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How Marc Rich’s Former Haven Put a Commodity Trader on Trial www.bloomberg.com
When Trafigura Group director Mark Irwin stood up earlier this month to give evidence in a Swiss criminal court, it represented a pivotal moment in the relationship between the world’s commodity traders and the country that many of them call home.
Until now, Swiss prosecutors had never put a commodity trading house on trial. In fact, they’d never tried any company for corruption at all.
Irwin, who was one of Trafigura’s earliest employees, was the company’s official representative at the federal criminal court in the picturesque alpine town of Bellinzona, where Trafigura and three individuals — including former chief operating officer Mike Wainwright — faced charges of bribery in a landmark case. All four defendants denied the charges against them.
The testimony from a procession of current and former senior figures at Trafigura meant the case has provided an unprecedented glimpse into decision making at one of the world’s biggest commodity traders, a company that handles enough oil every day to meet the combined demand of Germany, France and Spain. But it’s also served to highlight a shifting stance in Switzerland, which has long been known for its light-touch regulation.
Instead, federal prosecutors were accused by Trafigura’s lawyers of being on a “crusade,” while a lawyer for Wainwright argued his client was being unfairly made an example of to show the country was cracking down on the sector.
“Switzerland became a leading commodities hub thanks to a unique combination of tax privileges, its financial industry, weak regulation and a lax embargo policy,” said Adrià Budry Carbó of Swiss NGO Public Eye. “In the Trafigura trial, federal prosecutors are for the first time opening up and scrutinizing a corruption machinery in a public trial, in order to establish the responsibility of individuals.”
It’s a far cry from the not-so-distant past, when commodity traders from all over the world flocked to Switzerland, lured by low taxes, political neutrality and business-friendly laws.
In the 1960s, Egyptian cotton merchants relocated to Geneva. Later, industry godfather Marc Rich chose the town of Zug for his eponymous trading house when fleeing US justice. He was followed by Russian oil and metals merchants in the 1990s.
But in recent years, mirroring a crackdown on corruption and market manipulation by commodity traders from US authorities, Swiss prosecutors have launched several cases against the industry.
Both Glencore Plc and Gunvor Group have been fined for historical corruption, though the cases were resolved without going to trial. Trafigura has said it had been willing to settle, but the Swiss prosecutors “decided to send the case to court.”
And so, over the past fortnight, a small army of lawyers descended on Bellinzona. On trial were not just Trafigura, but also Wainwright, the former COO, Thierry Plojoux, a former Trafigura employee who was an alleged middleman for bribe payments, and Paulo Gouveia Junior, an Angolan oil official who allegedly received the bribes.
At times, the court — which last saw major corporate action when Credit Suisse Group AG was convicted for laundering a cocaine dealer’s cash in 2022 — didn’t seem equipped to handle the volume of lawyers, public relations officials, observers and journalists.
On the first day of the trial, prosecutors complained that Trafigura’s vast team meant there wasn’t enough space in the courtroom. During breaks, defendants and witnesses, some of them multimillionaires, queued along with everyone else for the courthouse’s two toilets and one coffee machine.
The crackdown on corruption is happening at a time when Switzerland’s position as an epicenter for much of the world’s physical commodities trade is under increasing threat.
Singapore has wooed many of the world’s commodity traders with tax breaks — including Trafigura, which reorganized itself under a Singapore parent company in 2015, although its top executives are still based in Geneva. And Switzerland’s decision to mirror EU sanctions on some Russian commodities since 2022 has resulted in a significant shift in the companies handling those trade flows to Middle Eastern hubs like Dubai and Abu Dhabi.
Still, Switzerland doesn’t look like losing its status as a key hub for commodity trading any time soon. Swiss-based trading companies handle a third of the world’s trade in crude and oil products, according to the Swiss Commodity Trading Association SUISSENÉGOCE. In return “fiscal contributions” from trading represent 22% of Geneva’s budget, 10% in Zug and around 19% of Lugano’s income, according to the body.
The country’s famously low taxation rates mean it is still an attractive location for many trading businesses. Trafigura itself had an effective tax rate of just 2.8% on profits of $2.8 billion in its most recent financial year, it said in its annual report on Friday. Moreover, many traders receive the lion’s share of their compensation through the rise in value of their shareholdings in their companies — which, as capital gains, are not subject to Swiss tax.
Even Swiss corruption cases remain relatively easy for the traders to brush off. The country has a maximum corporate fine of 5 million francs ($5.6 million) on top of disgorgement of profits made in corrupt acts — a rounding error for companies that make billions of dollars in profits a year.
The Swiss trial comes at a sensitive time for Trafigura. The company is preparing for the second CEO handover in its history next month, when gas boss Richard Holtum will take over from Jeremy Weir. It has also this year pleaded guilty in a US court to historical corruption in Brazil, settled allegations it manipulated oil prices, and on Friday confirmed it took $1.1 billion in losses related to alleged employee misconduct in its Mongolian oil business.
In the case that concluded last week, the charge against Trafigura is that it allegedly failed to take the necessary measures to prevent bribes being paid. Much of the trial focused on the adequacy of the company’s compliance function during the period of 2009 to 2011, when it made payments to intermediaries, which paid around $5 million to Gouveia.
Irwin, who attended the trial as Trafigura’s representative, told the court that the company’s compliance team had been “very independent” in the period when the alleged bribes were paid.
Asked by the judges to explain the payments, he replied: “I cannot explain the payments to Mr. Gouveia.”
Prosecutors are seeking a total penalty of $157 million from Trafigura. Judges in the Bellinzona court usually take several months to deliver their verdict.
By: Archie Hunter and Jack Farchy
— With assistance from Hugo Miller
Published Date:2024-12-16
