Yet another U.S. regulator is entering the foreign corruption space. The Commodity Futures Trading Commission is a civil agency that oversees commodity and derivatives markets in the United States. It enforces the Commodity Exchange Act, a set of statutes that are enforced criminally by the U.S. Department of Justice. The CFTC has authority to impose financial penalties in the many millions of dollars, and it has broad investigatory powers.
Earlier this year, the CFTC announced that, for the first time in its history, it is looking at foreign corruption that impacts commodity and derivatives markets in the United States. No charges have been brought so far, but the agency appears to be ramping up its enforcement efforts. As one indication, the agency recently issued an advisory directed at would-be corporate whistleblowers, explaining that individuals who report foreign corruption may qualify for financial awards.
In the initial announcement, the CFTC’s Director of Enforcement referred to multiple “open investigations” into foreign corruption. So far, only one has been publicly confirmed. Brazil’s state-owned oil company, Petrobras, revealed that the CFTC requested information relating to “Operation Car Wash,” which involved the alleged payment of bribes to employees in Petrobras’ trading division.
The CFTC’s new focus has important implications for companies with international operations, particularly in the commodity-rich regions that span much of the African continent.
As attorneys with recent experience serving in the CFTC’s enforcement division, and with expertise counseling companies with anti-corruption compliance, we find the following points salient:
- The CFTC has authority to investigate and bring enforcement actions in cases involving fraud, manipulation, and false price reporting, among other things, but not bribery itself. Foreign corruption is not explicitly illegal under the CEA. Thus, foreign bribes will be an aspect of these cases, but the CFTC will still need to prove all elements of a traditional fraud, manipulation, or false reporting charge. However, the CFTC will not need to establish an actual violation of the FCPA to support a bribery-based CEA charge.
- The CFTC and DOJ are coordinating their efforts in this area. (The Acting head of the Fraud Section of DOJ’s Criminal Division even said that the CFTC’s new focus is “great news.”) This means that companies and individuals active in the extractives and commodities industries should expect that, in some instances, there will be overlapping civil and criminal investigations and enforcement actions, and the agencies will share information and coordinate investigative efforts.
- The CFTC has promised to avoid “piling on.” The Director of Enforcement has said that, where the CFTC is investigating foreign corruption, it is the only U.S. civil regulator with jurisdiction—which means that, for whatever reason, the SEC lacks jurisdiction under the FCPA. Unless that policy changes, the SEC and CFTC will not be bringing overlapping charges.
- The CFTC’s international jurisdiction is broad, but it is not unlimited. The agency’s new overseas focus will undoubtedly present important and novel questions of the limits of its reach, and provide grounds for potential legal defenses.
As part of a comprehensive anti-corruption compliance program, companies that have involvement in U.S. commodities markets will want to take note of the CFTC’s new focus in this area. Understanding the reach—and limits—of the CFTC’s authority under the Commodity Exchange Act will be important in preparing for this new legal risk.