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Glencore Plunges After DOJ Subpoena In Corruption, Money Laundering Probe

Courtesy of ZeroHedge. View original post here.

Global commodity miner and trader Glencore saw its shares plunge 13% on Tuesday – their largest drop since 2015 when the company barely survived the downturn in commodity prices – after the company revealed that it has been subpoenaed by the Department of Justice, and must hand over documents and records pertaining to its operations in Nigeria, the Democratic Republic of Congo and Venezuela dating as far back as 2007.

The documents pertain to the company's compliance (or non-compliance) with the Foreign Corrupt Practices Act and US money laundering statutes.

"Glencore is reviewing the subpoena and will provide further information in due course as appropriate," the company said in a tersely worded press release.

Tyler Broda, analyst at RBC Capital Markets, told the Financial Times that "there is not enough detail in the release to understand exactly what the investigation holds, however with the subpoena covering multiple countries, this would indicate that there is a relatively thorough investigation at hand."

"The Foreign Corrupt Practices Act appears at first investigation to provide subject to sanctions, fines and penalties up to $25m or twice the gain or loss caused by the violation and imprisonment for up to 5 years per occurrence."

Meanwhile, an analyst from AlphaValue pointed out that "given the near perpetual political and economic woes in these countries, it has been a well-known fact for years that business irregularities existed", however, Glencore's "opaque business practices" are well known and have been "reflected in its lower multiples, despite ample cash flow cushion from the trading division.

Glencore

As Bloomberg reminds us, Glencore and its billionaire CEO Ivan Glasenberg has faced some challenges this year as it completed its turnaround from the worst of the selloff in late 2015. Its giant copper and cobalt mines in the Congo. Glencore alone account for 25% of the world's supply of cobalt, a metal that's essential for the manufacture of electric cars and mobile phones. The company has also faced legal disputes with the Congolese government.

The DOJ subpoena comes after the company settled a dispute with former business partner, Israeli billionaire Dan Gertler, a former business partner in its DRC operations. In a decision that may have attracted scrutiny, the company offered to pay Gertler in euros to skirt US sanctions placed on the businessman for his "opaque and corrupt mining deals" in the DRC. The Swiss company said it had discussed its royalty payments with US and Swiss authorities.

Glencore

The company also recently agreed to write off $5.6 billion in debt from a joint venture with Gecamines, the DRC's state mining firm, ending another legal dispute. Glencore is also facing a bribery probe by the UK's Serious Fraud Office over its relationship with Gertler, the FT reports.

Glencore shares were trading at their lowest level in a year after the drop:

Glencore

It won't be Glencore's first interaction with the DOJ: as is well known, Glencore late founder Marc Rich received a pardon from Bill Clinton on the last day of the former president's office in 2001 after Rich was indicted in the United States on federal charges of tax evasion and making controversial oil deals with Iran during the Iran hostage crisis. He was in Switzerland at the time of the indictment and never returned to the United States.


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