"UK Regulators Announce Significant Anti-Corruption Settlements"
Anti-bribery enforcement actions by the UK Financial Services Authority against Willis Limited and by the UK Serious Fraud Office against Macmillan Publishing Limited continue the trend of activity by UK authorities in pursuing corporate anti-corruption matters with significant penalties. The actions also make clear that increased information is available to regulators through a variety of sources; that risk assessments remain an important component of an effective compliance program; and that compliance procedures should be practical, effective, and overseen by senior management and board governance bodies. Given active enforcement and continued cooperation among regulators, companies should consider enhancing their compliance programs and their strategic responses to regulators should an inquiry arise.
On July 21, 2011, the UK Financial Services Authority (FSA) issued a Final Notice imposing a penalty of £6.895 million on insurance broker Willis Limited (Willis) relating to inadequate controls over third parties who assisted in securing business in jurisdictions with perceived high corruption risks. The Final Notice describes the following bases for the enforcement action:
- between January 2005 and August 2008, Willis did not adequately establish and record the business rational for use of third parties; did not perform sufficient due diligence of third parties; and did not ensure that employees complied with record keeping and diligence requirements regarding third parties;
- Willis introduced improved anti-bribery policies and guidance in August 2008, but did not ensure that the policies were adequately implemented; and
- Willis’ board did not receive sufficient information from management to assess the performance of the company’s improved anti-corruption policies.
The Final Notice states that during the period relevant to the enforcement action, Willis paid approximately £27 million to third-party agents in perceived high-risk jurisdictions. Willis’s gross commission or brokerage fees earned in relation to the business that was introduced by these agents was approximately £59.7 million. The FSA did not seek to determine whether the commission payments constituted bribes; rather, the enforcement action was premised on a theory of inadequate controls to prevent and detect bribery. The Final Notice does note, however, that during the FSA investigation, Willis identified a series of payments totalling £227,000 to two agents in relation to business in Egypt and Russia, which were referred to the Serious Organised Crime Agency as suspicious.
The FSA’s Final Notice states that Willis’ conduct was not deliberate or reckless, and describes the factors that led the FSA to conclude that the control failures were “serious,” as well as factors that mitigated the penalty. With regard to the seriousness of the conduct, the Final Notice explains that the FSA sent a “Dear CEO” letter to regulated wholesale insurance broker firms in November 2007, setting forth the FSA’s expectation that firms would review their business practices and controls in relation to third parties. This warning letter set the context for the FSA’s “Anti Bribery and Corruption in Commercial Insurance Broking” report published in June 2010, during which the FSA reviewed 17 firms. The Final Notice observes that, although Willis conducted a review and enhancement of its systems and controls, its anti-corruption procedures were not effectively implemented.
The penalty of £6.895 million incorporates a 30 percent discount for early settlement, pursuant to the FSA’s executive settlement procedures. The FSA also credited remedial actions taken by Willis beginning in May 2009 and continuing into 2010, including:
- enhanced monitoring of the procedures to perform due diligence and retain agents;
- increased independence of the compliance function;
- additional detail and recordkeeping regarding the nature of commission payments, including separate payment category for “introducers”; and
- additional employee training and guidance.
Macmillan Publishers Limited
On July 22, 2011, the Serious Fraud Office (SFO) announced that it had taken action resulting in a civil recovery order requiring Macmillan Publishers Limited (Macmillan) to pay approximately £11.3 million to resolve an investigation regarding unlawful payments to secure contracts in relation to business in Africa. In addition to the disgorgement order, Macmillan will be subject to a review by an independent monitor who will report to the SFO and World Bank within 12 months.
The investigation of Macmillan, which focused on the company’s Education Division, was initiated by the World Bank as a result of an agent’s attempt to improperly influence the award of a tender in Southern Sudan. The City of London Police executed search warrants in December 2009, and Macmillan subsequently made a report regarding the matter to the SFO. In relation to the SFO investigation, the SFO required Macmillan to follow the SFO’s published guidance regarding cooperation in corruption investigations. Pursuant to that guidance, Macmillan conducted a series of internal reviews and investigations, reported the results to the SFO, and continued to cooperate with the City of London Police and the World Bank.
In particular, following a books and records review to identify potential corruption risks, Macmillan conducted detailed internal investigations into business in Rwanda, Uganda and Zambia. The SFO’s announcement of the settlement does not identify specific improper payments; rather the SFO states that “[i]t was impossible to be sure that the awards of tenders to the Company” in these countries “were not accompanied by a corrupt relationship.”
The SFO identified the following factors, among others, as consistent with its guidance on cooperation, as justification for a civil (rather than criminal) resolution:
- Macmillan cooperated with the SFO in its investigation;
- Macmillan complied with demands of other authorities, including the World Bank Group;
- Macmillan has been debarred from participating in World Bank tenders for at least three years and has ceased all active and prospective tenders in relation to its Education Division business (whether funded by the World Bank or not), resulting in significant prospective revenue and loss of bid securities; and
- products supplied by the company were of a good quality and there was no information to support a conclusion that products were overpriced.
The FSA has firmly placed anti-corruption systems and controls on its watch list for regulated entities. Following its investigation of AON Limited, the FSA conducted its first thematic and sectoral review focusing on anti-bribery controls at insurance brokerage firms. The FSA concluded that a number of firms did not have “adequate procedures” and a general warning letter was issued to firms to enhance their systems and controls with respect to overseas third parties. The Willis Final Notice makes clear that the FSA views anti-bribery controls as mandated by the FSA’s Principles for Business, which require “adequate risk management systems,” as well as under Rule SYSC 3.2.6 R of the FSA’s Senior Management Arrangements, Systems and Controls Handbook, which requires controls for countering risks of financial crime. The publication of CP 11/12 Financial Crime: A Guide to Firms in June 2011, is further indication of the FSA’s focus on anticorruption systems and controls for regulated entities.
Regulatory guidance emphasizes the importance of assessing risk, addressing risk, and ensuring appropriate internal escalation of risk and compliance procedures. With the UK Bribery Act now in force, regulators have issued guidance reflecting their expectations regarding control procedures: the FSA’s CP 11/12, the Ministry of Justice Adequate Procedures Guidance, and Bribery Act 2010: Joint Prosecution Guidance. As an immediate matter, both enforcement actions underscore the importance of tailoring control procedures to specific industry and geographic risks. The FSA’s action in Willis demonstrates the importance of procedures that function in practice, and the necessity of fulsome internal reporting to senior management and governance bodies. The requirement of effective implementation is echoed in the Ministry of Justice Adequate Procedures Guidance Principle 6: Monitoring and Review.
Enforcement authorities with concurrent jurisdiction over corruption are increasingly working together on investigations, requiring careful and strategic responses to regulatory inquiries. The Macmillan and Willis actions exemplify the number of regulators who may be involved in overseas corruption investigations, here the SFO, FSA, City of London Police and World Bank. Existing guidance from the SFO and FSA outline each agency’s approach to concurrent jurisdiction, parallel investigations and “primacy” in bringing enforcement proceedings. The SFO concluded a Memorandum of Understanding with the World Bank in December 2010, reflecting active collaboration by law enforcement, prosecutors and international organisations. In light of increased information-sharing among regulators, a company faced with a potential law enforcement issue should take careful and strategic steps to mitigate risk in relation to multiple regulators.
The FSA and SFO have highlighted the importance of cooperation in an investigation, but the risks and benefits of voluntary disclosure and cooperation should be weighed on a case-by-case basis. In resolving the Macmillan investigation, the SFO emphasized the company’s compliance with its guidance regarding reporting overseas corruption. In so doing, the SFO has sought to underline the benefits of: (i) fulsome and timely cooperation; (ii) ongoing compliance enhancements before and throughout the investigation; and (iii) agreeing to the appointment of a monitor. In a similar vein, the FSA’s Final Order in the Willis matter describes the importance of practical and effective action in response to indications of risk. Nevertheless, the decision to self-report potentially improper conduct remains subject to a number of factors that require careful consideration of the unique facts and circumstances of each suspect transaction or set of transactions.
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