United States v. Glencore Int'l A.G.

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UNITED STATES OF AMERICA v. GLENCORE INTERNATIONAL A.G., Defendant.

No. 22 Cr. 297 (LGS)

United States District Court, S.D. New York

February 27, 2023

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge.

Defendant Glencore International A.G. (“Glencore” or “Defendant”) pleaded guilty to conspiring to violate the anti-bribery provision of the Foreign Corrupt Practices Act of 1977, as amended, in violation of 18 U.S.C § 371. In connection with Glencore's upcoming sentencing, Dr. Ian and Laurethe Hagen (“Claimants”), on behalf of Crusader Health DRC SARL (“Crusader”), have filed a request for restitution in an amount between $48,417,568 to $50,351,356. Claimants' request arises from Glencore's admitted scheme to bribe a public official in the Democratic Republic of the Congo (the “DRC”) in exchange for dismissing a lawsuit (the “2010 Lawsuit”) brought by Crusader against an indirect subsidiary of Glencore. Claimants make their request under the Crime Victims' Rights Act (the “CVRA”) and the Mandatory Victim Restitution Act (the “MVRA”). For the reasons below, the request is granted in part.

I. BACKGROUND

A. The Parties and Claimants' Business

Dr. Ian Hagen is a South African doctor with multiple professional degrees and qualifications. His wife, Laurethe Hagen, is also South African and has an honors degree in biokinetics. Glencore is a multinational commodity trading and mining company headquartered in Baar, Switzerland.

In 1997, Claimants founded Medical Services International (“MSI”). MSI partnered with local medical services companies that Claimants created and ran under the name Crusader Health. MSI and Crusader Health operated in eleven African countries. Claimants' businesses provided health care-related services, including designing, building and operating hospitals, health and travel insurance, pharmaceutical manufacturing, sanitation and medical evacuations.

Claimants expanded their MSI and Crusader Health business to the DRC in 2006. In March 2007, they founded Crusader to provide local medical services in the DRC. Claimants are 90% shareholders of Crusader. Dr. Peniel Kasongo, a doctor residing in the DRC, is the Claimants' local medical partner and the remaining 10% shareholder of Crusader.

B. Crusader's Contracts with Two Defendant-Affiliated Mining Companies

In 2007 and 2008, MSI and Crusader executed contracts with two different DRC mining companies -- Kamoto Operating Limited (“KOL”) and DRC Copper and Cobalt Project SARL (“DCP”) -- to provide medical care to their respective mining communities and to build three medical facilities. KOL and DCP were subsidiaries of Kamoto Copper Company (“KCC”) and, by extension, Katanga Mining Limited, in which Defendant had a minority stake at the time. Defendant became the majority shareholder of Katanga Mining Limited in mid-2009. While the medical facilities were under construction, Crusader signed a five-year contract to use the nearby Methodist Hospital to provide services to both KOL and DCP.

In 2008, Crusader was providing medical services for more than 40,000 people in the DRC. In addition to the contracts with KOL and DCP, MSI and Crusader had contracts with approximately eight other mining-related companies in and around the Katanga Province. The KOL and DCP contracts accounted for approximately three-quarters of Crusader's income, with the other contracts providing the other quarter.

In 2009, Crusader learned that KCC, an indirect subsidiary of Defendant, would be taking over KOL's and DCP's contracts with Crusader. MSI and Crusader negotiated new three-year contracts with KCC. By that time, Crusader had completed one of the three medical facilities and the construction of the others was on schedule.

In September 2009, KCC appointed a new medical manager (the “Medical Manager”) to oversee Crusader's contracts with KOL and DCP. Crusader was unable to verify the Medical Manger's medical credentials, and the local medical council opened an investigation into the Medical Manager. Claimants did not realize at the time that the Medical Manager had a close relationship with Defendant, which held an interest in KCC. Around late 2009, a KCC executive called Dr. Hagen and told him that the issue with the Medical Manager must be “swept under the carpet” or he would make sure that Crusader “will never operate in the DRC again.” On the same phone call, the KCC executive threatened the physical safety of Dr. Hagen and his family. Dr. Kasongo reported that he faced threats and was offered bribes because of the investigation.

On January 11, 2010, the same KCC executive sent Crusader and MSI letters terminating their contracts with KOL and DCP, effective April 10, 2010. The letters did not provide a reason for the termination. Claimants believe the termination was in retaliation for Crusader's investigation of the Medical Manager.

After receiving the termination letters, Crusader tried to resolve the dispute with KCC. In a letter dated January 28, 2010, Crusader informed KCC that because of the “significant capital investment” Crusader had made in reliance on its new three-year contracts with KCC, Crusader “as a whole will suffer from future loss of profits and income” from the termination of the contracts. Crusader also informed KCC that the termination of the contracts would “inevitably lead to retrenchment of staff,” among other losses to Crusader. “Retrenchment” refers to severance payments due to terminated employees under DRC law.

In a meeting on March 1, 2010, a KCC employee warned Crusader that the legal costs of proceeding with the dispute would be exorbitant. In a letter dated March 15, 2010, Crusader explained each component of loss it would seek from KCC because of the termination of the contracts. Crusader requested that KCC take over the clinic and hospital and assume responsibility for the severance costs associated with transferring Crusader's staff of 92 employees to KCC. KCC refused to reimburse Crusader for any amounts due under the contract.

C. The 2010 Lawsuit and Crusader's Demise

In October 2010, Crusader sued KCC in the DRC for $16,084,556 (the “2010 Lawsuit”). In January 2011, the court dismissed the action on a procedural ground that had not been raised by KCC. According to the court, Crusader did not have the appropriate corporate formation documents on file and therefore could not proceed with the lawsuit. It later came to light that Defendant had approved an invoice for $500,000 that was paid as a bribe to have the 2010 Lawsuit dismissed.

While the lawsuit was pending, Claimants and MSI loaned money to Crusader to keep it afloat, Crusader having lost three-quarters of its income due to KCC's termination of the DCP and KOL contracts. Crusader anticipated that it would receive a recovery in the 2010 Lawsuit that would cover its losses. By 2011, Crusader was in desperate need of cash and was operating at a significant loss. In 2011 and 2012, Crusader's books reflected significant losses. By the end of 2012, Crusader had honored all of its contracts in the DRC and retrenched a significant number of its remaining professional staff. Crusader effectively ended active operations in late 2012.

D. The 2018 Lawsuit

On November 28, 2018, Dr. Kasongo sued KCC on behalf of Crusader in the newly established Kolwezi Commercial Court seeking $11,084,556 in reimbursement of contractual amounts (e.g. hospital, ambulances, operating expenses) and $20 million in other damages (the “2018 Lawsuit”). Like the 2010 Lawsuit, KCC did not challenge the merits of Crusader's claims, and instead presented several procedural defenses. KCC again raised the defense that the court lacked jurisdiction because of the arbitration clauses in the contracts.

On December 31, 2019, the Kolwezi Commercial Court found KCC liable to Crusader, concluding that the contracts' arbitration clause was unenforceable under Congolese law and that KCC had wrongfully terminated the contracts. The court addressed the categories of damages Crusader sought, noted that the factual record created some uncertainty in the calculation and awarded $6,864,556 in contractual damages and $4 million in other damages. To date, Crusader has not received any payment from KCC under the judgment. Crusader accrued $3,198,800 in legal fees from the 2010 and 2018 litigation against KCC.

E. This Criminal Action

On May 24, 2022, the Government filed a one-count Information charging Defendant with conspiring to violate the anti-bribery provision of the Foreign Corrupt Practices Act (“FCPA”). The next day, pursuant to a plea agreement (the “Plea Agreement”), Defendant pleaded guilty to conspiring to violate the FCPA from approximately 2007 until 2018 by paying more than $100 million in bribes to foreign officials to secure an improper advantage and to obtain or retain business in several countries, including the DRC. The Plea Agreement provided, among other things, “that any restitution imposed by the Court will be due and payable in accordance with the Court's order.” The Plea Agreement incorporated by reference a Statement of Facts, which Defendant expressly admitted. Defendant also agreed to the admissibility of the Statement of Facts in any sentencing proceeding and agreed “not [to] contradict anything in the attached Statement of Facts at any such proceeding.”

The Statement of Facts describes, among other conduct, Glencore's scheme to bribe a public official in the DRC with a payment of $500,000 in exchange for dismissing the 2010 Lawsuit. The Plea Agreement states that, as a result, Glencore “avoided paying approximately $16,084,000 to settle the claim” asserted in the 2010 Lawsuit. For ease of reference, this amount is sometimes referred to below as the “$16 Million.”

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