Drag Commodity Traders Out of the Shadows

In the final days of Donald Trump’s presidency, all eyes in Washington were on the unprecedented second impeachment of a sitting president following the riots on Capitol Hill. No one noticed when, on Jan. 15, the Treasury quietly eased sanctions on a man it had previously described as profiting from “corruption and misconduct.”

Dan Gertler is not a household name, but for more than two decades, he has been the gatekeeper to the mineral riches of the Democratic Republic of Congo, the world’s largest producer of cobalt. The metal is crucial for batteries, meaning that Congo could play a similar role in the electric vehicle age to the one Saudi Arabia has played in the oil age — making Gertler a very important figure indeed.

It didn’t take long for the Biden administration to reverse course and reimpose sanctions on Gertler. It did so in March, saying that relaxing sanctions on the Israeli tycoon was “inconsistent with America’s strong foreign policy interests in combating corruption.”

But the furor over the Gertler matter brought to light a world that’s normally hidden from public view, one where billions of dollars change hands every day and the fortunes of countries and the outcomes of wars are decided: the world of the commodity traders.

Gertler, despite his dominance in Congo, is merely a bit player in this world. Behind him in many of his deals stood the world’s largest commodity trading company: Glencore. Like Gertler, Glencore is hardly a household name. But it is the leader of a small group of companies that dominate the world’s supply of oil, food and metals, generating massive wealth for a few individuals and facing little, if any, scrutiny.

The commodity traders supply the essential goods that we all rely on: The coffee you drank this morning was shipped by a commodity trader; so was the cobalt in your smartphone’s battery; so too was the gasoline in your car. With prices of raw materials from lumber to copper now rising to record highs, commodities and the people who trade them are more central to our lives than ever.

Commodity traders make the global economy tick. But they are more significant than that: Their dominance of the world’s natural resources has made them kingmakers in countries like Congo where oil or metals are the main source of wealth. They bankroll entire nations that are otherwise shut out of the financial markets, lending to them against future commodity production.

While they perform an essential role, there are remarkably few of them. Five companies handle a quarter of the world’s oil, seven grain traders supply half of its food and just two trading houses dominate the metals markets. The top four commodity traders alone handle more than $700 billion in natural resources every year — more than the total exports of Japan.

And yet the commodity traders remain largely unknown, not just to the public but, more worryingly, to lawmakers and regulators, too. That ought to change.

The story of Gertler is a case in point. According to the U.S. government, Gertler used his friendship with Congo’s former president Joseph Kabila to act as a middleman for the sales of the country’s natural resources, buying mines from the government at knockdown prices and selling them at large profits. (Gertler has repeatedly denied these allegations.)

But Gertler’s rise wouldn’t have been possible without Glencore: The commodity trading house helped to connect him to financial markets in New York and London. It used him as a partner and fixer in Congo, doing more than a dozen deals with him, through which he accumulated vast riches. The U.S. Department of Justice is now investigating Glencore over its dealings with Gertler, among other things. In response, the company said that it “takes ethics and compliance seriously” and it is complying with the D.O.J. probe.

The commodity traders are a throwback to a bygone era, using a ruthless daring and charm to land deals in places where the competition dare not tread. Their appetite to go where other investors won’t has sometimes given them a post-imperial air: They are overwhelmingly white men, flying from Western capitals into countries in Africa, the Middle East or Latin America to cut deals for natural resources.

For the most buccaneering commodity traders, the zeal for business opportunities extends to war zones. The late Ian Taylor, the debonair and charming former chief executive of oil trader Vitol, thought nothing of flying into Libya during the 2011 civil war in order to strike a deal to supply $1 billion of fuel to rebel forces. Taylor’s intervention helped shift the balance of the war, and the rebels overcame Col. Muammar el-Qaddafi.

And yet, despite their significance, the traders are scarcely regulated. That’s partly thanks to the international scope of their activities: Every country where they operate has partial oversight of their business, but no one regulates the industry as a whole. The traders have also based themselves in jurisdictions that prefer not to look too closely into their dealings: In Switzerland, for example, paying bribes to foreign businesspeople was not only legal but also tax deductible until as recently as 2016.

It’s high time that politicians in the U.S. and elsewhere started paying attention. They imposed tougher regulation on the banking sector after the global financial crisis of 2008. Now it’s surely the turn of the commodity traders. Their cargoes of oil, copper and corn often change hands on the high seas, beyond the reach of any national regulator. Plus, most of the traders are headquartered outside America. But the U.S. nonetheless has a powerful tool to impose its will on the industry: the almost universal use of the dollar in commodity trading.

New laws are necessary to empower regulators to look not only at financial markets but also at the trade in physical commodities. Wrongdoing doesn’t just exist in lightning-fast markets for commodity futures and options in Chicago, but also in deals for tankers full of oil or trucks loaded with grain.

More transparency is also needed. Pressure should be put on trading houses to disclose their payments to governments. A small number of companies that are members of the Extractive Industries Transparency Initiative do this already — but only for a limited number of nations. The practice should be expanded. And Washington should press the International Monetary Fund and the World Bank to ensure that when they bail out commodity-producing nations, they insist on the timely disclosure of both current and future loans from traders.

Then there’s the commodity trading industry’s long history of bribery and corruption. Marc Rich, before his death in 2013, admitted to having paid bribes to win business. But the wrongdoing is not only in the past. Many of the largest traders are the focus of ongoing corruption probes. In the past few months, Vitol has admitted it had bribed officials in three countries in Latin America, in some cases as recently as July 2020; a former Glencore trader pleaded guilty of manipulating a key oil price benchmark in the U.S.; and a former trader at Gunvor, an oil trading house, admitted to paying bribes in Ecuador until 2020 — and said his supervisors knew about it.

Existing laws need to be enforced, and punishments need to be toughened. The penalties for bad behavior are sometimes laughable. In Switzerland, the maximum penalty against a company that has been caught bribing a foreign government official is 5 million francs ($5.4 million) plus forfeiture of profit.

In recent months, the U.S. has been the most aggressive watchdog of the commodity trading industry. But a joined-up approach to regulating the traders involving the Treasury and other agencies is still missing. Instead, it has fallen to the Department of Justice to pursue individual cases of wrongdoing. And even the U.S. hasn’t always made traders pay for their bad behavior. When Vitol admitted to bribery in December, the total fine was a little over $160 million; the company’s profits last year were about $3 billion, according to people familiar with the matter. A top commodity trading executive hasn’t ended up in jail since the scandals of Enron and the Iraqi oil-for-food program — both of which took place two decades ago.

As Torbjorn Tornqvist, the co-founder of Gunvor, told us of the commodity trading industry as a whole, “There’s a lot of skeletons and many of them, most of them, will never be surfaced.”

It’s time to bring those skeletons to light.

Javier Blas and Jack Farchy are journalists at Bloomberg News and the authors of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources,” published in the U.S. by Oxford University Press and in the U.K. by Random House Business.

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