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You are here: BAILII >> Databases >> English and Welsh Courts - Miscellaneous >> Innospec Ltd, R. v [2010] EW Misc 7 (EWCC) (18 March 2010) URL: https://www.bailii.org/ew/cases/Misc/2010/7.html Cite as: [2010] Crim LR 665, [2010] EW Misc 7 (EWCC), [2010] Lloyd's Rep FC 462 |
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In the Crown Court at Southwark
Innospec
LimitedLord Justice Thomas
Innospec
Ltd, a UK company and a wholly owned subsidiary of a Delaware company,
Innospec
Inc, pleaded guilty in this court to conspiracy to corrupt contrary to s.l of the Criminal Law Act 1977.
Innospec
Ltd had conspired with its directors and others to make corrupt payments, contrary to s.l of the Prevention of Corruption Act 1906, to public officials of the Government of Indonesia to secure contracts from the Government of Indonesia for the supply of Tetraethyl lead (TEL).
i) The level of criminality in the offence of corruption of a foreign government.
ii) The way in which a prosecutor and a court should approach sentencing in cases where there had been a joint investigation of offences by authorities in the US and prosecution authorities in the UK, a decision to prosecute different offences in each jurisdiction and an agreement which had been reached with the offender as to the penalties to which the offender would submit.
The facts relating to the conspiracy to corrupt in Indonesia
Innospec
Ltd pleaded guilty.
Innospec
Inc was a Delaware company, its executive offices were in Cheshire and the corruption in Indonesia was organised by the directing minds of
Innospec
Ltd based in the UK.
Innospec
Ltd had for many years manufactured an antiknock fuel additive, TEL. Steps to phase out the use of TEL began in the 1970s because of health and environmental concerns. By 2000 Indonesia was one of the four remaining principal customers for TEL. Through agents in Indonesia, the directing minds of the company engaged in systematic and large-scale corruption of senior Government officials. Those corrupted in this way included Rachmat Sudibyo, Director-General of Oil and Gas in the Ministry of Energy and Mineral Resources in Indonesia and subsequently Chairman of Migas, an authority that regulated oil and gas in Indonesia, and Suroso Atmomartoyo, a Director of Pertamina, the Indonesian state oil company, and one of the most senior members of its management. The bribes paid to Rachmat Sudibyo exceeded $1 million.
The investigation of the corruption and the plea agreements made
Innospec
Inc. The SFO were notified in October 2007 and began their investigation in May 2008. The investigation by all these authorities included
Innospec
Inc's involvement in the UN Oil for Food Programme for Iraq (OFFP). The facts in relation to the OFFP as they emerged were that between 2001 and 2004
Innospec
entered into five contracts under the OFFP with the Iraq Ministry of Oil to sell them TEL, paying approximately 10% of the contract price as a bribe. After the termination of the OFFP,
Innospec
agreed with the post Saddam Ministry further contracts under which further bribes were paid. The total paid or promised to be paid as bribes was $5.8m. The investigation also showed that
Innospec
had sold fuel additives to Cuba in violation of the US Trading with the Enemy Act and Cuba Embargo Regulations, though there was no allegation that bribes were paid.
Innospec
assisted by another leading firm of accountants. The independent directors of
Innospec
took the view that they should admit criminal offences. In September 2008 discussions began with the US prosecuting authorities with a view to achieving what was to be described as "a global settlement". The SFO became party to those discussions. Much of the time was taken in investigating the financial position of
Innospec
Inc and its subsidiaries and its ability to pay. Both the SFO and DOJ agreed that the fines and other penalties which might be imposed in the US and UK might exceed $400m in the US and $150m in the UK. This would exceed by many times the ability of
Innospec
to pay, if it was to continue to trade. Both the SFO and the DOJ agreed that, in the light of
Innospec
's full admission and full co-operation, they should not seek to impose a penalty which would drive the company out of business.
Innospec
Inc to pay in cash $25.8m over the period to 31 December 2013 and a further $ 14.4m contingent upon the performance of contracts to sell TEL to Iraq over a three year period beginning 1 January 2010. This sum was put forward in full and final settlement of all outstanding issues with the DOJ, SEC, the OFAC and the SFO. The offer was accepted, subject to the approval of the courts in the US and the UK.
Innospec
Inc and
Innospec
Ltd in this way.
Innospec
's ability to pay.
i) Under US criminal law where a company had insufficient funds, restitution to victims was important; this was a significant factor for the SEC in relation to the offending under the Iraq corruption.
ii) There was a need to ensure that trading with Cuba was penalised.
iii)Innospec
Inc was a US company and the US were its primary regulators.
iv) In any assessment the value of the contracts, the profit on the contracts and the amount of corrupt payments had to be taken into account.
v) The investment in investigation had to be taken into account; in the US prosecutors could not recover their costs.
vi) The fine had to have a deterrent element.
Innospec
Ltd and the SFO as to the way in which the $ 12.7m share would be paid. It was agreed that $6.7m would be allocated to a fine or confiscation to be imposed in the Crown Court with the balance being the subject of a civil settlement.
The presentation of the plea agreements to the Courts in the UK and US
Innospec
Ltd agreed to the service of a summons upon them for the offence of conspiracy. A hearing took place that day at the City of Westminster Magistrates' Court and the case was immediately transferred to Southwark for a hearing.
Innospec
Ltd and the SFO the following:
i) A plea agreement under whichInnospec
Ltd agreed it would plead guilty, there would be a joint submission on sentencing in agreed terms and
Innospec
Ltd would enter into a monitoring agreement.
ii) An agreed case statement setting out the facts.
iii) An admission byInnospec
Ltd under which it undertook to plead guilty and admitted the facts set out in the agreed case statement.
iv) A mitigation note prepared byInnospec
Ltd and agreed by the SFO.
v) A joint submission on the sentencing process. This made clear that of the $12.7m that would be available for the SFO:
a) a confiscation penalty of $6.7m would be made in respect of the Indonesian corruption and
b) there would be a civil recovery order of $6m of which $5m would be paid to the UN Development Fund for Iraq.
It was accepted that it was for the court to determine the appropriate sentence, but the parties submitted that the approach upon which they were agreed should commend itself to the court as it was compatible with the approach being adopted in the US.
vi) An agreement in the form of draft undertakings with respect to compliance and monitoring and the appointment of a compliance monitor.Innospec
would pay the costs of the Monitor.
Innospec
's inability to pay the amount, this would be reduced to those which I have set out. It was made clear that the court had to approve the agreement and was not bound by it. It was also a term of the agreement that
Innospec
would put in place a compliance and ethics programme and submit to monitoring by a corporate monitor for a period of not less than three years, the monitor to be chosen in agreement with the SFO.
Innospec
shares.
Innospec
Inc's Chief Financial Officer and the papers on compliance and monitoring, were submitted to The Hon Ellen Segal Huvelle, a Judge of the Federal District Court for the District of Columbia, prior to the hearing on 18 March 2010. At the hearing on 18 March 2010 the Court sentenced
Innospec
Inc to 60 months probation, a fine of $ 14.1m and a special assessment totalling $4,800. The Judge examined the role of the monitor and required further information. The plea agreement in the US was made under the Federal Rules of Criminal Procedure in a well recognised procedure. I wish to express my gratitude to Judge Huvelle and her law clerk for providing this court with the necessary information about the US proceedings.
Innospec
Ltd for the considerable assistance I received; some of the difficulties were indeed apparent from a paper delivered by Mr Purnell QC in June 2009, "The risk of abusing a dominant position".
The duties of the prosecutor
Innospec
, the provision of their co-operation and the securing of clear evidence of serious corruption of foreign governments has been a welcome manifestation of vigorous prosecution by the SFO under his direction.
i) There was a concurrent investigation in the US where the provisions of the Federal Rules of Criminal Procedure and other provisions of US law (including its highly prescriptive Federal Sentencing Framework) provide a basis for plea agreement, but the procedure under the laws of England and Wales is different;
ii)Innospec
Inc, as I have set out, plainly did not have funds that could satisfy the penalties that would be imposed in the US and those that would be imposed in the UK.
I have set out. However the question has arisen as to the extent of his powers
and duties in the light of the constitutional position of a prosecutor, the role of
the courts in the UK and the rules relating to plea agreements in the UK.
i) A prosecutor must, in accordance with the relevant Attorney-General's guidelines, including those applicable where criminal cases affect the UK and the USA, exercise his discretion as to charges to be preferred. No question arises in this case as to the extent to which his decision may be challenged, as the charge of conspiracy preferred properly reflects the criminality.
ii) The prosecutor may also, subject to the provisions of the Consolidated Criminal Practice Direction, paragraph IV.45.5-45.9 indicate his acceptance of a plea. In this case, the criminality disclosed by the evidence is properly reflected in the plea of guilty and no issue arises under the paragraphs to which I have referred.
iii) The prosecutor may also discuss a basis of plea and agree it, subject to the principles set out in paragraphs 1V.45.10-45.15 of the Consolidated Criminal Practice Direction; these paragraphs codify the principles set out in the well known decision in R v Underwood [2005] 1 Cr App R (S) 90 and make clear that the court is not bound by any agreement and must itself consider whether evidence is called to establish the basis on which it is to sentence.
iv) In cases involving serious fraud the prosecutor may also enter into a plea agreement in accordance with the procedure set out in paragraphs IV.45.16-45.28. This part of the Consolidated Criminal Practice Direction was introduced into the Direction in May 2009 after consultation and was published at the same time as the Attorney- General's guideline on Plea Discussions in Cases of Serious or Complex Fraud. The provisions of the Consolidated Criminal Practice Direction make it quite clear that the judge must be provided with full details so that he can understand the facts of the case and the history of the plea discussions. This is to enable the judge to make an assessment of whether the plea agreement is fair and in the interests of justice and to decide the appropriate sentence. Paragraph IV.45.24 makes it clear that although sentencing submissions should draw the court's attention to any applicable range in any relevant guideline or to any ancillary orders that may be applicable, sentencing submissions should not include a specific sentence or agreed range, other than the ranges set out in the Sentencing Guidelines or authorities.
v) Although it is primarily the duty of the offender to provide detailed financial information about his means (see for example the information provided in an appeal in R v Milford Haven Port Authority [2000] 2 Cr App R(S) 423) the court is greatly assisted by an analysis of the financial means by the prosecutor: see for example paragraph 17 of the SGC Guidelines on Corporate Manslaughter. The prosecutor's analysis can most usefully be set out in a report to the court.
Innospec
were agreed on the approach (as the joint submission made clear), no penalty had been agreed, and that it was for the court to decide on the penalty. Although the sentencing submission proceeded to put forward a specific proposal as opposed to the range as set out in the authorities, that must have been because the provisions of the Consolidated Criminal Practice Direction had not been fully appreciated.
The approach to sentence
(i) A fine
"Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organised crime, terrorism and other threats to human security to flourish. This evil phenomenon is found in all countries - big and small, rich and poor - but it is in the developing world that its effects are most destructive. Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a government's ability to provide basic services, feeding inequality and injustice and discouraging foreign aid and investment. Corruption is a key element in economic underperformance and a major obstacle to poverty alleviation and development."
It is no mitigation to say others do it or it is a way of doing business. The international community has taken its stand in the OECD Convention on Combating Bribery of Foreign Public Officials 1997 to which the UK is a party. Article 3.1 requires State parties to the Convention to apply criminal penalties which are "effective, proportionate and dissuasive".
whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states.
Innospec
Ltd of the benefits it had obtained through its criminality.
(ii) Confiscation
Innospec
Ltd may have been as high as $160m.
i) It is very important in the public interest and as a signal of deterrence to others that a fine of very considerable magnitude is imposed and is seen to be imposed as a mark of the serious criminal conduct of which the company is guilty. The offending itself must be severely punished quite irrespective of whether it has produced a benefit. The deprivation of any benefits obtained follows, as no person can be allowed to retain the benefit of his criminal conduct, but that is simply an additional consequence.
ii) For the Director to have preferred confiscation to a fine, in circumstances whereInnospec
Limited was unable to pay both a fine and the confiscation amount, would have given rise to a very considerable conflict of interest incompatible with his independent duties as a prosecutor. Under what is somewhat surprisingly called an "incentive scheme", the proceeds obtained from a confiscation order are, once collected by the Ministry of Justice, distributed to the Home Office in accordance with an agreed protocol with HM Treasury. That confiscation income is then distributed by the Home Office who retain 50% passing 18.75% to the prosecuting authority and 18.75% to the investigating authority and 12.5% to Her Majesty's Court Service. As the Serious Fraud Office is both the investigating and prosecuting authority, 37.5% of the confiscation amount in this case would go to the SFO, it would form part of the income of the Office. In those circumstances, although in general this would not affect the duty of a prosecutor to initiate confiscation proceedings, there would be a clear conflict of interest, if a prosecutor were to give notice requiring a court to proceed to confiscation rather than a fine, as fines are paid to and retained by HM Treasury. No independent prosecutor, exercising the quasi judicial function in determining whether to issue a notice, could properly issue one in such circumstances. The position of the court administration is quite different; for example, no benefit to the court administration is in fact provided by this scheme, as the income of Her Majesty's Court Service is guaranteed by the Ministry of Justice, irrespective of the amounts paid to it under the so called "incentive scheme".
(Hi) The civil settlement order
Innospec
that a civil recovery order would be made in the sum of $6m. There were three reasons why it was thought desirable to consider such an order as part of the overall penalties in this case:
i) Although the criminality in respect of the corruption in relation to Iraq was the subject of criminal proceedings in the US and not in the UK, it was thought desirable to mark by a penalty that criminal conduct which had substantially been organised in the UK. It was considered that this could only be done by civil penalty because a criminal penalty would, in the light of the charge in the US relating to the same matter, infringe the principle of ne bis in idem or double jeopardy. However, it seems to me that in circumstances where the Federal District Court has imposed a fine of $14.lm for the criminality in relation to Iraq, it would not be right or in the public interest to reduce the available amount to this court in relation to a fine for the Indonesian corruption by making a further penalty referable to the Iraq conduct even if a civil sanction was appropriate. As I have set out above, the corruption in relation to Indonesia was as at least as serious as that in respect of Iraq.
ii) It was desirable that some compensation be paid in respect of Iraq. I would accept that if funds were available, this might be desirable. However, there are insufficient funds for an appropriate fine. Moreover no thought was being given to compensating those who had been wronged in Indonesia; it was not necessary to explore this issue, but it is difficult to see why no compensation was being paid in respect of the corruption in Indonesia which was charged and punished in the UK, whilst paying compensation in respect of the corruption in Iraq which was charged and punished in the US.
iii) It was easier to deal with payments that depended on a contingency under a civil recovery order than under a fine. However, on analysis, this is no impediment to a fine. Many fines imposed in criminal courts are, in effect, contingent upon the future earnings of individuals. The fact that the offender is a corporation makes no difference.
The sentence imposed
Innospec
Ltd. This was corruption involving the payment of very substantial amounts to the most senior officials of the government of Indonesia over a long period of time. A major part of the purpose was not merely to procure contracts that benefited the company, but to delay the phasing out of TEL in Indonesia and therefore to prolong damage to the people of Indonesia and the environment. In reaching my view that $12.7m is wholly inadequate I have taken into account:
i) The fact that the company is entitled to a credit well in excess of 50% for its early guilty plea and its co-operation with the SFO and others in investigating and providing the evidence of this large scale corruption. Admitting a serious crime and providing evidence against others is a matter that on well established principles should be marked in this way.
ii) The fact that the management ofInnospec
has changed and that there is now an enhanced compliance programme.
Innospec
had pleaded guilty, I would not impose a total financial penalty in excess of $12.7m, if the US Federal District Court approved the plea agreement entered into. As it has done so, $ 12.7m will therefore be the fine I will impose. However, beyond this it is neither necessary nor desirable for mc to go in stating the amount of the fine I would have imposed if I was not limited to $ 12.7m. Many of the detailed matters that would have been necessary to explore were not gone into; it is sufficient to say that the fine would have been measured in tens of millions.
i)Innospec
had admitted to a very serious offence that I am satisfied reflected the full criminality of their conduct.
ii)Innospec
had made a full confession and had provided evidence that would be of significant assistance to the prosecutions of others.
iii) There was a detailed examination of its ability to pay. It would, of course, have been possible to impose a fine that would have resulted in the immediate insolvency of the company. That would, however, have affected the innocent employees of the company, caused considerable difficulties for the unfunded pension liabilities of the company and been detrimental to the agreed "clean up" programme the company has in place in the UK in respect of pollution it has caused here. The level of fine would have been influenced in any event by limiting the fine to an amount which would have enabled the company to remain in business and to pay the fine over a period of years.
iv) The prospect of a ''global settlement" at the level agreed had been announced to the markets by a company where its inability to pay more was an issue.
v) The Federal District Court for the District of Columbia had agreed to the plea agreement made in the US.
I have reluctantly concluded that, on this occasion, it would neither be just nor fair in the unusual circumstances of this case for this court to impose a penalty greater than the amount allocated to the UK. As in R v Whittle & Others [2008] EWCA Crim 2560, this court was placed in a position where it had little alternative but to agree to the limit of $12.7m, if it was to avoid injustice. It must, however, be appreciated that the circumstances of this case are unique. There will be no reason for any such limitation in any other case and the court will not consider itself in any way restricted in its powers by any such agreement.
Innospec
was able to pay. This was not a matter that received judicial determination in either the UK or the US (save that inherent in the Federal District Court's approval of the plea agreement). As it is the position in both the US and the UK that it is for the court ultimately to determine the sanction to be imposed for the criminal conduct, an agreement between prosecutors as to the division, even if it had been within the power of the Director of the SFO (which as I have explained it was not), cannot be in accordance with basic constitutional principles. Nor in my view was the division agreed one which on the facts of the case accorded with principle. The gravamen of the criminality was centred in the UK, the criminality of the corruption in Indonesia was no less serious than that in Iraq and there was no reason to prefer compensation to Iraq over compensation to both Iraq and Indonesia. My provisional view is that the amount should have been divided 50:50.
Innospec
Ltd in this case, the Director of the SFO has shown a determination as a prosecutor to see that corruption of foreign government officials is brought to court in a manner in which a plea of guilty was inevitable. He has ensured that the facts are laid before the court in such a way that a sentence could be passed by the court which has in all the circumstances tried to reflect the serious criminality of such conduct. However, I have concluded that the Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again
Conclusion
Innospec
Inc which can differentiate between the cash and contingent
amounts. The conversion is to be at a designated rate of exchange prevailing at the date payment is due. There are no further funds available either for a compensation order, a civil recovery order or prosecution costs.
i) It will be necessary to consider the extent to which the compliance and monitoring order requires supervision in both the US and the UK, or whether a mechanism can be approved by the courts which will result in one jurisdiction having the lead role and liaising as necessary with the other. In this case plainly the US should take the lead. Having two compliance and monitoring agreements will unnecessarily increase cost. If such agreements are to be a feature of future orders, discussion between the courts is plainly necessary.
ii) It will also be necessary to consider how best any arrangements should be embodied in an order of the UK court - whether this should be a civil or criminal order. This can be dealt with when the position in relation to the compliance and monitoring order is clear.
Innospec. This is not a practice which should be adopted in England and Wales. Publicity Orders are very different as they are made under the direction of the Court to ensure that in appropriate cases the conviction of the company is properly publicised. It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.