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Innospec Limited prosecuted for corruption by the SFO

18 March 2010

Innospec Limited appeared at Southwark Crown Court today and pleaded guilty to bribing employees of Pertamina (an Indonesian state owned refinery) and other Government Officials in Indonesia in order to secure sales of a fuel additive, TEL.

Lord Justice Thomas has reserved his sentencing remarks. However in open Court he stated that there would be financial penalty of $12.7 million imposed on Innospec.

This case is part of the first "global settlement" reached with a co-operating Company and has been resolved in cooperation with US government authorities - DOJ, SEC and OFAC.[1]

The company, Innospec Limited, is a subsidiary of Innospec Inc., a NASDAQ listed company based in the U.S., and is a manufacturer of a lead based anti knock fuel additive called tetraethyl lead ("TEL").  Innospec Limited is based in Ellesmere Port, Cheshire and is believed to be the last manufacturer of TEL.  TEL cannot be sold in Europe or the USA for motor vehicles on health and environmental grounds, however the company continued the production and sale of TEL in regions where it remained lawful, such as Indonesia.

The company indicated it would plead guilty to this offence at the first opportunity.

Corruption

Following the publication of the report from the United Nations Independent Inquiry Committee into the Oil for Food Programme on 27 October 2005, the US Department of Justice ("DOJ") commenced an investigation into Innospec Inc. for both sanctions offences and corruption offences.  The investigation was referred to the SFO by the DOJ in October 2007 and on 23 May 2008 the SFO formally accepted the corruption case for investigation.  Subsequently, the company disclosed to the SFO evidence that the company had sought to influence decision-makers in public contracts for the purchase of TEL in Indonesia between 1999 and 2006.  Since that time, the company has provided the SFO with a high level of co-operation throughout the investigation.

In order to conduct its business in Indonesia, the company appointed agents to act on its behalf in seeking to win or continue contracts to supply TEL.  Between 14 February 2002 and 31 December 2006 (the indictment period), the company paid US$ 11.7 million to its agents. From these commissions, bribes were paid by the agents to staff at the state-owned petroleum refinery, Pertamina, and other public officials who were in a position to favour the company by purchasing orders of TEL. 

Payments were made in an attempt to ensure that Pertamina favoured TEL over unleaded alternatives.

The agents acted under the instruction of the company and the commission fees paid were authorised by the company.  The company accepts that it knew that a proportion of the commission funds would be used to bribe both Pertamina officials and other public officials at higher regulatory or ministerial levels, with influence over the purchase of TEL.

In addition to commissions, the company also created 'ad hoc' funds.  These funds assisted specific or 'one-off' arrangements with particularly influential individuals within Pertamina or at a political level. 

One particular fund was structured to protect the interests of the lead based additives industry, whereas in truth and reality, it was no more than a slush fund to corrupt senior officials in various Ministries with the intention of blocking legislative moves to ban or enforce the ban on TEL on environmental grounds and/or seeking a higher level buy-in to continued yearly supplies of TEL to Pertamina.

The Indonesian Government's intention to go lead-free, initially conceived in 1999, was not realised until 2006.

Proceedings

The SFO was given consent by the Attorney-General to bring these proceedings on 2 November 2009.  The company was summonsed on 24 February 2010 on the charge of conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977:

Particulars of offence

Innospec Limited, between the 14th day of February 2002 and the 31st day of December 2006, conspired with certain of its directors, executives, employees and agents to give or agree to give corrupt payments [contrary to section 1 of the Prevention of Corruption Act 1906] to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Tetra Ethyl Lead to the said Government of Indonesia by Innospec Limited.

On 25 February 2010, the case was sent from Westminster Magistrates' Court to Southwark Crown Court and listed for a preliminary hearing on 4 March 2010.  After two preliminary hearings, on 4 March 2010 and 11 March 2010, the case was listed for plea and sentence on 18 March 2010.

Sentence

The company agreed that it would be subject to financial penalties and the SFO carried out an investigation into the Company's ability to pay.  This exercise involved the SFO's investigators working with SEC staff in coming to a fair and true assessment of the Company's means to pay financial penalties.

The SFO concluded that the amount available in the UK was a total of $12.7 million.  Lord Justice Thomas has today indicated that the company will be sentenced to pay $12.7 million or the sterling equivalent.

Monitoring

In a first for both the SFO and DOJ, these prosecuting authorities have agreed to the appointment of a joint monitor, to be acceptable in both the UK and US.  The company has also agreed to pay the costs of a monitor for up to three years.

Related Proceedings

This plea was reached as a result of the SFO, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), the U.S. Securities and Investments Commission ("SEC") and the DOJ (together the "government authorities") resolving this case by co-operating together to investigate and prosecute the company's conduct in both Indonesia and Iraq.

The SFO acknowledges and expresses its appreciation for the extensive coordination with the DOJ; SEC & OFAC to allow companies to voluntarily disclose previous corrupt practices and dispose of this conduct in its totality.

Breach of UN sanctions

The company was prosecuted by the DOJ for offences in relation to the breach of United Nations sanctions from 2000 to 2003, as they applied to contracts in the UN Oil For Food programme.  As part of the U.S. plea agreement for this conduct, the company agreed to pay a $14.1 million criminal fine.

Regulatory Action

As a consequence of Innospec Inc's listing on the NASDAQ, the parent company is regulated by the SEC.  Innospec Inc has settled a civil complaint filed by the SEC, charging the parent company with violating the Foreign Corrupt Practices Act's anti-bribery and books and records provisions relating to conduct in Iraq.  A fine of $11.2 million in profits will be paid to the SEC.

Finally, the company has agreed to pay an administrative fine of $2.2 million to OFAC, relating to matters regarding the US embargo against Cuba.

Police Assistance

The SFO continues its investigation against individuals with its partner police force, the Cheshire Police Economic Crime Unit.

 

Notes for Editors

  1.  Indictment

 

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[1] Department of Justice; Securities & Exchange Commission and U.S. Department of the Treasury's Office of Foreign Assets Control

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