On December 14, 2023, the US Department of Justice announced an agreement with Freepoint Commodities LLC, a commodities trading company based in Stamford, Connecticut, to resolve a foreign bribery investigation under the Foreign Corrupt Practices Act (”FCPA”), Title 15, United States Code, Section 78dd-1 et seq. The settlement follows the indictment of three individuals allegedly involved in the bribery scheme.
According to the information filed against the company in the US District Court for the District of Connecticut, between 2012 and 2018, Freepoint conspired to pay nearly $4 million in commission payments to Eduardo Innecco, a dual Italian-Brazilian oil and gas broker, with the knowledge that the payments would be used, in whole or in part, to pay bribes to foreign officials at Petróleo Brasileiro S.A. (“Petrobras”), the Brazilian state-owned oil company, and its wholly owned subsidiary, Petrobras America Inc. (“PAI”). As alleged in the information, Innecco and two others, Glenn and Gary Oztemel, worked together to implement a scheme in which bribes of up to 25 cents per barrel would be paid to Brazilian officials on contracts with Glenn Oztemel’s then-employer, an unnamed trading company, and OTT, a Connecticut-based commodities trading company. The purpose of the bribery scheme, as alleged, was to secure improper advantages in order to obtain and retain contracts with Petrobras and PAI, and resulted in over $30 million in profits to Freepoint.
Iannecco and Glenn Otzemel were indicted by the US Department of Justice in February 2023. Gary Otzemel was indicted in August 2023.
The criminal information filed against Freepoint charges the company with conspiracy to violate the anti-bribery provisions of the FCPA. The US Department of Justice entered into a three-year deferred prosecution agreement with Freepoint in conjunction with the filing of the criminal information, in which Freepoint acknowledges the charges and accepts responsibility for the acts of its officers, directors, employees and agents as charged in the information and detailed in the statement of facts.
Freepoint received cooperation credit both for its acceptance of responsibility for the criminal conduct, and its prompt and thorough responses to information and document requests during the course of the DOJ’s investigation. The DOJ also credited the company for aggregating and analyzing complex financial information to assist in the investigation, and for making company officers and employees available for interviews. The DOJ noted, however, that Freepoint’s cooperation was at first reactive rather than proactive, and hence limited in degree and impact. Several additional factors weighed in favor of Freepoint in the view of the DOJ: Freepoint engaged in remedial measures to address the root causes of the underlying conduct; overhauled its third-party compliance and risk management program; restricted the number of third-party intermediaries; implemented a global agent onboarding and tracking procedure; strengthened both its corporate governance and risk management functions; initiated a process for reporting and investigating allegations of misconduct, and; updated the company’s global anti-bribery and corruption policy to include FCPA red flags.
In light of these considerations, the DOJ determined that a DPA would be appropriate, along with continued cooperation and the payment of a criminal penalty of $68 million (reflecting a discount of 15 percent off the lower end of the applicable US sentencing guidelines), forfeiture of $30,551,150 and disgorgement of $7,637,788. The cooperation contemplated by the DPA extends beyond the DOJ to other domestic and foreign law enforcement and regulatory authorities, as well as multilateral development banks.
Resolution of a parallel civil enforcement action brought against Freepoint by the Commodity Futures Trading Commission was also announced on December 14th. The CFTC found that between 2012 and 2018, Freepoint traders in Connecticut improperly obtained information about competitive bids regarding fuel oil cargoes and confidential market intelligence concerning the shipping and negotiation plans of a state-owned enterprise – presumably Petrobras – by paying bribes through an intermediary. Furthermore, the CFTC claimed that members of Freepoint’s oil trading team knew that the information was obtained improperly, and used code words, fake names, and unofficial email communications to conceal the fraud. The CFTC concluded that Freepoint’s conduct was fraudulent and deceptive, and resulted in over $30 million in profits derived from the misappropriation of material non-public information. The CFTC thus charged Freepoint with trading on material non-public information in violation of Section 6(c)(1) of the Commodity Exchange Act, 7 USC.§ 9(1), and Regulation 180.1(a)(1)–(3) thereunder, 17 CFR § 180.1(a)(1)– (3) (2022), and issued an order requiring Freepoint to cease and desist from further violations, and to pay a civil monetary penalty of $61 million and disgorgement of $30,551,150. Prior to Freepoint’s offer of settlement, the CFTC accepted the company’s representations that it had taken measures to ensure future compliance by engaging a third-party consultant to review the company’s anti-bribery and anti-corruption compliance programs, updated its know-your-customer policies and procedures, hired new employees in compliance roles, and implemented mandatory anti-corruption training. Pursuant to the CFTC’s order, Freepoint is obligated to cooperate fully and expeditiously with the CFTC and other enforcement bodies in connection with the matter.
Payment of the CFTC’s civil monetary penalty will be offset by the amount paid pursuant to the DPA entered into with the DOJ. Up to $22,913,362 of the disgorgement amount will be offset by the forfeiture amount paid under the DOJ settlement. Likewise, up to $22,440,000 of the criminal penalty owed under the DPA will be credited against penalties paid to Brazilian authorities for violations of Brazilian law based on the same conduct, should a settlement with Brazilian authorities, currently under discussion, be finalized within one year of the DPA.