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Glencore: What the Documents Tell Us

Glencore: What the Documents Tell Us

Read Ken Silverstein’s riveting investigation of Glencore, the "biggest company you never heard of." Below are some of the documents he uncovered in his year of reporting on the hyper-secret, shady global commodities giant.

It is big, very big. The 1,637-page initial public offering (IPO) prospectus Glencore released last year revealed just how vast its reach is: The company controls more than half the international tradable market in zinc and copper and about a third of the world’s seaborne coal; is one of the world’s largest grain exporters, with about 9 percent of the global market; and handles 3 percent of daily global oil consumption. All of this, the prospectus says, helped the firm post revenues of $186 billion in 2011. Click here to see the prospectus document.

It is not afraid of operating in high-risk "frontier" regions. In a report on the IPO, Deutsche Bank says the company "benefits directly from the volatility" in global commodity prices — especially in poor countries. Consider what the bank identifies as Glencore’s "key drivers" of growth: copper in the Democratic Republic of the Congo (DRC), coal in Colombia, oil and natural gas in Equatorial Guinea, and gold in Kazakhstan. Deutsche Bank delicately calls these places "frontier regions" or "challenging political jurisdictions" — put simply, they all offer a dangerous mix of extraordinary natural wealth and various degrees of instability. (See page 12.)


2. Deutsche Bank

It is well-connected in failed states. Glencore has managed to do business in the DRC, the poster child of the resource-cursed failed state, with the help of Dan Gertler, a diamond businessman from Israel who is known for his intimate ties to President Joseph Kabila. (He even reportedly has lent Kabila his private jet.) Glencore and Gertler are, through subsidiaries, shareholders in Katanga Mining. In 2009, Glencore sold stock in Katanga at roughly 60 percent of its market value to Ellesmere Global Limited, a British Virgin Islands firm whose "ultimate owner is a trust for the benefit of the family members of Dan Gertler," according to Canadian insider-trading records. Ellesmere quickly sold the stock back to Glencore at close to full market price, netting a profit of about $26 million.


Canadian Insider Trading

It pays associates in unusual deals. In another example, detailed in this March 2011 contract, Samref Congo Sprl, a subsidiary 50 percent owned by Glencore, waived its rights of first refusal to acquire an additional stake in Mutanda Mining, a copper and cobalt producer, from Gecamines, Congo’s state-owned mining company. Samref instead recommended that the shares be sold to Rowny Assets Limited, one of the offshore firms owned by Gertler’s family trust. (See clauses C and D on pages 3-4 of the Gecamines contract.) It’s not clear why Samref would have passed on the Gecamines offer, because business records and documents suggest that Gertler’s trust picked up the Mutanda shares for a fraction of their value. Plus, the president and vice president of the Panama-registered Samref Overseas S.A., which owns Samref Congo Sprl, are both Glencore officials, and the vice president, Aristotelis Mistakidis, is even one of the handful of Glencore executives who became billionaires after the IPO. "We preferred to invest our money in developing Mutanda — building the mines and the plant," Glencore spokesman Simon Buerk said in an e-mail explaining why the firm did not buy the shares.


Gecamines


Rowny


Samref1


Samref2

It knows how to look the other way. In Congo-Brazzaville, Glencore bought oil from shell companies set up by the state oil company’s head, Denis Gokana (conveniently trained at its London office), according to a lawsuit by Kensington International, a Cayman Islands-based corporation. Glencore complied with court orders and was not charged, but the ruling judge wrote that he "did not consider that Glencore’s personnel … could not have appreciated that Sphynx Bermuda [another company named in the suit that had contracted with Glencore] was somehow linked to the Congo (although ignorant of the exact nature of the link) and that payment would ultimately go to the SNPC [National Petroleum Company of the Congo].)


Kensington

It has a criminal past. Leveraging ties to dictators has always been at the heart of the business empire built by famous fugitive Marc Rich. Although Rich left the firm in the 1990s, Glencore profited handsomely by dealing with Saddam Hussein under the 1996-2003 U.N. Oil-for-Food Program, which allowed the Iraqi dictator to trade limited quantities of oil in exchange for humanitarian supplies. The U.N.’s Independent Inquiry Committee reported in 2005 that Hussein had awarded special "allocations" to companies and individuals who were friendly to the regime — including Pakistani businessman Murtaza Lakhani, a Glencore agent and conspicuous regime sycophant. The Iraq Survey Group, the U.S.-led fact-finding mission sent after the invasion, concluded that Glencore was "one of the most active purchasers" of oil under the Oil-for-Food Program and had paid $3,222,780 in "illegal surcharges." Glencore was not charged in the scandal. It claimed it was unaware surcharges were being paid and that Lakhani’s high fees reflected the extra risk of doing business with Iraq, not slush money for bribes. (See page 144.)


Oil-for-Food

It stashes money in tax havens. Another reason Glencore is so rich: Its effective global tax rate for 2010 was just 9.3 percent, in large part because nearly half its 46 subsidiaries are incorporated in "secrecy jurisdictions," opaque financial havens like the Netherlands, according to a report by the NGO Publish What You Pay.


Publish What You Pay

Its business partners have been investigated for bribery. Glencore’s shady dealings reach around the world. To take just one example, a 2008 U.S. Senate report revealed that an unidentified client of the LGT Group, a bank owned by Liechtenstein’s royal family, discussed setting up a Panamanian shell corporation and bogus foundation to pay bribes on Glencore’s behalf. "A small portion of the payments go … to the USA and Panama and may be classified as bribes," reads an internal LGT memo. The client, a Glencore agent, had set up the account in 2002; prior to that, Glencore had made such payments directly, the memo says. An LGT executive refused to testify to the Senate about whether the bank had set up the Panamanian corporation or foundation as requested.


Senate Report on Liechtenstein

It has worked with Romanian criminals. In the mid-2000s, Glencore used an Israeli agent named Yoav Stern, who also represented the Romanian interests of Yakov Goldovsky, who had previously been convicted in Russia for asset-stripping state-run enterprises. Another Glencore business partner here was Romanian businessman Marian Iancu. Glencore sold him crude oil through an offshore company he controlled, Faber Invest & Trade, for processing at the Rafo refinery in Romania. Iancu was indicted for tax evasion and money laundering in 2006 and convicted in late 2011. A WikiLeaked U.S. State Department cable described Rafo as "embroiled in a web of corruption, money laundering, fraud and criminal charges" and included Faber among its "shady entities."

It has done deals with oligarchs. Glencore funneled roughly $2 billion through an offshore company to the oligarch Mikhail Gutseriev, described in a WikiLeaked cable as "not known for his transparent corporate governance." Reportedly booted by the Kremlin as chief of the state-owned oil firm Slavneft for resisting the company’s privatization, Gutseriev made a comeback with Glencore’s help. The cash infusion allowed Gutseriev to establish RussNeft, now one of Russia’s largest oil companies. Glencore owns nearly half the equity of four of RussNeft’s oil production subsidiaries and has sole rights to market its oil.

It has high-level political protection:  In Kazakhstan, Glencore owns slightly more than half of Kazzinc, a huge gold, lead, and zinc producer. Because corruption can make the country treacherous terrain for foreign investors, they often require a powerful local sponsor with close contacts to the resident, Nursultan Nazarbayev. Glencore’s is one of the best: Bulat Utemuratov, a major investor in Verny Capital, Kazzinc’s second-largest shareholder with a 42 percent stake. In March 2011, a group of opposition politicians issued a public letter complaining that Kazzinc and other former state firms had been privatized under murky conditions that allowed Utemuratov and other insiders to pick up vast stakes thanks to their ties to the ruling family. Glencore could be stripped of its assets in the country, said the letter, adding, "Upon any change of regime in Kazakhstan to a democratic one, any acquisition of any shares in Kazzinc … will be subject to review."