Catch of the Week: Freepoint Commodities

This week’s Department of Justice (DOJ) Catch of the Week goes to Freepoint Commodities.  Last Thursday (December 14), the Connecticut-based commodities trading company agreed to pay roughly $98 million to settle government charges it violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to Brazilian government officials.  The company also agreed to disgorge roughly $7.6 million to the Commodity Futures Trading Commission (CFTC) in a related matter.

The FCPA bars US companies from making payments to foreign government officials to secure any kind of business advantage.  This includes paying bribes to win a government contract or renewal; avoid taxes, duties, penalties, or certain regulatory requirements; prevent competitors from entering a market; or influence the resolution of lawsuits or enforcement actions.  The bribes can take any form, including gifts, meals, travel, and entertainment.  They often are disguised as “consulting fees” or “commissions” and given through intermediaries.

According to DOJ, Freepoint’s violations involved a scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras).  Specifically, the company allegedly made payments to Petrobras officials in exchange for confidential information about pricing and bids submitted by Freepoint’s competitors.  The government claimed Freepoint and its co-conspirators concealed the scheme by using code words and encrypted messaging applications, engaging in sham negotiations, and funneling the bribes through an intermediary who used offshore bank accounts and shell companies.

Strictly enforcing the FCPA has been a perennial priority for DOJ.  Several DOJ and FBI officials reaffirmed this commitment in DOJ’s press release announcing the settlement:

• “The Criminal Division remains resolute in our fight against bribery and corruption.” [Nicole Argentieri, Acting Assistant AG, DOJ Criminal Division.]
• “This case exemplifies the FBI’s relentless fight against corruption and our commitment to holding companies accountable for criminal business practices. The FBI, along with our domestic and international partners, will continue to aggressively combat these crimes and work to level the playing field of the global marketplace.”  [Michael Nordwell, Assistant Director, FBI Criminal Investigative Division]
• “This resolution and the indictment of three individuals demonstrate the commitment by the FBI and the Justice Department to holding accountable both corrupt companies and actors — wherever they are — for their illicit business activity. Our tireless work with partners around the globe ensures that businesses earn their contracts and that consumers are protected from inflated prices.”  [Donald Always, Assistant Director FBI Los Angeles Field Office]

Pursuant to a Deferred Prosecution Agreement, Freepoint agreed to pay a criminal penalty of $68 million and an administrative forfeiture of roughly $30 million.  The amount is notable given Freepoint apparently earned far less from its scheme — just over $30 million in profits according to DOJ.  In addition, DOJ reduced the size of the penalty it might otherwise have imposed because of Freepoint’s cooperation with the government’s investigation.  This was a turnaround from Freepoint’s original level of cooperation, which DOJ characterized as limited in degree and impact, and largely reactive.

DOJ also pointed favorably to various remedial measures Freepoint has taken to prevent future FCPA violations.  These include investigating the underlying causes of the violations and addressing those root causes; strengthening its internal compliance program; overhauling its third-party compliance and risk management program; engaging in ongoing monitoring and oversight procedures; implementing FCPA training for third-party agents; reducing the use of third-party intermediaries; updating the company’s global anti-bribery and corruption policy to include FCPA red flags; and implementing a process for reporting and investigating allegations of misconduct.

There is no indication of whether any whistleblowers were involved in reporting Freepoint’s transgressions to the relevant authorities.  Under both the SEC Whistleblower Program and the CFTC Whistleblower Program, whistleblowers who report misconduct to the agencies that leads to a successful enforcement action may be entitled to up to 30% of any government recovery, including recoveries from other agencies based on the whistleblowers’ information.  Both agencies have strict policies about maintaining the confidentiality of their whistleblowers.  So it is often impossible to know for any particular enforcement action whether a whistleblower was involved.

Given the difficulty in uncovering FCPA violations from the outside, the government relies heavily on company insiders exposing the fraud.  Especially the SEC, which is one of the agencies with primary responsibility for going after FCPA violations.  The agency also has a very strong track record in protecting and rewarding its whistleblowers.  In fact, the agency has awarded more than $1.9 billion to whistleblowers since the agency first launched its whistleblower program.  No doubt some portion of those payouts was to whistleblowers reporting on FCPA violations.

If you would like to learn more about the SEC or CFTC whistleblower programs, or any of the government’s other whistleblower rewards programs, please do not hesitate to contact us.  We will connect you with a member of our experienced whistleblower lawyer team for a free and confidential consult.

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Tagged in: Ballsy Bribes, Bribery and Bid-Rigging, Catch of the Week, FCPA, Fraud in CFTC-Regulated Markets,