Shaken after a year of mounting criminal investigations, legal suits, scandals and the sanctioning of close allies, the Swiss commodities trader and mining giant Glencore limped into 2019.

The drumbeat of bad news has shown that though it has risen to number 14 on the Fortune 500, the company created by the arch-fraudster Marc Rich remains true to its origins as a vast criminal enterprise that employs sophisticated methods of deceit to disguise the true nature of its business.

Hours into 2019 Glencore faced a new crisis when the presidential election in the Democratic Republic of Congo went off the rails. President Joseph Kabila, stunned by unofficial returns showing that his hand-picked successor, Ramazany Shadary, was being trounced by the political newcomer Martin Fayulu, deployed the security forces, shut down the Internet and delayed announcing results as he cooked up a scheme to install a more pliant opposition leader Felix Tshiskedi.

The prospect of the DRC erupting in violence threatened to disrupt production and cut transportation from Glencore’s landlocked copper and cobalt mines in southern Katanga province.

The DRC accounts for 26 percent of Glencore’s net present value and CEO Ivan Glasenberg’s once genius bet on cobalt, paid for through circuitous payments to Kabila and the Israeli crook Dan Gertler, now could blow up in his face.

The headlines of Glencore’s horrendous 14 months include:

  • In November 2017, millions of confidential documents from the Appleby law firm were leaked to the International Consortium of International Journalists. Dubbed the Paradise Papers, the offshore financial data included a trove of documents from the “Glencore Room” that lifted the veil on how the company uses financial havens to divert millions of dollars to evade taxes and make potentially corrupt payments. The Paradise Papers disclosed a secret $45-m “smoking gun” payment to Gertler that added key evidence to the multinational criminal investigations against Glencore.
  • In December 2017, the US Treasury declared Gertler a “Specially Designated National” for high level corruption and severed him and his businesses from the US financial system. Gertler was accused of “opaque and corrupt mining and oil deals” on behalf of Kabila. His partners Glencore were unscathed.
  • In March, Glencore was sued for corruption in Miami by the Venezuelan state-owned oil company Petroleos de Venezuela SA (PDVSA). Along with other traders Glencore allegedly bribed a PDVSA trader to get the inside track on Venezuelan oil deals in order to rig tenders, fix prices, bribe officials and ultimately underpay for crude and products. PDVSA are claiming billions in lost income.
  • In April, Glencore was taken to court by Congo’s state-owned miner Gécamines, who accused it of draining money from its local joint venture, in which it owns a 20 per cent stake. The matter was settled out of court with a $150-m payout.
  • In April, the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Oleg Deripaska, Glencore’s partner in the aluminum trade, in retaliation for Russian interference in the 2016 US election. OFAC accused Deripaska, a close ally of Vladimir Putin, of money laundering, extortion, racketeering, bribery, conspiracy to murder, and of having links to a Russian organized crime group.
  • In May, the British Special Fraud Office prepared to open a formal bribery investigation into Glencore and its relationship with Gertler and Kabila.
  • In July the US Department of Justice, launched an investigation into money laundering and violations of the Foreign Corrupt Practices Act, and subpoenaed Glencore to provide documents relating to its operations in the DRC, Venezuela and Nigeria. Glencore’s share price plunged 20 % in one day.
  • In December Toronto-listed Katanga Mining, one of Glencore’s Congo subsidiaries, agreed to pay the Canadian SEC more than $22-m for concealing its dealings with Gertler and for understating mining costs and overstating copper production.
  • In December Brazilian authorities announced that Glencore, along with Vitol and Trafigura, was implicated in the country’s massive “Car Wash” scandal for paying bribes to officials from the state oil firm Petrobras. The investigation has already sent a former President and some of the country’s most prominent business people to jail.
  • In December, Aristotelis Mistakidis, the man who built Glencore’s reputation in copper and the one-time heir apparent to CEO Ivan Glasenberg, was forced out of the company, the apparent sacrificial lamb for Glencore’s missteps in the DRC. Mistakadis, himself one of Glencore’s largest shareholders, was a hold-over from the days of Marc Rich.
  • In December, Deripaska’s main vehicle UC Rusal, in which Glencore is a minority shareholder, escaped the hammer blow of full sanctions after the US Treasury agreed a deal in which VTB Bank and a Glencore share swap would help dilute Deripaska’s shareholding in the company. This decision was queried by the new Democratic Party majority in the House of Representatives who threatened to challenge it.
  • Glencore is under scrutiny in the US for assisting in the fake EUR11-billion privatization of the sanctioned Russian state-owned oil company Rosneft. The privatization of 19.5 % equity was financed by Russian Central Bank injections into state banks to Rosneft, concealed inside secret fiduciary agreements with a consortium of Glencore and the Qatar Investment Authority. The inner workings of the deal remain a mystery.
  • The Australian Tax Office is investigating Glencore for a massive scam in which the company allegedly moved $30-billion of resource projects out of the Australian tax net after a $16-billion write-down. The tax scam, codenamed Project Everest, was uncovered as part of the Panama Papers. Glencore has launched an action in the High Court to force the ATO to return copies of the legal files.
  • Glencore has also been accused in Australia of the degradation of sacred Indigenous lands and black lung and lead blood poisoning among its workforce and their families.
  • Glasenberg, 61, has said he will retire at 65 but with the investigations growing in number and intensity an orderly transition might no longer be possible. As the company’s Statesman in Chief it was Glasenberg who has the key relationships with Gertler, Kabila, Deripaska and others.
    In response to the investigations, Glencore has retired some senior managers and appointed a board committee under Chairman Tony Hayward to oversee a response. The company is seeking to turn over a new leaf and draw a line under previously suspect deals. This involves walking the fine line of resetting its image while remaining as far under the radar as possible.

The really key question is what happens to Glencore if it shifts from its hugely successful though fundamentally unethical business model pioneered by Marc Rich.

Commodity trading is a high volume, low margin, high risk business, and Glencore’s key to profits has been a willingness to do whatever it takes to not only achieve certainty of supply but to expand the margins. Marc Rich built the company on the back of high premiums from pariah nations such as apartheid South Africa, the Soviet Union, Cuba, Israel and Iran.

The key principle, as once former company official explained, is that dealing with the devil is not just an operational risk. It is the business.

Glencore partners with Deripaska and Sechin in Russia, with Gertler in the DRC, with Bulet Utemuratov in Kazakhstan, with Igho Sanomi and Kase Lawal in Nigeria and South Africa. These are the intermediaries between the powerbrokers and Glencore – the ones who cut the dirty deals while Glencore stands behind the deals with its chequebook and labyrinth of offshore companies.

Glencore’s use of finance and crude market expertise hooks in governments who have run out of other commercial options. While the Chinese have been accused of being loan sharks in Africa, it is Glencore that has struck some of the most controversial and onerous deals, such as in the case of Chad, which pays 90 % of its oil revenues to Glencore, and Congo Brazzaville.

Glencore has long benefitted from a powerful taboo around disclosing the company’s means and methods. Whether secured by financial benefit, fear, or ignorance of the facts, this collective silence enabled Glencore’s ventures to become ever more ambitious. But occasional fissures have allowed information to get into the public domain, sometimes in the form of court cases, and provide insight into the company’s modus operandi.

Two recent court cases in the United States concerning the zinc and aluminum markets have shone some light onto ‘the Glencore playbook’. These two lawsuits’ detailed filings citing evidence that Glencore became particularly audacious in the aluminum and zinc sectors after the commodities price collapse of 2009. Applying a systematic, step by step approach, Glencore manipulated prices in these markets, including futures, for their own financial gain between 2010 and 2014. These four years are sometimes referred to in the court documents as Glencore’s “reign”.

Objectively speaking, Glencore had an enormously successful formula, translating directly into control, profit, and impunity. They also had enthusiastic collaborators in the form of JPMorgan Chase and Goldman Sachs.

The Glencore playbook can be understood in five steps:

(1) Infiltrate the industry rule maker (in this case the London Metal Exchange or LME) and deploy Glencore executives to influential positions;
(2) Create a distribution chokepoint through control of warehouses storing the metals;
(3) Manipulate LME rules by hoarding and creating artificial ‘queues’ for the metal;
(4) Achieve the “natural and intended effect” of artificially raising the prices and price premiums of physical metals sold in the United States, as well as futures trading on those metals, by manipulating perceived (but not actual) supply; and then
(5) Obstruct approaches to the rule-maker about the market manipulation to try to preserve the arrangement for as long as possible.

Glencore has escaped wider scrutiny because they are expert at disguising the sleazy end of the business by moving money through an opaque web of front companies and accounts in multiple countries and off-shore havens to facilitate transfer pricing, evasion of taxes, and paying off political sponsors through disguised payments to intermediaries.

But it could be in the DRC where Glasenberg’s investment was once seen as brilliant and far-sighted because of the critical role of cobalt in the future of the green economy that the company comes unstuck.

As the Financial Times has reported, the fate of Glencore’s mines in the Democratic Republic of Congo could determine who controls the global market for cobalt, a metal whose price has soared given its use in electric car batteries.

But Glencore is weighed down by the original sin of how they acquired their assets: the corrupt deals with Kabila and Gertler, who was pivotal to Glencore’s acquisition of the Mutanda and Katanga Mining copper and cobalt operations.

Starting in 2007, Glencore provided the capital and expertise in company structures and off-shore bank accounts while Gertler provided his “friendship” with Kabila to acquire these assets at the expense of the Congolese state and to the detriment of competitors. Glencore’s belated attempts to refurbish its image will struggle to erase that history.

The announcement in July that the company was under investigation by the DOJ for FCPA violations was not surprising given the public exposes of Gertler’s business dealings in the DRC.

The disclosure in the Paradise Papers of the secret $45-m loan to Gertler – and accompanying documents showing that this was payment for his access to Kabila to deliver benefits to Glencore – was tantamount to a smoking gun. The Och-Ziff settlement, in which the New York hedge fund plead guilty to corruption via Getler and paid a $413-m fine, is a template for the much larger criminal liability of Glencore in the DRC.

After Gertler was “Magnitskyed” by the US Treasury in December 2017 Glencore froze an estimated $200 million in royalty payments to Gertler.

Gertler retaliated with legal action that was settled when Glencore, without US approval, agreed to pay Gertler in Euros. Glencore said that this was “the only viable option to avoid the material risk of seizure” of its Mutanda and Kamoto assets”– an open admission that the royalty payments to Gertler were being shared with Kabila, a fresh violation of FCPA.

Glencore’s relations with Gertler, Kabila and the state mining company Gecamines deteriorated during 2018, leading to reports that the company was looking to bail on its lucrative Congolese assets by selling out to one of the Chinese mining giants.

But for now the exit strategy has been blocked by the Congolese election on December 30th in which Shadary was beaten into third place by opposition candidates. The winner was a former Exxon executive Martin Fayulu, but Kabila’s electoral commission declared Tshisekedi the winner and his successor.

What could follow is violence, disruption, the closure of borders, international sanctions and a crisis of legitimacy that will overshadow the company’s operations. The DRC is not a good place for any company to park a quarter of its net present value. Glencore’s long history of bribery of Kabila and his officials will prevent any plea that they are innocent victims.

Another gathering storm is the extent to which Glencore is impacted by the widening gulf between Russia and the United States. Robert Mueller’s Special Counsel investigation into the Trump campaign’s potential conspiracy with Russia in the 2016 elections has already inflicted collateral damage on Glencore

The company’s protectors in Russia, Deripaska and Sechin, are sanctioned by the US and Glencore’s relations with both Rusal and Rossneft could become the subject of greater scrutiny by the US House of Representatives, now under Democratic Party control.

Glencore’s Russian links are so pervasive and the company is so influential in the trade of Russian commodities that it is surprising that it has not been subject yet to sanctions in its own right.

As one commentator notes: “There is ample rationale in policy, and no lack of evidence, for the Department of Justice, FBI, CIA and other investigations targeting Russians to extend to Glencore’s Russian operations.”

Glencore’s Russian links go back a long way. During the collapse of the Soviet Union Marc Rich struck deals with party officials to secure commodities at knock down prices, in return depositing the profits in secretive Swiss bank accounts. He is the man who created the oligarchs and helped them to move their money to the west through complicated financial schemes.

However, very little of the investigative reporting by the British and American media has focused on Glencore. Nor have the media and NGOs focusing on Glencore’s corruption in the DRC extended their focus to Russia.

Glencore likes to fly under the radar, earning its reputation as “the largest company you have never heard of.” That could change in 2019. And if it does it would be really bad news for Glencore.

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