Last month the Division of Enforcement of the Commodity Futures Trading Commission publicized a new initiative aimed at encouraging non-CFTC registrants to voluntarily self-report violations of the Commodity Exchange Act – the principle law overseen by the CFTC – involving foreign corrupt practices. According to the Division, it would recommended to the Commission a resolution of their wrongdoing “with no civil penalty, absent aggravating circumstances involving the nature of the offender or the seriousness of the offense” for non-registrants who self-reported such violations, fully cooperated with the CFTC, and remediated their violations. At the time it was unclear what might have prompted the unexpected introduction of this new policy more than 40 years after the adoption of the Foreign Corrupt Practices Act in 1977 – three years after the authorization of the CFTC.
Last week, the motivation may have become clearer when Glencore – one of the largest international firms involved with natural resources and the marketing of more than 90 commodities – announced it had been advised by the Commission it was subject to an investigation into whether it or its subsidiaries violated the CEA in connection with corrupt practices involving commodities. Previously, one Glencore group company was served with a subpoena by the US Department of Justice for documents and other records regarding its compliance with the FCPA in connection with the Group’s business in Nigeria, the Congo and Venezuela from 2007 through 2018. (Click here for background regarding the Department of Justice inquiry; click here for background regarding the Division’s new initiative.)
Legal Weeds: Last year, the CFTC determined not to bring an enforcement action at all against Deutsche Bank after the Commission brought and settled charges against one of its traders for purportedly mismarking his swap trading portfolio to disguise trading losses. The CFTC said it determined not to bring an enforcement action against Deutsche Bank in connection with this matter because of its “timely, voluntary self-disclosure” of the incident, full cooperation, and “proactive remediation efforts.” (Click here for more in the article “Ex-Bank Trader Fined US $350,000 and Banned From All CFTC Overseen Markets for Allegedly Concealing Swaps Trading Losses; Bank That Self-Reported, Cooperated and Remediated Receives Letter Closing Investigation” in the November 11, 2018 edition of Bridging the Week.)
This development occurred following a 2017 speech by James McDonald, CFTC Director of the Division of Enforcement, that potential wrongdoers who voluntarily self-report their violations, fully cooperate in any subsequent CFTC investigation, and fix the cause of their wrongdoing to prevent a reoccurrence will receive “substantial benefits” in the form of significantly lesser sanctions in any enforcement proceeding and “in truly extraordinary circumstances,” no prosecution at all. (Click here for background in the article “New Math: Come Forward + Come Clean + Remediate = Substantial Settlement Benefits Says CFTC Enforcement Chief” in the October 1, 2017 edition of Bridging the Week.) Contemporaneously with his speech, the CFTC’s DOE released a formal Updated Advisory on Self Reporting and Full Cooperation that memorialized and expanded the elements of Mr. McDonald’s presentation (click here to access).
Upon discovery of any potential wrongdoing impacting the Commodity Exchange Act or CFTC regulations, market participants must evaluate whether to self-report to the CFTC and if so, when. No matter what the potential benefit of obtaining cooperation credit, it’s important to materially understand the scope of any potential violation before self-reporting. Even where reporting may be mandatory, it’s best to ensure that an actual predicate for reporting has actually or most likely occurred. (Click here to access a National Futures Association-prepared summary of mandatory CFTC reporting obligations for future commission merchants, and here for independent introducing brokers.)