U.S. Securities and Exchange Commission
Litigation Release No. 21822 / January 24, 2011
Accounting and Auditing Release No. 3235 / January 24, 2011
Securities & Exchange Commission v. Paul W. Jennings, 1:11-CV-00144 (D.D.C.) (RMC)
SEC FILES SETTLED BRIBERY CHARGES AGAINST PAUL W. JENNINGS
The Securities and Exchange Commission filed a settled enforcement action on January 24, 2011, in the U.S. District Court for the District of Columbia, charging Paul W. Jennings, a former officer at Innospec, Inc., with violating the Foreign Corrupt Practices Act (FCPA) by approving bribes to government officials to obtain and retain business.
The SEC's complaint alleges that:
Innospec engaged in widespread bribery of foreign officials, some of which occurred and was approved by Jennings beginning in mid to late 2004 during his tenure as Chief Financial Officer ("CFO") and continuing after he became Chief Executive Officer ("CEO") in 2005.
From 2000 to 2008, Innospec, a manufacturer and distributor of fuel additives and other specialty chemicals, routinely paid bribes to government officials in order to sell TEL, a fuel additive, which boosts the octane value of gasoline, to government owned refineries and oil companies in Iraq and Indonesia. Innospec's known bribery activities in Iraq began with its participation in the United Nations Oil for Food Program in 2001, and extended all the way until at least 2008. Innospec also paid bribes to government officials in Indonesia beginning as early as 2000, and continued until 2005, when Indonesia's need for TEL ended. Beginning in mid to late 2004, Jennings, who held various senior roles at Innospec, actively participated in the bribery schemes in Iraq and Indonesia. In all, between 2000 and 2008, Innospec made illicit payments of approximately $6.3 million and promised an additional $2.8 million in illicit payments to Iraqi ministries and government officials as well as Indonesian government officials in exchange for contracts worth approximately $176 million.
Jennings joined Innospec as the CFO in November 2002. Jennings learned of the longstanding practice of paying bribes to obtain TEL orders in mid to late 2004. In 2004, Jennings assumed the role of head of the TEL unit in addition to his role as CFO. In 2005, Jennings became the interim CEO and became the permanent CEO and President of Innospec in June 2005. Beginning in 2005, Jennings, along with other members of Innospec's management, approved bribery payments to officials at the Iraqi Ministry of Oil ("MoO") in order to sell TEL to Iraq. Innospec used its agent in Iraq to funnel payments to Iraqi officials. Innospec made payments totaling approximately $1,610,327 and promised an additional $884,480 to MoO officials. For example, in an October 2005 e-mail copying Jennings, the agent said that Iraqi officials were demanding a 2% kickback and that "[w]e 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 kickback and later payments were paid by increasing the agent's commission, which Jennings approved. Jennings was aware of the scheme to pay an official at the Trade Bank of Iraq in exchange for a favorable exchange rate on letters of credit. Another scheme involved a bribe to ensure the failure of a field test of a competitor product. A confidential MoO report for the field trial test was shared with Jennings who was generally aware of the bribery. Bribes were also offered to secure a 2008 Long Term Purchase Agreement that would have caused approximately $850,000 to be shared with Iraqi officials. The agreement,however, did not go forward due to the investigation and ultimate discovery of widespread bribery by United States regulators.
Innospec also paid bribes to Indonesian government officials from at least 2000 through 2005 in order to win contracts worth approximately $48,571,937 from state owned oil and gas companies in Indonesia. Jennings became aware of and approved payments beginning in mid to late 2004. Various euphemisms to refer to bribery were commonly used in e-mails and in discussions with Jennings and others at Innospec, including "the Indonesian Way," "the Lead Defense Fund," and "TEL optimization." Bribery discussions were held on a flight in the U.S. and even discussed at Jennings' performance review in 2005. In one bribery scheme with Pertamina, an Indonesian state owned oil and gas company, Innospec agreed, with approval by Jennings, to a "one off payment" of $300,000 to their Indonesian Agent with the understanding that it would be passed on to an Indonesian official.
From 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he had complied with Innospec's Code of Ethics incorporating the Company's Foreign Corrupt Practices Act policy. Jennings also signed annual and quarterly personal certifications pursuant to the Sarbanes-Oxley Act of 2002 in which he made false certifications concerning the company's books and records and internal controls.
Without admitting or denying the SEC's allegations, Jennings has consented to the entry of a final judgment that permanently enjoins him from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting Innospec's violations of Exchange Act Sections 30A, 13(b)(2)(A) and13(b)(2)(B). Jennings will disgorge $116,092 plus prejudgment interest of $12,945, and pay a civil penalty of $100,000 that takes into consideration Jennings' cooperation in this matter.
The SEC appreciates the assistance of the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation, and the United Kingdom Serious Fraud Office in this matter.