Glencore pays US$1.5bn to settle bribery and market manipulation charges

Glencore, the Anglo-Swiss multinational commodities trader and mining group, has admitted to charges of bribery and market manipulation and said it will pay about US$1.5 billion to settle US, UK and Brazilian probes that have dogged the group for years.

A three-year investigation by the UK's Serious Fraud Office (SFO) resulted in Glencore admitting bribery offences within its oil division. The SFO brought seven charges of bribery against the group, without naming individuals, related to US$25 million in payments across Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan. The SFO announced that Glencore had “indicated it [would] plead guilty to all charges”.

US authorities said Glencore had paid over US$100 million in bribes across the five countries between 2007 and 2018 as well as in Brazil, Venezuela and the Democratic Republic of Congo (DRC). Glencore’s trading arm was the focus of the investigations and is the original company that was founded in the 1980s as Marc Rich & Co. The group subsequently joined the mining industry in 2012 through its US$90 billion takeover of Xstrata.

US Attorney Damian Williams said Glencore had used bribes to win contracts, avoid government audits and derail court cases, in contravention of the Foreign Corrupt Practices Act (FCPA). “The scope of this criminal bribery scheme is staggering,” he said. “Glencore paid bribes to make money—hundreds of millions of dollars. And it did so with the approval, and even encouragement, of its top executives.”

The resolutions came through agreements with the US Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC), which accepted a combined US$1 billion in resolution payments while a probe in Brazil has also been closed. Glencore said the penalties paid would be US$700 million to the DOJ and US$486 million to the CFTC “to resolve market manipulation investigations”. Of this total, up to US$167 million will be “credited against other, parallel matters, including in the UK”. The SFO will pass sentence on 21 June.

Glencore told shareholders in February that it expected to resolve bribery and corruption investigations in the UK, US and Brazil this year and was setting aside US$1.5 billion to cover potential fines and costs. After the US penalties were announced, the group said the amount remained accurate. A US$40 million payment will go to Brazilian authorities. The CFTC penalty was based on Glencore traders putting in orders for fuel oil during specific pricing windows with S&P Global Platts in order to “artificially push the price assessment up or down”.

The SFO said it had been worked with Dutch and Swiss investigators, who continue their investigations. “We won’t stop fighting serious fraud, bribery and corruption, and we look forward to the next steps in this major prosecution,” said SFO director Lisa Osofsky. The DOJ will appoint an independent monitor to scrutinise Glencore’s behaviour. 

Glencore’s CEO Gary Nagle acknowledged the “misconduct” and said that corrupt behaviour had “no place in Glencore”. Chair Kalidas Madhavpeddi said that the group was committed to acting “ethically and responsibly across all aspects of its business”.

However, Glencore’s assertion that it had cooperated with the investigations was disputed by the DOJ, which commented: “Glencore did not receive full credit for cooperation and remediation, because it did not at all times demonstrate a commitment to full cooperation, it was delayed in producing relevant evidence, and it did not timely and appropriately remediate with respect to disciplining certain employees involved in the misconduct”.

Fed puts back ISO 20022 implementation for Fedwire to 2025

The US Federal Reserve has signalled that it intends to delay the implementation of the International Organization for Standardisation’s (ISO) 20022 message format for the Fedwire Funds Service to sometime in the first quarter of 2025.

The Fed said that it would publish additional details on the implementation date—which had originally been scheduled for November 2023—in a forthcoming Federal Register notice.

It added that it is recommending the delay based on industry feedback suggesting that there should be a gap between the planned 2023 launch of the FedNow service and the ISO 20022 implementation, and that the reserve banks should provide at least one year for industry testing of the ISO 20022 messages, among other things.

In its comment letter to the Fed, the American Bankers Association (ABA) had advocated in favour of a November 2023 implementation date for ISO 20022.

The Federal Reserve Board had confirmed last October that Federal Reserve Banks would be adopting the ISO 20022 message format for the Fedwire Funds Service and invited public comment on the proposal to expedite adoption.

Citi “mulls Deutsche Bank Mexico purchase”

Citigroup is considering a deal to buy Deutsche Bank’s Mexican bank, according to a Bloomberg Law report that cited people familiar with the matter. According to the report, Citi is planning to set up a new local unit in the country and the deal will help it sidestep a lengthier approval process for a new licence.

Talks are said to be at an early stage and may not result in a deal, the report added. Any sale would require regulatory approval and Deutsche Bank would keep the brokerage it relaunched in the country early this year that focuses on fixed income and currencies, Bloomberg Law reported.

“Citi has operated in Mexico for more than a century and the country will remain among Citi’s top institutional markets outside of the US," a spokesperson for the bank said. “As we have said, we intend to continue to operate a locally licensed banking business in Mexico through our Institutional Clients Group (ICG), and our Private Banking Franchise.”

The ICG unit serves corporations, financial institutions and governments, while the private bank segment caters to wealthy individuals and families.

Citi announced in January that as part of a strategic shift under its CEO, Jane Fraser, it would exit the consumer, small business and middle market banking operations of its Mexican business, known as Banamex. The move marked the end of its 20-year retail presence in Mexico as that was the last of its overseas consumer businesses.

BNP Paribas joins JP Morgan’s Onyx blockchain

BNP Paribas has run its first trade – an intraday repo – on JP Morgan’s Onyx Digital Assets platform, thereby becoming the first European bank to trade on the blockchain-based network.

“Digital transformation is a key pillar of our strategy within Global Markets,” said Joe Bonnaud, BNP Paribas Global Markets COO and head of engineering. “Through Onyx Digital Assets, we can now leverage blockchain technology for repurchase agreements, creating new opportunities to streamline our processes, access intra-day liquidity and ultimately better serve our clients.”

Onyx Digital Assets (ODA) launched in November 2020 and claims to be the world’s first bank-led blockchain platform for the exchange of value, information and digital assets. An Ethereum-based distributed ledger technology (DLT) platform for enabling the tokenisation of traditional assets, it uses a digitised version of the US dollar for products such as repo agreements and short-term intraday trading. Functioning essentially as a payment platform, it allows immediate US dollar settlement for digital repo transactions.

“Tokenised assets and Onyx Digital Assets will allow for precise intraday liquidity management,” said Christopher Korpi, BNP Paribas Global Markets managing director, head of US repo trading and sales. “As such, they could be foundational to adding velocity to collateral, security settlement and ultimately decreasing systemic risks through reduction of intraday credit. Onyx Digital Assets will further reinforce the intraday fungibility of UST and USD Cash.”.

The Onyx platform currently only accommodates short-term borrowing against US Treasuries – enabling banks to translate their liquid assets into collateral intraday, with the deal governed by a smart contract defining details such as length of loan and settlement time. There are, however, plans for it to expand into other areas such as collateral mobility and digital debt insurance.

“We built Onyx Digital Assets to enable the market to benefit from asset tokenisation at scale,” confirmed Tyrone Lobban, head of Onyx Digital Assets at JP Morgan.  “We will soon be expanding our capabilities beyond repo to other products.”

Since its October 2020 launch, the Onyx platform has processed over US$300 billion repo transactions, but until now both its focus and client base have been US-focused. BNP Paribas’ debut marks the first time a European bank has accessed the network and reflects the bank’s ambitions in the digital arena. Its securities services division has been active in utilising blockchain for settlement and custody purposes, including several recent partnerships with DLT firms such as Digital Asset and Curv, while its strategic partnership with fund distribution platform Allfunds led to the first proof of concept on the tokenisation of a UCITS fund with Allfunds Blockchain in 2021.

Reflecting its own ambitions to become a major player in the digital assets space, JP Morgan followed up its launch of Onyx back by becoming the first leading US bank to offer clients access to crypto trading accounts in 2021 and in February this year became the first bank to enter the metaverse, with the launch of a virtual lounge in blockchain-based world Decentraland.

Cash-rich companies buck stock market downturn, says Bloomberg

As the market sell-off in tech stocks continues, investors are turning instead to cash-rich companies, reports Bloomberg. It cites the example of the Pacer US Cash Cows 100 exchange traded fund (ETF), aka COWZ, whose assets under management have risen to US$5.6 billion from US$1.3 billion at the start of 2022.

COWZ tracks mid- and large-cap companies with high free-cash-flow yields and has seen an inflow every week so far this year, data compiled by Bloomberg show. As of 23 May, it was up 2.3% since January, compared with the S&P 500’s nearly 17% loss.

“If growth is slowing, then cash flow becomes more valuable,” Ellen Hazen, chief market strategist and portfolio manager at investment manager F L Putnam, told Bloomberg. “The market is rewarding companies that have cash flow. And companies that don’t have cash flow, which we would term low-quality value, are beginning to underperform; and we think that’s likely to continue.”

COWZ has several energy firms among its largest components, with energy among the handful of sectors to post positive returns this year. Hazen says that over the past decade oil companies have “responded to investors’ persistent insistence that they return cash to shareholders and not spend their cash flow on capex.

“That means that we have under-invested in oil, which helps to lead to a higher oil price, but it also means that those companies do have much more free cash flow.”

COWZ’s performance contrasts with stocks, bonds and crypto, which have all moved lower this year as the Federal Reserve and other central banks bring down the curtain on low- to zero interest rates, which has particularly hurt speculative corners of the market.

Bloomberg reports that energy is outperforming utilities, the next best category, by more than 45 percentage points and consumer discretionary, the worst-performing sector, by roughly 80 percentage points. Investors are focused on companies with strong fundamentals, which typically means firms that have positive earnings and cash flows.

Elsewhere, the Pacer Global Cash Cows Dividend ETF (GCOW) has also seen interest, with the dividend-focused fund taking in cash every month so far this year for a total haul of roughly US$283 million. That puts it on pace for its best year on record, Bloomberg data show.

The World Federation of Exchanges assesses circuit breakers

The World Federation of Exchanges (WFE), the London-based global industry group for exchanges and central clearing counterparties (CCPs), has published a research paper titled Circuit breakers and market quality, which studies their effectiveness during times of volatility and market stress. 

In March 2020, the US security market experienced heightened volatility induced by the Covid-19 pandemic, and market-wide circuit breakers were triggered on four occasions. Using high-frequency intraday trade and quote data, WFE Research investigated the market conditions around these trading halts to assess the effectiveness of circuit breakers.

The research found that, on average, stock returns stabilise, selling pressure resolves, and prices become more informative after trading resumes from the market-wide trading halts. The paper also provides evidence that traders tend to hold back from aggressive trading right before the trading halts, which is inconsistent with the circuit breakers causing panic, the so-called “magnet effect”.

“In our study of circuit breakers published last year, WFE Research described the different safeguarding mechanisms that exchanges use to ensure market quality,” said Dr Pedro Gurrola-Perez, Head of WFE Research and co-author of the paper. “In this new research paper, we now study their impact from a market microstructure perspective. While exchanges around the world calibrate their safeguarding mechanisms according to the characteristics of their markets, our results contribute to our overall understanding of these mechanisms by providing empirical evidence of their effectiveness in the case of the US markets.

Nandini Sukumar, CEO of the WFE said: “These results have important policy implications, as they indicate that the circuit breakers triggered during March 2020 contributed to alleviating the pressure in the financial market. We find that the circuit breakers in the US are designed adequately and serve as an effective safeguarding mechanism employed by the exchanges. Overall, the WFE Research findings point to the efficacy of the circuit breakers as an efficient safeguarding mechanism employed by the exchanges.”

The paper can be downloaded here.

BaaS platform Synapse launches Global Cash for US fintechs

Synapse, the global banking-as-a-service (BaaS) platform for increased access to financial products, has launched Global Cash, a secure cash management account product that enables residents in more than 35 countries to invest and hold US dollars.

Synapse aims to enable banks and fintechs to create digital financial services and in June 2019 raised US$33 million in venture funding for expansion. Global Cash is targeted at US-based fintechs and enables them to expand their market reach by simplifying the onboarding of international customers through effortless compliance mechanisms. Fintechs abroad can quickly and easily implement a financial solution that grants customers virtually anywhere access to US-based account features.

The company says that with more than 1.7 billion underbanked adults worldwide, Global Cash levels the playing field for people such as freelancers, influencers, and gamers who, especially outside of the US, often have difficulties getting paid. Global Cash provides popular features, including debit cards, bank-to-bank transfers, virtual account numbers for direct debit and direct credit, bill-pay, ATM access, and domestic and international transfers.

“Global Cash delivers on the promise of truly modern, borderless, and equitable access to financial services for customers without geographic limitations,” said Synapse CEO and co-founder Sankaet Pathak. “With so many entrepreneurial global citizens earning their living on the web, we’ve had an overwhelming demand for this product. Before Global Cash there was no easy way to deploy global financial products; a company’s options were to build from scratch or integrate with subpar BaaS providers in each country. Synapse eliminates those roadblocks, helping companies facilitate global account services efficiently and simply through a unified platform.”

Synapse adds that Brazilians who travel internationally face two unappealing options – use cash and pay foreign exchange fees at high rates or use credit cards that are four times the cost of US credit cards. “Brazilian start-up Nomad, powered by Synapse Global Cash, empowers customers to send local currency to a US deposit account from their home bank and access those funds in as little as two business days, along with issuing customers physical and virtual cards to simplify cost-effective transactions,” it adds.

Citi UK launches deposit solutions to support sustainability

Citi has announced the launch of new deposit solutions in the UK, Ireland and Abu Dhabi. designed to assist clients in investing excess cash as part of their sustainability agenda.

It says that the two new deposits – Sustainable Time Deposit (TD) and Sustainable Minimum Maturity Time Deposits (MMTD) - deliver competitive yields and are based upon Citi’s green and social bond frameworks, supporting the Sustainable Development Goals (SDGs).

Czeslaw Piasek, EMEA Head of Liquidity Management Services, Treasury and Trade Solutions, Citi, commented: “Sustainability is no longer an executive level only discussion. Finance and treasury departments can play a strategic role in helping their firms to deliver on environment, social and governance (ESG) -related goals and become more sustainable businesses.”

Funds invested into the deposits are allocated to finance or refinance assets in a portfolio of eligible green and/or social finance projects, based on criteria set in the Citi Green Bond Framework, Social Finance Framework and Social Bond for Affordable Housing Framework.

Types of projects being financed include:

• Green projects including renewable energy, energy efficiency, sustainable transportation, green building, and water quality and conservation.
• Social projects that expand access for low-income communities and women in emerging markets including affordable basic infrastructure for water/sanitation and digital connectivity, as well as essential services such as healthcare, education, affordable housing, and financing for entrepreneurs and smallholder farmers.
• Affordable Housing projects in the US, including the construction, rehabilitation, and/or preservation for low- and moderate-income populations.

Citi’s Frameworks are aligned with the recommendation of the International Capital Market Association’s Green Bond Principles and Social Bond Principles and have been assessed by a leading independent ESG and corporate governance research, ratings, and analytics firm.

As cash deposit transactions, TD or MMTD are not securities and the return of the TDs and MMTDs are not linked to the return of the underlying assets.

Standard Chartered’s Olea partners for India cross-border trade

Digital trade finance platforms Olea and Vayana Network have partnered to provide exporters and importers in India with greater access to alternative liquidity. 

Launched last year as a joint venture between Standard Chartered and Linklogis, the Chinese supply chain finance provider, Olea is a blockchain-enabled trade finance origination and distribution platform that aims to bring together institutional investors seeking opportunities in an alternative asset class with businesses requiring supply chain financing.

Pune-based Vayana Network, which claims to be India’s largest network for trade financing, enables micro, small and medium-sized enterprises (MSMEs) to access funding by digitally authenticating their transactions. So far, it says it has provided finance to over 50,000 businesses in the country.

Under the partnership, Olea and Vayana will initially focus on making export finance more available for small and mid-sized exporters, with Olea bringing in its structuring capability, technology platform and extensive access to funding from alternative investors globally, while Vayana leverages its close relationships with corporates in India.

 “Olea is passionate about bringing a fresh pool of international capital into the trade and supply chain finance market in India, specifically for small and medium-sized businesses,” says Letitia Chau, deputy CEO of Olea. “Indian MSMEs alone account for 45% of national exports and the value they contribute to the economy increases by around 12% per year. Addressing the credit gap for MSMEs directly impacts their ability to provide employment, among other things. Hence, the collaboration with Vayana strongly aligns with our desire to empower sustainable trade.”