On December 14, the Department of Justice (DOJ) announced that Freepoint Commodities LLC, a Connecticut-based commodities trader, had agreed to a three-year deferred prosecution agreement (DPA) to resolve a DOJ investigation into violations of the Foreign Corrupt Practices Act (FCPA). In addition to the DPA, Freepoint agreed to pay over $98 million in penalties.
While underscoring the risk associated with third-party representatives and the importance of diligence on representatives, the matter also highlights the need for due diligence prior to hiring employees.
Freepoint Paid Almost $4 Million to Petrobras
According to the DOJ, Freepoint paid almost $4 million in bribes to officials working for Brazil's state-owned oil company Petróleo Brasileiro S.A. (Petrobras), in order to secure business. (While Petrobras functions like a commercial oil and gas company, because it is state-owned, any official or other employee of the company is considered a "foreign official" for purposes of the FCPA.) Among other things, a Petrobras employee was paid to provide confidential information related to Petrobras operations to help Freepoint win business. The bribes were paid through an oil and gas broker that worked for Freepoint and other commodities traders.
One senior Freepoint employee, Glenn Oztemel, caused Freepoint to enter into a service agreement with the broker with a monthly "consultancy fee" of about $10,000 and per-barrel commission for all sales. Bribes were either paid using the consultancy fees and commissions paid to the broker or directed through Oil Trade & Transport S.A. (OTT), a third company owned by Gary Oztemel—Glenn's brother.
According to the DOJ, Freepoint earned more than $30 million in profits in connection with the bribes it paid.
Freepoint Paid Penalties to DOJ, CFTC, and Brazilian Government
Freepoint agreed to pay $68 million in criminal penalties and forfeited approximately $30.5 million in ill-gotten gains. DOJ agreed to credit Freepoint up to one-third of any penalty assessed by Brazilian law enforcement authorities and up to 25% of the disgorgement penalty assessed by the Commodities Future Trading Commission (CFTC) in a related matter.
Although Freepoint did not voluntarily disclose the matter, the DOJ penalty nonetheless reflects a 15% reduction off the bottom of the applicable guidelines range due to Freepoint's extensive cooperation with the DOJ's investigation and the company's remedial efforts. DOJ highlighted the company's prompt and detailed response to DOJ requests, "significant efforts to aggregate and analyze complex financial information and trade data for more than 4,000 transactions," and a willingness to make employees available for interviews.
DOJ also noted that Freepoint engaged in robust root cause analysis, the result of which were substantial changes to the company's compliance program. Significantly, and likely because of such meaningful compliance enhancements, DOJ did not require Freepoint to hire a compliance monitor. This appears consistent with other recent DOJ resolutions, such as the 2022 DPA (which we addressed here) that DOJ entered into with ABB.
Importance of Employee Screening, Oversight
As Freepoint emphasized in a statement, "[today's resolution] stem[s] from activity by individuals that commenced prior to their joining Freepoint." Apparently, Glenn and Gary Oztemel had previously worked with the broker, and seemingly had worked together before Glenn joined Freepoint. Presumably, this is information that Freepoint could have obtained at the time of hiring Glenn Oztemel, and perhaps the company sought such information but was not provided with it. At the same time, the DOJ resolution indicated that one corrective action taken by Freepoint was to enhance onboarding processes. This suggests there may have been gaps in reviewing potential employees' past histories.
Beyond pre-employment diligence, companies must have strict rules on conflicts of interest. Other than in a very unusual situation, contracting with a family member should not be permitted. The risks associated with such conflicts, as Freepoint discovered, are great.
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