White Collar and Corporate Investigations Alert | December.16.2020
In a landmark action on December 3, 2020, the Commodity Futures Trading Commission (“CFTC”) announced resolution of its first enforcement action involving foreign corruption by issuing an order and settling charges against Vitol Inc. (“Vitol”), the Houston, Texas, based energy and commodities trading company. In doing so, the CFTC became the latest U.S. government agency to tackle foreign corrupt conduct, which has traditionally been the domain of the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”). In a parallel matter, the DOJ’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York entered into a Deferred Prosecution Agreement (“DOJ DPA”) with Vitol, deferring criminal prosecution on charges of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”). The DOJ DPA is also resolving a parallel investigation into the same conduct by Brazilian authorities.
For decades now, the DOJ and SEC have used the FCPA as a tool to combat foreign corruption with a U.S. nexus. The CFTC lacks authority to prosecute foreign corrupt conduct under the FCPA. However, the CFTC has taken the position that conduct that may violate the FCPA—such as corrupt payments and certain types of fraud—may also violate the Commodity Exchange Act (“CEA”). The CFTC announced an initiative in March 2019 to enhance its coordination with international and domestic law enforcement partners, including the DOJ and SEC, and devote additional resources to investigating companies and individuals for foreign corrupt practices that violate the CEA.
The Vitol enforcement action demonstrates that the CFTC’s new collaborative efforts are well underway and are a harbinger of more to come.
In the CFTC Order, Vitol consented—without admitting or denying—to the entry of findings that the company is liable for corrupt, fraudulent, “manipulative and deceptive” conduct involving state-owned entities (“SOEs”) in Brazil, Ecuador, and Mexico. Vitol admitted to the findings in the DOJ DPA, which cover substantially the same conduct as the CFTC Order, but does not include the attempted energy market manipulation that the CFTC alleged violates the CEA. In related actions in 2019 and 2020, the DOJ also charged several individuals, including a U.S.-based former Petrobras official involved in the Brazilian scheme, and a Houston-based Mexican citizen and former Vitol trader for his role in the Ecuador scheme.
To resolve enforcement actions with the DOJ, the CFTC, and Brazilian authorities, Vitol has agreed to pay a total of $164 million in criminal and civil penalties and disgorgement. More specifically, the DOJ DPA requires Vitol to pay a $135 million criminal penalty, one-third of which will be paid to Brazilian authorities.
The CFTC Order requires Vitol to pay more than $95 million in civil monetary penalties and disgorgement, which will be offset in part by the criminal penalties and disgorgement ordered by the DOJ and/or Brazilian law enforcement. As part of the CFTC settlement, Vitol must pay an additional $16 million penalty based on the energy market manipulation (which is not covered by the DOJ DPA), as well as almost $13 million in disgorgement. Vitol received full credit for its cooperation. Vitol also engaged in remedial measures, including compliance program improvements. The DOJ did not impose a monitor.
The investigations into Vitol arose out of corruption-based fraud, including bribes and kickbacks, involving the SOEs and their agents in Brazil, Ecuador, and Mexico between 2005 and 2020. For example, in Brazil, Vitol and its local Brazilian affiliate paid more than $8 million in bribes to officials at Brazil’s state-owned oil company Petróleo Brasileiro S.A. – Petrobras (“Petrobras”) in exchange for “improper preferential treatment,” including confidential, non-public information regarding Petrobras pricing and competitor information. For example, Vitol was given a “last look,” that is, the opportunity to meet or beat the best price offered to Petrobras by its competitors, a figure Vitol sometimes called the “gold number.”
Vitol and its affiliated companies earned at least $33 million in profits from its corruptly obtained contracts with Petrobras. To help conceal the misconduct, Vitol used a fake company and intermediaries to route payments to offshore accounts and then to the Petrobras agents. To further disguise the scheme, Vitol and its co-conspirators employed fraudulent invoices for services such as “market intelligence” or “sell support,” and the Brazilian officials used aliases such as “Batman,” “Phil Collins,” and “Popeye.” Among other things, Vitol used these corrupt payments to circumvent bidding procedures and tender processes for oil contracts and secured other improper advantages over their competitors. Vitol engaged in similar conduct in Ecuador and Mexico, paying more than $2 million in bribes to, or for the benefit of, Ecuadorian and Mexican officials.
The CFTC found that Vitol violated the anti-fraud provisions of the CEA by, among other things, using misappropriated and corruptly obtained non-public information material to Vitol’s transactions with the SOEs and obtaining improper preferential treatment and access to trades as a result of corrupt payments. The CFTC also found that Vitol had attempted to manipulate the applicable benchmark rates to the detriment of market participants.
In a press release on the day of announcement, CFTC Chairman Heath P. Tarbert hailed the resolution against Vitol as a “historic enforcement action [that] demonstrates that the CFTC will actively pursue fraud tied to foreign corruption and manipulation that impacts the U.S. derivatives and related physical markets.”
Multinational energy companies with a U.S. nexus face elevated foreign corruption risk because energy resources in foreign countries are generally state-owned. In fact, other energy trading companies currently face similar corruption investigations. The industry can expect to see additional examples of CFTC enforcement of foreign corrupt practices, in cooperation with other U.S. and international authorities. A risk-based anti-corruption compliance program with adequate resources, real-time data analytics, dynamic training, and robust third-party management can mitigate corruption and enforcement risk.
 See Press Release No. 8326-20, CFTC, CFTC Orders Vitol Inc. to Pay $95.7 Million for Corruption-Based Fraud and Attempted Manipulation (Dec. 3, 2020), available at https://www.cftc.gov/PressRoom/PressReleases/8326-20; In re: Vitol, Order Instituting Proceedings Pursuant to Section 6(c) And (d) of the Commodity Exchange Act, Making Findings, And Imposing Remedial Sanctions, CFTC Docket No. 21-01, Dec. 3, 2020 (“CFTC Order”).
 CFTC Order at 2. Vitol is a part of the Vitol Group, the multinational energy and commodities trading firm that is also the “largest privately owned physical oil and gas trading firm.” Id. at 3.
 Press Release, DOJ, Vitol Inc. Agrees to Pay over $135 million to Resolve Foreign Bribery Case (Dec. 3, 2020), available at https://www.justice.gov/opa/pr/vitol-inc-agrees-pay-over-135-million-resolve-foreign-bribery-case; see also Deferred Prosecution Agreement, United States v. Vitol Inc., CR No. 20-539 (ENV) (E.D.N.Y. Dec. 3, 2020) (“DOJ DPA”).
 Press Release No. 7884-19, CFTC, CFTC Division of Enforcement Issues Advisory on Violations of the Commodity Exchange Act Involving Foreign Corrupt Practices (Mar. 6, 2019), available at https://www.cftc.gov/PressRoom/PressReleases/7884-19; see also CFTC Public Statements & Remarks, Remarks of CFTC Director of Enforcement James M. McDonald at the American Bar Association’s National Institute on White Collar Crime (Mar. 6, 2019), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opamcdonald2.
 CFTC Order at 1,10. Note that Vitol admitted to “findings in any related action against Vitol by, or any agreement with, the United States Department of Justice (“DOJ”) or any other governmental agency or offices.”
 CFTC Order at 2.
 DOJ DPA at ¶ 1.
 Cf. DOJ DPA at ¶ 4(i).
 See DOJ Press Release, supra note 3; DOJ DPA at A-2.
 See CFTC Press Release No. 8326-20, supra note 1; CFTC Order at 11-12.
 DOJ Press Release, supra note 3.
 DOJ DPA at ¶ 25. Note that the CFTC Order only addresses approximately $3 million in bribes to Petrobras officials. See CFTC Order at 5.
 CFTC Order at 2.
 CFTC Order at 5.
 CFTC Order at 4; DOJ DPA at ¶ 25-26.
 DOJ DPA Statement of Facts at ¶¶ 9, 10, and 13.
 CFTC Order at 5-6.
 CFTC Order at 9 (explaining conduct that violated Section 6(c)(1) of the CEA and Regulation 180.1, 17 C.F.R. § 180.1 (2020)).
 See CFTC Press Release No. 8326-20, supra note 1.
 See, e.g., Gram Slattery, Reuters, UPDATE 1-U.S. CFTC queries Brazil’s Petrobras on trading activities (May 30, 2019) (reporting on investigations into kickbacks allegedly paid to Petrobras officials, including by commodities trading firms), available at https://www.reuters.com/article/petrobras-corruption-cftc-idUSL2N2360BY.