LONDON – Glencore is cutting out many of its intermediaries – the agents and dealmakers once essential to cracking the toughest markets – amid growing scrutiny of its operations around the world.
Under pressure from its compliance division, Glencore is dismantling much of its global network of trading agents, according to people familiar with the situation. To continue operating, the company is setting up teams in some countries, said the people, asking not to be named as the matter is private. In other places, Glencore is still using agents who pass strict compliance tests and have a clear role.
Glencore has long relied on intermediaries, who work on commission. The agents network with well-connected business and government officials in developing nations with the goal of securing commodity-trading deals. In a prospectus in 2003, for example, Glencore listed 64 field offices around the world, saying that included nine agents in eight countries “which act primarily for us.”
The change comes as the trading house founded by Marc Rich transitions from its swashbuckling roots toward a more conventional mining company and predates a Department of Justice investigation into its business practices. CEO Ivan Glasenberg is also searching for a successor as the company goes through a generational shift and many of his top lieutenants retire.
CONGO TEAM
One country where Glencore has overhauled its operating strategy is Congo, the home of some of the richest copper and cobalt mines. In the past, now-sanctioned Israeli billionaire Dan Gertler was the its key partner.
Now the company has built its own administrative team in the capital Kinshasa. Glencore directly employs more than 20 people, working on everything from arranging visas to government contacts, according to one of the people.
The pivot echoes that of rival oil and metals trading houses. Both Trafigura Group and Gunvor Group say they plan to use fewer intermediaries in foreign countries after a series of bribery scandals involving the controversial agents put the industry in the sights of US law enforcement.
Glencore is being investigated by the US Department of Justice, the Federal Bureau of Investigation and Brazilian authorities in the Car Wash scandal. The company has also been subpoenaed by the Justice Department for documents relating to possible corruption and money laundering in Nigeria, the Democratic Republic of Congo and Venezuela. The US Commodity Futures Trading Commission is also investigating the company for possible corrupt practices.
MANAGEMENT CHANGES
Glencore, Trafigura and Gunvor have said they have a zero-tolerance policy on bribery and corruption. Glencore has said it’s cooperating with the Justice Department.
The investigations coincided with several management changes over the past six months, including the announcement of the departures of the billionaire heads of copper and oil. CEO Glasenberg said in December he would retire in three to five years and is actively searching for a successor.
Glencore made clear in its annual report that law and enforcement issues are a “severe” risk, likely to have a greater impact on its business than either commodity price volatility or a liquidity event. In response, the company’s board created an ethics and compliance committee this year, chaired by Tony Hayward.
EXITING CHAD
Investors may also be encouraged as Glencore withdraws from some of its more difficult jurisdictions as it sheds less profitable assets. The company is trying to sell its oil-producing assets in Chad, according to a person familiar with the situation. Reuters earlier reported the planned sale.
The move to sell the assets in Chad, which accounted for more than half Glencore’s oil production last year, coincided with the departure of oil boss Alex Beard. The company entered the country in 2012, but has taken billions of dollars of impairments on its assets there. Exiting Chad, would leave Glencore’s only oil assets in Equatorial Guinea.