In March 2010, Innospec Inc. was charged on both sides of the Atlantic in a joint DOJ / SEC / U.K. Serious Fraud Office enforcement action. (See here and here).
In August 2010, the SEC charged David Turner, the Business Director of Innospec's TEL Group, and Ousama Naaman, the company's agent, for their role in the bribery scheme. (See here). Naaman was also charged by the DOJ, pleaded guilty, and awaits sentencing. (See here).
Yesterday, in the first FCPA enforcement action of the year, the SEC charged Paul Jennings, Innospec's former CFO and CEO, for his involvement in the bribery scheme. (See here). Jennings resigned from Innospec in March 2009 (see here).
Jennings name is now included on a rather short list of high-ranking executives of public companies (or affiliates) recently charged by the SEC in an FCPA enforcement action. In July 2009, Douglas Faggioli (the current President and CEO) and Craig Huff (the former CFO) of Nature's Sunshine Products were charged (see here); in September 2008, Albert Jackson Stanley (the former CEO of Kellogg Brown & Root Inc.) was charged (see here); in December 2007, Robert Philip (the former Chairman/CEO of Schnitzer Steel was charged (see here); and in September 2007, Monty Fu (the former Chairman of Syncor International Corp. was charged (see here).
The facts of the underlying bribery scheme in the Jennings enforcement action are detailed in the prior posts linked above and this post details the allegations in the SEC's complaint (here) regarding Jennings knowledge and involvement in the scheme.
In summary fashion, the complaint alleges as follows:
"This action arises from widespread bribery of foreign officials by Innospec, Inc., some of which occurred and was approved by Paul W. Jennings beginning in mid to late 2004 during his tenure as Chief Financial Officer ("CFO") and continuing after he became Chief Executive Officer ("CEO") in 2005."
"Beginning in mid to late 2004, Jennings, who held various senior roles at Innospec, including CFO and CEO, actively participated in the bribery schemes in Iraq and Indonesia."
"Jennings violated [the FCPA's anti-bribery provisions] by engaging in widespread bribery of government officials in Iraq during the post-Oil for Food period in order to sell TEL to the Iraqi Ministry of Oil ("MoO") and by engaging in bribery of Indonesian officials to sell TEL to state owned oil companies in Indonesia. Jennings aided and abetted Innospec's violations of [the FCPA's anti-bribery provisions] by substantially assisting in Innospec's bribery of Iraqi and Indonesian government officials."
"Innospec, a U.S. issuer, made use of U.S. mails and interstate commerce to carry out the scheme, and Jennings, a dual U.S. and U.K. national was complicit in the scheme. Jennings both sent and received e-mails to and from the United States to carry out the scheme. He also used interstate commerce and the mails as part of the scheme. Jennings obtained $116,092 in bonuses that were tied to the success of the TEL sales, which were procured through bribery."
"Jennings also violated Section13(b)(5)of the Exchange Act and Rule 13b2-1 thereunder by falsifying documents as part of the bribery scheme. Jennings also violated Exchange Act Rule 13b2-2 by making false statements to accountants and violated Exchange Act Rule 13a-14 by signing false personal certifications required by the Sarbanes-Oxley Act of 2002 that were attached to annual and quarterly Innospec public filings."
"Jennings also aided and abetted Innospec's violations of [the FCPA's books and records and internal control provisions] by substantially assisting in Innospec's failure to maintain internal controls to detect and prevent bribery of officials in Iraq and Indonesia, and the improper recording of the illicit payments in Innospec's books and records."
According to the SEC, "beginning in 2005, Jennings, along with other members of Innospec's management, approved bribery payments to officials at the Iraqi Ministry of Oil in order to sell TEL to Iraq. The complaint alleges that Innospec, with the approval of Jennings, used Naaman as its agent in Iraq to make improper payments and the complaint alleges that Jennings was copied on certain e-mails between Naaman and Turner discussing the bribery scheme. The complaint further alleges that Jennings approved certain payments to Naaman to facilitate the bribery scheme including certain payments Jennings approved "while in the United States." Many of the SEC's allegations as to the Iraqi conduct are phrased as Jennings had "general knowledge" or that Jennings was "generally aware" of the conduct at issue.
As to Indonesian payments, the complaint alleges that "Jennings became aware of and approved the improper payments to Indonesian government officials in order to win contracts for the sale of TEL to state owned oil and gas companies. Among other allegations, the complaint alleges that "in December 2004, Jennings and Executive B [the CEO of Innospec from 1998 to April 2005] discussed Innospec's bribery scheme in Iraq and Indonesia on a flight from Denver to New York" and that "while Indonesian Agent was in the United States during the holidays, various e-mails were sent to and from the United States that discussed Jennings' and Turner's continued efforts to support Indonesian Agent's payment of bribes on Innospec's behalf." The SEC also alleges that the "bribery scheme" was also discussed "during Jennings' performance review in January 2005."
As to Jennings false certifications, the complaint alleges as follows.
"From 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he complied with Innospec's Code of Ethics incorporating the company's Foreign Corrupt Practices Act policy, and that he was unaware of any violations of the Code of Ethics by anyone else. During that time frame, Jennings actively participated in bribery of Iraqi and Indonesian officials as described above. Jennings also signed annual and quarterly personal certifications pursuant to the Sarbanes-Oxley Act of 2002 in which Jennings made false certifications concerning the company's books and records and internal controls. Jennings also signed false management certifications to Innospec's auditors indicating that the books and records were accurate and that Innospec had appropriate internal controls."
As noted in the SEC release, without admitting or denying the SEC's allegations, Jennings agreed to disgorge $116,092 plus prejudgment interest of $12,945 and pay a civil penalty of $100,000. The SEC stated that the figures take into consideration Jennings's cooperation in this matter.
In the release, Cheryl Scarboro (Chief of the SEC's FCPA Unit) stated, "we will vigorously hold accountable those who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing."
Showing posts with label Innospec. Show all posts
Showing posts with label Innospec. Show all posts
Tuesday, January 25, 2011
Thursday, November 4, 2010
Innospec Checkup
"As of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22. million more than its total debt of $45.0 million." (see here for the prior post).
"As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million." (see here for the prior post).
As reported by the company earlier this week (see here):
"As of September 30, 2010, Innospec had $101.5 million in cash and cash equivalents, $53.5 million more than its total debt of $48 million."
As evident from the above, Innospec's cash coffers continue to grow and business is doing well. The company's President and CEO “We are pleased to report strong earnings growth as well as excellent cash generation for the third quarter of 2010. All three of our business segments again performed well, generating double-digit increases in operating income."
Why does any of this matter?
Because in March 2010, Innospec (see here) agreed to pay $40.2 million in combined DOJ/SEC/SFO fines and penalties for violating the Foreign Corrupt Practices Act and other laws.
However, it could have been worse.
The SEC release (see 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 was 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."
In other words, Innospec got a pass on approximately $50 million.
Innospec's "Inability to Pay" is also noted in the DOJ's plea agreement (see here).
In other Innospec news, the company's most recent 10-Q filing (see here) suggests that the company expects its compliance monitor to cost $3.9 million (see pg. 22).
This prior post discussed the civil complaint, based on the DOJ and SEC's allegations, filed against Innospec by a competitor alleging violations of
the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.
Here is what Innospec had to say about this litigation in its recent filing:
"On July 23, 2010, NewMarket Corporation and its subsidiary, Afton Chemical Corporation (collectively, “NewMarket”), filed a civil complaint against the Company and its subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), in the U.S. District Court for the Eastern District of Virginia. The complaint makes certain claims against the Company and Alcor with respect to alleged violations of provisions of the Robinson-Patman Act, the Virginia Antitrust Act and the Virginia Business Conspiracy Act as a result of alleged actions involving officials in Iraq and Indonesia pertaining to securing sales of the Company’s tetra ethyl lead (TEL) fuel additive, to the apparent detriment of the plaintiffs and their sales of a competing non-lead based fuel additive. The complaint seeks treble damages of an unspecified amount, plus attorneys’ fees, costs and expenses. The factual allegations underlying the complaint appear to relate to the same matters that were the subject of the Company’s recently-disclosed resolution with the DOJ, SEC, OFAC and SFO. On September 22, 2010, the Company filed a motion to dismiss. On October 4, 2010, NewMarket filed an amended complaint incorporating the Sherman Act and related claims in addition to its previous claims. The Company filed its response to the amended complaint and a separate motion to dismiss on October 29, 2010. The Company believes both the complaint and amended complaint are without merit and intends to defend them vigorously, but because of uncertainties associated with the ultimate outcome of these complaints and the costs to the Company of responding to them, we cannot assure you that the ultimate costs and damages, if any, that may be imposed upon us will not have a material adverse effect on our results of operations, financial position and cash flows. As at September 30, 2010 we had accrued $0.5 million in respect of probable future legal expenses and provided no additional accruals in respect of this matter."
"As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million." (see here for the prior post).
As reported by the company earlier this week (see here):
"As of September 30, 2010, Innospec had $101.5 million in cash and cash equivalents, $53.5 million more than its total debt of $48 million."
As evident from the above, Innospec's cash coffers continue to grow and business is doing well. The company's President and CEO “We are pleased to report strong earnings growth as well as excellent cash generation for the third quarter of 2010. All three of our business segments again performed well, generating double-digit increases in operating income."
Why does any of this matter?
Because in March 2010, Innospec (see here) agreed to pay $40.2 million in combined DOJ/SEC/SFO fines and penalties for violating the Foreign Corrupt Practices Act and other laws.
However, it could have been worse.
The SEC release (see 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 was 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."
In other words, Innospec got a pass on approximately $50 million.
Innospec's "Inability to Pay" is also noted in the DOJ's plea agreement (see here).
In other Innospec news, the company's most recent 10-Q filing (see here) suggests that the company expects its compliance monitor to cost $3.9 million (see pg. 22).
This prior post discussed the civil complaint, based on the DOJ and SEC's allegations, filed against Innospec by a competitor alleging violations of
the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.
Here is what Innospec had to say about this litigation in its recent filing:
"On July 23, 2010, NewMarket Corporation and its subsidiary, Afton Chemical Corporation (collectively, “NewMarket”), filed a civil complaint against the Company and its subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), in the U.S. District Court for the Eastern District of Virginia. The complaint makes certain claims against the Company and Alcor with respect to alleged violations of provisions of the Robinson-Patman Act, the Virginia Antitrust Act and the Virginia Business Conspiracy Act as a result of alleged actions involving officials in Iraq and Indonesia pertaining to securing sales of the Company’s tetra ethyl lead (TEL) fuel additive, to the apparent detriment of the plaintiffs and their sales of a competing non-lead based fuel additive. The complaint seeks treble damages of an unspecified amount, plus attorneys’ fees, costs and expenses. The factual allegations underlying the complaint appear to relate to the same matters that were the subject of the Company’s recently-disclosed resolution with the DOJ, SEC, OFAC and SFO. On September 22, 2010, the Company filed a motion to dismiss. On October 4, 2010, NewMarket filed an amended complaint incorporating the Sherman Act and related claims in addition to its previous claims. The Company filed its response to the amended complaint and a separate motion to dismiss on October 29, 2010. The Company believes both the complaint and amended complaint are without merit and intends to defend them vigorously, but because of uncertainties associated with the ultimate outcome of these complaints and the costs to the Company of responding to them, we cannot assure you that the ultimate costs and damages, if any, that may be imposed upon us will not have a material adverse effect on our results of operations, financial position and cash flows. As at September 30, 2010 we had accrued $0.5 million in respect of probable future legal expenses and provided no additional accruals in respect of this matter."
Tuesday, October 5, 2010
A Conversation With Richard Alderman - Director of the U.K. Serious Fraud Office
While in London recently to chair the World Bribery & Corruption Compliance Forum (see here, here and here for previous posts), I was pleased to accept the invitation of the U.K. Serious Fraud Office to visit its offices and meet top-level SFO personnel to discuss Bribery Act and other anti-corruption issues and topics. As part of the invitation, Richard Alderman (here), the Director of the SFO, invited me to submit questions to him on any topic of my choosing.
I submitted approximately thirty detailed questions covering a broad range of topics, including the role and policies of the SFO, the Bribery Act, the BAE and Innospec cases, Bribery Inc., and other questions of general interest. Except for certain questions regarding the BAE case, which is still pending in the U.K. courts, Mr. Alderman provided answers to every question, including on topics I have been critical of the SFO in the past.
In his answers, Mr. Alderman, among other things:
(i) compares and contrasts the SFO's role with the DOJ's role in enforcing the Foreign Corrupt Practices Act, including the more active and independent role U.K. courts have in reviewing SFO charging decisions;
(ii) talks about voluntary disclosure, and the role of non-prosecution and deferred prosecution agreements;
(iii) discusses reputational harm, debarment, and reparations; and
(iv) talks specifically about the Bribery Act which is to be implemented in April 2011.
I thank Mr. Alderman and other SFO personnel for taking a keen interest in my work and commend the "active engagement" approach the SFO has taken in going about its work.
My complete "conversation" with Mr. Alderman can be downloaded here.
I submitted approximately thirty detailed questions covering a broad range of topics, including the role and policies of the SFO, the Bribery Act, the BAE and Innospec cases, Bribery Inc., and other questions of general interest. Except for certain questions regarding the BAE case, which is still pending in the U.K. courts, Mr. Alderman provided answers to every question, including on topics I have been critical of the SFO in the past.
In his answers, Mr. Alderman, among other things:
(i) compares and contrasts the SFO's role with the DOJ's role in enforcing the Foreign Corrupt Practices Act, including the more active and independent role U.K. courts have in reviewing SFO charging decisions;
(ii) talks about voluntary disclosure, and the role of non-prosecution and deferred prosecution agreements;
(iii) discusses reputational harm, debarment, and reparations; and
(iv) talks specifically about the Bribery Act which is to be implemented in April 2011.
I thank Mr. Alderman and other SFO personnel for taking a keen interest in my work and commend the "active engagement" approach the SFO has taken in going about its work.
My complete "conversation" with Mr. Alderman can be downloaded here.
Tuesday, August 10, 2010
Innospec Related News
In March, Innospec (a global chemical company) settled bribery enforcement actions on both sides of the Atlantic (see here).
This post discusses recent Innospec news - the SEC enforcement action against an Innospec agent (an individual who previously plead guilty to a DOJ enforcement action - see here) and a former Business Director at the company; a civil suit filed by an Innospec competitor in U.S. District Court in Richmond, Virginia; and how Innospec continues to grow its cash coffers despite receiving a pass on $50 million in fines and penalties in the March enforcement action based on inability to pay.
SEC Enforcement Action Against Turner and Naaman
Last week, the SEC added to Ousama Naaman's legal woes charging him (see here) with civil FCPA anti-bribery violations, knowingly circumventing or knowingly falsifying books and records, and aiding and abetting Innospec's FCPA books and records and internal control violations. According to the SEC release (see here) Naaman, Innospec's agent in Iraq, agreed to disgorge $810,076 plus prejudgment interest of $67,030 and pay a penalty of $438,038 that will be deemed satisfied by his criminal fine. The disgorgement amount represents commissions Naaman received from Innospec "for his role in funneling bribe payments." To my knowledge, the approximate $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.
In the same complaint, the SEC also charged David Turner, the Business Director of Innospec's TEL Group, with the same substantive charges as Naaman. According to the complaint, Turner (a U.K. citizen who left Innospec in June 2009) "actively participated" in Innospec's bribery and kickback schemes in Iraq and "actively participated" in Innospec's bribery scheme in Indonesia.
According to the complaint:
"Turner was aware of the kickback scheme in connection with the Oil for Food Program. At some point in late 2002 or early 2003 Innospec's internal auditors questioned Turner about the nature of the commission payments that were made to Naaman under the U.N. Oil for Food Program. Turner made false statements to the auditors and concealed the fact that the commission payments to Naaman included kickbacks to the Iraqi government in return for Oil for Food contracts. Turner also made false statements when he signed annual-certifications that were provided to auditors up until 2008 where Turner falsely stated that he had complied with Innospec's Code of Ethics incorporating the company's Foreign Corrupt Practices Act policy prohibiting kickbacks and bribery, and that he was unaware of any violations of the Code of Ethics by anyone at Innospec."
Even after the Oil for Food Program was terminated in late 2003, the complaint alleges that "Turner, along with senior officials at Innospec, directed and approved" additional bribe payments to Iraqi officials. In addition, the complaint alleges that "Turner and other Innospec officials directed and authorized payments, through Naaman, to fund lavish trips for Iraqi officials."
As to Indonesia, the complaint alleges that "Turner, along with senior officials at Innospec, authorized and directed the payment of bribes to Indonesian government officials from at least 2000 through 2005, in order to win contracts for Innospec for the sale of TEL to state owned oil and gas companies in Indonesia." According to the complaint, Turner and other Innospec officials and employees used various "euphemisms" in e-mail communications and in discussions to refer to the bribery scheme.
According to the complaint, Turner "obtained $40,000 in bonuses that were tied to the success of the TEL sales, which were procured through bribery."
According to the SEC release, Turner, without admitting or denying the SEC's allegations, consented to entry of a final judgment requiring him to disgorge $40,000. The release states that no civil penalty will be imposed on Turner "based on, among other things, Turner's extensive and ongoing cooperation in the investigation."
Competitor Sues Innospec
The FCPA does not have a private right of action (although as I explored in this post it would be interesting if a court were faced with this issue today).
However, a company that settles an FCPA enforcement action increasingly faces collateral litigation, most often shareholder derivative claims. If a plaintiff does craft a direct cause of action against the company, it is usually a RICO claim.
As noted in this Richmond Times-Dispatch story, NewMarket Corp.'s civil case against Innospec does not fit the above mold, rather it alleges that Innospec's conduct, as set forth in the DOJ and SEC enforcement actions, violated the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.
The article quotes NewMarket's principal financial officer as saying that the company learned of Innospec's actions after reading the documents released in connection with the March enforcement action. Among other things, the DOJ and SEC alleged that Innospec's bribe payments in Iraq ensured that a field test of a competitor's fuel additive failed. NewMarket claims that the competitor was a subsidiary company Ethyl Petroleum Additives Inc. which now goes by the name Afton Chemical Corp.
Innospec Continues to Be In the Money
In this prior post I highlighted how Innospec was ordered to pay $60,071,613 in disgorgement in the SEC's enforcement action, but because of Innospec's "sworn Statement of Financial Condition" all but $11,200,000 of that disgorgement was waived.
In other words, Innospec got a pass on approximately $50 million in March.
I then noted that Innospec's first quarter financial results were positive and that
"as of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million."
Innospec recently reported its second quarter financial results and it continues to be in the money. As noted in this company release:
"As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million."
The company's President and Chief Executive Officer stated that “Innospec’s second quarter operating results were very strong, with impressive double-digit increases in sales and operating income across all three business segments."
This post discusses recent Innospec news - the SEC enforcement action against an Innospec agent (an individual who previously plead guilty to a DOJ enforcement action - see here) and a former Business Director at the company; a civil suit filed by an Innospec competitor in U.S. District Court in Richmond, Virginia; and how Innospec continues to grow its cash coffers despite receiving a pass on $50 million in fines and penalties in the March enforcement action based on inability to pay.
SEC Enforcement Action Against Turner and Naaman
Last week, the SEC added to Ousama Naaman's legal woes charging him (see here) with civil FCPA anti-bribery violations, knowingly circumventing or knowingly falsifying books and records, and aiding and abetting Innospec's FCPA books and records and internal control violations. According to the SEC release (see here) Naaman, Innospec's agent in Iraq, agreed to disgorge $810,076 plus prejudgment interest of $67,030 and pay a penalty of $438,038 that will be deemed satisfied by his criminal fine. The disgorgement amount represents commissions Naaman received from Innospec "for his role in funneling bribe payments." To my knowledge, the approximate $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.
In the same complaint, the SEC also charged David Turner, the Business Director of Innospec's TEL Group, with the same substantive charges as Naaman. According to the complaint, Turner (a U.K. citizen who left Innospec in June 2009) "actively participated" in Innospec's bribery and kickback schemes in Iraq and "actively participated" in Innospec's bribery scheme in Indonesia.
According to the complaint:
"Turner was aware of the kickback scheme in connection with the Oil for Food Program. At some point in late 2002 or early 2003 Innospec's internal auditors questioned Turner about the nature of the commission payments that were made to Naaman under the U.N. Oil for Food Program. Turner made false statements to the auditors and concealed the fact that the commission payments to Naaman included kickbacks to the Iraqi government in return for Oil for Food contracts. Turner also made false statements when he signed annual-certifications that were provided to auditors up until 2008 where Turner falsely stated that he had complied with Innospec's Code of Ethics incorporating the company's Foreign Corrupt Practices Act policy prohibiting kickbacks and bribery, and that he was unaware of any violations of the Code of Ethics by anyone at Innospec."
Even after the Oil for Food Program was terminated in late 2003, the complaint alleges that "Turner, along with senior officials at Innospec, directed and approved" additional bribe payments to Iraqi officials. In addition, the complaint alleges that "Turner and other Innospec officials directed and authorized payments, through Naaman, to fund lavish trips for Iraqi officials."
As to Indonesia, the complaint alleges that "Turner, along with senior officials at Innospec, authorized and directed the payment of bribes to Indonesian government officials from at least 2000 through 2005, in order to win contracts for Innospec for the sale of TEL to state owned oil and gas companies in Indonesia." According to the complaint, Turner and other Innospec officials and employees used various "euphemisms" in e-mail communications and in discussions to refer to the bribery scheme.
According to the complaint, Turner "obtained $40,000 in bonuses that were tied to the success of the TEL sales, which were procured through bribery."
According to the SEC release, Turner, without admitting or denying the SEC's allegations, consented to entry of a final judgment requiring him to disgorge $40,000. The release states that no civil penalty will be imposed on Turner "based on, among other things, Turner's extensive and ongoing cooperation in the investigation."
Competitor Sues Innospec
The FCPA does not have a private right of action (although as I explored in this post it would be interesting if a court were faced with this issue today).
However, a company that settles an FCPA enforcement action increasingly faces collateral litigation, most often shareholder derivative claims. If a plaintiff does craft a direct cause of action against the company, it is usually a RICO claim.
As noted in this Richmond Times-Dispatch story, NewMarket Corp.'s civil case against Innospec does not fit the above mold, rather it alleges that Innospec's conduct, as set forth in the DOJ and SEC enforcement actions, violated the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.
The article quotes NewMarket's principal financial officer as saying that the company learned of Innospec's actions after reading the documents released in connection with the March enforcement action. Among other things, the DOJ and SEC alleged that Innospec's bribe payments in Iraq ensured that a field test of a competitor's fuel additive failed. NewMarket claims that the competitor was a subsidiary company Ethyl Petroleum Additives Inc. which now goes by the name Afton Chemical Corp.
Innospec Continues to Be In the Money
In this prior post I highlighted how Innospec was ordered to pay $60,071,613 in disgorgement in the SEC's enforcement action, but because of Innospec's "sworn Statement of Financial Condition" all but $11,200,000 of that disgorgement was waived.
In other words, Innospec got a pass on approximately $50 million in March.
I then noted that Innospec's first quarter financial results were positive and that
"as of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million."
Innospec recently reported its second quarter financial results and it continues to be in the money. As noted in this company release:
"As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million."
The company's President and Chief Executive Officer stated that “Innospec’s second quarter operating results were very strong, with impressive double-digit increases in sales and operating income across all three business segments."
Monday, June 28, 2010
Innospec Agent Pleads Guilty
Approximately one year ago, a criminal indictment against Ousama Naaman was unsealed (see here). The indictment charged Naaman, a dual Canadian and Lebanese national, with violating the FCPA and conspiring to violate the FCPA and commit wire fraud, while acting on behalf of a U.S. public chemical company and its subsidiary in connection with kickback payments to the Iraqi government under the United Nations Oil for Food Program. The indictment also charged Naaman with making payments on behalf of the company to Iraqi Ministry of Oil officials.
Since then, Naaman was extradited to the U.S. and the chemical company was identified as Innospec - which resolved its own FCPA enforcement action in March (see here).
As noted in this DOJ release, last Friday Naaman "pleaded guilty ... to a two-count superseding information filed June 24, 2010, charging him with one count of conspiracy to commit wire fraud, violate the Foreign Corrupt Practices Act (FCPA), and falsify the books and records of a U.S. issuer; and one count of violating the FCPA."
According to the release:
"From 2001 to 2003, acting on behalf of Innospec, Naaman offered and paid 10 percent kickbacks to the then Iraqi government in exchange for five contracts under the OFFP. Naaman negotiated the contracts, including a 10 percent increase in the price to cover the kickback, and routed the funds to Iraqi government accounts in the Middle East. Innospec inflated its prices in contracts approved by the OFFP to cover the cost of the kickbacks. Naaman also admitted that from 2004 to 2008, he paid and promised to pay more than $3 million in bribes, in the form of cash, as well as travel, gifts and entertainment, to officials of the Iraqi Ministry of Oil and the Trade Bank of Iraq to secure sales of tetraethyl lead in Iraq, as well as to secure more favorable exchange rates on the contracts. Naaman provided Innospec with false invoices to support the payments, and those invoices were incorporated into the books and records of Innospec."
For additional coverage of the Naaman plea, see here from Christopher Matthews at Main Justice.
In 1998, the FCPA's antibribery provisions were amended to, among other things, broaden the jurisdictional reach of the statute to prohibit "any person" "while in the territory of the U.S." from making improper payments through "use of the mails or any means or instrumentality of interstate commerce" or from doing "any other act in furtherance" of an improper payment. (see 15 USC 78dd-3(a)). "Any person" is generally defined to include any person other than a U.S. national or any business organization organized under the laws of a foreign nation. (see 15 USC 78dd-3(f)).
In other words ... the FCPA ... it isn't just for Americans.
Ousama Naaman found out the hard way.
Other foreign nationals that have been the focus of FCPA enforcement actions include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).
Since then, Naaman was extradited to the U.S. and the chemical company was identified as Innospec - which resolved its own FCPA enforcement action in March (see here).
As noted in this DOJ release, last Friday Naaman "pleaded guilty ... to a two-count superseding information filed June 24, 2010, charging him with one count of conspiracy to commit wire fraud, violate the Foreign Corrupt Practices Act (FCPA), and falsify the books and records of a U.S. issuer; and one count of violating the FCPA."
According to the release:
"From 2001 to 2003, acting on behalf of Innospec, Naaman offered and paid 10 percent kickbacks to the then Iraqi government in exchange for five contracts under the OFFP. Naaman negotiated the contracts, including a 10 percent increase in the price to cover the kickback, and routed the funds to Iraqi government accounts in the Middle East. Innospec inflated its prices in contracts approved by the OFFP to cover the cost of the kickbacks. Naaman also admitted that from 2004 to 2008, he paid and promised to pay more than $3 million in bribes, in the form of cash, as well as travel, gifts and entertainment, to officials of the Iraqi Ministry of Oil and the Trade Bank of Iraq to secure sales of tetraethyl lead in Iraq, as well as to secure more favorable exchange rates on the contracts. Naaman provided Innospec with false invoices to support the payments, and those invoices were incorporated into the books and records of Innospec."
For additional coverage of the Naaman plea, see here from Christopher Matthews at Main Justice.
In 1998, the FCPA's antibribery provisions were amended to, among other things, broaden the jurisdictional reach of the statute to prohibit "any person" "while in the territory of the U.S." from making improper payments through "use of the mails or any means or instrumentality of interstate commerce" or from doing "any other act in furtherance" of an improper payment. (see 15 USC 78dd-3(a)). "Any person" is generally defined to include any person other than a U.S. national or any business organization organized under the laws of a foreign nation. (see 15 USC 78dd-3(f)).
In other words ... the FCPA ... it isn't just for Americans.
Ousama Naaman found out the hard way.
Other foreign nationals that have been the focus of FCPA enforcement actions include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).
Thursday, May 13, 2010
Innospec's Positive Financial Results
In March, Innospec got hit on both sides of the Atlantic (see here) and agreed to pay $40.2 million in combined DOJ/SEC/SFO fines and penalties for violating the Foreign Corrupt Practices Act and other laws.
However, it could have been worse.
The SEC release (see 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 was 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."
In other words, Innospec got a pass on approximately $50 million.
This occured on March 18th.
Last week, Innospec announced (see here) it financial results for the first quarter ended March 31th (i.e. approximately two weeks from March 18th).
The results?
"Total net sales for the quarter were $163.5 million, up 10% from $148.1 million in the corresponding period last year. Net income was $7.4 million, or $0.30 per diluted share, a 16% increase from $6.4 million, or $0.26 per diluted share, a year ago. EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) for the quarter was $15.4 million, compared with $16.0 million a year ago."
"As of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million."
Innospec's President and Chief Executive Officer stated, "we are very pleased with our first quarter operating results ...".
I am a lawyer by training, not a finance professional.
So forgive me, but I am scratching my head over this one.
March 18th - Innospec gets a pass on $50 million in an FCPA case because of its financial condition.
March 31st - Innospec reports positive financial results, including $67.5 in cash and cash equivalents.
However, it could have been worse.
The SEC release (see 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 was 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."
In other words, Innospec got a pass on approximately $50 million.
This occured on March 18th.
Last week, Innospec announced (see here) it financial results for the first quarter ended March 31th (i.e. approximately two weeks from March 18th).
The results?
"Total net sales for the quarter were $163.5 million, up 10% from $148.1 million in the corresponding period last year. Net income was $7.4 million, or $0.30 per diluted share, a 16% increase from $6.4 million, or $0.26 per diluted share, a year ago. EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) for the quarter was $15.4 million, compared with $16.0 million a year ago."
"As of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million."
Innospec's President and Chief Executive Officer stated, "we are very pleased with our first quarter operating results ...".
I am a lawyer by training, not a finance professional.
So forgive me, but I am scratching my head over this one.
March 18th - Innospec gets a pass on $50 million in an FCPA case because of its financial condition.
March 31st - Innospec reports positive financial results, including $67.5 in cash and cash equivalents.
Tuesday, April 6, 2010
Lord Justice Thomas's Innospec Sentencing Remarks
Given the frequency in which U.S. judges seem to be rubber-stamping FCPA settlements - including plea deals agreed to by the DOJ under circumstances which arguably violate the DOJ's own policy as set forth in the US Attorneys' Manual (see here for a prior post), it is refreshing to read Lord Justice Thomas's stern rebuke of the DOJ-SFO's joint settlement in the Innospec matter (see here for more on the Innospec matter).
Lord Justice Thomas (Britain's second most senior criminal judge) concluded that the Director of the SFO "had no power to enter into the arrangements made" to settle the matter and he warned that "no such arrangements should be made again." (See here for Lord Justice Thomas's sentencing remarks).
With the SFO publicly stating on numerous occasions that it seeks to adopt DOJ-like enforcement strategies and procedures and given that the SFO's conduct in the Innospec mater was very "DOJ-like", Lord Justice Thomas's remarks, while heavy on English law, should be more broadly viewed as an indictment of DOJ enforcement strategies as well.
The sentencing remarks begin by providing an interesting glimpse into the "negotiations" between the DOJ and SFO in the Innospec matter - the "first case where a 'global settlement' had been sought in respect of concurrent criminal proceedings in the UK and the US."
The conduct at issue largely centered on Indonesia and Iraq. The sentencing remarks note that "both the SFO and DOJ agreed that the fines and other penalties which might be imposed in the US and the UK might exceed $400m in the US and $150m in the UK."
However because any such amount "would exceed by many times the ability of Innospec to pay" "both the SFO and the DOJ agreed that, in light of Innospec's full admission and full co-operation, they should not seek to impose a penalty which would drive the company out of business."
The sentencing remarks then state:
"In September 2009, when it was anticipated that an acceptable settlement would be reached, discussions began between the SFO and the DOJ about the manner in which the authorities in the US and the SFO should proceed to implement any settlement and divide up the monetary amount to be paid. The discussions took place against the background that it had been agreed that the SFO would have primacy in respect to the Indonesian corruption and the DOJ in respect of the Iraq corruption."
The sentencing remarks note that "the SFO began by suggesting a 50:50 split based upon the fact that the criminality had been orchestrated and arranged from the UK in respect of the corruption in both Iraq and Indonesia."
However, the "DOJ would not accept this," but rather proposed a "methodology that in the result produced a split which was approximately one third to the DOJ, one third to the SFO and one third to the SEC and the OFAC."
As noted in the sentencing remarks, "after much further discussion on 28 January 2010 the SFO agreed to a split that was approximately one third to the DOJ, one third to the SEC and OFAC and one third to the SFO. It was agreed that the DOJ would ask the court to approve a fine of $14.1m with the balance of the US proportion going to the SEC ($11.2m) and OFAC ($2.2m); $12.7m would be the SFO's share."
Lord Justice Thomas next turns to the Innospec-SFO plea (see here) and states that "it became quickly apparent ... that a number of difficult issues was raised by the process adopted."
In his remarks, Lord Justice Thomas cites a paper delivered by Nicholas Purnell QC "The Risk of Abusing A Dominant Position" delivered to the International Bar Association at its New York Conference in June 2009 (see here) which notes, among other things, that newly enacted SFO guidance on "alternative methods to the disposal of criminal investigations by way of negotiated pleas or other resolutions by corporate defendants" may "introduce some unintended risks of abuse."
Lord Justice Thomas next touches upon such issues.
Among other things, he notes that the "question has arisen as to the extent of [the SFO's Director's] powers and duties in the light of the constitutional position of a prosecutor, the role of the courts in the UK and the rules relating to plea agreements in the U.K." Lord Justice Thomas specifically notes that "it is clear" that the "SFO cannot enter into an agreement ... with an offender as to the penalty in respect of the offence charged," but that a reading of the papers submitted in connection with Innospec-SFO plea "suggests that a penalty had in fact been agreed."
In language that all U.S. judges who have rubber-stamped DOJ FCPA settlements (without inquiring into the factual and legal basis for the settlement including whether other charges more accurately fit the crime - see here) should read, Lord Justice Thomas states:
"Principles of transparent and open justice require a court sitting in public itself first to determine by a hearing in open court the extent of the criminal conduct on which the offender has entered the plea and then, on the basis of its determination as to the conduct, the appropriate sentence. It is in the public interest, particularly in relation to the crime of corruption, that ... there may be discussion and agreement as to the basis of plea" and that a court "must rigorously scrutinise in open court in the interests of transparency and good governance the basis of that plea and to see whether it reflects the public interest."
Lord Justice Thomas then states that "those who commit such serious crimes as corruption of senior government officials must not be viewed or treated in any different way to other criminals." (See here, here and here for my prior posts on the increasing and alarming trend of bribery, yet no bribery FCPA prosecutions).
Lord Justice Thomas states that the $12.7m SFO fine is "wholly inadequate as a fine to reflect the criminality displayed by Innospec" and that if it were up to him the fine would have measured in the "tens of millions." Nevertheless, because of Innospec's apparent inability to pay a larger fine, he "reluctantly concluded that, on this occasion, it would neither be just nor fair in the unusual circumstances of this case for this court to impose a penalty greater than the amount allocated to the UK."
Even so, Lord Justice Thomas is stinging in his final remarks.
He notes:
"The court was faced with an agreement made between the DOJ, the SEC, the OFAC and SFO as to the division of the sum these bodies had considered Innospec was able to pay. This was not a matter that received judicial determination in either the UK or the US (save that inherent in the Federal District Court's approval of the plea agreement). As it is the position in both the US and the UK that it is for the court ultimately to determine the sanction to be imposed for the criminal conduct, an agreement between prosecutors as to the division, even if it had been within the power of the Director of the SFO (which as I have explained it was not), cannot be accordance with basic constitutional principles."
Lord Justice Thomas concludes that "the Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again."
He notes that "it is essential for the future that, unless any change is made to the rule of procedure or to the practice direction, it is appreciated this court must and will sentence in the way set out in the law, as that is what the rule of law requires" and that "this applies as much to companies as to individual defendants."
A couple of other interesting tidbits from Lord Justice Thomas's sentencing remarks.
With cross-border investigations and global corruption settlements seemingly becoming a new norm, Lord Justice Thomas's comments on uniform financial penalties also bear mention. He states, "there is every reason for states to adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state." He notes that "if the penalties in one state are lower than in another, business in the state with lower penalties will not be deterred so effectively from engaging in corruption in foreign states, whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states."
Lord Justice Thomas concludes his sentencing remarks with one final dig, a dig aimed at a common feature in all DOJ FCPA pleas, non-prosecution agreements and deferred prosecution agreements - and that is the "don't issue a press release about this unless you first approve it with us" clause.
Lord Justice Thomas notes: "It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes."
*****
A couple of final notes about the SFO's enforcement action against Innospec. Unlike a typical DOJ FCPA charging document, the SFO "names names." In its previous Mabey & Johnson prosecution (see here for a prior post), the SFO specifically named the foreign official recipients of the bribe payments. That trend continues in the SFO's charging documents against Innospec (see here).
Finally, in many cases, FCPA fines and penalties are just one "cost" to a company. While I disagree with the notion that the "costs of getting caught" should somehow factor into the final penalty amount (see here for a prior post), this is a cost that can not be ignored by companies. On this issue, para. 32 of the SFO charging document notes that "at this stage ... Innospec's internal investigation and cooperation with the SFO, DOJ, and SEC globally has cost the Company in excess of US$32 million in costs ..."
Lord Justice Thomas (Britain's second most senior criminal judge) concluded that the Director of the SFO "had no power to enter into the arrangements made" to settle the matter and he warned that "no such arrangements should be made again." (See here for Lord Justice Thomas's sentencing remarks).
With the SFO publicly stating on numerous occasions that it seeks to adopt DOJ-like enforcement strategies and procedures and given that the SFO's conduct in the Innospec mater was very "DOJ-like", Lord Justice Thomas's remarks, while heavy on English law, should be more broadly viewed as an indictment of DOJ enforcement strategies as well.
The sentencing remarks begin by providing an interesting glimpse into the "negotiations" between the DOJ and SFO in the Innospec matter - the "first case where a 'global settlement' had been sought in respect of concurrent criminal proceedings in the UK and the US."
The conduct at issue largely centered on Indonesia and Iraq. The sentencing remarks note that "both the SFO and DOJ agreed that the fines and other penalties which might be imposed in the US and the UK might exceed $400m in the US and $150m in the UK."
However because any such amount "would exceed by many times the ability of Innospec to pay" "both the SFO and the DOJ agreed that, in light of Innospec's full admission and full co-operation, they should not seek to impose a penalty which would drive the company out of business."
The sentencing remarks then state:
"In September 2009, when it was anticipated that an acceptable settlement would be reached, discussions began between the SFO and the DOJ about the manner in which the authorities in the US and the SFO should proceed to implement any settlement and divide up the monetary amount to be paid. The discussions took place against the background that it had been agreed that the SFO would have primacy in respect to the Indonesian corruption and the DOJ in respect of the Iraq corruption."
The sentencing remarks note that "the SFO began by suggesting a 50:50 split based upon the fact that the criminality had been orchestrated and arranged from the UK in respect of the corruption in both Iraq and Indonesia."
However, the "DOJ would not accept this," but rather proposed a "methodology that in the result produced a split which was approximately one third to the DOJ, one third to the SFO and one third to the SEC and the OFAC."
As noted in the sentencing remarks, "after much further discussion on 28 January 2010 the SFO agreed to a split that was approximately one third to the DOJ, one third to the SEC and OFAC and one third to the SFO. It was agreed that the DOJ would ask the court to approve a fine of $14.1m with the balance of the US proportion going to the SEC ($11.2m) and OFAC ($2.2m); $12.7m would be the SFO's share."
Lord Justice Thomas next turns to the Innospec-SFO plea (see here) and states that "it became quickly apparent ... that a number of difficult issues was raised by the process adopted."
In his remarks, Lord Justice Thomas cites a paper delivered by Nicholas Purnell QC "The Risk of Abusing A Dominant Position" delivered to the International Bar Association at its New York Conference in June 2009 (see here) which notes, among other things, that newly enacted SFO guidance on "alternative methods to the disposal of criminal investigations by way of negotiated pleas or other resolutions by corporate defendants" may "introduce some unintended risks of abuse."
Lord Justice Thomas next touches upon such issues.
Among other things, he notes that the "question has arisen as to the extent of [the SFO's Director's] powers and duties in the light of the constitutional position of a prosecutor, the role of the courts in the UK and the rules relating to plea agreements in the U.K." Lord Justice Thomas specifically notes that "it is clear" that the "SFO cannot enter into an agreement ... with an offender as to the penalty in respect of the offence charged," but that a reading of the papers submitted in connection with Innospec-SFO plea "suggests that a penalty had in fact been agreed."
In language that all U.S. judges who have rubber-stamped DOJ FCPA settlements (without inquiring into the factual and legal basis for the settlement including whether other charges more accurately fit the crime - see here) should read, Lord Justice Thomas states:
"Principles of transparent and open justice require a court sitting in public itself first to determine by a hearing in open court the extent of the criminal conduct on which the offender has entered the plea and then, on the basis of its determination as to the conduct, the appropriate sentence. It is in the public interest, particularly in relation to the crime of corruption, that ... there may be discussion and agreement as to the basis of plea" and that a court "must rigorously scrutinise in open court in the interests of transparency and good governance the basis of that plea and to see whether it reflects the public interest."
Lord Justice Thomas then states that "those who commit such serious crimes as corruption of senior government officials must not be viewed or treated in any different way to other criminals." (See here, here and here for my prior posts on the increasing and alarming trend of bribery, yet no bribery FCPA prosecutions).
Lord Justice Thomas states that the $12.7m SFO fine is "wholly inadequate as a fine to reflect the criminality displayed by Innospec" and that if it were up to him the fine would have measured in the "tens of millions." Nevertheless, because of Innospec's apparent inability to pay a larger fine, he "reluctantly concluded that, on this occasion, it would neither be just nor fair in the unusual circumstances of this case for this court to impose a penalty greater than the amount allocated to the UK."
Even so, Lord Justice Thomas is stinging in his final remarks.
He notes:
"The court was faced with an agreement made between the DOJ, the SEC, the OFAC and SFO as to the division of the sum these bodies had considered Innospec was able to pay. This was not a matter that received judicial determination in either the UK or the US (save that inherent in the Federal District Court's approval of the plea agreement). As it is the position in both the US and the UK that it is for the court ultimately to determine the sanction to be imposed for the criminal conduct, an agreement between prosecutors as to the division, even if it had been within the power of the Director of the SFO (which as I have explained it was not), cannot be accordance with basic constitutional principles."
Lord Justice Thomas concludes that "the Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again."
He notes that "it is essential for the future that, unless any change is made to the rule of procedure or to the practice direction, it is appreciated this court must and will sentence in the way set out in the law, as that is what the rule of law requires" and that "this applies as much to companies as to individual defendants."
A couple of other interesting tidbits from Lord Justice Thomas's sentencing remarks.
With cross-border investigations and global corruption settlements seemingly becoming a new norm, Lord Justice Thomas's comments on uniform financial penalties also bear mention. He states, "there is every reason for states to adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state." He notes that "if the penalties in one state are lower than in another, business in the state with lower penalties will not be deterred so effectively from engaging in corruption in foreign states, whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states."
Lord Justice Thomas concludes his sentencing remarks with one final dig, a dig aimed at a common feature in all DOJ FCPA pleas, non-prosecution agreements and deferred prosecution agreements - and that is the "don't issue a press release about this unless you first approve it with us" clause.
Lord Justice Thomas notes: "It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes."
*****
A couple of final notes about the SFO's enforcement action against Innospec. Unlike a typical DOJ FCPA charging document, the SFO "names names." In its previous Mabey & Johnson prosecution (see here for a prior post), the SFO specifically named the foreign official recipients of the bribe payments. That trend continues in the SFO's charging documents against Innospec (see here).
Finally, in many cases, FCPA fines and penalties are just one "cost" to a company. While I disagree with the notion that the "costs of getting caught" should somehow factor into the final penalty amount (see here for a prior post), this is a cost that can not be ignored by companies. On this issue, para. 32 of the SFO charging document notes that "at this stage ... Innospec's internal investigation and cooperation with the SFO, DOJ, and SEC globally has cost the Company in excess of US$32 million in costs ..."
Friday, March 19, 2010
Innospec Gets Hit on Both Sides of the Atlantic
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."
DOJ
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.
SEC
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.
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."
DOJ
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.
SEC
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.
Thursday, February 25, 2010
Tetraethyl Lead v. Fighter Jets
The folks at Innospec Inc. may be wishing it sold things like fighter jets in places like Saudi Arabia than what it actually sells - things like Tetraethyl Lead in places like Indonesia. When bribery and corruption take place in the former instance, there is no exposure for bribery and corruption (see here), but when it takes place in the later instance, there is exposure for bribery and corruption.
Today, the U.K. SFO announced (here) that "Innospec Limited, a UK subsidiary of Innospec Inc., a U.S. NASDAQ listed company, has appeared before [a City of Westminster Magistrates' Court] in response to a summons from the court on application from the Serious Fraud Office alleging conspiracy to corrupt ...". According to the release, the case "concerns bribery on a significant scale by Innospec and its agents in Indonesia" and the charges relate to Innospec Limited conspiring "with certain of its directors, executives, employees and agents to give or agree to give corrupt payments ... to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Tetraethyl Lead ..." According to the release, "details of the alleged offense" will be available on March 4, 2010.
This is perhaps just the first of many hammers to drop on Innospec. See here for its recent disclosure.
Today, the U.K. SFO announced (here) that "Innospec Limited, a UK subsidiary of Innospec Inc., a U.S. NASDAQ listed company, has appeared before [a City of Westminster Magistrates' Court] in response to a summons from the court on application from the Serious Fraud Office alleging conspiracy to corrupt ...". According to the release, the case "concerns bribery on a significant scale by Innospec and its agents in Indonesia" and the charges relate to Innospec Limited conspiring "with certain of its directors, executives, employees and agents to give or agree to give corrupt payments ... to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Tetraethyl Lead ..." According to the release, "details of the alleged offense" will be available on March 4, 2010.
This is perhaps just the first of many hammers to drop on Innospec. See here for its recent disclosure.
Friday, February 19, 2010
Friday Roundup
Some FCPA news to pass along on this Friday.
SFO Defends BAE Settlement
Richard Alderman, the Director of the U.K. Serious Fraud Office ("SFO") recently defended the SFO settlement with BAE (see here).
Among other things, Alderman argued that any suggestion BAE "got off lightly" ignores "London's contribution in enabling the U.S. to impose a $400 million fine."
Point taken.
Alderman then says that the DOJ "would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ]."
Point not taken.
What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?
What is achieved when you charge BAE's agent (presumably based on evidence that the following did occur) for "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc" and then a few days later withdraw the charges and state "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts."
As to this issue, Alderman stated that "the public interet lay in drawing a line under the whole investigation."
The article notes that "two campaigning groups said they would launch a legal challenge to Mr. Alderman's decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE's network of hundreds of agents on four continents." If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.
For prior posts on BAE, includng the DOJ's non-bribery, bribery allegations see here.
Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.
The Pipes May Soon Burst
Ocassionaly, I have covered "cases" reportedly in the FCPA pipeline (see here). Set forth below is some "pre-news" about some coming attractions.
Given the above, it seems fitting to start with KBR, Inc.
KBR, Inc.
Here's what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.
Pride International Inc.
Earlier this week, Pride disclosed (here) that:
"it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {...] The accrual in the fourth quarter 2009 represents the company's best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual."
For prior posts about Pride see here.
Innospec, Inc.
Here is what Innospec had to say about its on-going FCPA matter:
""We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings."
Alcatel-Lucent
Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:
"As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent's internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term."
For the trials and tribulations on both sides of this corporate hyphen see here and here.
Thirsty for more? OK, here is the last one.
Maxwell Technologies Inc.
Here is what the company's CEO had to say about its $9.3 million accural for a potential FCPA settlement:
"Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department."
See also here.
*****
A good weekend to all.
SFO Defends BAE Settlement
Richard Alderman, the Director of the U.K. Serious Fraud Office ("SFO") recently defended the SFO settlement with BAE (see here).
Among other things, Alderman argued that any suggestion BAE "got off lightly" ignores "London's contribution in enabling the U.S. to impose a $400 million fine."
Point taken.
Alderman then says that the DOJ "would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ]."
Point not taken.
What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?
What is achieved when you charge BAE's agent (presumably based on evidence that the following did occur) for "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc" and then a few days later withdraw the charges and state "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts."
As to this issue, Alderman stated that "the public interet lay in drawing a line under the whole investigation."
The article notes that "two campaigning groups said they would launch a legal challenge to Mr. Alderman's decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE's network of hundreds of agents on four continents." If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.
For prior posts on BAE, includng the DOJ's non-bribery, bribery allegations see here.
Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.
The Pipes May Soon Burst
Ocassionaly, I have covered "cases" reportedly in the FCPA pipeline (see here). Set forth below is some "pre-news" about some coming attractions.
Given the above, it seems fitting to start with KBR, Inc.
KBR, Inc.
Here's what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.
Pride International Inc.
Earlier this week, Pride disclosed (here) that:
"it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {...] The accrual in the fourth quarter 2009 represents the company's best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual."
For prior posts about Pride see here.
Innospec, Inc.
Here is what Innospec had to say about its on-going FCPA matter:
""We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings."
Alcatel-Lucent
Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:
"As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent's internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term."
For the trials and tribulations on both sides of this corporate hyphen see here and here.
Thirsty for more? OK, here is the last one.
Maxwell Technologies Inc.
Here is what the company's CEO had to say about its $9.3 million accural for a potential FCPA settlement:
"Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department."
See also here.
*****
A good weekend to all.
Thursday, November 5, 2009
The Pipeline
It's been a slow last few months in FCPA enforcement land.
Excluding individual pleas or enforcement actions, the last FCPA enforcement action against a corporation (non-Iraqi Oil for Food) was way back in July against Control Components, Inc. (see here).
We keep hearing about those 100+ FCPA investigations in the pipeline, so let's take a look at a few of those cases. In fact, its been a very active week on the FCPA disclosure front as the following companies' SEC filings evidence: RAE Systems, Inc.; Global Crossing Limited; Maxwell Technologies, Inc; and Innospec Inc.
Set forth below are the relevant disclosures.
All sorts of stuff in these disclosures which evidence that no industry is immune from FCPA scrutiny and no one country is FCPA risk free.
The companies involved are in the following industries: (i) a developer and manufacturer of rapidly deployable chemical and radiation detection monitors and multi-sensor networks; (ii) telecommunications solutions; (iii) energy storage and power delivery solutions; and (iv) specialty chemicals.
The conduct at issue took place in the following countries: China, Latin American countries, and Iraq.
The conduct at issue involved/arose because of M&A activity and use of foreign sales agents.
And for good measure one disclosure references a "tag-along" investigation in the U.K.
RAE Systems, Inc. (see here)
"The company is actively engaged in discussions with the Department of Justice and the Securities and Exchange Commission to settle the outstanding joint investigation into the company's alleged violations of the Foreign Corrupt Practices Act (FCPA). Although no assurances can be given as to whether the matter will settle or the amount of any settlement, the company booked an accrual of $3.5 million in the third quarter 2009 relating to this potential settlement."
***
"During the quarter, to ensure our long-term success, we furthered initiatives to run the company more efficiently, particularly in China," said Robert Chen, president and CEO of RAE Systems. "Globally, we are prioritizing cost management, business controls and cash generation. For the nine months ended September 30, 2009, we increased our cash balance by $1.3 million to $16.2 million. In China, we installed a new management team; instituted mandatory, ongoing, FCPA compliance training; and began consolidating certain operations."
Global Crossing Limited (see here p. 24, 40)
"We are subject to the Foreign Corrupt Practices Act (“FCPA”), which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although we have policies and procedures designed to ensure that the Company, its employees and agents comply with the FCPA, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations. In May 2007, we acquired Impsat, which was also subject to the FCPA prior to the acquisition. As described in “Additional Information Regarding Impsat” in Item 4 below, the facts developed in our review of certain payments made by Impsat employees to government officials and foreign government proceedings concerning Impsat personnel show that: first, although Impsat had policies in place prior to the May 9, 2007 acquisition relating to FCPA compliance and contracting with third-party agents, those policies were not implemented; second, Impsat’s documentation relating to third-party agents and certain government contracts was not sufficient; and third, the corporate environment at Impsat did not reflect a sufficient focus by senior management on promotion of, and compliance by the Company with, these policies. We conducted a review of certain agents, government contracts, and potential unauthorized payments in Latin American countries. That review is now substantially complete. We have also brought these matters to the attention of government authorities in the U.S, including the Securities and Exchange Commission, which has commenced a preliminary inquiry into the matter. We are cooperating with that inquiry which may result in legal action. At this point we are unable to predict the duration, scope or result of that inquiry. Failure to comply with the FCPA and other laws governing the conduct of business with government entities (including local laws) could lead to criminal and civil penalties and other remedial measures (including further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities could have an adverse impact on our business, financial condition and results of operations. Furthermore, any remediation measures we take in response to such potential or alleged violations by Impsat or other acquired businesses of the FCPA or other anti-corruption laws, including any necessary changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, may adversely impact our business, financial condition and results of operations." (see additional information on pg. 39 of the filing).
Maxwell Technologies, Inc. (see here)
"As reported previously, the company is conducting an internal review of payments made to an independent sales agent in China in connection with sales of high voltage capacitor products produced by Maxwell’s Swiss subsidiary. The company believes that the amount of the payments was immaterial in all periods involved. However, because the company’s international operations make it subject to the U.S. Foreign Corrupt Practices Act (FCPA), management is conducting further review to determine how these payments should be treated for FCPA purposes. The internal review has not been completed, and the company is voluntarily sharing information related to the review with the Securities and Exchange Commission and Department of Justice and has provided documents as requested by the SEC in connection with its review of this matter."
Innospec Inc. (see here)
"On February 7, 2006, the Securities and Exchange Commission (“SEC”) notified the Company that it had commenced an investigation to determine whether any violations of law had occurred in connection with certain transactions conducted by or involving the Company, including those conducted by its wholly owned indirect Swiss subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), under the United Nations Oil for Food Program (“OFFP”) between June 1, 1999 and December 31, 2003. As part of its investigation, the SEC issued a subpoena requiring the production of certain documents, including documents relating to these transactions, by the Company and Alcor. Upon receipt of the SEC’s notification and initial subpoena, the Company undertook a review of its participation in the OFFP.
On October 10, 2007 and November 1, 2007, the SEC served two additional subpoenas on the Company. These additional subpoenas required the production of documents relating both to the OFFP, and also to transactions conducted by the Company or its subsidiaries with state owned or state controlled entities between June 1, 1999 and the date of such subpoenas, concerning the use of foreign agents and the possibility of extra-contractual payments to secure business with foreign governmental entities in the context of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws. In a coordinated investigation, the Company was also notified by the U.S. Department of Justice (“DOJ”) regarding the possibility of violations by the Company or its subsidiaries arising under other laws stemming from matters covered by the SEC investigation as well as certain preliminary inquiries regarding compliance with anti-trust laws applicable to the U.S. and international tetra ethyl lead markets. The subjects into which the SEC and DOJ have inquired include areas that concern certain former and current executives of the Company, including our former CEO, who resigned on March 20, 2009. The Company, and its officers and directors are cooperating with the SEC and DOJ investigations.
On February 19, 2008, the Board of Directors of the Company formed a committee comprised of the chairmen of the Board, the Audit Committee and the Nominating and Governance Committee, all of whom were independent directors. (The chairman of the Nominating and Governance Committee retired as a director of the Company effective May 6, 2008, but his services were retained in an independent capacity as a member of the committee until October 1, 2009 when he resigned. Mr. Haubold did not resign as a result of any dispute or disagreement with the Company or the committee). External counsel to the Company, reporting to the committee has, on behalf of the committee, conducted and will continue to conduct an investigation into the circumstances giving rise to the SEC and DOJ investigations. External counsel reports directly to the committee and assists in connection with communications and interactions with the SEC and DOJ.
On March 5, 2008, a letter was received by the Company from the DOJ in which a request for a wider and more detailed range of documents was made. A further letter was received from the DOJ on June 13, 2009 which contained requests for information made by the U.S. Office of Foreign Assets Control (“OFAC”). In addition to the voluntary disclosure made in relation to the Bycosin disposal OFAC is inquiring into business the Company may have conducted in countries in respect of which there are U.S. laws and regulations that restrict trade.
On July 31, 2009, the DOJ issued a press release in which it disclosed the arrest of an individual and the unsealing of an August 7, 2008 indictment in the U.S. District Court for the District of Columbia against the individual for certain FCPA violations relating to his alleged participation in an eight-year conspiracy to defraud the OFFP and to bribe Iraqi government officials on behalf of a publicly traded U.S. chemical company in connection with the sale of a chemical additive used in the refining of leaded fuel. This individual is the Company’s former agent for Iraq and certain other markets and the Company understands the indictment to relate to the matters that are the subject of the OFFP and related FCPA investigations of the Company.
Separately, on May 21, 2008, the United Kingdom’s Serious Fraud Office (“SFO”) notified Innospec Limited, a wholly owned subsidiary of the Company, that it had commenced an investigation into certain contracts involving British companies under the OFFP. As part of this investigation, the SFO has asked the Company to produce documents in respect of the Company’s participation in the OFFP between January 1, 1996 and December 31, 2003. Following receipt of the SFO’s notice the Company has instructed external legal counsel to advise and assist in relation to the investigation and the Company and its directors and officers intend to cooperate with the SFO. On October 16, 2008, the Company was further notified that the scope of the SFO’s investigation would extend to matters relating to potential bribery involving overseas commercial agents that are already in the large part the subject of the ongoing DOJ and SEC investigations. This investigation by the SFO similarly includes areas that concern certain former and current executives of the Company.
The Company and its officers and directors intend to continue to cooperate with the SEC, DOJ and SFO.
The outcome of these investigations remains uncertain to the Company. Discussions with the SEC, DOJ and SFO are ongoing in an effort to resolve these investigations, but whether agreement can be reached, and on what terms, is uncertain. On the facts available to us we are currently unable to determine the amount, if any, of probable disgorgement, penalties and/or fines that we may be subject to. The amount of any disgorgements, penalties and/or fines that the Company could face depends on a number of eventual factors which are not currently known to the Company or have not yet been resolved with the relevant government authorities, including findings by relevant authorities regarding the amount, nature and scope of any improper payments, the amount of any pecuniary gain involved, the Company’s ability to pay, and the level of cooperation provided to government authorities during the investigations. For accounting purposes, based on a potential settlement range of $18.3 million to $63.4 million in connection with the ongoing discussions with government authorities, we have recorded in the third quarter of 2009 an $18.3 million accrual for potential global settlement of these investigations as required under U.S. GAAP."
The former agent referenced in Innospec's disclosure is presumably Ousama Naaman (see here).
Excluding individual pleas or enforcement actions, the last FCPA enforcement action against a corporation (non-Iraqi Oil for Food) was way back in July against Control Components, Inc. (see here).
We keep hearing about those 100+ FCPA investigations in the pipeline, so let's take a look at a few of those cases. In fact, its been a very active week on the FCPA disclosure front as the following companies' SEC filings evidence: RAE Systems, Inc.; Global Crossing Limited; Maxwell Technologies, Inc; and Innospec Inc.
Set forth below are the relevant disclosures.
All sorts of stuff in these disclosures which evidence that no industry is immune from FCPA scrutiny and no one country is FCPA risk free.
The companies involved are in the following industries: (i) a developer and manufacturer of rapidly deployable chemical and radiation detection monitors and multi-sensor networks; (ii) telecommunications solutions; (iii) energy storage and power delivery solutions; and (iv) specialty chemicals.
The conduct at issue took place in the following countries: China, Latin American countries, and Iraq.
The conduct at issue involved/arose because of M&A activity and use of foreign sales agents.
And for good measure one disclosure references a "tag-along" investigation in the U.K.
RAE Systems, Inc. (see here)
"The company is actively engaged in discussions with the Department of Justice and the Securities and Exchange Commission to settle the outstanding joint investigation into the company's alleged violations of the Foreign Corrupt Practices Act (FCPA). Although no assurances can be given as to whether the matter will settle or the amount of any settlement, the company booked an accrual of $3.5 million in the third quarter 2009 relating to this potential settlement."
***
"During the quarter, to ensure our long-term success, we furthered initiatives to run the company more efficiently, particularly in China," said Robert Chen, president and CEO of RAE Systems. "Globally, we are prioritizing cost management, business controls and cash generation. For the nine months ended September 30, 2009, we increased our cash balance by $1.3 million to $16.2 million. In China, we installed a new management team; instituted mandatory, ongoing, FCPA compliance training; and began consolidating certain operations."
Global Crossing Limited (see here p. 24, 40)
"We are subject to the Foreign Corrupt Practices Act (“FCPA”), which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although we have policies and procedures designed to ensure that the Company, its employees and agents comply with the FCPA, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations. In May 2007, we acquired Impsat, which was also subject to the FCPA prior to the acquisition. As described in “Additional Information Regarding Impsat” in Item 4 below, the facts developed in our review of certain payments made by Impsat employees to government officials and foreign government proceedings concerning Impsat personnel show that: first, although Impsat had policies in place prior to the May 9, 2007 acquisition relating to FCPA compliance and contracting with third-party agents, those policies were not implemented; second, Impsat’s documentation relating to third-party agents and certain government contracts was not sufficient; and third, the corporate environment at Impsat did not reflect a sufficient focus by senior management on promotion of, and compliance by the Company with, these policies. We conducted a review of certain agents, government contracts, and potential unauthorized payments in Latin American countries. That review is now substantially complete. We have also brought these matters to the attention of government authorities in the U.S, including the Securities and Exchange Commission, which has commenced a preliminary inquiry into the matter. We are cooperating with that inquiry which may result in legal action. At this point we are unable to predict the duration, scope or result of that inquiry. Failure to comply with the FCPA and other laws governing the conduct of business with government entities (including local laws) could lead to criminal and civil penalties and other remedial measures (including further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities could have an adverse impact on our business, financial condition and results of operations. Furthermore, any remediation measures we take in response to such potential or alleged violations by Impsat or other acquired businesses of the FCPA or other anti-corruption laws, including any necessary changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, may adversely impact our business, financial condition and results of operations." (see additional information on pg. 39 of the filing).
Maxwell Technologies, Inc. (see here)
"As reported previously, the company is conducting an internal review of payments made to an independent sales agent in China in connection with sales of high voltage capacitor products produced by Maxwell’s Swiss subsidiary. The company believes that the amount of the payments was immaterial in all periods involved. However, because the company’s international operations make it subject to the U.S. Foreign Corrupt Practices Act (FCPA), management is conducting further review to determine how these payments should be treated for FCPA purposes. The internal review has not been completed, and the company is voluntarily sharing information related to the review with the Securities and Exchange Commission and Department of Justice and has provided documents as requested by the SEC in connection with its review of this matter."
Innospec Inc. (see here)
"On February 7, 2006, the Securities and Exchange Commission (“SEC”) notified the Company that it had commenced an investigation to determine whether any violations of law had occurred in connection with certain transactions conducted by or involving the Company, including those conducted by its wholly owned indirect Swiss subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), under the United Nations Oil for Food Program (“OFFP”) between June 1, 1999 and December 31, 2003. As part of its investigation, the SEC issued a subpoena requiring the production of certain documents, including documents relating to these transactions, by the Company and Alcor. Upon receipt of the SEC’s notification and initial subpoena, the Company undertook a review of its participation in the OFFP.
On October 10, 2007 and November 1, 2007, the SEC served two additional subpoenas on the Company. These additional subpoenas required the production of documents relating both to the OFFP, and also to transactions conducted by the Company or its subsidiaries with state owned or state controlled entities between June 1, 1999 and the date of such subpoenas, concerning the use of foreign agents and the possibility of extra-contractual payments to secure business with foreign governmental entities in the context of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws. In a coordinated investigation, the Company was also notified by the U.S. Department of Justice (“DOJ”) regarding the possibility of violations by the Company or its subsidiaries arising under other laws stemming from matters covered by the SEC investigation as well as certain preliminary inquiries regarding compliance with anti-trust laws applicable to the U.S. and international tetra ethyl lead markets. The subjects into which the SEC and DOJ have inquired include areas that concern certain former and current executives of the Company, including our former CEO, who resigned on March 20, 2009. The Company, and its officers and directors are cooperating with the SEC and DOJ investigations.
On February 19, 2008, the Board of Directors of the Company formed a committee comprised of the chairmen of the Board, the Audit Committee and the Nominating and Governance Committee, all of whom were independent directors. (The chairman of the Nominating and Governance Committee retired as a director of the Company effective May 6, 2008, but his services were retained in an independent capacity as a member of the committee until October 1, 2009 when he resigned. Mr. Haubold did not resign as a result of any dispute or disagreement with the Company or the committee). External counsel to the Company, reporting to the committee has, on behalf of the committee, conducted and will continue to conduct an investigation into the circumstances giving rise to the SEC and DOJ investigations. External counsel reports directly to the committee and assists in connection with communications and interactions with the SEC and DOJ.
On March 5, 2008, a letter was received by the Company from the DOJ in which a request for a wider and more detailed range of documents was made. A further letter was received from the DOJ on June 13, 2009 which contained requests for information made by the U.S. Office of Foreign Assets Control (“OFAC”). In addition to the voluntary disclosure made in relation to the Bycosin disposal OFAC is inquiring into business the Company may have conducted in countries in respect of which there are U.S. laws and regulations that restrict trade.
On July 31, 2009, the DOJ issued a press release in which it disclosed the arrest of an individual and the unsealing of an August 7, 2008 indictment in the U.S. District Court for the District of Columbia against the individual for certain FCPA violations relating to his alleged participation in an eight-year conspiracy to defraud the OFFP and to bribe Iraqi government officials on behalf of a publicly traded U.S. chemical company in connection with the sale of a chemical additive used in the refining of leaded fuel. This individual is the Company’s former agent for Iraq and certain other markets and the Company understands the indictment to relate to the matters that are the subject of the OFFP and related FCPA investigations of the Company.
Separately, on May 21, 2008, the United Kingdom’s Serious Fraud Office (“SFO”) notified Innospec Limited, a wholly owned subsidiary of the Company, that it had commenced an investigation into certain contracts involving British companies under the OFFP. As part of this investigation, the SFO has asked the Company to produce documents in respect of the Company’s participation in the OFFP between January 1, 1996 and December 31, 2003. Following receipt of the SFO’s notice the Company has instructed external legal counsel to advise and assist in relation to the investigation and the Company and its directors and officers intend to cooperate with the SFO. On October 16, 2008, the Company was further notified that the scope of the SFO’s investigation would extend to matters relating to potential bribery involving overseas commercial agents that are already in the large part the subject of the ongoing DOJ and SEC investigations. This investigation by the SFO similarly includes areas that concern certain former and current executives of the Company.
The Company and its officers and directors intend to continue to cooperate with the SEC, DOJ and SFO.
The outcome of these investigations remains uncertain to the Company. Discussions with the SEC, DOJ and SFO are ongoing in an effort to resolve these investigations, but whether agreement can be reached, and on what terms, is uncertain. On the facts available to us we are currently unable to determine the amount, if any, of probable disgorgement, penalties and/or fines that we may be subject to. The amount of any disgorgements, penalties and/or fines that the Company could face depends on a number of eventual factors which are not currently known to the Company or have not yet been resolved with the relevant government authorities, including findings by relevant authorities regarding the amount, nature and scope of any improper payments, the amount of any pecuniary gain involved, the Company’s ability to pay, and the level of cooperation provided to government authorities during the investigations. For accounting purposes, based on a potential settlement range of $18.3 million to $63.4 million in connection with the ongoing discussions with government authorities, we have recorded in the third quarter of 2009 an $18.3 million accrual for potential global settlement of these investigations as required under U.S. GAAP."
The former agent referenced in Innospec's disclosure is presumably Ousama Naaman (see here).
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