Crackdown on oil & gas traders expands opportunities for commodities whistleblowers

by Laura Peterson, Senior Research Advisor
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Crackdown on oil & gas traders expands opportunities for commodities whistleblowers

The US government’s increased focus on foreign corruption in commodities trading has resulted in the first-ever action by the Commodities Futures Trading Commission (CFTC) involving foreign corruption. This case highlights new avenues available to commodities whistleblowers seeking to call out wrongdoing in the high-stakes world of intermediaries under the CFTC’s Office of the Whistleblower program.

In December, the Brazilian oil-trading company Vitol agreed to pay $164 million in fines to the U.S. Department of Justice (DOJ) and CFTC for violating the FCPA by paying oil bribes in Brazil, Ecuador and Mexico. Vitol is one of the world’s largest oil traders, also known as agents, intermediaries or consultants. According to the DOJ, Vitol paid bribes of more than $8 million to numerous officials at Brazil’s state-owned and controlled oil company Petrobras between 2005 and 2014 in exchange for information on oil prices and other proprietary information.

Vitol concealed the bribery through the use of intermediaries and a fictitious company that sent payments to offshore accounts that then sent the cash on to Petrobras officials. Vitol also admitted to paying more than $2 million in bribes to officials in Ecuador and Mexico between 2015 and July 2020 for similar information.

Vitol created elaborate schemes in which intermediaries would stage negotiations, create sham consulting agreements, set up shell companies, and create fake invoices for consulting services, among other ruses, in order to make the bribes look legitimate. Additionally, Vitol attempted to manipulate two S&P Global Platts physical oil benchmarks.

Intermediary companies like Vitol have increasingly come under scrutiny by U.S. regulators. The DOJ has also launched probes into extractive industry companies Glencore and Trafigura AG following investigation by Brazilian law enforcement agents.

Whistleblowers can play a major role in curbing this type of corruption. More than 90% of reported FCPA cases involve the use of third-party intermediaries such as agents or consultants, and the oil and gas industry represents more FCPA enforcement actions than any other industry. The FCPA has extremely strong whistleblower protections that apply transnationally, allowing whistleblowers around the world to rely on U.S. laws to expose corruption.

The Commodities Exchange Act (CEA), which governs commodities whistleblowers, has similarly strong protections. That means the CFTC’s increased scope, evidenced in this case, offers significant opportunities for traders, industry employees, or financial watchdogs to come forward confidentially to law enforcement with information on anticompetitive behavior in oil and gas futures and potentially receive a reward.

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