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FCPA Blog Daily News

« Executive Action At Innospec | Main | More On Graft Is Good, Sometimes »
Thursday
Mar182010

Innospec's $40 Million Global Settlement

Specialty chemical maker Innospec Inc. resolved more than a dozen criminal charges in the U.S. and U.K. today, including Foreign Corrupt Practices Act (FCPA) and U.N. oil for food program offenses, and violations of the U.S. embargo against Cuba.

The Delaware company pleaded guilty to a 12-count criminal information charging wire fraud in connection with kickbacks to the former Iraqi government under the U.N. oil for food program, as well as FCPA violations for bribes to officials in the Iraqi Ministry of Oil. It will pay a $14.1 million criminal fine and retain an independent compliance monitor for three years.

Innospec manufactures the anti-knock compound tetraethyl lead (TEL) used in leaded gasoline. Demand for TEL dropped after enactment of the Clean Air Act. Its managment knew about and encouraged the bribery to boost sales.

It will disgorge $11.2 million in profits to the SEC to settle a civil complaint charging violations of the FCPA's anti-bribery, internal controls, and books and records provisions.

It also agreed to pay $2.2 million to the Office of Foreign Assets Control (OFAC) for violating the U.S. embargo against Cuba.

In London, a U.K. subsidiary pleaded guilty today to paying about $2.9 million in bribes to Indonesian officials to secure sales. The Serious Fraud Office, which charged the U.K. unit in late February, said Innospec Ltd will pay a criminal fine of $12.7 million. 

The DOJ said the British action started after "a referral from the Department of Justice in October 2007." The SFO said, "This case is part of the first 'global settlement' reached with a co-operating Company and has been resolved in cooperation with U.S. government authorities - DOJ, SEC and OFAC."

The SEC explained the bribery and management's role:

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 to 2003, Innospec's Swiss subsidiary, Alcor, was awarded contracts worth more than €40 million to sell TEL to refineries run by the Iraqi Ministry of Oil under the oil for food program. Alcor paid or promised to pay at least $4 million in kickbacks to the former Iraqi government. It inflated the price of the contracts by about 10 percent to fund the kickbacks before asking for U.N. approval. It then falsely characterized the payments on its books as "commissions" paid to Ousama Naaman, its agent in Iraq.

Naaman was indicted in August 2008 and arrested in Germany in July 2009. He was charged with one count of conspiracy to commit wire fraud and to violate the FCPA and two counts of violating the FCPA. The U.S. is trying to extradite him.

Innospec also admitted that a subsidiary sold nearly $20 million in oil soluble fuel additives from 2001 to 2004 to state-owned Cuban power plants without a license from OFAC, in violation of the Trading With the Enemy Act.

Innospec Inc. trades on NADAQ under the symbol IOSP.

View the SEC's litigation release No. 21454 / March 18, 2010 in Securities & Exchange Commission v. Innospec, Inc., Civil Action No. 1:10-cv-00448 (RMC) (D.D.C.) here.

Download a copy of the SEC's civil complaint here.

View the DOJ's March 18, 2010 release here.

Download a copy of the March 17, 2010 criminal information in U.S. v. Innospec, Inc. here.

Download a copy of the government's sentencing memorandum here.

Download a copy of the Innospec's plea agreement here.

View the SFO's March 18, 2010 release here.

Please check back for the DOJ's charging documents and plea agreement.

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