UK Bribery Act

Innospec Inc. is a NASDAQ listed company with around 1000 employees based in 23 countries. The company became the subject of a US Securities and Exchange Commission, (“SEC”), investigation into regulatory and corruption offences in 2007, following the United Nations Inquiry into abuses of the Iraq Oil for Food Programme.

The long series of investigations and regulatory enforcement actions in the UK and the US is coming to an end with the October 2011 court appearances of the company’s UK based executives. Two former CEOs, Dennis Kerrison and Paul Jennings, and David Turner, a former company executive, appeared at Westminster Magistrates' Court on charges surrounding alleged corrupt payments in Indonesia. Jennings and Turner were also charged in relation to breaches of UN sanctions in Iraq, and for conspiracy to defraud a competitor of Innospec whose business was prejudiced as a result of the Iraqi bribery.

In 2010 Innospec had pled guilty in the US to defrauding the United Nations, bribery offences, and breaching the US sanctions on Cuba, and agreed to pay a US$ 14.1 million criminal fine and appoint a compliance monitor for 3 years. In addition the company was ordered to pay a penalty of US$ 60 million. However based on Innospec’s financial position this amount was reduced to US$ 11.2 million. Finally, Innospec agreed to pay US$ 2.2 million in relation to breach of the US sanctions on Cuba.

Prior to the plea, the US Department of Justice, (“DOJ”), had in 2007 referred the investigation to the UK Serious Fraud Office, (“SFO”), who expanded the investigation into the potential bribery of government officials in Indonesia. Also that year Innospec announced it had set aside US$ 40.2 million for an anticipated ‘global’ settlement – (the DOJ, SEC and SFO all confirmed cooperation on this matter and agreement to a US$ 40.2 million global settlement, but the DOJ noted that an appropriate penalty for all the infringements would be US$ 400 million, and that the reason this was reduced was to allow the company to remain in existence).

In 2010 Ousama Naaman, (Innospec’s former agent), and David Turner settled charges with the SEC, and agreed to fines and penalties totalling US$ 1.3 million and US$ 40,000 respectively. Also that year Innospec Ltd in the UK pled guilty to corruption in Indonesia and received a financial penalty of US$ 12.7 million (as part of the pre-agreed global settlement), and Indonesia’s Corruption Eradication Commission, (“KPK”), began an investigation into Innospec’s activities in Indonesia.

The actions in the US and UK are now drawing to a close but just recently, (November 2011), the KPK in Indonesia questioned five former senior officials at Pertamina, the national oil and gas company, and charged a former director with accepting bribes from Innospec.

The bribes paid by Innospec in Iraq and Indonesia totalled just over US$ 8.5 million, and the regulators judged that the company made around US$ 60 million in profits from these contracts. That was possibly seen a good return by the company executives at the time. However when compared with the potential penalties Innospec was exposed to, (US$ 400 million), and the actual costs to the company in respect of investigation and defence costs and reputational damage, (which will likely have been at least in the tens of millions range), the improper payments seem to represent a very poor return for shareholders.