This recent post highlighted the Foreign Corrupt Practices Act enforcement action against Freepoint Commodities based on alleged bribery schemes in Brazil. (This post discussed the related Commodities Future Trading Commission enforcement action against the company).
This post highlights additional issues to consider from the FCPA enforcement action.
Assessing Freepoint’s Culpability
Freepoint might be the least culpable defendant in FCPA enforcement action history.
According to the DOJ, here are the salient facts.
The conduct at issue involved the following primary actors: Glenn Oztemel, Gary Oztemel, and Eduardo Innecco (who all have been previously charged by the DOJ) and the core conduct began before any of the individuals were employed or associated with Freepoint. As stated by the DOJ:
“In or about 2010, prior to Glenn Ozternel’s employment with FREEPOINT, Glenn Oztenrel, Gary Oztemel, and Innecco agreed to pay bribes to Berkowitz and other Petrobras officials to obtain and retain business for Glenn Oztemel’s then-employer, Trading Company #1, and OTT.
[…]
In e-mails to Glenn Oztemel and Gary Oztemel regarding the scheme, Innecco used coded language to refer to bribes and bribe amounts, including terms such as “breakfast,” “breakfast servings” and “freight devitation.”
In June 2012, Glenn Oztemel and others left Trading Company #1 to work for Freepoint.
According to the DOJ, while at Freepoint, Glenn Oztemel, Gary Oztemel and others took steps to “conceal” their conduct by using “personal, alias e-mail accounts and encrypted messaging applications,” using “coded language,” and “engaging in sham negotiations to give the appearance of legitimacy to trades between Petrobras and Freepoint.”
In addition, the DOJ alleged that “Glenn Oztemel and Innecco also continued to use Gary Oztemel’s company, OTT, to facilitate corrupt “back-to-back” trades with Petrobras and to pay bribes to Berkowitz and other Petrobras officials in order to obtain and retain business for Freepoint.”
Despite these allegations, Freepoint was the FCPA defendant because – in the words of the DOJ – “Freepoint earned approximately $30.5 million in profits from its corruptly obtained business with Petrobras.”
As Freepoint stated in this press release:
“[The enforcement action] stem[s] from activity by individuals that commenced prior to their joining Freepoint and was inconsistent with Freepoint’s values and a breach of our zero-tolerance for corruption.”
Even so, some of the self-proclaimed compliance gurus out there are questioning the background checks that Freepoint did on the individuals before becoming employed by Freepoint. In prior FCPA enforcement actions, the DOJ has generally not been shy about mentioning such things if indeed they were factually relevant.
Necessary?
Given the salient facts of the Freepoint enforcement action, was it truly necessary for the resolution documents to include all of the “boiler-plate” post enforcement action obligations imposed on the company such as:
“(i) conducting an analysis of the causes of the underlying conduct and undertaking appropriate remediation to address those root causes and taking additional steps to improve its compliance program, including by retaining an advisory firm to evaluate its third-party compliance program; (ii) overhauling its third-party compliance and risk management program, including through the implementation of enhanced risk-based due diligence, screening, ongoing monitoring and oversight procedures, and the implementation of FCPA training for third-party agents; (iii) reducing the use of third-party intermediaries; (iv) implementing a global agent onboarding and tracking procedure; (v) strengthening its corporate governance and risk management structures, including through the utilization of data and metrics to evaluate risk, enhancing the independence and stature of its compliance function, and hiring additional, experienced compliance personnel; (vi) updating the Company’s global anti-bribery and corruption policy to include FCPA red flags; (vii) implementing a process for reporting and investigating allegations of misconduct; and (viii) conducting testing of its third-party compliance program.”
Or is this just doing things for the sake of doing things?
“Foreign Official” Theory
The alleged “foreign officials” at issue in the Freepoint enforcement action were all associated with Petrobras – an alleged state-owned or state-controlled enterprise in Brazil. This enforcement theory is problematic for reasons long discussed on these pages. (See here).
However, the DOJ took it a step further in the enforcement action by alleging that an individual associated with Petrobras America Inc. (PAI), a Delaware corporation with its principal place of business in Houston, was a “foreign official” because PAI “was controlled by the government of Brazil and performed government functions and, thus, was an “agency” and “instrumentality” of a foreign government.
There is simply no support in the FCPA’s voluminous legislative history to assert that an individual employed by a U.S. company is a “foreign official” of another country.
