DOJ FCPA Guidance on Foreign Securities and Commodities Violations

• Both U.S. citizens and non-U.S. citizens can report FCPA frauds to the CFTC Whistleblower Office and receive monetary rewards.
• There are several types of fraud, related to both the CFTC and FCPA, that potential whistleblowers need to be on the lookout for.
• The Vitol case of 2020 proved the CFTC’s commitment to prosecuting foreign corruption using whistleblower tips.

According to a CFTC Whistleblower Alert issued in May 2019, commodities-related foreign corruption whistleblowers should be on the lookout for:

• “Corrupt practices that alter the prices in commodity markets that drive U.S. derivatives prices.”
• “Bribes employed to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives, paid out of funds investors believed were being used to invest.”
• “Corrupt practices used to manipulate benchmarks that serve as the basis for related derivatives contracts, as prices that are the product of corruption might be falsely reported to benchmarks.”

There are several types of CFTC fraud that whistleblowers should be on the lookout for.

According to the CFTC, these include:

• Commodity Pool fraud
• Foreign Currency (Forex) fraud
• Precious Metals frauds
• Commodity Trading Systems Sold on the Internet
• Profits Based on Seasonal Demand or Other Well-Known Public Information
• Profits from the War on Terrorism
• Phony Futures and Options Websites
• False Promises of Profits as a Result of Natural Disasters
• Binary Options and Fraud

Corruption-based commodities fraud violates Section 6(c)(1) of the Commodity Exchange Act (CEA) and CFTC Regulation 180.1, which prohibit the use or attempted use of any manipulative or deceptive device, untrue or misleading statements or omissions, or deceptive practice, in connection with any swap or contract of sale of any commodity in interstate commerce, or for future delivery.

According to the CFTC, rule 180.1 enhances the Commission’s ability to prosecute market manipulation. Section 6(c)(1) of the CEA is designed to help the Commission promote the integrity of the markets and protect market participants.

Yes. In March 2019, the CFTC issued an Enforcement Advisory indicating that, for the first time, it would be focusing investigative resources on foreign corruption as it relates to violations of the Commodity Exchange Act. As an activity regulated by the CFTC, commodities-related foreign corruption now falls within the gambit of violations for which a whistleblower may be eligible for an award should their tip lead to a successful enforcement action.

Read below to find out how to file CFTC reward claims for FCPA frauds.

Rewards under the program are mandatory for qualified whistleblowers and are in the range of 10 to 30% of the collected proceeds. Employers cannot retaliate against whistleblowers or encumber potential whistleblowers from communicating with the CFTC.

The CFTC and SEC whistleblower programs are nearly identical in how they process whistleblower reward claims. To be eligible for a whistleblower award, an individual (or group of individuals) must first submit a Form TCR – Tip, Complaint, or Referral. The Form TCR may be submitted electronically via the website, or by fax or mail. Whistleblowers who live outside of the U.S. can also hire a CFTC whistleblower lawyer to assist in filing their Dodd-Frank Act or Commodity Exchange Act case.

A whistleblower eligible for an award can be any individual who sends the Commission a Form TCR containing information about a potential violation of the Commodity Exchange Act. Examples range from a corporate officer or insider, to a trader or market observer, to an investor or fraud victim. A company or another entity is not eligible to be a whistleblower.

Whistleblowers can appeal a Final Order of the Commission regarding their award claim to an appropriate federal court of appeals no later than 30 days after the Final Order is issued.

On December 3, 2020, in a landmark decision, the CFTC announced that it resolved its first enforcement action related to foreign corruption when it settled with the Texas-based commodities trader Vitol, Inc. A parallel FCPA suit was brought by the DOJ.

In the CFTC Order, Vitol consented to the entry of findings that it “engaged in conduct designed to increase profits from physical and derivatives trading in the global oil markets through corruption, fraud, and manipulation.”

The Order further requires Vitol to pay over $95 million in civil penalties and disgorgement, which will be partially offset by the criminal penalties and related fines ordered by the DOJ and Brazilian authorities totaling $164 million.

Additionally, Vitol agreed to settle CFTC charges related to energy market manipulation for $16 million and pay nearly $13 million in disgorgement.

The CFTC’s charges are based on a series of bribes and kickbacks paid by Vitol between 2005 and 2020 to state-owned oil companies in Brazil, Mexico, and Ecuador. To conceal the bribes, Vitol funneled the corrupt payments to shell companies or through offshore bank accounts. In return for the bribes, Vitol was given access to confidential information regarding the companies’ oil pricing and competitor information.

Vitol was thereby able to consistently beat the best price offered by its competitors and profited millions as a result. Furthermore, Vitol attempted to manipulate “benchmarks,” which are used by market participants as a price reference, by engaging in trading activity at prices and in a manner intended to influence the benchmarks in order to benefit its related positions.

The order indicates that Vitol’s conduct, through both its bribery scheme to access confidential information and its trading scheme to influence benchmarks, violated the anti-manipulation and anti-fraud provision of the Commodities Exchange Act: Section 6(c)(1) of CEA and CFTC Regulation 180.1.

If you have knowledge of foreign securities or commodities fraud, it is advised that you contact an experienced FCPA attorney to help protect you. The attorneys at Kohn, Kohn & Colapinto can help you file anonymously and apply for monetary awards through the DOJ and CFTC Whistleblower Office.