U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21454 / March 18, 2010
Securities & Exchange Commission v. Innospec, Inc., Civil Action No. 1:10-cv-00448 (RMC) (D.D.C.)
SEC FILES SETTLED FOREIGN CORRUPT PRACTICES ACT CHARGES AGAINST INNOSPEC, INC. FOR ENGAGING IN BRIBERY IN IRAQ AND INDONESIA WITH TOTAL DISGORGEMENT AND CRIMINAL FINES OF $40.2 MILLION
The Securities and Exchange Commission filed a settled enforcement action on March 18, 2010, in the U.S. District Court for the District of Columbia charging Innospec, Inc. (“Innospec”), a specialty chemical company incorporated in Delaware with principal offices in the United States and the United Kingdom, with violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”). Innospec has offered to pay $40.2 million as part of a global settlement with the Commission, the Department of Justice, Fraud Section (“DOJ”), the United Kingdom’s Serious Fraud Office (“SFO”), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). This case is the first corruption-related settlement coordinated between the Commission, DOJ, and the SFO.
The SEC’s complaint alleges that:
From 2000 to 2007, Innospec routinely paid bribes to sell Tetra Ethyl Lead (“TEL”), a fuel additive that boosts the octane value of gasoline, to state owned refineries and oil companies in Iraq and Indonesia. TEL was a significant source of revenue for Innospec; however, TEL sales were declining due to the passage of clean air legislation in the U.S. and abroad. Innospec also paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program (the “Program”). Innospec’s former management did nothing to stop the bribery, and in fact authorized and encouraged it. In addition, Innospec’s internal controls failed to detect the illicit conduct, which continued for nearly a decade. In 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 approximately $176,717,341 in revenues and profits of $60,071,613.
From 2000 through 2003, Innospec obtained five Program contracts for the sale of TEL to the Iraqi Ministry of Oil and its component oil refineries (“MoO”) and paid kickbacks equaling 10% of the contract value on three of the contracts and offered kickbacks on the remaining two contracts. Innospec increased its agent’s commission as a means to funnel the payments to Iraq. Innospec artificially inflated its prices in the Program contracts and did not notify the UN of the kickback scheme. When the Program ended shortly before Innospec paid the promised kickbacks on two of the contracts, Innospec kept the promised payments as part of its profit.
After the Program was terminated in late 2003, Innospec continued to use its agent in Iraq to pay bribes to Iraqi officials to secure additional TEL sales. From at least 2004 through 2007, Innospec made payments totaling approximately $1,610,327 and promised an additional $884,480 to MoO officials so as to garner good will with Iraqi authorities, obtain additional orders under a Long Term Purchase Agreement that was executed in October 2004 (the “2004 LTPA”) and ensure the execution of a second LTPA in January 2008 (the “2008 LTPA”). In an October 2005 e-mail to Innospec, Innospec’s agent informed a Business Director and an Executive that prior to opening a letter of credit for a shipment of TEL, Iraqi officials were demanding a 2% kickback. The e-mail further stated that: “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.” The Business Director authorized the over $195,000 bribe, and in an e-mail discussing the wording of the invoice, the Business Director stated that “the fewer words the better!”
Innospec also paid lavish travel and entertainment expenses for MoO officials, including paying for a seven day honeymoon, supplying mobile phone cards and cameras, and paying thousands in cash for “pocket money” to officials. Innospec also paid bribes to ensure the failure of a 2006 field test of MMT, a fuel product manufactured by a competitor of Innospec. Finally, Innospec promised additional bribes of approximately $850,000 in connection with the 2008 LTPA, which was thwarted due to the U.S. governments’ investigation of the Iraq bribery.
Innospec also had several schemes to pay bribes to Indonesian government officials from at least 2000 through 2005 to win contracts with state owned oil and gas companies. Approximately $2,883,507 in bribes was funneled through an Indonesian agent. One scheme involved bribes paid annually to a senior official at BP Migas; another involved “special commissions” paid to a Swiss account; and one involved a “one off payment” of $300,000. Innospec paid bribes to officials to support efforts to maintain TEL sales in Indonesia at a time when Indonesia was planning to go unleaded. In one instance, an official indicated that he would assist Innospec in obtaining TEL sales but that he wanted more than just “cents” in return.
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. Finally, 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 Commission’s allegations, Innospec has consented to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act; ordering it to pay $60,071,613 in disgorgement, provided that the Commission waive all but $11,200,000 of disgorgement and permitting payment in four installments based upon Innospec’s sworn Statement of Financial Condition; and ordering it to comply with certain undertakings regarding its FCPA compliance program, including an independent monitor for a period of three years. Based 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.
The SEC acknowledges assistance in its ongoing investigation from the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation, the United Kingdom Serious Fraud Office, and the United States Department of Treasury, Office of Foreign Assets Control.
See Also: SEC Complaint