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7.1.2010 UK firm Octel bribed Iraqis to keep buying toxic fuel additive

BY David Leigh, Rob Evans and Mona Mahmood

The former chief executive of a British chemical company faces the prospect of extradition to the US after the firm admitted million-dollar bribes to officials to sell toxic fuel additives to Iraq.

Paul Jennings, until last year chief executive of the Octel chemical works near Ellesmere Port, Merseyside, and his predecessor, Dennis Kerrison, exported tonnes of tetra ethyl lead (TEL), to Iraq. TEL is banned from cars in western countries because of links with brain damage to children. Iraq is believed to be the only country that still adds lead to petrol.

The company recently admitted that, in a deliberate policy to maximise profits, executives from Octel – which since changed its name to Innospec – bribed officials in Iraq and Indonesia with millions of dollars to carry on using TEL, despite its health hazards.

The firm's Lebanese agent, Osama Naaman, was extradited and agreed this week to plead guilty and co-operate with US prosecutors. Although the US department of justice has run much of the case, the Serious Fraud Office is keen to claim jurisdiction.

Senior Iraqi oil ministry officials are accused of taking British bribes throughout the UK-US occupation, up until 2008. Ahmad al-Shamma, the deputy oil minister in Iraq, told the Guardian he would investigate the charges. He strongly denied courtroom allegations that he himself had taken a free holiday in Thailand. He said he had never been to Thailand and that a middle man involved, now under arrest in the US, may have pocketed the alleged payment himself.

Both Jennings and Kerrison are identified in court statements by the US department of justice, which is conducting an expanding corruption investigation and may seek Jennings's extradition to the US, according to legal sources.

Jennings says he is not free to comment on the allegations against him. Kerrison, who left the firm five years ago, denies wrongdoing and says he is being made a "fall guy" by his old company. The firm agreed to pay relatively small corporate fines of $40m (£26.7m). It said the matter was a "deeply regrettable chapter of our history" and "nothing like this will ever happen again". Both Jennings and Kerrison separately obtained multi-million pound payoffs from their company.

Jennings stepped down in March 2009, and the board said it had now "replaced members of senior management who were involved in, aware of or who should have been aware of the criminal conduct, including Innospec's CEO".

Jennings, now finance director of the Birmingham-based waste firm Biffa, said he could not comment because "there are currently investigations in the UK and US into the conduct of a number of individuals connected with Innospec".

Kerrison bought a wine estate near Cape Town, South Africa. Photos in local magazines show him relaxed in shorts, with a celebratory glass of his own Doolhof Sauvignon in his hand."It is not the case that I have in some way been living off ill-gotten gains." He had no indication that he faced prosecution or extradition, he said.

US prosecutors say multi-million dollar bribes to Iraq were agreed in 2001-3, when Kerrison was chief executive. A formal sentencing document said: "Innospec admits its former chief executive officer … approved payment of the kickbacks."

Kerrison says these are "false accusations". He told us: "Obviously there has been a serious fall-down in how Innospec has done business, including illegal transactions, and as an ex-CEO I feel a degree of responsibility as some of it was on my watch." But he said that he had not been personally aware of it: "I have not authorised any bribes, backhanders, or other illegal or dubious payments."

A decade ago, Octel decided to remain the world's only manufacturer of TEL for cars, after it was banned in the US and Europe. They used high profits from non-western countries to diversify into other products and to pay back investors, mainly US hedge funds run by Connecticut billionaire Jeffrey Gendell. According to prosecutors, the strategy included the corrupt blocking of health campaigns.

In Iraq, bribes were paid in 2007 to sabotage field trials of MMT, a non-lead alternative additive. In Indonesia, money was poured into a "defence of lead" campaign to pay off local politicians. The phase-out of TEL was successfully delayed for five years. One Octel executive wrote: "As you are aware, Indonesia was planning to go lead free in 2000 … this obviously did not happen for a number of reasons and since 1 January 2000 until the present, we have supplied 28,390 tons of TEL … generating $277 million in revenue."

The leniency of the corporate plea bargain caused protests from Lord Justice Thomas this year at one of the corporate sentencing hearings in London. He said "No such arrangement should be made again." US and UK prosecutors agreed the firm could not afford to pay more. But the company allegedly handed out $26m in dividends when it knew it was under investigation, according to the US department of justice.