World’s biggest oil trader quickly pays US$160M to settle corruption allegations

Dec 13, 2020 News

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By Christopher Yasiejko, Andy Hoffman, and Peter Millard

www.bloomberg.com: The U.S. unit of the world’s biggest independent oil trader agreed to pay more than US$160 million to settle allegations that it conspired to pay bribes in Latin America and attempted to manipulate energy markets, in what’s the most significant anti-corruption case against a commodity trading house in years.
Vitol Inc. plotted to pay bribes in Brazil, Mexico and Ecuador, in some cases as recently as in 2020, and separately also attempted to manipulate benchmarks for fuel oil prices, according to a deferred prosecution agreement filed in federal court in Brooklyn, New York.
The settlement is likely to revive memories of the murky world of commodity trading back to the era of Marc Rich, the buccaneer trader indicted in the U.S. in the 1980s and pardoned by President Bill Clinton on his last day at the White House.
For Vitol, the fine marks a large setback that casts a shadow over its “zero tolerance with corruption” mantra.
The U.S. Department of Justice and authorities in Brazil and Switzerland are also investigating Glencore Plc., the world’s largest commodity trader, and rival Trafigura Group for corruption in several countries.
Vitol was accused of two violations of the Foreign Corrupt Practices Act, an American anti-bribery law, for its conduct from 2005 through 2020. The company will pay US$90 million to the U.S. and $45 million to Brazilian state oil producer Petroleo Brasileiro SA, known as Petrobras.
Brazilian Bribes
According to the settlement, Vitol paid Brazilian officials more than US$8 million in bribes in exchange for oil-product business from Petrobras. The company earned at least US$33 million in profits from the corruptly obtained contracts, according to the filing.
Outside of Brazil, Vitol agreed to pay more than US$2 million in bribes to officials at Petroleos Mexicanos and Ecuadorian state oil company Petroecuador from 2015 through 2020 to gain advantage in buying and selling oil products.
A Petroecuador spokesperson, after consulting with acting Chief Executive Officer Ricardo Merino, said in a text message that the allegations stem from 2016 and the guilty parties or the authorities of the company from that year should explain themselves. Merino was appointed to the post in September.
Pemex didn’t immediately respond to an email requesting comment.
Under the deal, U.S. prosecutors will drop the charges against the U.S. unit of Vitol Holding BV in about three years if the company complies with certain conditions. The company wasn’t required to plead guilty during proceedings Thursday in Brooklyn.
“The company fully cooperated,” U.S. Justice Department lawyer Derek Ettinger said in court.
Russell Hardy, Vitol’s chief executive officer, said in a statement that the company doesn’t tolerate corruption or illegal business practices.
“We understand the seriousness of this matter and are pleased it has been resolved,” Hardy said. “We will continue to enhance our procedures and controls in line with best practice.”
Quiet Giant
Vitol, a quiet giant that in 2019 handled more than eight million barrels of crude and petroleum products a day, also agreed to pay more than US$12.7 million to the Commodity Futures Trading Commission in a related matter, and to pay the CFTC a US$16 million penalty related to trading activity not covered by the deferred prosecution agreement with the Justice Department.
Miguel “Mike” Loya, the long-time head of Vitol Group’s operations in the Americas, left in May. Loya hasn’t been accused of wrongdoing.
In its statement on the case, the CFTC said that Vitol also had attempted to manipulate two price benchmarks for physical fuel oil, in August 2014 and July 2015.
Vitol’s Americas division has also been a focus of the Brazilian “Carwash” investigations.
A former Petrobras oil trader who went by the code name “Phil Collins” told a Brazilian judge last year he received bribes from the trading house to favor the firm in contracts from 2003 to 2005.
In Brazil, the Carwash corruption and money-laundering investigation has toppled some of the country’s top business executives and political leaders, including former President Luiz Inacio Lula da Silva. Petrobras has put a stronger compliance and governance system in place and continues to cooperate with authorities, Chief Executive Officer Roberto Castello Branco said in a Dec. 1 interview.
Many of the biggest trading houses — including Trafigura, Glencore and Gunvor Group — have vowed to stop using intermediaries or agents in foreign countries to stop bribery and corruption. They’ve also agreed to disclose some payments made to governments for oil deals.
Trafigura and Glencore have also been targeted by investigators in Brazil as part of the Carwash probe. The U.S. Justice Department and Federal Bureau of Investigation are also investigating. In Switzerland, where many of the top traders have major operations, local police searched the Geneva offices of Trafigura and Vitol in 2019 as part of the probe.
Prosecutors in Brazil this week filed a civil lawsuit against Trafigura, the second biggest independent oil and metals trader, and some of its top executives, alleging bribery payments to secure deals with state oil producer Petrobras.
Trafigura said it hired the law firm Quinn Emanuel Urquhart & Sullivan LLP to review allegations of improper payments.
“Based on its review to date, which is ongoing, Quinn Emanuel believes any allegations that current management were involved in, or had knowledge of, alleged improper payments to Petrobras are unsupported by the evidence and untrue,” Trafigura said in a statement.

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