Richard Powell | Bloomberg Law
FSA fines Willis Limited £6.895 million for anti-bribery and corruption systems and controls failings – Financial Services Authority Press Release FSA/PN/066/2011 of 21 July 2011; Final Notice to Willis Limited – Financial Services Authority, 21 July 2011
It is fitting that with the entry into force of the Bribery Act 2010 on 1 July 2011, that the Financial Services Authority (FSA) has fined insurance broker, Willis Limited, £6.895 million for failings in its anti-bribery and corruption systems and controls. The UK regulator last took similar action in January 2009 against Aon Limited, an FSA authorised firm.1 Willis’ failings relate to what are described as “unacceptable risks,” rather than actual bribery and corruption, although as a result of the investigation a number of suspicious payments were reported to the criminal authorities to look into further.
The FSA’s action against Willis is regulatory in nature and brought in respect of contraventions of its Principles for Businesses (PRIN) and its Senior Management Arrangements, Systems and Controls manual (SYSC). It should not be confused with the prosecution of offences under the new Act which fall primarily within the remit of the Serious Fraud Office and the Crown Prosecution Service.2 Nonetheless, the effectiveness of the systems and controls put in place by authorised firms to comply with FSA rules will be highly relevant if the issue of “adequate procedures” arises in the context of a criminal investigation, a matter on which the Ministry of Justice has published guidance.3
Overseas Third Parties
Willis is one of the principal insurance and reinsurance brokers in the London Market and is an FSA authorised firm. Its business covers a range of industries in different countries. As brokers, the firm frequently makes payments to third parties. Typically these include payments to a co-broker who has facilitated the placement of a policy or to a local broker providing administrative and issuance services. Payments may also be made to other third parties who have introduced clients and provided market information.
The FSA considers that certain countries and industries in which Willis transacts business pose a high risk of bribery and corruption (e.g., Egypt and Russia). There exists, therefore, a significant danger that some monies paid to overseas third parties could be used by them for improper purposes (e.g., the payment of bribes to persons associated with an insured, insurers or a public servant). The FSA’s Final Notice explains that Willis Limited should have had in place proper controls to identify with whom it was dealing and, the rationale for relationships with overseas third parties. It should also have been clear about what it expected to receive in return for payments made by third parties.4
Failings
However, the UK regulator has ascertained that from 2005, the first year the FSA was responsible for the regulation of insurance mediation, until 2008, that Willis had failed to ensure that “it established and recorded an adequate commercial rationale” to justify payments to overseas third parties. A proper business case would have had to show these were necessary, but there was no internal guidance to indicate the amount of detail required, nor formal training given to staff in this repect. On the facts, most overseas third parties were located in high risk locations and the justification, for example, for sharing commission, was insufficiently recorded. Moreover, as a result, the FSA considered that Willis’ management could not assess whether its controls were in fact adequate.
A further failure concerned the amount of due diligence performed on overseas third parties. If this had been carried out effectively it could, amongst other matters, have helped to establish the nature of their relationship to the insured, insurer and/or any public servants and informed a risk assessment on whether the third parties might make improper payments. Although Willis had performed a degree of due diligence for high risk jurisdictions, the FSA considered this to be insufficient.
Other shortcomings saw an insufficient level of supervision of staff to ensure compliance together with inadequate review and involvement by senior management.
Dear CEO Letter
With the arrival of a new General Counsel in 2007, Willis initiated a review of its anti-bribery and corruption policies. According to the FSA this focused mainly on procedural requirements rather than substantive issues. In November that year, the FSA issued a “Dear CEO” letter to all wholesale insurance broker firms.5 This set out the regulator’s expectations of firms in the sector over payments to third parties and the need to review existing arrangements to check that they were appropriate. Following Willis’ review, a new policy was announced in August 2008 which, in particular, provided that payments made with the intention of securing an improper advantage (including those made for that purpose by overseas third parties) were prohibited. Moreover, the policy stipulated the need to make out and record a business case before commission could be shared.6
Despite this step, the FSA found that staff failed to adhere to the new policy in a large number of cases neglecting to carry out the required level of due diligence. There was, for instance, a reliance on “informal and undocumented means of carrying out due diligence on overseas third parties”7 which was not identified by management. In late 2008, Willis began a further review into how its policy was being implemented. Amended guidance was issued in spring 2009, shortly after the FSA’s enforcement action against Aon Limited.
Findings
The FSA investigation found that Willis had contravened Principle 3 of its Principles for Business,8 which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. It had also breached the underlying FSA rule at SYSC 3.2.6 R.9 The regulator views Willis’ failings seriously on the basis that the involvement of UK firms in corrupt or potentially corrupt practices tends to undermine the integrity of the financial services sector. Moreover, it runs the risk of an authorised firm, supervised by the FSA, contravening the Bribery Act and thereby committing criminal offences. As Willis was a market leader it helps set a climate for others in the industry. Moreover, the failings had continued over a number of years during which the broker had earned commission of £59.7 million from business introduced by overseas third parties in high risk countries. There were also a number of payments in respect of business in Egypt and Russia which were of sufficient concern for the FSA to refer to Serious Organised Crime Agency.
On the other hand, Willis’ failings were mitigated in part by the steps, albeit insufficient, that it had taken from 2007 to reduce the risk of involvement in bribery and corrupt practices. These efforts had been stepped up from the spring of 2009, and subsequently, when it had continued to strengthen its systems and controls and enhance its compliance function. This had been accompanied by a full review of past payments to overseas third parties and the taking of disciplinary action against staff where appropriate.10 Steps to improve management information and address weakness in governance and oversight had also been set in train. Of interest perhaps to law firms, the FSA cites in mitigation the attendance of Willis’ employees at a law firm seminar on the Bribery Act. In the event, given its co-operation with the investigation and early settlement, Willis’ financial penalty was reduced by 30 percent from almost £10 million originally.
Practice over Policy
The most salient message from this action is that it is not enough for firms to have policies and guidance in place, but senior management must see they are adequately implemented. In the FSA’s view, the industry has long been on notice of its concerns and unlike the Bribery Act no period of grace is available. In the criminal context, it serves as a reminder to firms of all types, whether FSA authorised or not, which seek to rely on the “adequate procedures” defence to the new corporate offence of bribery, that systems and controls must be adequate in practice and reviewed regularly by compliance and management.
Disclaimer
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