Glencore agrees to pay over US$1.1 billion for commodity price manipulation scheme and FCPA violations

Glencore Ltd, a member of the multi-national commodity trading and mining firm headquartered in Switzerland, has pleaded guilty and agreed to pay US$485 million to resolve the US government’s investigations into a commodity price manipulation scheme.

Separately but at the same time, Glencore International AG has pleaded guilty and agreed to pay US$700 billion to resolve investigations into corrupt payments and bribery that violated the Foreign Corrupt Practices Act (FCPA).

Price manipulation

Glencore Ltd admitted to engaging in a multi-year scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the US, Los Angeles and Houston.

Its employees conspired to manipulate benchmark price assessments published by S&P Global Platts (Platts) by increasing profits and reducing costs on contracts to buy and sell physical fuel oil, as well as taking derivative positions.

Abuse of Platts assessments

The price terms of the physical contracts and derivative positions were set by reference to daily benchmark price assessments published by Platts on a certain day or days plus or minus a fixed premium.

On these pricing days, employees submitted orders to buy and sell (bids and offers) to Platts during the daily trading “window” for the Platts price assessments with the intent to artificially push the price assessment up or down.

Artificial pricing

For example, if Glencore Ltd had a contract to buy fuel oil, employees submitted offers during the Platts “window” for the express purpose of pushing down the price assessment and hence the price of the fuel oil that Glencore Ltd purchased.

The bids and offers were not submitted to Platts for any legitimate economic reason by Glencore Ltd employees, but rather for the purpose of artificially affecting the relevant Platts price assessment.

This meant that the benchmark price, and hence the price of fuel oil that Glencore Ltd bought from, and sold to, another party, did not reflect legitimate forces of supply and demand.

A detailed release issued by the US department of justice on Glencore’s market manipulation and the separate matter of its FCPA violations can be found here.

 



Categories: Trade Based Financial crimes News

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