(Bloomberg) -- A Trafigura Group compliance official testified that the commodity trader “always” viewed using middlemen as a corruption risk, as the firm defends against charges that it paid bribes through a company set up by a former employee.
Using intermediaries to help win business in difficult parts of the world can sometimes be a way to outsource bribery, and in recent years many trading houses — including Trafigura — have outlawed the practice.
At the landmark trial in the Swiss federal criminal court in Bellinzona, Michael Firth, who has worked in Trafigura’s compliance department since 2010, acknowledged that the use of middlemen was “always viewed as a risk” within the company. “There was concern around the bribery and corruption risks.”
The Swiss trial is offering an unprecedented window into decision making at the very top of Trafigura, one of the world’s largest commodity traders. Over several days of testimony, current and former senior figures from Trafigura have defended its approach to combating corruption in the face of documents from the period 2009-2011 that show executives debating how stringently to apply compliance controls.
Trafigura is accused of paying more than $5 million in bribes through an intermediary company to an Angolan official, Paulo Gouveia Junior, between 2009 and 2011 in the Swiss case. Earlier this year in a US case, the company admitted bribery in Brazil from 2003 to 2014.
This week’s trial is the latest in a series of cases targeting corruption inside the world’s biggest commodity traders. The evidence shown in court, alongside testimony from current and former executives, has highlighted the tension between Trafigura’s compliance practices and the pursuit of profit.
Using Intermediaries
Three individuals, including former Trafigura chief operating officer Mike Wainwright, are charged alongside Trafigura in Switzerland. They deny the charges.
Wainwright said Trafigura used around 20 to 30 companies as intermediaries in the period in question. He didn’t remember the firm’s compliance committee ever reviewing invoices from those intermediaries.
Compliance official Firth agreed that the company didn’t routinely check what was happening to money that went through Trafigura’s intermediaries, but underlined the risks.
“Intermediaries were classed as high risk whether that was in Angola or any other jurisdiction,” Firth said in testimony on Friday. “That was why we put in enhanced processes.”
For Trafigura, the Swiss charges against its Dutch parent company hinge on whether it had all necessary measures in place to prevent bribes being paid. The company claims that, despite the alleged bribes in Angola and the admitted bribes in Brazil, its compliance procedures were adequate.
Right Balance
Since the period under scrutiny, Trafigura says it has invested significant resources in staff training, strengthened compliance teams and controls, and from 2019, prohibited the use of third parties for business origination.
Trafigura sought to find “the right balance” between measures to prevent potential corruption and its ability to do business in difficult parts of the world, then-Chief Financial Officer Pierre Lorinet testified on Thursday.
“There’s no perfect system, there’s no zero risk,” said Lorinet, who is now a non-executive director of Trafigura and has not been accused of wrongdoing. “There’s only zero risk if you stop all business.”
Still, prosecutors have cast doubt on the commitment of Trafigura’s top executives to avoiding corruption, alleging that the company used a former employee nicknamed “Mr. Non-Compliant” to funnel payments.
Pressed on whether Trafigura’s late founder Claude Dauphin had ever called the man “Mr. Non-Compliant,” Lorinet said that “I never personally heard Claude Dauphin call him that,” echoing earlier testimony from Wainwright.
Debated Compliance
The court also showed minutes of meetings of the compliance committee from 2010 and 2011, in which senior Trafigura executives debated its compliance approach.
In one instance, Trafigura’s then-chief executive officer Dauphin is recorded as having stated that he did not want compliance reviewing counterparties “unless there was a legal requirement to do so.”
Wainwright said that Dauphin’s comments referred to continuous reviews of Trafigura’s existing business partners. He said he believed the founder, who died in 2015, was motivated by a desire for efficiency. “Predominantly he was saying, let’s be efficient, let’s rely on our policy, and don’t be in a position where we need to review hundreds or thousands of companies,” he told the court.
Another part of the document showed that Lorinet “stated that we now have robust due diligence procedures in place however this was not always the case.” In his testimony, Lorinet explained that Trafigura had some longstanding business partners whose deals with the company predated its first code of conduct, and that he was arguing in favor of reviewing these relationships.
Wainwright himself said that he “had forgotten about” the company’s compliance committee that he was part of in the period in question, and that he could not remember the committee intervening in any incident.
But he clarified that that would have been the role of Trafigura’s compliance department rather than the committee, which was made up of a handful of senior executives, including himself, Dauphin and Lorinet.
In testimony on Friday morning, Firth said that the compliance department had been involved in breaches of Trafigura’s code of conduct in the period 2009-2011, but that he was not aware of any issues being raised concerning corruption.
Firth said the decision to stop the use of middlemen after reaching a “tipping point.”
“It was viewed that intermediaries carried a high risk. There also came a point where Trafigura was well established in these countries, so there wasn’t the same requirement or need for those intermediaries,” he said. “So you have on one side the risk, and on one side there wasn’t the same business need.”
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