Innospec Inc. said in its latest Form 10-K that it hopes to settle bribery charges related to the U.N.’s oil-for-food program in Iraq with the Justice Department, the Securities and Exchange Commission, and the U.K.’s Serious Fraud Office for between $28.8 million and $40.2 million.
The Delaware-based specialty chemical company referred in the disclosure to the indictment of its agent in Iraq. He was Ousama Naaman, 60, a Canadian citizen indicted in August 2008 and arrested in July last year in Frankfurt, Germany. The DOJ said he was indicted for his alleged role in an eight-year conspiracy to defraud the United Nations program and to bribe Iraqi government officials in connection with the sale of a chemical additive used in refining leaded fuel. Naaman is still in Germany facing extradition to the U.S.
Innospec said in its SEC filing that its former CEO resigned on March 20, 2009.
The U.S. investigations began in 2006 with an SEC investigation and with the DOJ in 2008. The U.K. Serious Fraud Office notified Innospec’s British subsidiary in 2008 of an investigation into oil-for-food contracts. U.K. firm Mabey & Johnson was sentenced in September last year by an English court for overseas corruption and violating the U.N.’s oil-for-food program. In January this year, the Financial Times reported that David Mabey, the former head of construction firm Mabey & Johnson Ltd, will be charged by with false accounting and breaching the United Nations’ sanctions on Iraq.
Innospec Inc. trades on Nasdaq under the symbol IOSP.
Here’s the disclosure from the company’s February 19, 2010 Form 10-K:
United Nations Oil for Food Program (“OFFP”) and U.S. Foreign Corrupt Practices Act (“FCPA”) investigation
On February 7, 2006, the Securities and Exchange Commission (“SEC”) notified the Company that it had commenced an investigation to determine whether any violations of law had occurred in connection with certain transactions conducted by or involving the Company, including those conducted by its wholly owned indirect Swiss subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), under the OFFP between June 1, 1999 and December 31, 2003. As part of its investigation, the SEC issued a subpoena requiring the production of certain documents, including documents relating to these transactions, by the Company and Alcor. Upon receipt of the SEC’s notification and initial subpoena, the Company undertook a review of its participation in the OFFP.
On October 10, 2007 and November 1, 2007, the SEC served two additional subpoenas on the Company. These additional subpoenas required the production of documents relating both to the OFFP, and also to transactions conducted by the Company or its subsidiaries with state owned or state controlled entities between June 1, 1999 and the date of such subpoenas, concerning the use of foreign agents and the possibility of extra-contractual payments to secure business with foreign governmental entities in the context of the FCPA and other laws. In a coordinated investigation, the Company was also notified by the U.S. Department of Justice (“DOJ”) regarding the possibility of violations by the Company or its subsidiaries arising under other laws stemming from matters covered by the SEC investigation as well as certain preliminary inquiries regarding compliance with anti-trust laws applicable to the U.S. and international tetra ethyl lead markets. The subjects into which the SEC and DOJ have inquired include areas that concern certain former and current executives of the Company, including our former CEO, who resigned on March 20, 2009. The Company, and its officers and directors are cooperating with the SEC and DOJ investigations.
On February 19, 2008, the Board of Directors of the Company formed a committee comprised of the chairmen of the Board, the Audit Committee and the Nominating and Governance Committee, all of whom were independent directors. (The chairman of the Nominating and Governance Committee retired as a director of the Company effective May 6, 2008, but his services were retained in an independent capacity as a member of the committee until October 1, 2009 when he resigned. Mr. Haubold did not resign as a result of any dispute or disagreement with the Company or the committee). External counsel to the Company, reporting to the committee has, on behalf of the committee, conducted and will continue to conduct an investigation into the circumstances giving rise to the SEC and DOJ investigations. External counsel reports directly to the committee and assists in connection with communications and interactions with the SEC and DOJ.
On March 5, 2008, a letter was received by the Company from the DOJ in which a request for a wider and more detailed range of documents was made. A further letter was received from the DOJ on June 13, 2009 which contained requests for information made by the U.S. Office of Foreign Assets Control (“OFAC”). In addition to the voluntary disclosure made in relation to the Bycosin disposal OFAC is inquiring into business the Company may have conducted in countries in respect of which there are U.S. laws and regulations that restrict trade.
On July 31, 2009, the DOJ issued a press release in which it disclosed the arrest of an individual and the unsealing of an August 7, 2008 indictment in the U.S. District Court for the District of Columbia against the individual for certain FCPA violations relating to his alleged participation in an eight-year conspiracy to defraud the OFFP and to bribe Iraqi government officials on behalf of a publicly traded U.S. chemical company in connection with the sale of a chemical additive used in the refining of leaded fuel. This individual is the Company’s former agent for Iraq and certain other markets and the Company understands the indictment to relate to the matters that are the subject of the OFFP and FCPA investigations of the Company.
Separately, on May 21, 2008, the United Kingdom’s Serious Fraud Office (“SFO”) notified Innospec Limited, a wholly owned subsidiary of the Company, that it had commenced an investigation into certain contracts involving British companies under the OFFP. As part of this investigation, the SFO has asked the Company to produce documents in respect of the Company’s participation in the OFFP between January 1, 1996 and December 31, 2003. Following receipt of the SFO’s notice the Company has instructed external legal counsel to advise and assist in relation to the investigation and the Company and its directors and officers intend to cooperate with the SFO. On October 16, 2008, the Company was further notified that the scope of the SFO’s investigation would extend to matters relating to potential bribery involving overseas commercial agents that are already in the large part the subject of the ongoing DOJ and SEC investigations. This investigation by the SFO similarly includes areas that concern certain former and current executives of the Company.
The Company and its officers and directors intend to continue to cooperate with the SEC, DOJ and SFO.
The outcome of these investigations remains uncertain to the Company. Discussions with the SEC, DOJ and SFO are ongoing in an effort to resolve these investigations, including discussions with a view to settlement. The amount of any final settlement, including the final amount of probable disgorgement, penalties and/or fines that we may be subject to, has yet to be conclusively determined. The amount of any disgorgements, penalties and/or fines that the Company could face depends on a number of eventual factors which have yet to be finally resolved with the relevant government authorities, including findings by relevant authorities regarding the amount, nature and scope of any improper payments, the amount of any pecuniary gain involved, the Company’s ability to pay, and the level of cooperation provided to government authorities during the investigations. As previously disclosed, for accounting purposes, based on a potential settlement range of $18.3 million to $63.4 million in connection with the ongoing discussions with government authorities, we recorded in the third quarter of 2009 an $18.3 million accrual for potential global settlement of these investigations as required under U.S. GAAP. In the fourth quarter of 2009, we similarly recorded an additional accrual of $21.9 million for anticipated global settlement of this matter, bringing total accruals to $40.2 million, based on our assessment for accounting purposes of the best estimate within an anticipated settlement range of $28.8 million to $40.2 million. As these accruals are estimates, there is no assurance that final settlement amount will correspond to the accrued amounts.
Because of the uncertainties associated with the ultimate outcome of these investigations and the costs to the Company of responding and participating in them, no assurance can be given that the ultimate costs incurred and sanctions that may be imposed will not have a material adverse impact on the Company’s results of operations, financial position and cash flows.