events-webinars
Unlock the Secrets of Effective Risk & Compliance Management: Join Our Masterclass
The potential threat to your anti-bribery and corruption policies
Middlemen are important and they feature in all supply chains. The supermarket is the middleman bringing producers’ goods to consumers. Ultimately, middlemen bring together buyers and sellers. They provide access to markets and on the other side raw materials. Amazon is perhaps the biggest middleman of all which draws together businesses seeking to expand into new markets and consumers seeking easy access and quick delivery of goods.
Not all middlemen are performing logical or legitimate functions. In some instances, synthetic middlemen are created in order to misappropriate value from a transaction. Within the securities industry, traders, salespeople, and brokers have falsely proposed a customer was introduced by a third party, sometimes referred to as an introducing broker. The introducing broker is paid a fee and/or a commission upon transactions. Of course, there are legitimate introducing brokers, but it is an area that is vulnerable to exploitation and manipulation.
Corrupt public officials engage with third-party middlemen who act as a gateway, through which access is provided to raw materials, such as coal, iron ore, and oil. This practice is prevalent within countries with natural resources for sale and corrupt politicians. Often there are multiple risk factors that should put compliance professionals on notice. These include high-risk countries, high-risk industries, politically exposed persons (PEPs), and an offshore corporate entity facilitating transactions for substantial fees.
Stimler Case
Earlier in September 2021, details were released of a cooperation deal between Anthony Stimler and the U.S. attorney’s office in Manhattan. Stimler is a former oil trader who worked for Glencore Plc. In extracts of testimony before a court in New York, he described how he bribed government officials in African nations in order to secure access to millions of barrels of oil. Having pleaded guilty to charges of bribery, the London-based trader said: “Your honour, I knew what I was doing was wrong and unlawful”, before adding, “I am extremely remorseful for my conduct.”
So, what did Stimler do; how did he operate, and did he act alone? His testimony before a federal judge, reveals that he pursued a policy of bribery, which he asserts was adopted and applied by fellow Glencore traders. Bluntly, Stimler stated: “When I made requests for payments to intermediaries, I was aware that other Glencore traders who worked with me were doing the same thing by directing our intermediaries to make bribe payments to government officials.” Adding details, he further stated: “I intended that a proportion of the payment to intermediaries operating in Nigeria were to be passed on to Nigerian state-owned oil company officials. The purpose of the payment was to influence those officials’ decisions regarding the Nigerian government’s allocations of crude oil cargo.”
This unambiguous testimony proposes Glencore permitted payments to be made to government officials in order to facilitate business. This causes people to ponder how such payments were presented within the company’s accounts? Beyond this, there will be questions as to who authorised the payments and who signed off on the accounts?
A spokesperson for Glencore stated that every person mentioned in Stimler’s case has been disciplined or left the firm. Of course, this does not mean the Department of Justice will not charge them with serious criminal offences.
Intermediaries
Middlemen and women operate throughout the world, bringing together partners, companies, and third parties in pursuit of legitimate business objectives. In this case the intermediaries, middlemen were operating in a supply chain of bribery and corruption. At one end of the chain was oil and at the other end, there was money. Government officials influenced or controlled the flow and distribution of the oil, whereas traders and managers at Glencore controlled the money, how it was spent, where it was spent, and who was to benefit.
Stimler testified payments were made to intermediaries/middlemen for onward payment to Nigerian officials. Whilst the testimony proposes nothing was hidden, the reality is everything was hidden behind the intermediaries who protected the identity of Glencore when making the payments to the Nigerian officials.
Within the criminal business of bribery and corruption, it is common practice for parties to use and hide behind third parties, intermediaries, offshore companies, and even lawyers. The objective is to distance the party paying the bribe from the party receiving the bribe.
Onshore, offshore, no one can be sure anymore
Whilst the cooperation of Stimler is unusual, companies paying bribes to secure lucrative access to raw materials in Africa is nothing new. Likewise, instances of government officials in Africa misappropriating funds have happened far too frequently. Other companies in the oil business in Africa have made payments to companies registered in Central America. Such payments need to be challenged, given the oil is commonly owned by an African government, why should payments be made to an offshore company registered in Central America?
In the case against James Ibori, the former Governor of Delta state in Nigeria, he used a number of intermediaries, including his UK-based lawyer Bhadresh Gohil, to syphon stolen funds out of Nigeria. Both men were subsequently sentenced to substantial prison sentences in the UK. It follows, the UK is offshore to Nigeria.
Red flags
There are no new startling revelations within Stimler’s testimony, indeed, on the contrary, paying intermediaries/middlemen is a known “red flag” and in this instance, it sits adjacent to a number of all of the red flags referenced above:
High-risk business – viz oil
High-risk countries – Nigeria, Angola, Panama
Politically exposed persons (PEPs)
Offshore companies/entities
The US Treasury and UK Government do not operate through companies registered in Panama, Delaware, the Isle of Man, or the British Virgin Islands
The long arm of US law enforcement
It is important to take note of and simultaneously respect the actions of the Department of Justice and the FBI. In this instance the perpetrator, Stimler was working in London and on behalf of his employer in London, Glencore Plc, a publicly-traded company, with a head office in Switzerland. Stimler paid bribes to government officials in Africa, so how and where does the US fit into this? Well, the bribes were paid in USD, all USD transactions are cleared through banks in the state of New York and each transaction is therefore subject to US Federal laws and New York state laws. In addition, Glencore operates a trading business in New York, and importantly the Foreign & Corrupt Practices Act (FCPA) was put in place to protect American interests.
The FCPA seeks to maintain a level playing field for corporate entities to tender for business, in a fair and transparent way. As such companies such as Glencore paying bribes to foreign government officials harms legitimate US businesses. By taking action, the Department of Justice and FBI demonstrate that they will apply the FCPA and hold people accountable for their criminal conduct.
Change
Pursuant to the above, Glencore has changed and the CEO, Gary Nagle has stated, the company no longer deals through intermediaries/middlemen and has simultaneously reduced the level of business undertaken in high-risk countries. Glencore continues to make a significant profit on its trading activity and no longer features as a trading partner of the Nigerian government.
The kleptocracy unit of the Department of Justice and FBI is on the front foot and demonstrating, yesterday’s operating procedures may have been acceptable to some, but nonetheless, they were criminal, and culprits will be pursued.
Combined with information leaks published through media outlets, the actions of law enforcement agencies show that yesterday’s secrets will become tomorrow’s news/evidence and/or newspaper headlines. Consequently, companies are changing their operations, old, bad habits are being replaced by improved governance, compliance, and due diligence. Short-term, quick profit thinking has been replaced by long-term strategic planning which safeguards profits, staff, and even the communities where companies operate.
New thinking
New laws such as the UK Bribery Act as well as anti-human trafficking laws have caused businesses to enhance compliance processes and change working practices. Counterparties, intermediaries/ introducers, and middlemen are treated as though they were clients and subject to an equivalent level of due diligence. This does not prohibit business with such parties, albeit some companies, such as Glencore in 2021 have determined to no longer deal with or through intermediaries in order to counter the risks, which have previously arisen.
Payments requested or made to third parties need to be supported by due diligence which clearly establishes a firm knows who they are undertaking business with/through and equally importantly, why. Commentary related to the Stimler case suggests public officials solicited/demanded the payment of bribes to facilities business, such as the purchase of oil. Thus, even though firms may not be seeking to transact through middlemen, others may request or demand they do so. Absent to a logical, reasonable, and acceptable explanation for the involvement of a middleman, firms should consider rejecting such business or refusing to act through an intermediary.
Payments for African natural resources should not be made to Central American or Caribbean registered companies. Sometimes, it really is as simple as that, because playing with and paying a middleman can be as risky as playing with fire, in both instances you can get burnt, badly.
Martin Woods – October 2021
Martin Woods, Director of AMLWoods
Martin Woods is a seasoned anti-money laundering practitioner, financial crime fighter and strategist. He has been fighting money launderers and financial criminals for over thirty years, as both a detective and a leader within a diverse range of financial service businesses in the UK and overseas. He is internationally recognized as a leader, outstanding speaker and first-class trainer, who has previously worked with and provided training to regulators, central banks, law enforcement agencies and the United Nations.
He is an innovator who thinks like a money launderer and in doing so he seeks to deter, detect, frustrate and ultimately stop money launderers. He joins the dots between dirty money, crime and the suffering inflicted upon communities where criminals operate and intimidate those who oppose them. He has played an active role in a number of major international money laundering investigations, which allows him to provide advice and guidance based upon unique, hands on, real life, real crime insights and case studies.
He asserts financial crime is a major component of a firm’s ESG policy, strategy and business development. Arguing environmental crime impacts all of us and unchecked will have a devasting impact upon our children and our grandchildren. Thus, he believes our collective actions can and will make a difference. Along with many others he has lobbied for more transparency in the ownership of corporate entities, behind which too many criminals seek to hide.
Discover more
events-webinars
Unlock the Secrets of Effective Risk & Compliance Management: Join Our Masterclass
events-webinars
Unlock the Secrets of Effective Risk & Compliance Management: Join Our Masterclass
events-webinars
Unlock the Secrets of Effective Risk & Compliance Management: Join Our Masterclass
events-webinars
Unlock the Secrets of Effective Risk & Compliance Management: Join Our Masterclass
articles
Discover insights from Square Facts’ involvement at UK Finance’s event. Learn more about our participation here.
articles
Dive into Square Facts’ pioneering fight against recruitment fraud in a Village de la Justice interview. Unleashing human intelligence and tech for compliance excellence.
articles
Explore Square Facts’ active role in shaping the discourse at PrivSec Global 2023, led by Diane Shepherd, delving into data protection excellence
articles
Explore the forefront of document fraud prevention with iCOVER Group at the Céréales Fraudeurs Breakfast.
articles
iCOVER Group expands into Asia, launching Background Screening & Compliance services, tapping into a projected 12.4% market growth by 2028.
Précédent
Suivant