SEC Charges Innospec for Illegal Bribes to Iraqi and Indonesian Officials
FOR IMMEDIATE RELEASE
2010-40
Washington, D.C., March 18, 2010 — The Securities and Exchange Commission today charged Innospec, Inc. with violating the Foreign Corrupt Practices Act (FCPA) by engaging in widespread bribery of foreign government officials in Iraq and Indonesia to obtain and retain business.
Innospec, a specialty chemical company incorporated in Delaware with principal offices in the U.S. and United Kingdom, agreed to a $40.2 million global settlement with the SEC, the U.S. Department of Justice (DOJ), the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the United Kingdom’s Serious Fraud Office (SFO).
According to the SEC’s complaint, filed in U.S. District Court for the District of Columbia, Innospec routinely paid millions of dollars in bribes to sustain its sales of tetraethyl lead (TEL) to state-owned refineries and oil companies in Iraq and Indonesia. Innospec also paid kickbacks to Iraqi officials in order to obtain contracts under the United Nations Oil for Food Program.
“This investigation exposed more than $9.2 million in illegal bribes paid or promised to officials in Iraq and Indonesia,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This enforcement action makes clear that law enforcement authorities within the U.S. and across the globe are working together to aggressively monitor violators of anti-corruption laws.”
Cheryl J. Scarboro, Chief of the SEC’s Foreign Corrupt Practices Act Unit, added, “Innospec’s long-standing practice of bribing government officials was particularly egregious given the role of management, which authorized and condoned the misconduct.”
The SEC’s complaint alleges that Innospec’s internal controls failed to detect the illicit conduct, which took place from 2000 to 2007. Innospec made illicit payments of more than $6.3 million and promised an additional $2.8 million in illicit payments to Iraqi ministries and government officials as well as Indonesian government officials. The contracts that Innospec obtained in exchange for the bribes were worth approximately $176 million.
The SEC alleges that Innospec obtained five Oil-for-Food Program contracts for the sale of TEL to the Iraqi Ministry of Oil and its component oil refineries. Innospec paid kickbacks on three of the contracts equaling 10 percent of the contract value, and the company promised kickbacks on the other two contracts. Innospec increased its agent’s commission as a means to funnel the payments to Iraq, and artificially inflated its prices in the contracts. The Oil-for-Food Program ended shortly before Innospec was to pay the promised kickbacks on the two remaining contracts, Innospec kept the promised payments as part of its profit. Innospec then continued to pay bribes to Iraqi officials to win more business. One Innospec agent wrote in an internal e-mail: “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.”
According to the SEC’s complaint, Innospec paid lavish travel and entertainment expenses for Iraqi Ministry of Oil officials, including the seven-day honeymoon of one official. Innospec supplied mobile phone cards and cameras, and paid thousands of dollars in cash to officials for “pocket money.” Innospec also paid bribes to ensure the failure of a 2006 field test of MMT, a fuel product manufactured by one of Innospec’s competitors.
The SEC alleges that Innospec had several schemes to pay bribes to Indonesian government officials to win contracts. More than $2.8 million in bribes was funneled through an Indonesian agent. One scheme involved bribes paid annually to a senior official at BP Migas and another scheme involved “special commissions” paid to a Swiss account. Innospec’s bribes to Indonesian officials supported the company’s efforts to maintain TEL sales in Indonesia at a time when the country was planning to go unleaded. According to the SEC’s complaint, one official indicated that he would assist Innospec in obtaining TEL sales but that he wanted more than just “cents” in return.
According to the SEC’s complaint, Innospec violated Section 30A of the Securities Exchange Act of 1934 by engaging in bribery of government officials in Iraq during the post-Oil for Food period and government officials in Indonesia. Innospec violated Section 13(b)(2)(B) of the Exchange Act by failing to maintain internal controls to detect and prevent bribery of officials in Iraq and Indonesia as well as the illicit Oil for Food Program kickbacks. Innospec violated Section 13(b)(2)(A) of the Exchange Act by improperly recording all of the illicit payments in its books.
Without admitting or denying the SEC’s allegations, Innospec has consented to the entry of a court order permanently enjoining the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act. The company agreed to comply with certain undertakings regarding its FCPA compliance program, including an independent monitor for a period of three years. Innospec agreed to pay $11.2 million in disgorgement to the SEC, a criminal fine of $14.1 million to the DOJ, and a criminal fine of $12.7 million to the U.K.’s SFO. Innospec will pay $2.2 million to OFAC.
The SEC appreciates the assistance of the DOJ’s Fraud Section, the Federal Bureau of Investigation, OFAC, and the U.K.’s SFO in this matter.
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For more information about this enforcement action, contact:
Cheryl J. Scarboro
Chief, Foreign Corrupt Practices Unit, SEC’s Division of Enforcement
202-551-4403
http://www.sec.gov/news/press/2010/2010-40.htm
