In March 2019, the Commodity Futures Trading Commission (CFTC)—the US federal regulator of commodity markets—issued a new Enforcement Advisory concerning foreign bribery in the commodities sector. According to the Advisory, the CFTC will presumptively decline to pursue civil monetary penalties against parties that timely and voluntarily self-report acts of foreign corruption that would otherwise violate the Commodities Exchange Act (CEA), so long as the self-reporting party fully cooperates, provides appropriate remediation, and there are no other aggregating factors. Of course, this Advisory implies that when these conditions are not satisfied, the CFTC will seek to impose sanctions in foreign bribery cases. And indeed, only a couple of months after the Advisory was published, the CFTC informed Glencore, a Swiss mining and trading company, that it was being investigated for corrupt practices that violated the CEA. The CFTC’s new Advisory and the Glencore investigation are a wakeup call for all market participants, especially broker-dealers and future commission merchants, that the CFTC is serious about cracking down on foreign corruption in the commodity trading sector.
This is notable because typically we think of the US addressing foreign bribery through the Foreign Corrupt Practices Act (FCPA), which is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Yet while bribing foreign officials would indeed violate the FCPA, such conduct could also amount to violations of the CEA or its implementing regulations whenever commodity prices in the US are affected by the foreign corrupt practices: in such cases, the bribery could qualify as a form of prohibited fraud, false reporting, or market manipulation. For example, a commodities trader could violate CFTC regulations if it uses bribes to secure swaps or derivative contracts. Likewise, a company that paid bribes to foreign officials for purposes of monopolizing crude oil production in order to increase the commodity price and manipulate benchmarks for related derivative contracts would be in violation of the CEA’s anti-manipulation provision. The possibility of CFTC enforcement raises concerns about “piling on,” with duplicative penalties levied by separate US agencies for the same underlying conduct, but to address that concern CFTC Enforcement Director James McDonald has emphasized that the CFTC would “will give dollar-for-dollar credit for disgorgement or restitution payments in connection with other related actions.”
Of course, that only raises another question: Why not just leave the foreign bribery problem to the DOJ and SEC to address through FCPA enforcement actions? Does CFTC enforcement in the foreign bribery context really add any value? The answer to that latter question is likely yes, for at least two reasons:
- First, the CFTC’s anticorruption enforcement can help support the work of the DOJ and SEC. Most obviously, the participation of the CFTC not only expands the number of federal agencies addressing the foreign corruption problem, but also helps scrutinize a particular sector—the commodities trade—that has not attracted as much attention in the FCPA context. The CFTC, moreover, has special expertise in the highly technical field of commodity trading. A less apparent consideration, but one which may be of great importance in future enforcement actions, is that the CFTC’s involvement might produce the evidence that enables the DOJ to undertake criminal prosecutions.
- Second, the CFTC has jurisdiction over firms that do not currently have to register with the SEC. For example, hedge funds that are not required to register with the SEC but act as investment pool operators would fall into the purview of the CFTC. And the CEA has recordkeeping requirements similar to those of the SEC, which means that even though hedge funds aren’t covered by the FCPA’s recordkeeping requirements, these funds would have to comply with the CFTC’s recordkeeping requirements. Furthermore, cryptocurrencies are increasingly used as alternatives to traditional payment methods, and can be used to hide illicit financial transactions like bribes to foreign officials. While crytpocurrencies that are not initially offered on a US exchange are not regulated by the SEC, the CFTC can fill the oversight gap because cryptocurrencies could qualify as a “commodity” under the CEA. If a cryptocurrency is used to bribe foreign officials, this misconduct could therefore fall within the CFTC’s jurisdiction.
The CFTC’s new initiative is therefore an important step forward, and those who doubt the added-value of CFTC’s anticorruption efforts should keep close track of the ensuing investigations.