Glencore tumbles 10% on DoJ subpoena over Nigeria, Congo dealings

Glencore has been subpoenaed by the US Department of Justice over compliance with the Foreign Corrupt Practices Act and US money laundering laws.

The subpoena, which was dated 2 July, called for the Swiss commodities group to produce documents and other records relating to its business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to present.

The US FCPA prohibits companies issuing stock in the US from bribing foreign officials for government contracts and other business, and can result in sanctions, fines and penalties up to $25m or twice the gain or loss caused by the violation and imprisonment for up to five years per occurrence.

Glencore said it was reviewing the subpoena and will provide further information in due course as appropriate.

Shares in the FTSE 100 company, whih has been hit by three legal challenges over control of its Congolese mines this year, fell almost 11% to 311.85p by 0900 BST on Tuesday, their lowest level in almost a year.

Last month, the group settled its dispute over royalty payments in Congo with former country partner Dan Gertler, who had served freezing orders as he had not received due royalties following his inclusion on the recent US sanctions lists. Glencore, stressing that it had “carefully considered” its legal and commercial options in connection with its dispute and its obligations to its various stakeholders.

But analysts noted that the move to paying Gertler in euros appeared to have been orchestrated to circumvent the sanctions, but noted that, should there be any residual risks, ‎Glencore had managed to move the dispute from Congolese courts to US courts.

Glencore, which has also settled a legal dispute with its state-owned joint venture partner in Congo over the threatened dissolution of Katanga’s DRC operating subsidiary Kamoto Copper Company, this week also saw a court case in Congo suspended pending a decision by the country’s court of appeal on whether the Congolese High Court should have jurisdiction over the case.

The case was brought by Congolese-American businessman Charles Brown, a founding shareholder of Glencore’s Mutanda Mining Sarl, who has accused Glencore CEO Ivan Glasenberg and two other people of arranging the fraudulent sale of his 19% stake to the Swiss company and is demanding $1.14bn in compensation and damages

Analysts at RBC Capital Markets said the DoJ subpoena "drives more uncertainty into the Glencore investment case, which we find compelling from a valuation perspective, but increasingly challenged from a headline risk perspective".

With not much detail in the company's RNS announcement to understand exactly what the investigation holds, the analysts said that with the subpoena covering multiple countries, "this would indicate that there is a relatively thorough investigation at hand".

The RBC analysts added: "We would expect that Glencore will use all legal means to defend itself and would highlight that there are no formal charges at this stage. Much like the Rio Tinto SFO investigation, this is likely to feel less acute in due course than today’s initial share price reaction... but we concede this might take some time to occur with what has been a wave of challenges facing the company."