Biggest Fine on Lax Financial Crime Systems, Controls Hits Insurance Broker
The Financial Services Authority has fined insurance broker Willis Limited £6.895 million for its poor anti-bribery and corruption systems and controls, so far the biggest fine that the regulators imposed on such failure.
The penalty comes after the enforcement of Britain’s Bribery Act earlier this month instead of its April schedule, during which time Deloitte released a report showing that most provisions of the Act remained unknown to most enterprises.
PricewaterhouseCoopers reported in December 2010 that even Christmas gifts of a gold fountain pen or a case of champagne could mean bribery under the new regulations, which gives no tolerance even to little “facilitation payments”.
From 2005 to 2009, Willis Limited paid £27 million to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions.
But the London-based insurance broker lacked an “adequate commercial rationale” to support its payments to overseas third parties, thereby creating an “unacceptable risk” in which the payments could be used for “corrupt purposes” according to the FSA.
In January 2009, the FSA also fined Aon Limited £5.25 million for failing to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption associated with making payments to overseas firms and individuals.
Tracey McDermott, acting director of enforcement and financial crime, said: “Willis Limited failed to take the appropriate steps to ensure that payments it was making to overseas third parties were not being used for corrupt purposes. This is particularly disappointing as we have repeatedly communicated with the industry on this issue and have previously taken enforcement action for failings in this area.”
In November 2007, the FSA sent out an industry-wide letter to commercial insurance intermediaries to remind them of their regulatory obligations in relation to bribery and corruption risks.
In addition, the FSA found that, up until August 2008, Willis Limited failed to “ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them, and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.”
The insurance broker has taken significant steps to address the failings identified by the FSA and has vowed to review past payments made to overseas third parties to identify any inappropriate payments.
Brendan McManus, CEO of Willis Limited, said: “When we discovered some of our businesses had not got that right in the past, we were swift to engage with the FSA towards today’s regulatory resolution. Our close co-operation has been recognised by the FSA and we are grateful to them for that. It goes without saying that our compliance framework and its application across the business are now very robust and central to the leadership of the company. We can now move forward, stronger as a result.”
During the investigation, Willis Limited identified as suspicious a number of payments totaling $227,000 which it made to two overseas third parties for a business carried out in Egypt and Russia. These were subsequently reported to the Serious Organised Crime Agency.
“These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes,” the FSA said in a statement.
Additionally, between January 2005 and May 2009, Willis Limited allegedly failed to ensure that its staff recorded an adequate commercial rationale each time it engaged an overseas third party, and that they carried out sufficient due diligence.
Although the company improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them.
Nonetheless, the FSA found no unlawful acts with the company’s engagement with third parties, Willis Limited said.
“Comprehensive and effective action has now been taken by the company to remedy these issues,” it added.
Lastly, the FSA claimed that the insurance broker’s senior management “did not receive sufficient information about the performance of Willis Limited’s relevant policies” that would have enabled them to assess whether bribery and corruption risks were being mitigated effectively.
“The involvement of UK financial institutions in corrupt or potentially corrupt practices overseas undermines the integrity of the UK financial services sector,” McDermott said.
The action we have taken against Willis Limited shows that we believe that it is vital for firms not only to put in place appropriate anti-bribery and corruption systems and controls, but also to ensure that those systems and controls are adequately implemented and monitored.”
In May 2010, the FSA published the results of its thematic review into the adequacy of the systems and controls in place at a number of commercial insurance intermediary firms for preventing illicit payments and inducements particularly through the use of overseas third parties.
In June 2011, the FSA launched a consultation on its financial crime guide, which contains good and poor practice for firms on anti-bribery and corruption systems and controls. The consultation will close on September 21, 2011.