Glencore faces a DoJ probe stretching from Africa to the Americas

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Glencore faces a DoJ probe stretching from Africa to the Americas


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IT EMERGED on July 2nd that Hollywood may make “The King of Oil”, a film about Marc Rich, an American-Swiss commodities trader who became a fabulously rich fugitive from American justice. On July 3rd Glencore, the firm founded by Mr Rich, said America’s Department of Justice (DoJ) had requested documents regarding its compliance with corruption and money-laundering laws. Depending on the outcome, the film may have a good sequel.

It has been a year of pain for Glencore, a mining and trading giant. News that the DoJ wanted over ten years of documents related to activities in three countries, the Democratic Republic of Congo (DRC), Nigeria and Venezuela, knocked its market value by 8.5%, or $4.3bn (on July 5th it announced a $1bn share buyback). Its shares had already lagged its peers this year because of its exposure to the DRC and Russia, where it has suffered collateral damage from American sanctions.

Glencore, whose boss, Ivan Glasenberg, is its second-biggest shareholder, is often feted for living dangerously. The firm takes big risks, which clobbered it when commodities crashed in 2013-16. That offers big rewards when the cycle turns, as it did later. But when things that Glencore is meant to be expert at, such as operating in dodgy countries, go awry, its investment case is harder to make.

The DoJ probe comes weeks after Glencore resumed royalty payments to Dan Gertler, an Israeli billionaire sanctioned by the American government because of what it called “corrupt mining and oil deals” in the DRC. (Mr Gertler denies wrongdoing.) It is not clear whether these events are connected. The DoJ, after all, is separate from the Treasury, which handles sanctions, and Glencore says it spoke with American officials before resuming payments—in euros—to Mr Gertler. But the DoJ has the DRC in its sights. In 2016 it fined Och-Ziff, a hedge fund, $412m for bribing officials there.

The DoJ’s scrutiny of Glencore’s operations in Venezuela and Nigeria, meanwhile, is likely to involve oil trading. It is unclear what may have aroused its suspicions. In Venezuela Glencore was recently named as one of 40 co-defendants in a lawsuit that alleges oil-trading firms funnelled bribes to corrupt officials.

It is also not clear whether long-term investors or speculators dumped Glencore stock. But even if it leads to no further action, the probe may have consequences. If it spooks banks and investors, Glencore’s cost of capital will rise. It may also make executives think twice about taking on risk. Normally Mr Glasenberg would not tolerate such pusillanimity. If he starts to, it will be a different—and less movie-worthy—Glencore.

 



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