Not being a US citizen will not protect a person or corporation from US laws on bribery and corruption outside American borders; just ask Glencore, the Swiss-based firm now being hunted by the Justice Department.
Last week the US Justice Department issued a subpoena to Glencore, a commodity firm headquartered in Baar, Switzerland. The subpoena ordered it to “produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act (FCPA) and US money laundering statutes".
The alleged acts occurred outside the US, in Nigeria, the Democratic Republic of Congo (DRC) and Venezuela, according to a terse market update Glencore issued early July.
Glencore today trades around 90 different commodities, sourced in some 50 different countries, according to Bloomberg. It also operates giant copper and cobalt mines in the Congo, two minerals at the heart of contemporary electronic technology.
The news shook Glencore’s share price, which fell 13 per cent on the day, wiping more than $7.2 billion (Dh26.6bn) off its market value.
Details are still sketchy, but one thing is clear; the US will use its laws to pursue foreign firms for activities outside its own borders, even if US interests are not directly harmed.
“With its transactions in dollars and some subsidiary footprints in the US, Glencore seems well within the reach of the US Department of Justice” says Daniel Kaufmann, president and CEO of the Natural Resource Governance Institute (NRGI) in New York.
“It’s possible that the subpoena signals the Justice Department's desire to eventually charge Glencore with FCPA violations.”
Glencore’s essential dilemma is that it operates in many jurisdictions where rule of law is sketchy and "middle men" are often the only way to get contracts signed and business done. In Nigeria, Glencore has purchased oil from associates of the country’s former oil minister Diezani Alison-Madueke, who was briefly arrested in London in October 2015 on suspicion of corruption.
It is the DRC however where Glencore is likely most exposed. The country accounts for around 25 per cent of Glencore’s business according to Reuters. It has invested at least $6bn in mining assets, mostly in the copper rich Katanga region on the eastern periphery of the country.
And in order to do business in the DRC, companies such as Glencore have no choice but to go through one man: Dan Gertler, an Israeli billionaire and close associate of Joseph Kabila, the country’s president.
Glencore’s relationship with Mr Gertler is complex. In 2017 Gencore paid him around $1bn to secure a stake in two copper and cobalt mines. Under the deal, Glencore also agreed to pay the Israeli a regular royalty fee. However, last December the US placed him on a sanctions list for what Washington called his “opaque and corrupt” mine and oil deals.
Gertler responded by suing Glencore for $3bn, which put the company’s DRC mines at risk.
This June Glencore resumed payments, although in euros rather than dollars in the hope of avoiding a US investigation. Glencore said it would pay around €28 million (Dh121m) a quarter as this was “the only viable option to avoid the material risk of seizure” of its Congolese assets.
“The situation Glencore faces is very difficult” says Caspar Rawles, an analyst at Benchmark Mineral Intelligence in London. “At the moment there is no direct link between the subpoena and Glencore resuming royalty payments to Gertler’s affiliated companies. But some believe the timing is too coincidental to not be related.”
Glencore therefore was faced with risking its relationship with Mr Gertler and losing billions of dollars in Congolese assets; or resume payments and take its chances with the law and keep Mr Gertler – and the government – on side.
As it is, Mr Gertler is reportedly being investigated by the UK Serious Fraud Office, too.
It may well be that the US has now issued a subpoena to help shake loose information from Glencore to help build a case against him before the British do.
Mr Kaufman says Department of Justice officials may well want to put other, larger fish on the grill. "Prosecutors could be using the subpoena to force the company to turn over information relevant to other cases the department is pursuing.”
For now, though, Glencore faces the real risk of losing its Congo operations. The company is the largest cobalt producer in the world and extremely important in the cobalt supply chain, says Mr Rawles. In 2017 Glencore produced 25 per cent of the world's cobalt, and that number is likely to be higher by the end of 2018.
Mr Rawles does not expect Glencore to lose its assets – the company CEO Ivan Glasenberg has decades of experience negotiating tricky relationships in developing countries. And even if it did, production is unlikely to suffer much disruption.
“The DRC government will want the mines to be in production so that they receive royalties. Ultimately there will be a number of companies happy to operate the assets if it is not Glencore,” Mr Rawles says.