News & what's on - Written by on Monday, August 11, 2014 23:25 - 0 Comments

Supersize me: Innospec 4 sentencing remarks do much more than they say on the tin.

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Big BurgerThe Innospec sentence has by now been widely reported, but there are some important lessons which have been missed.  On sentencing the judge took the opportunity to lay down some markers for others.

Personal gain?

Not important in mitigation. There is a large public cost.

I just inherited the problem?

Not important in mitigation. You should have sorted it out.

The reputation of the UK and the stain on it as a result of corruption?

Very important in sentencing.

The payment of bribes to public officials?

Places offenders at the top end of culpability.

The sentences were a surprise to some and regarded as heavy.

Commentators have already gone into print on the harshness of the penalties meted out highlighting the sentence given to Paul Jennings, who was sentenced to two years despite having pleaded guilty in 2012.  They say they are a shock to the City.

They shouldn’t be.

We have been warning of the increasing intolerance to white collar crime and in particular bribery for years.

Some will say its taking a long time coming.  But these cases take time to get through the system.  Be in no doubt the UK is getting tougher.

These latest sentences highlight that the direction of travel when it comes to the punishment to be meted out to those found guilty of bribery offences is that they will be tougher.

Importantly the judge endorsed Lord Justice Thomas in Innospec when he said that UK fines against companies for bribery and corruption offences should be of a similar scale to those imposed in those imposed in the United States.

This is the clearest possible signal that fines running into hundreds of millions and potentially even billions, are on the cards for corporate offenders in the UK.

For those who think that UK judges may find it hard to get their heads around US size fines and penalties:

You have been warned!

There is of course a way through this.  A genuine good faith compliance program.  Facing up to problems, investigating them and dealing with them in an appropriate manner.

This works.  Trust us.

If you don’t then you may be unlucky.  The food won’t be a nice as the burger pictured, inside.

The sentencing remarks are important reading. We publish them below, the highlighting represents [our emphasis].

His Honour Judge Goymer delivered the sentences for the defendants David Kerrison, Paul Jennings, Miltiades Papachristos and David Turner on 4th August 2014:

These four defendants, David Turner, David Kerrison, Paul Jennings and Miltiades Papachristos appear for sentence following conviction for corruption of public officials in Indonesia and Iraq. David Turner pleaded guilty to three charges of conspiracy to commit corruption in January 2012 in relation to Indonesia and Iraq. Paul Jennings pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and to a further change of conspiracy to commit corruption in Indonesia and Iraq in July 2012. David Kerrison and Miltiades Papachristos were convicted of conspiracy to commit corruption in June 2014 after a trial of approximately three months.

At different times, each of the defendants were in a position of responsibility in a company called Innospec, previously called Octel, which was for a time the manufacturer of tetra ethyl lead (TEL). Leaded petrol was at the time being phased out and was known as a “sunset industry”. However, it was a very profitable industry and therefore it was in the company’s interest to prolong its existence, firstly as the company would profit from sales and secondly to give it time to develop an alternative.

Innospec corruptly paid millions of dollars to agents in Indonesia to be handed over to government officials to delay lead free fuel. We cannot quantify the corrupt payments as some payments to agents were for legitimate purposes. In Iraq, payments were made to sabotage the test results of rival products. This was the intention of those authorising the payments even if this result wasn’t achieved.

It is tempting to see bribery as a victimless crime as there are no individuals who lose money. This view is completely misconceived.

On 25 March 2010 the company was sentenced by LJ Thomas. As there was an agreement between the Department of Justice and the company, LJ Thomas felt constrained in imposing his fine. Without that constraint, the fine would have been more. I have read his sentencing remarks and I entirely agree. [OUR EMPHASIS]

The corruption was endemic, ingrained and institutional. The harm caused by this was the delay of the introduction of unleaded fuel. It is usually developed nations that can implement such changes first and it is developing nations who struggle. Indonesia is a case in point. The delay was a direct consequence of the actions of the company. The transition is not possible overnight but this was used as an excuse for the corruption. As I stated before, we cannot quantify the corrupt payments but it was substantial.

A company is a separate legal entity. It is not an automated machine. Decisions are made by human minds. It follows that those high up in the company should bear a heavy responsibility under the criminal law.

Those who pleaded guilty are entitled to a reduction in their sentence. The others mustn’t have their sentences increased for fighting the case. However, their sentence cannot be discounted in the same way as for those who pleaded guilty. As the Judge I am bound by the jury’s verdict.

All four men are middle aged or older, family men, of previous good character; they have done work in communities and worked well with colleagues. There have been a number of character witnesses testifying to this. All have come from modest backgrounds, went to university and worked their way up. None of these defendants would consider themselves in the same category as common criminals who commit crimes of dishonesty or violence. They didn’t make millions in profit though I am not prejudiced by subsequent findings when considering the confiscation orders of David Kerrison and Miltiades Papachristos. For this crime, the absence of personal gain is less of a mitigating factor than it would be otherwise. The company benefitted as its product was sustained. The real harm lies in the effect on public life, the effect on community and in particular with this corruption, its effect on the environment.  If a company registered or based in the UK engages in bribery of foreign officials it tarnishes the reputation of this country in the international arena. [OUR EMPHASIS]

I reiterate what was said by Kofi Annan in the foreword to the 2004 UN Convention against Corruption which LJ Thomas quoted at paragraph 30:

“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.”

LJ Thomas was of no doubt that corruption of public officials is at the top end in terms of culpability and harm. [OUR EMPHASIS]

The maximum sentence for this offence is 7 years’ imprisonment. There are no guidelines as the new guidelines come into force in October but are for offences under the Bribery Act 2010 anyway.

A sentence in excess of the statutory maximum can be imposed for consecutive sentences but this shouldn’t be used as a device to get around the statutory maximum. Judges have to apply the law. In this case, it would be inappropriate to impose consecutive sentences on Dr Turner and Mr Jennings for counts where they pleaded guilty. Those with more responsibility inherited an existing situation but they failed to deal with it. [OUR EMPHASIS]

I now turn to the individual sentences.

David Kerrison

As Chief Executive Officer from 1996 to 2005, over a period of 8 years, he must accept major responsibility for the corruption he is convicted of. He didn’t instigate the corruption but he allowed it to continue. He could have stopped it but he didn’t. I am satisfied that the jury’s verdict is correct, that he became aware early on of the existence of corrupt payments and didn’t stop it.

I take into account his good character account, that he has a wine business in South Africa, that he has improved the lot of black workers there, provided them with accommodation and healthcare, which is all commendable but doesn’t detract from the crime.

Mr Kerrison is now 70, in poor health and his wife is in less than good health.

I make a reduction due to age, health and caring responsibility to his wife, and I have seen the medical reports. If he was 5 years younger I would have imposed a sentence of 5 years. The most lenient sentence I can give is 4 years.

Paul Jennings

Mr Jennings was CEO from April 2005 in succession to David Kerrison. He served until 2008 and he was formally dismissed in June 2009. He inherited an existing situation and didn’t instigate it. He allowed the corruption to continue. He said that the Chairman told him that this was the way it was always done. By pleading guilty, he accepts he knew and intended to be part of the corruption. As CEO he must accept substantial responsibility but less than David Kerrison.

Mr Jennings is also of good character. I have read the 50 character references. These show that he encouraged cooperation between management and the workforce, that he had a positive management effect and revitalised the workforce.

Mr Jennings cooperated with the American authorities, paying $230,000. He has two young sons aged nine and seven. This case has been the background of their lives. The delay has not been his fault as he had to wait before he could be sentenced. I have read the doctor’s report and read the references from his children’s teachers.

In ordinary circumstances, I would impose a sentence of 4 years in prison after a trial. I reduce this starting point due to his cooperation firstly to 3 years. Before, I thought a 25% reduction was appropriate as he pleaded guilty after Dr Turner. However, it was always clear that he wasn’t going to contest therefore the sentence should be reduced to 2 years, which also takes into account the effect on his family.

Mr Jennings is ordered to pay £5000 in prosecution costs.

Miltiades Papachristos

I cannot reduce his sentence as he did not plead guilty. Dr Papachristos is an impressively qualified scientist. He had no management responsibility. He was involved in TEL and then Plutosene which were small parts of the general business activities. He had a lesser but not insignificant role. He was relatively inexperienced when it came to management and was largely acting under the control of others. The Jury’s verdict was that he was involved in the corruption.

A sentence of 18 months imprisonment is the least amount of time I can impose.

For all the defendants, they will serve half of their sentence in prison and then they will be released on license based on specific terms. If they break these terms, they will go back to prison.

These three defendants can now go down.

David Turner

In many ways, this is the most difficult. As Business Director he must accept substantial responsibility. The corruption went on for a number of years and he accepts he had an active part in it in Indonesia and Iraq as he pleaded guilty.

He gave evidence in the trials of both Mr Kerrison and Dr Papachristos. His evidence had to be approached with caution as there was a risk that he would say whatever the investigators wanted to hear.

I heard him give evidence so I am as well placed as anyone to assess it. I have formed the opinion that he was trying to tell the truth even though at the start of the investigation he was less than frank when answering the investigators’ questions.

It is noteworthy that his evidence was not challenged on honesty but only on the accuracy of detail. He didn’t exaggerate, point the finger at others and was consistent in his account. His evidence was important and reduced the issues to knowledge and participation in the trials of David Kerrison and Miltiades Papachristos.

A defendant who enters into a cooperation agreement is entitled to more than a third discount. I can either discount overall or I can discount initially by a third and then half it as overall he is entitled to a discount of two thirds. The Blackburns case indicates that a half to three quarters is the maximum discount.

There is a public interest in providing an inducement for defendants to cooperate as recognised in Dougall. The judgement of the Court of Appeal dealt with the issue of whether the sentence should be suspended. At paragraph 21, the Judge stated  “There never has been, and never will be, much enthusiasm about a process by which criminals receive lower sentences than they otherwise deserve because they have informed on or given evidence against those who participated in the same or linked crimes, or in relation to crimes in which they have no personal involvement, but about which they have provided useful information…however, like the process which provides for a reduced sentence following a guilty plea, this is a long-standing and entirely pragmatic convention. The stark reality is that without it major criminals who should be convicted and sentenced for offences of the utmost seriousness might, and in many cases, certainly would escape justice…the solitary incentive to encourage co-operation is provided by a reduced sentence, and the common law, and now statute, have accepted that this is a price worth paying to achieve the overwhelming and recurring public interest that major criminals in particular, should be caught and prosecuted to conviction”.

An inducement is an inverse deterrence. Just as sometimes it is appropriate to sentence as a deterrent, it is also appropriate to encourage others to cooperate. Dougall dealt with where a sentence is following a discount and takes you into suspended sentence territory. Now, a sentence of 2 years or less can be suspended. At paragraph 35 of Dougall, the Judge questioned what the difference in practice is between the defendant who pleads guilty at the first available opportunity, but does not give the cooperation and assistance involved in the cooperation agreement, and the defendant who takes on the full burdens involved in being a party to such an agreement? There will still be a prison sentence but the actual time in custody is small, making it a disincentive to cooperate.

At paragraph 36 of Dougall, the Judge stated “…where the appropriate sentence for a defendant whose level of criminality, and features of mitigation, combined with a guilty plea, and full co-operation with the authorities investigating a major crime involving fraud or corruption, with all the consequent burdens of complying with his part of the SOCPA agreement, would be 12 months’ imprisonment or less, the argument that the sentence should be suspended is very powerful”. Now that is 24 months.There is no automatic right of suspension.

This is not a case where the Prosecution and Defence have agreed a sentence, departing from normal constitutional rules. The Prosecution and Defence have done what they can which is to remind the Judge of his powers and remind him of the authorities.

The question is whether given the serious offending of Dr Turner, there is justification for suspending the sentence.

There is little distinction between him and Mr Jennings. Dr Turner had day to day involvement in Iraq and Indonesia and therefore has equal culpability.

The starting point is 4 years if convicted by trial. He is entitled to having a third discounted and then half, or to a two thirds discount. The result either way is the same, a 16 month sentence. Should this 16 month be suspended? The important factors are:

  1. the quality of his evidence;
  2. the delay/lapse of time which was not his fault; and
  3. that he made a voluntary repayment of $40,000 to the US authorities so there can be no further confiscation order against him.

It is a combination of these factors which persuades me to suspend this 16 month sentence for 2 years.

There must be a punishment. Mr Jennings will do 300 hours of unpaid work and will pay £10,000 towards prosecution costs.

[Turning to Dr Turner] It is necessary to give encouragement to those involved in serious crime to cooperate with authorities.  You very narrowly indeed escaped going to prison. The sentence on you will be suspended for 2 years so that if at any time you commit any other offence worthy of imprisonment, and I mean any other offence at all, you will serve that time.

If you fail to do the 300 hours of unpaid work, you will be in breach and you will go to prison.

You must pay £10,000 towards prosecution costs.

[Counsel concluded by making submissions regarding fixing dates for the confiscation proceedings for Dr Papachristos and Mr Kerrison]

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