CFTC’s foray into FCPA enforcement creates new risk factors

Included in the DOJ’s December $164 million enforcement action against Vitol was the first-ever CFTC fine for a violation of the Foreign Corrupt Practices Act (FCPA). The CFTC penalized Vitol for the effect bribes it paid to Brazilian, Ecuadorean, and Mexican officials had on the commodities market. The CFTC’s order concluded that “Vitol’s conduct was intended to secure unlawful competitive advantages in trading physical oil products and related derivatives to the detriment of its counterparties and market participants.”

“U.S. government agencies are being much more aggressive in pursuing public corruption through all of the means at their disposal.”

Kara Brockmeyer, Partner, Debevoise & Plimpton

The CFTC announced in March 2019 that it would pursue enforcement actions with its law enforcement partners regarding violations of the FCPA. In the enforcement advisory that accompanied the announcement, the agency said the advisory “applies to companies and individuals not registered (or required to be registered) with the CFTC.”

In its announcement, the CFTC let firms know there are “significant benefits” for voluntarily disclosing such misconduct, cooperating with investigators, and remediating the misconduct.

The CFTC based its case against Vitol on an anti-manipulation rule introduced as part of the 2010 Dodd-Frank Act. The rule prohibits the use of a “manipulative device, scheme, or artifice to defraud” in connection with the U.S. derivatives markets.

The CFTC used the same law to bring billions of dollars’ worth of fines over several years against numerous banks for manipulating the London Interbank Offered Rate (LIBOR).

What this means for compliance

“Firms need to widen the circle when assessing the fallout from a potential FCPA violation,” said Kara Brockmeyer, partner with the firm Debevoise & Plimpton and former chief of the SEC Enforcement Division’s FCPA Unit.

The same illegal conduct, she said, could violate banking regulations overseen by the Federal Reserve and other agencies, if the entity in question is a bank; SEC regulations, if the firm is a publicly traded company; and now the CFTC, if the firm’s business touches the commodities market.

The DOJ’s investigatory purview includes criminal and civil violations of the FCPA, while the regulators are limited to investigating civil violations.

Despite the CFTC’s new interest in FCPA violations affecting the commodities market, the agency cannot launch an investigation into an FCPA violation, Brockmeyer said. That can only be done by the DOJ.

The new wrinkle here, Brockmeyer said, is the CFTC has shown a willingness to pursue FCPA cases that affect the commodities market when no other regulator is doing so.

“I think this points to the fact that U.S. government agencies are being much more aggressive in pursuing public corruption through all of the means at their disposal,” she said.

There are media reports of additional DOJ investigations into FCPA violations that involve the CFTC. Among them are probes into commodity trading companies such as the Anglo-Swiss Glencore PLC and Singapore-based Trafigura Group Pte. Ltd., according to The Wall Street Journal.

The mechanics to the new layer of enforcement and penalties for firms caught using bribes or other foreign corrupt activities to manipulate the commodities market is becoming clear, said Jason Linder, a former senior federal prosecutor who now co-chairs Mayer Brown’s global anti-corruption and FCPA practice.

How it works

An investigation likely begins with the DOJ examining a company’s alleged violations of the FCPA. At some point, the DOJ alerts the CFTC that the FCPA violations under investigation may involve markets under the CFTC’s regulatory purview.

Then the CFTC assesses the potential impact of the violations on the commodities market and determines whether to levy a fine in conjunction with the DOJ.

“The CFTC doesn’t find violations and bring them to the DOJ, it’s the other way around,” Linder said. “The CFTC doesn’t have investigators beating the bushes, looking for these cases.”

However, now that the CFTC has indicated its interest in joining such investigations, it is possible an investigation into FCPA violations could start with a whistleblower tip—to the CFTC. The agency has a whistleblower program that pays a qualified tipster 10 to 30 percent of any fine over $1 million levied against a firm for violations of CFTC regulations. The same tipster could report the FCPA violations to the DOJ and receive 10 to 30 percent of the DOJ’s fine against a firm.

“All of a sudden, you have to think more about what whistleblowers can do,” Linder said. Firms that think they may have violated the FCPA have to consider another layer of risk as they evaluate whether to voluntarily disclose a potential violation, he said.