SEC Charges Two Individuals for Roles in Innospec FCPA Scheme
FOR IMMEDIATE RELEASE
"The illegal conduct by Turner and Naaman enabled Innospec to improperly obtain contracts from which the company reaped millions of dollars in illicit profits."
Chief of SEC's FCPA Enforcement Unit
Washington, D.C., Aug. 5, 2010 — The Securities and Exchange Commission today charged a former business director at Innospec, Inc., and the company's third-party agent in Iraq with violating the Foreign Corrupt Practices Act (FCPA) by engaging in widespread bribery of Iraqi government officials to land contracts under the United Nations Oil-for-Food Program and continue selling a fuel additive to Iraq after the program ended. Bribes also were paid to Indonesian officials to enable Innospec to sell the fuel additive to Indonesian state-owned oil companies.
The SEC, which charged Innospec earlier this year, alleges that David P. Turner was among senior Innospec officials who directed and approved more than $9.2 million in bribery payments either paid or promised to officials in Iraq or Indonesia. Bribes to Iraqi officials were arranged by Innospec's agent in Iraq, Ousama M. Naaman, whose commission payments included kickbacks to the Iraqi government in return for the Oil-for-Food contracts.
Both Turner and Naaman agreed to settle the SEC's charges against them.
"The illegal conduct by Turner and Naaman enabled Innospec to improperly obtain contracts from which the company reaped millions of dollars in illicit profits," said Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit.
According to the SEC's complaint, filed in the U.S. District Court for the District of Columbia, Turner and Naaman played key roles in Innospec's bribery activities in Iraq, which began with the company's participation in the U.N. Oil-for-Food Program in 2001 and extended until at least 2008. Turner also actively participated in the bribery scheme in Indonesia, which began as early as 2000 and continued until 2005. Innospec, a manufacturer and distributor of fuel additives and specialty chemicals, made illicit payments of more than $6.3 million and promised an additional $2.8 million in bribes to government officials in Iraq and Indonesia to sell tetraethyl lead (TEL). The contracts that Innospec obtained in exchange for the bribes were worth approximately $176 million.
The SEC alleges that Naaman paid kickbacks to Iraq on Innospec's behalf so that the company could obtain five Oil-for-Food Program contracts for the sale of TEL to the Iraqi Ministry of Oil and its component oil refineries. Naaman aided Innospec in obtaining the Oil-for-Food contracts by paying kickbacks equaling 10 percent of the contract value on three of the contracts. When the Oil-for-Food Program ended shortly before Innospec was to pay promised kickbacks on the two remaining contracts, Innospec kept the promised payments as part of its profit. When Innospec's internal auditors questioned Turner about the nature of the commission payments that were made to Naaman under the 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 contracts.
The SEC alleges that after the Oil-for-Food Program ended in late 2003, Turner and Naaman continued to pay bribes to Iraqi officials in order to secure TEL business contracts from Iraq. In one e-mail, Naaman informed Turner and other management that Iraqi officials were demanding a 2 percent kickback related to one TEL order. Naaman stated, "We are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards." In his response to the e-mail, Turner confirmed that the requested kickback would be paid through an additional 2 percent "commission" to Naaman.
According to the SEC's complaint, Turner and senior Innospec officials also directed Naaman to pay a bribe of $155,000 to Iraqi officials to ensure the failure of a 2006 field trial test of MMT, a fuel product manufactured by a competitor of Innospec. Turner and other Innospec officials also authorized payments, through Naaman, to fund lavish trips for Iraqi officials, including the seven-day honeymoon of one official. Innospec officials and Turner also arranged for Naaman to pay thousands of dollars in cash to Iraqi officials for "pocket money" on trips funded by Innospec.
The SEC's complaint also alleges that Turner and senior Innospec officials authorized and directed the payment of bribes to Indonesian government officials to win contracts for Innospec. More than $2.8 million in bribes was funneled through an Indonesian agent. These involved bribes paid annually to a senior official at BP Migas, "special commissions" paid to a Swiss account, and a "one off" payment of $300,000. On one occasion, a managing director of Innospec informed Turner that Innospec had provided payments to its Indonesian agent to fund the purchase of a Mercedes for a Pertamina official.
Turner agreed to disgorge $40,000 to settle the SEC's charges against him. Despite facing significant financial penalties, none were sought against him based on, among other things, his extensive and ongoing cooperation in the investigation. Naaman agreed to disgorge $810,076 plus prejudgment interest of $67,030, and pay a penalty of $438,038 that will be deemed satisfied by a criminal order requiring him to pay a criminal fine that is at least equal to the civil penalty amount. Naaman cooperated in the investigation after his extradition to the United States.
Without admitting or denying the SEC's allegations, Turner and Naaman also consented to the entry of final judgments permanently enjoining them from violating Exchange Act Sections 30A and 13(b)(5) and Rule 13b2-1 thereunder, and from aiding and abetting Innospec's violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B), and as to Turner, from violating Rule 13b2-2. The proposed settlements are subject to court approval.
The SEC appreciates the assistance of the U.S. Department of Justice's Fraud Section, the Federal Bureau of Investigation, and the U.K.'s SFO in this matter. Tracy L. Price and Denise Y. Hansberry conducted the SEC's investigation, which is continuing.
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For more information about this enforcement action, contact:
Cheryl J. Scarboro
Chief, Foreign Corrupt Practices Unit in SEC's Division of Enforcement
Tracy L. Price
Assistant Director, Foreign Corrupt Practices Act Unit in SEC's Division of Enforcement