UK: Innospec Sentencing: SFO Plea Deal went too Far

Last Updated: 7 April 2010
Article by Omar Qureshi and Joe Smith

The sentencing remarks of Lord Justice Thomas in the recent case of Regina v Innospec Limited* raise questions as to the ability of the Serious Fraud Office ("SFO"), to live up to the promises in its July 2009 guidance on its approach to dealing with overseas corruption ("SFO Guidance") (see our LawNow on the SFO Guidance here ). The SFO Guidance was designed to encourage businesses to self-report wrongdoing in return for the potential benefit of a civil rather than criminal outcome and, importantly, the ability to work with the SFO to manage any negative publicity arising. The Judge's sentencing remarks highlight how seriously the court views corruption of foreign officials and the severe penalties that the courts may impose when sentencing those guilty of such corruption.

*Judgment of Southwark Crown Court, handed down on 18 March 2010 and published on 26 March 2010

To view the article in full, please see below:

Full Article

The sentencing remarks of Lord Justice Thomas in the recent case of Regina v Innospec Limited* raise questions as to the ability of the Serious Fraud Office ("SFO"), to live up to the promises in its July 2009 guidance on its approach to dealing with overseas corruption ("SFO Guidance") (see our LawNow on the SFO Guidance here ). The SFO Guidance was designed to encourage businesses to self-report wrongdoing in return for the potential benefit of a civil rather than criminal outcome and, importantly, the ability to work with the SFO to manage any negative publicity arising. The Judge's sentencing remarks highlight how seriously the court views corruption of foreign officials and the severe penalties that the courts may impose when sentencing those guilty of such corruption.

* Judgment of Southwark Crown Court, handed down on 18 March 2010 and published on 26 March 2010


In 2005, the US authorities (the Department of Justice, the Securities and Exchange Commission and the Office of Foreign Asset Control) began an investigation into the activities of US company Innospec Inc, in respect of breaches of the UN Oil for Food programme relating to Iraq and other offences.

The SFO began its own investigations in 2008 into these matters and, in particular, the activities in Indonesia of a UK subsidiary, Innospec Ltd ("Innospec"). Those investigations were carried out with the full co-operation of the independent directors of Innospec. The potential penalties in the US and UK relating to the offences could have run to $550 million, way beyond the means of the corporates to pay. Both the US authorities and the SFO agreed that, in light of this and the full admissions and cooperation received, they should not seek a penalty that would drive the Innospec entities out of business. Discussions were held with a view to reaching a settlement on a global basis.

The deal struck with the SFO & US authorities

On 18 March 2010, following those negotiations and as part of a plea agreement with the US and UK authorities (the first such "global settlement" relating to concurrent criminal proceedings in the US and UK), Innospec pleaded guilty in Southwark Crown Court to conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977. The admitted offence related to corrupt payments made to public officials of the Government of Indonesia between 2002 and 2006 to secure contracts for the supply of an anti-knock fuel additive TEL, which was banned almost throughout the world because of its health and environmental impact. Importantly, some of the corrupt payments were also made to delay the banning of the additive in Indonesia. It was estimated that the total amount of bribe payments was around $8 million, but that the contracts they helped to secure were worth some $160 million.

The settlement terms agreed with the authorities involved Innospec and its US parent agreeing to pay a total of approximately $40 million in fines and other penalties over a period of time, with the authorities agreeing between them that the UK portion should be $12.7 million. It was also envisaged that the UK penalties would be split - $6.7m as confiscation and $6m as a civil recovery. Innospec was also required to install and pay for a monitor to review its ongoing compliance for at least 3 years. The settlement required the approval of the US and UK courts.

The sentencing hearing

Lord Justice Thomas considered the proposed settlement reached with the SFO, in particular a joint submission on sentencing that set out the proposed sum to be paid and how it should be split. While commending the "vigorous policy" to stamp out corruption that had been adopted by the Director of the SFO, the Judge concluded that the SFO "had no power to enter into the arrangements made and no such arrangements should be made again". Nevertheless, on the basis of the unique elements of the case, he very reluctantly approved the terms of the agreed settlement.

Future guidance

Thomas LJ's strongly worded judgement on sentence (to view a full copy of the judgment please click here ), looked beyond the issues in the instant case and provides guidance: (1) as to how seriously the Court views corruption of foreign public officials; and (2) on the proper approach to sentencing in cases of multi-jurisdictional investigations where an agreement is reached with the offender on a plea and sentence. Although the guidance specifically considers multi-jurisdictional investigations and plea discussions, it is likely to be of more general application.

The following key points emerge from the judgment:

  • Plea Agreements – A prosecutor, such as the SFO, must exercise appropriate discretion as to the charges that should be brought in connection with wrongdoing and may also discuss and agree the basis of a plea; it is for the Court, after being provided with full information, to assess whether any plea agreement is fair and in the interests of justice. It is then for the Court to decide the appropriate sentence. While sentencing submissions should draw the Court's attention to any relevant sentencing guidelines and case-law in this regard, they should not include a specific sentence recommendation or any other agreed range: "The SFO cannot enter into an agreement... with an offender as to the penalty in respect of the offence charged".
  • Fines – Corruption of foreign public officials is considered "at the top end of serious corporate offending". In line with the UK's obligations under the 1997 OECD Anti-Bribery Convention, the court has a duty to impose criminal penalties for such corruption that are "effective, proportionate and dissuasive". Noting that fines in cartel cases – which also distort competition – are measured in tens of millions and that "It was self evident that corruption is much more serious in terms both of culpability and harm caused", Thomas LJ indicated that, but for the exceptional circumstances of the case, a fine of $12.7 million would have been "wholly inadequate". This was so, even taking into account a more than 50% reduction to reflect the company's co-operation and early guilty plea, as well as the subsequent change in management of Innospec and the enhanced compliance programme put in place. It appears that the Judge's view in this regard was affected to no small extent by the fact that some of the bribes were intended to delay the banning of TEL, thus prolonging damage to the people of Indonesia and the environment.
    Had the fine not been limited by the financial means of Innospec, the Judge speculated that it would have been in the tens of millions. Thomas LJ saw no reason to differentiate between the UK and the US in respect of the financial penalties imposed for corruption. In fact, he went further, suggesting that there were good policy reasons why there should not be any such differentiation – i.e. a non-uniform approach would discriminate for or against businesses in different jurisdictions who commit corruption offences.
  • Confiscation – Under English law, where a confiscation order was appropriate (i.e. to deprive the wrongdoer of the benefit obtained by the criminal conduct), it would usually take primacy over the imposition of a punitive fine and, where the corporate had the funds to meet both, this would cause no difficulties. However, that was not the case here and so it was for the Court to decide whether to impose a fine in preference to a confiscation order. In the event, Thomas LJ decided to impose a fine only. This was because it was in the public interest 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 deprivation of any additional benefits still held by the wrongdoer through confiscation was just an additional consequence, but given Innospec's financial position (among other things), it was not appropriate here.
  • Civil Recovery Order – The SFO had suggested that a civil recovery order would be appropriate as part of the penalty. This was rejected by the Judge, who stressed that those who commit crimes of corruption, including companies, "must not be viewed in any different way to other criminals" and that it would "rarely be appropriate" for a corporate that is guilty of bribery to receive a civil recovery order instead of (rather than in addition to) a criminal fine: "It is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions". This was particularly so where there were already insufficient funds to impose an appropriate fine.
  • Monitoring – Thomas LJ was unconvinced by the three year monitoring plan which he described as "an expensive form of 'probation order'" (although he confirmed that he would allow it in this case): "For the future, the request for such an order will have to be fully explained in terms of its effectiveness". He noted that he would not have agreed to a limited financial penalty aimed at enabling the company's continued trade if he considered that they might be involved in further corrupt behaviour. On this basis, he suggested that resources required for such monitoring might more usefully be allocated to fines, confiscation or compensation.
  • Press Release – Thomas LJ expressed displeasure that a press notice was intended to be issued by Innospec in a form pre-approved by the SFO: "This is not a practice which should be adopted in England and Wales... 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...".


This case is likely to have significant implications both in relation to judicial policy on sentencing corporates who are convicted of corruption offences and the SFO's approach to dealing with overseas corruption. That the case was heard by such a senior judge makes it all the more potent: Thomas LJ is the Vice-President of the Queen's Bench Division and is Deputy Head of Criminal Justice.

In terms of judicial policy, Thomas LJ's comments suggest that the courts in future may be expected to impose much heavier punitive fines for corporate corruption. They also raise the possibility of a review of criminal law procedures and rules to enable the SFO in future to conclude US-style plea and sentence agreements (or even, possibly, deferred prosecution agreements – something that has been suggested by commentators as a likely development for some time).

Other policy issues that Thomas LJ highlighted as needing consideration were: the allocation of fines and other penalties in multi-jurisdictional cases and the circumstances in which a civil settlement (e.g. a civil recovery order) may be appropriate in such cases. Thomas LJ's comments concerning the justification for, and effectiveness of, compliance monitoring as a penalty are particularly interesting as, in the US at least, this is an increasingly common element of corruption settlements. It was also an important element of BAE's actions in the wake of the Al-Yamamah scandal in 2006, which was commended by Lord Woolf and his Committee when reviewing BAE's global compliance procedures for the future.

In addition, the judgment will clearly have an impact on the SFO's attempts to encourage businesses to self-report notwithstanding the credit on sentencing that cooperating offenders can enjoy. This is not only because of Thomas LJ's remarks regarding publicity and the circumstances in which a corporate offender may expect to receive a civil sanction as opposed to a substantial criminal penalty, but also as a result of his underlining of the need for the Court to satisfy itself that any offence admitted to as part of a plea agreement "reflected the full criminality of their conduct".

In that regard, the Innospec decision will be relevant to the Court's review of the controversial settlement agreement between the SFO and BAE Systems concluded on 5 February this year. Under that agreement BAE admitted to a limited accounting offence in the UK in respect of which it agreed to pay a Ł30 million fine. Following Innospec (and in particular given the level of fines that BAE has agreed to pay in the UK), it may be less certain whether that approval will be forthcoming.

The Director of the SFO, Richard Alderman, has said that the SFO Guidance is a "first attempt" at producing guidance on self-reporting and that it was intended to be amended over time in light of its application in practice. That the SFO Guidance will now be amended seems clear from SFO Director, Richard Alderman's comment that, "This is a very important decision which will guide the SFO in our approach to these matters in future".

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/04/2010.

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