[author: Sam Finkelstein]*
On June 17, 2024, the U.S. Commodity Futures Trading Commission (CFTC) announced that trading giant Trafigura had agreed to pay a $55 million fine to settle charges of fraud and manipulation. The conduct at issue allegedly took place between 2014 and 2020, and included offenses such as trading on non-public information, benchmark manipulation, and impeding whistleblower communications.
The high-flying commodities trading industry, through which an estimated $131.3 trillion will change hands in 2024, has increasingly drawn the ire of regulators in recent years, and for good reason. A long-running, industry-wide probe by the DOJ has led to a series of blockbuster settlements against commodities trading firms, and as the CFTC’s $55 million fine against Trafigura demonstrates, the hits just keep coming.
Industry observers will not be surprised by Trafigura’s (latest) regulatory woes. In September 2020, the Justice Department secured a guilty plea and $16.6 million criminal fine from Sargeant Marine Inc., resolving allegations that the asphalt company’s trading arm bribed foreign officials in violation of the Foreign Corrupt Practices Act (FCPA). Shortly thereafter, in December 2020, trading house Vitol Inc. entered into a deferred prosecution agreement, and agreed to pay $135 million, to resolve similar bribery allegations. Not to be outdone, in May 2022, commodity trader and mining behemoth Glencore pleaded guilty to major FCPA violations, paying over $1.1 billion in fines. Continuing this trend, Connecticut-based Freepoint Commodities agreed to pay $98 million to resolve an investigation into potential FCPA violations in December 2023.
This year has also seen a number of notable enforcement actions against commodities trading firms. In March, Gunvor S.A. agreed to pay $661 million, and pleaded guilty to FCPA violations, relating to a scheme to bribe Ecuadorean government officials in order to secure business with Ecuador’s state-owned oil company. Trafigura itself was also swept up; in March, the Swiss trading house pleaded guilty to conspiring to violate the FCPA’s anti-bribery provisions by funneling $61 million in corrupt payments to Brazilian officials in exchange for preferential treatment from Brazil’s embattled state-owned oil company, Petrobras. For that scheme, Trafigura paid over $126 million in fines to U.S. regulators.
This time around, Trafigura was accused of: (1) trading gasoline while in knowing possession of material nonpublic information which it had misappropriated from a competitor; (2) manipulating a fuel oil benchmark to benefit its futures and swaps positions, including derivatives traded on U.S. registered entities; and most notably (3) impeding the ability of whistleblowers to report misconduct to regulators.
Whistleblower advocates quickly hailed the CFTC’s action against Trafigura as a major win in the fight against corruption and whistleblower retaliation. According to the CFTC, Trafigura required employees to sign employment and separation agreements containing non-disclosure provisions which prohibited them from sharing company information, with no exception for disclosures made to law enforcement or regulatory bodies. This had the effect of illegally impeding potential whistleblowers from voluntarily communicating with the regulators charged with investigating misconduct at Trafigura.
The CFTC’s $55 million fine against Trafigura was brought about, at least in part, by a disclosure filed through the CFTC’s Whistleblower Program. Trafigura’s penalty was no doubt enhanced by the CFTC’s discovery that the company used contracts to impede its employees’ ability to voluntarily report misconduct to regulators or law enforcement. As regulators continue to press the importance of voluntary self-disclosure programs, companies––especially those in high-risk industries like commodities trading––must take a hard look at their internal policies on whistleblower protection and anti-retaliation.
*Associate
