Last month (see here) Innospec, Inc. disclosed that it accured $40.2 million for potential settlement of corruption investigations on both sides of the Atlantic. Yesterday, on both sides of the Atlantic, it was announced that Innospec agreed to resolve these enforcement actions by, among other things, paying $40.2 million in combined fines and penalties. How's that for an accurate corporate disclosure!
See here for the DOJ release and criminal information, here for the SEC release and complaint, and here for the SFO release and supporting documents.
If you are looking for additional evidence / validation that the DOJ and SFO cooperate in enforcement actions, this would be it!
As explained more fully below, the Innospec enforcement action is part Iraqi Oil for Food, part payment of excessive travel and entertainmet expenses, part Cuba, part Indonesia and it involves U.S. companies, U.K. entities, Swiss entities, U.S. citizens, British citizens, German citizens, South African citizens, and Iraqi citizens.
Innospec manufacturers and sells speciality chemicals and is apparently the "world's only manufacturer of the anti-knock compound tetraethyl lead, used in leaded gasoline."
According to the DOJ criminal information (here), Innospec, Innospec Limited (a wholly-owned U.K. subsidiary), Alcor Chemie Vertriebs GmbH (a wholly-owned Swiss subsidiary), Ousama Naaman (an agent for Innospec and Alcor in Iraq and elsewhere), and others, knowingly conspired: (i) to defraud the U.N. Oil for Food Program; (ii) to violate the FCPA's antibribery provisions; and (iii) to violate the FCPA's books and records provisions.
According to the information, the primary purpose of the conspiracy was to "obtain and retain lucrative business with the government of Iraq through payment and promise of payment of kickbacks and bribes to the Iraqi government and its officials.
In addition to the "standard" Oil for Food allegations found in previous enforcement actions (i.e. inflated commission payments to an agent which were then used to pay kickbacks to the government of Iraq), the information further alleges that "Naaman, on behalf of Innospec, paid approximately $150,000 in bribes to officials of the [Ministry of Oil ("MoO")] to ensure" that a competitor's product "failed a field trial test and therefore would not be used by the [MoO]..."
In addition, the information alleges that "Innospec and Naaman agreed to pay and promise to pay bribes, including but not limited to money, travel, gifts, and entertainment, to officials of the MoO to obtain and retain contracts."
Among other overt acts, the information details an e-mail Naaman sent to, among others, Executive B (a U.S. citizen and former senior Innospec executive) that indicates "with [Director's (a U.K. citizen and former Innospec Division Managing Director)] instructions, we proceeded, as we don't want to discuss this issue in writing any further because it is so delicate, and as per [Director's] instructions that we don't elaborate in writing, for which I agree."
According to the information, Innospec paid Naaman over $700,000 to reimburse him for payments to Iraqi officials.
The information also contains "travel" allegations including: that Innospec paid approximately $35,000 for eight Iraqi officials to travel to Switzerland for a morning meeting and "four days of sightseeing" complete with "9,000 in pocket money" for the officials;" that Naaman arranged for cash filled envelopes to be given to Iraqi officials visiting the U.K.; that Innospec paid for an Iraqi official's "vacation with his wife in Thailand" a trip with cost approximately $13,000 including "pocket money" for the official; and that Alcor reimbursed Naaman $35,000 "to cover the cost of the travel of the three Iraqi MoO officials to Lebanon for the half-day meeting to finalize the 2008 Long Term Purchase Agreement, including hotel accomodations for six days, $1,800 for 'entertainment, lunches, & dinners in Lebanon,' $1,650 for 'mobile phone cards for international calling + 3 cameras' and $15,000 in 'pocket money.'"
According to the information, all of these payments were improperly recorded on Alcor's books and records (which were consolidatd with Innospec's for purposes of financial reporting) as "commissions" or "sales promotion expenditures."
In addition to the above described conspiracy charge, the information also charges five counts of wire fraud, five counts of FCPA antibribery violations and an FCPA books and records violation.
The DOJ release notes that, pursuant to a yet to be released plea agreement, "Innospec also admitted to selling chemicals to Cuban power plants in violation of the U.S. embargo against Cuba." The DOJ release further notes that Innospec acknowledged paying "approximately $2.9 million in bribes to officials of the Indonesian government to secure sales."
According to the DOJ release, as part of the plea agreement, "Innospec agreed to pay a $14.1 million criminal fine and to retain an independent compliance monitor for a minimum of three years to oversee the implementation of a robust anti-corruption and export control compliance program and report periodically to the DOJ." According to the release, "Innospec also agreed to fully cooperate with the DOJ and other U.S. and foreign authorities in ongoing investigations of corrupt payments by Innospec employees and agents."
In other words, stayed tuned for more. Previously, Naaman (the agent) was indicted (see here).
In annoucing the charges, Assistant Attorney General Lanny Breuer noted that "[t]oday's case is a win for law-abiding companies trying to compete fairly in the marketplace" and that "fraud and corruption cannot be viewed simply as a cost of doing business."
For more on the Innospec plea hearing, including Judge Ellen Segal Huvelle's concern about the compliance monitor, see here for Christopher Matthew's piece from Main Justice. For more on compliance monitors, and the controversy often associated with them, see here.
In its complaint (here), the SEC alleges that "[f]rom 2000 to 2007, Innospec violated the anti-bribery, books and records and internal control provisions of the FCPA when it routinely paid bribes in order to sell Tetra Ethyl Lead ("TEL") ... to government owned refineries and oil companies in Iraq and Indonesia."
According to the SEC, "Innospec's former management did nothing to stop the bribery activity, and in fact authorized and encouraged it." The SEC alleges that "Innospec's internal controls failed to detect the illicit conduct, which continued for nearly a decade."
According to the SEC, "[i]n all, Innospec made illicit payments of approximately $6,347,588 and promised an additional $2,870,377 in illicit payments to Iraqi ministries, Iraqi government officials, and Indonesian government officials in exchange for contracts worth $176,717,341 in revenues and profits of $60,071,613."
The SEC's charges relating to Iraqi are substantively similar to the DOJ's allegations in the criminal information and include both Iraqi Oil for Food conduct as well as additional improper conduct after the Oil for Food Program was terminated in late 2003.
The SEC's complaint has more detail than the DOJ's criminal information concerning Indonesia and alleges: (i) that "[f]rom 2000 until approximately 2005, Innospec used [a] Indonesian Agent [an Indonesian citizen] and his company to pay bribes of approximately $1,323,507 to Official X [a senior official at BP Migas, an Indonesian state owned oil and gas company ... who previously was a senior official at the Ministry of Energy and Mineral Resources]"; (ii) that "in 2000 and 2001, Innospec also made payments [totaling $700,000] to government officials at Pertamina, another state owned oil compay related to BP Migas" through a "privately owned bank in Geneva, Switzerland;" and (iii) that Innospec "also bribed other officials at Pertamina in order to influence their decisions regarding TEL purchases."
The SEC charged that "at least one U.S. person and officer was complicit in the scheme" and that "[m]any of the bribes were mischaracterized as legitimate commissions, travel and legal fees in Innospec's books and records."
According to the SEC, "as evidenced by the extent and duration of the improper payments to foreign officials made by Innospec, the improper recording of these payments in Innospec's books and records, and the significant involvement of certain members of management at the highest levels of the company, Innospec failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.
The SEC release (here) notes that Innospec, without admitting or denying the SEC's allegations, was ordered to pay $60,071,613 in disgorgement, but because of Innospec's "sworn Statement of Financial Condition" all but $11,200,000 of that disgorgement will be waived. The release states that "[b]ased on its financial condition, Innospec offered to pay a reduced criminal fine of $14.1 million to the DOJ and a criminal fine of $12.7 million to the SFO. Innospec will pay $2.2 million to OFAC for unrelated conduct concerning allegations of violations of the Cuban Assets Control Regulations.
Stay tuned for additional analysis of the SFO - U.K. prong of this enforcement action.