On March 18, 2010, the Department of Justice (DOJ) and SEC announced that Innospec Inc., a Delaware corporation specializing in manufacturing and selling specialty chemicals, pleaded guilty in the U.S. District for District of Columbia to numerous criminal charges, including defrauding the United Nations, violating the FCPA, and violating the U.S. embargo against Cuba. According to the DOJ press release, Innospec pleaded guilty to FCPA and wire fraud violations in connection with bribes and kickbacks paid to officials in the Iraqi Ministry of Oil relating to the U.N. Oil for Food Program (OFFP). The company also admitted to selling chemicals to Cuban power plants, in violation of the U.S. embargo against Cuba.
According to the DOJ’s press release, from 2000 to 2003, Innospec’s Swiss subsidiary, Alcor, paid or promised to pay at least $4 million in kickbacks to the former Iraqi government in order to win five contracts valued at more than €40 million to sell tetraethyl (TEL), an anti-knock chemical used in leaded gasoline. The refineries were run by the Iraqi Ministry of Oil under the OFFP. The kickback scheme involved Alcor ‘s inflating the price of the contracts by approximately 10 percent to cover the cost of the kickbacks before submitting them to the UN for approval. The company falsely characterized the payments in its books and records as “commissions” paid to Ousama Naaman, its agent in Iraq.
Innospec also admitted to paying or promising to pay more than $1.5 million in bribes, in the form of cash and travel, to Iraqi officials to secure contracts from 2004 to 2008, as well as to paying $150,000 in 2006 to Iraqi officials to ensure that a competing product to TEL was not approved for use in Iraqi refineries. These illicit payments were likewise recorded as “commissions” in the company’s books on the basis of false invoices.
The SEC Litigation Release explains that Innospec paid the bribes to garner good will with Iraqi authorities and to obtain additional orders under a Long Term Purchase Agreement that was executed in October 2004 and to ensure the execution of a second LTPA in January 2008. The litigation release also details that in an October 2005 e-mail to Innospec, Innospec’s agent informed managers 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 litigation release also states that the company paid lavish travel and entertainment expenses for Iraqi Ministry of Oil officials, including a seven day honeymoon, supplying mobile phone cards and cameras, and paying thousands in cash for “pocket money” to officials.
According to the DOJ press release, 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. It also acknowledged that it previously paid approximately $2.9 million in bribes to officials of the Indonesian government to secure sales.
In its plea agreement with the DOJ, Innospec agreed to pay $14.1 million in criminal fines, to retain an independent compliance monitor for a minimum of three years, and agreed to fully cooperate with the various global enforcement agencies in the ongoing investigations of corrupt payments by Innospec employees and agents.
Innospec also agreed to disgorge $11.2 million in profits in settling charges by the SEC that the company violated the FCPA’s anti-bribery, internal controls, and books and records provisions. The company also agreed to pay $2.2 million in fines to OFAC for outstanding charges matters related to the U.S. embargo against Cuba. According to the DOJ press release, the SEC, OFAC and the SFO worked together to reach the $40.2 million global settlement.
In a related matter with the United Kingdom’s Serious Fraud Office (SFO), the company’s British subsidiary pleaded guilty to making corrupt payments to Indonesian officials, for which it will pay a criminal penalty of $12.7 million.
Naaman, the company’s agent in Iraq, was indicted in the District of Columbia in August 2008 and arrested in Frankfurt, Germany,in July 2009. The U.S. is currently seeking his extradition from Germany.