisdiction over, but also over all other aspects of those industries,” such as bribes paid to win contracts to extract, process or ship oil, he said.