Archive for the ‘David Turner’ Category

Maybe Mabey & Johnson Is Not That Big Of A Deal

Tuesday, January 24th, 2012

It seems that everything that happens in the bribery / corruption space these days is touted as establishing a new trend with wide implications.

Recently the U.K. Serious Fraud Office (“SFO”) announced here that Mabey Engineering (Holdings) Ltd., the parent company of Mabey & Johnson Ltd., forked over approximately £130,000 via a civil order based on the improper conduct of Mabey & Johnson Ltd.  See here for the prior post summarizing the Mabey & Johnson Ltd. enforcement action.  In the release, SFO Director Richard Alderman said that there are “two key” messages.  “First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money.”  Second, “shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in.  [...] The SFO intends to use the civil recovery process to pursue investors who have benefited from illegal activity.”

One source said that the Mabey & Johnson development “could have far-reaching implications.”  Another called it a “landmark development” and a “further pressure point for companies to put in place preventative measures or else they and their shareholders face the consequences.”  Another called it a “concerning development.”  Another stated that the SFO is now recovering “tainted dividends from innocent investors.”  Another stated that the SFO is beginning “to claw back dividends paid by companies that are convicted on criminal charges.

Time out!

All that occurred with the recent development is that Mabey Engineering (Holdings) Ltd., the parent company of Mabey & Johnson Ltd., paid money in a civil action based on the improper conduct of Mabey & Johnson Ltd.

This is hardly revolutionary.  Nearly every FCPA enforcement action involves (query whether it should) the parent company being held accountable often in the context of a DOJ non-prosecution or deferred prosecution agreement or an SEC civil action for the alleged improper conduct of its (sometimes very  distant) subsidiary companies.

Much was written about Alderman’s statement that Mabey Engineering (Holdings) Ltd. “was totally unaware of any inappropriate behavior.”  However, the same is true in the majority of FCPA enforcement actions in the U.S., there is no allegation, suggestion, or implication that the parent company knew of or authorized the improper conduct at issue.  The standard that the U.S. enforcement agencies advance is essentially strict liability.

In this alert, Covington & Burling LLP attorneys Robert Amaee, John Rupp, and Alexandra Melia  rightly tempered the brewing storm by laying out reasons why the Mabey & Johnson development “does not set a wide ranging precedent.”  The Bribery Act “guys’ (here) nicely set forth the issues as well.

Indeed, in an e-mail statement, Richard Alderman told me as follows.

“The focus of this going forward will be on investors who have the ability to influence management.  This will normally be the institutions (or major family shareholders) rather than small retail investors.   We are looking to the major shareholders to help ensure that the companies in which they invest have an appropriate anti-corruption culture.   In the regular discussions they have with management for example we would expect them to ask if the company is satisfied that it has adequate procedures under the Bribery Act.  After all, this sort of dialogue is needed in view of the damage to the share price that can happen if there is a corruption investigation.  We are looking to the future with this and are not looking to go back over cases that have been finished.”

*****

In another U.K. development, the SFO recently announced here that former Innospec executive David Turner pleaded guilty to three counts of consppiracy to corrupt.

A Dialogue Worth Having

Monday, October 31st, 2011

This previous post discussed U.K. plans to introduce U.S.-style corporate plea bargains, including deferred prosecution agreements. Among other things, the post mentioned an October 17th meeting with U.K. prosecutors at Pinset Mason’s London office.

thebriberyact.com summarizes the meeting and nicely frames the issues  here and here.    The post states as follows.  “We think that the need for DPA legislation is obvious. Its absence has often been remarked upon by the Director of the SFO and for very good reason. It is a serious hole in the UK law. Its absence has a chilling effect on the attempts to ensure that ethical attitudes become a permanent feature of corporate life in all companies, be they International, SME or small.”

Others have shared their views on whether the U.K. should adopt U.S. style alternative resolution vehicles and, if so, how.

Thomas Fox at the FCPA Compliance and Ethics Blog (here) believes “that the ability to enter into a DPA is a powerful tool that advances the interests of prosecutors, the judiciary and the public.”  Fox states that “the primary reason for both the prosecution and a company which violates the Bribery Act entering into a DPA is certainty.”

Ross Parlane of McGuire Woods writing at The Bribery Library (here)  states as follows.  “There are a number of benefits to be gained from giving UK prosecutors the power to negotiate DPAs.  Certainly the cost and time involved in investigating offences would be significantly reduced, which is good news for the public purse.  Further, a well negotiated DPA that gives proper attention to remediation (e.g. through monitoring) as well as to punishment, has the potential to effect a permanent positive change in the culture of an organisation.”  Yet Parlane states (and identifies) that “there are a number of tricky issues that need to be resolved before the use of deferred prosecution agreements can be adopted in the the U.K.”

Michael Volkov, writing at thebriberyact.com (here) notes that ”for UK policymakers, the balance between judicial review and prosecutorial discretion is one which has to be resolved before any new policy can be enacted.”

Let me contribute to the dialogue by posing this question.  Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement – the first two options being prosecute vs. not prosecute?

If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act.  Seems like a reasonable result.  In other words, no need for the third option in such a case.

On the other hand, if a corporate does not have adequate procedures (i.e. has no committment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act.  Seems like a reasonable result.  Does a third option really need to be created for corporates who do not implement adequate procedures?

Because the FCPA does not have an adequate procedures / compliance defense (at least not yet), the same analysis does not apply.

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In other recent U.K. developments, last week the SFO announced (here) that two former Innospec executives were charged.  Dennis Kerrison, the former CEO of Innospec Ltd., was charged with “an allegation of conspiracy to corrupt, in that he gave or agreed to give corrupt payments 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.”  Paul Jennings, the former CEO of Innospec, is accused of “two allegations of conspiracy to corrupt, in that he gave or agreed to give corrupt payments to public officials and other agents of the Governments of Indonesia and Iraq as inducements to secure, or as rewards for having secured, contracts from those Governments.”

Earlier in the week, the SFO also announced (here) that David Turner, a former business unit director of Innospec Ltd., was charged with “alleged offenses of conspiring to make corrupt payments to public officials in Indonesia and Iraq to secure contracts for Innospec Ltd. for the supply of its products.”

Both Jennings (here for the prior post) and Turner (here for the prior post) previously settled SEC FCPA enforcement actions based on the same core set of conduct.

As with the SFO’s  recent case against Victor Dahdaleh (see here for the prior post), the recent Innospec related enforcement actions are not Bribery Act enforcement actions.

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Sure, it’s Halloween and all, but the FCPA reform debate (see here) is getting a little silly don’t you think?

Innospec Related News

Tuesday, August 10th, 2010

In March, Innospec (a global chemical company) settled bribery enforcement actions on both sides of the Atlantic (see here).

This post discusses recent Innospec news – the SEC enforcement action against an Innospec agent (an individual who previously plead guilty to a DOJ enforcement action – see here) and a former Business Director at the company; a civil suit filed by an Innospec competitor in U.S. District Court in Richmond, Virginia; and how Innospec continues to grow its cash coffers despite receiving a pass on $50 million in fines and penalties in the March enforcement action based on inability to pay.

SEC Enforcement Action Against Turner and Naaman

Last week, the SEC added to Ousama Naaman’s legal woes charging him (see here) with civil FCPA anti-bribery violations, knowingly circumventing or knowingly falsifying books and records, and aiding and abetting Innospec’s FCPA books and records and internal control violations. According to the SEC release (see here) Naaman, Innospec’s agent in Iraq, agreed to disgorge $810,076 plus prejudgment interest of $67,030 and pay a penalty of $438,038 that will be deemed satisfied by his criminal fine. The disgorgement amount represents commissions Naaman received from Innospec “for his role in funneling bribe payments.” To my knowledge, the approximate $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.

In the same complaint, the SEC also charged David Turner, the Business Director of Innospec’s TEL Group, with the same substantive charges as Naaman. According to the complaint, Turner (a U.K. citizen who left Innospec in June 2009) “actively participated” in Innospec’s bribery and kickback schemes in Iraq and “actively participated” in Innospec’s bribery scheme in Indonesia.

According to the complaint:

“Turner was aware of the kickback scheme in connection with the Oil for Food Program. At some point in late 2002 or early 2003 Innospec’s internal auditors questioned Turner about the nature of the commission payments that were made to Naaman under the U.N. Oil for Food Program. Turner made false statements to the auditors and concealed the fact that the commission payments to Naaman included kickbacks to the Iraqi government in return for Oil for Food contracts. Turner also made false statements when he signed annual-certifications that were provided to auditors up until 2008 where Turner falsely stated that he had complied with Innospec’s Code of Ethics incorporating the company’s Foreign Corrupt Practices Act policy prohibiting kickbacks and bribery, and that he was unaware of any violations of the Code of Ethics by anyone at Innospec.”

Even after the Oil for Food Program was terminated in late 2003, the complaint alleges that “Turner, along with senior officials at Innospec, directed and approved” additional bribe payments to Iraqi officials. In addition, the complaint alleges that “Turner and other Innospec officials directed and authorized payments, through Naaman, to fund lavish trips for Iraqi officials.”

As to Indonesia, the complaint alleges that “Turner, along with senior officials at Innospec, authorized and directed the payment of bribes to Indonesian government officials from at least 2000 through 2005, in order to win contracts for Innospec for the sale of TEL to state owned oil and gas companies in Indonesia.” According to the complaint, Turner and other Innospec officials and employees used various “euphemisms” in e-mail communications and in discussions to refer to the bribery scheme.

According to the complaint, Turner “obtained $40,000 in bonuses that were tied to the success of the TEL sales, which were procured through bribery.”

According to the SEC release, Turner, without admitting or denying the SEC’s allegations, consented to entry of a final judgment requiring him to disgorge $40,000. The release states that no civil penalty will be imposed on Turner “based on, among other things, Turner’s extensive and ongoing cooperation in the investigation.”

Competitor Sues Innospec

The FCPA does not have a private right of action (although as I explored in this post it would be interesting if a court were faced with this issue today).

However, a company that settles an FCPA enforcement action increasingly faces collateral litigation, most often shareholder derivative claims. If a plaintiff does craft a direct cause of action against the company, it is usually a RICO claim.

As noted in this Richmond Times-Dispatch story, NewMarket Corp.’s civil case against Innospec does not fit the above mold, rather it alleges that Innospec’s conduct, as set forth in the DOJ and SEC enforcement actions, violated the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.

The article quotes NewMarket’s principal financial officer as saying that the company learned of Innospec’s actions after reading the documents released in connection with the March enforcement action. Among other things, the DOJ and SEC alleged that Innospec’s bribe payments in Iraq ensured that a field test of a competitor’s fuel additive failed. NewMarket claims that the competitor was a subsidiary company Ethyl Petroleum Additives Inc. which now goes by the name Afton Chemical Corp.

Innospec Continues to Be In the Money

In this prior post I highlighted how Innospec was ordered to pay $60,071,613 in disgorgement in the SEC’s enforcement action, but because of Innospec’s “sworn Statement of Financial Condition” all but $11,200,000 of that disgorgement was waived.

In other words, Innospec got a pass on approximately $50 million in March.

I then noted that Innospec’s first quarter financial results were positive and that
“as of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million.”

Innospec recently reported its second quarter financial results and it continues to be in the money. As noted in this company release:

“As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million.”

The company’s President and Chief Executive Officer stated that “Innospec’s second quarter operating results were very strong, with impressive double-digit increases in sales and operating income across all three business segments.”