Thursday, March 18, 2010
The SEC settled charges that Innospec, Inc. (“Innospec”), a specialty chemical company incorporated in Delaware with principal offices in the United States and the United Kingdom, violated 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. 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.
In addition, 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”). 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.
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.