UK anti-corruption laws are tightening. Richard Burger explains their effects in the insurance arena.
Last year the Organisation for Economic Co-operation and Development (OECD) criticised the UK’s failures to bring its anti-bribery and corruption laws into line with its international obligations under the OECD’s Anti-Bribery Convention. Late out of the blocks, it is therefore not surprising that the UK Government has stepped up its efforts to close the gap with its OECD partners.
Last year saw the Serious Fraud Office (SFO) appoint Keith McCarthy as its new head of anti-corruption. The SFO also intends to increase the number of investigators it has on anti-corruption work from 65 to around 100. SFO director Richard Alderman says that the SFO “…has a vital role to play in ending corruption and the additional investigators the SFO was now making available for this work, shows [its] commitment to this.”
Earlier in the year, the City of London Police Overseas Anti-Corruption Unit secured its first criminal conviction under the Prevention of Corruption Act 1906 against a company director of a British security company accused of making illicit payments to Ugandan public officials. The then business secretary, John Hutton MP, remarked: “Corruption hurts honest companies and raises the cost of doing business. This is the first of what I hope will be many victories for the unit in the fight against corruption and bribery.”
There seems to be a drive from the Government and UK law enforcement agencies to tackle anti-bribery and corruption issues to include the current bribery laws. In November 2008, the Law Commission published its final report on bribery offences alongside a draft Bribery Bill.
Previous attempts to pull together the UK’s bribery laws, consisting of a patchwork of common law and statutory offences, were met with resistance and criticism. However, in the current climate, there seems a greater resolve to update the bribery law and actively encourage companies, including their senior management, to install robust anti-corruption systems and controls.
The Law Commission recommends replacing the current common law and statutory offences with two general offences of bribery and one specific offence of bribing a public official, plus a new corporate offence of negligently failing to prevent bribery. With custodial sentences of up to 10 years, company directors will need to be aware of and understand these new offences.
The FSA is the UK law enforcement agencies’ relay partner in the fight against corruption.
Commenting on the £5.25m fine of Aon for breaching Principle 3 of the FSA’s Principles for Businesses, in particular failures to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption associated with payments to overseas parties, the FSA director of enforcement states: “The FSA has an important role to play in the steps being taken by the UK to combat overseas bribery and corruption. We have worked closely with other law enforcement agencies in this case and will continue to take robust action focused on firms’ systems and controls in this area.” It is of note that the FSA comments on: “… the pro-active determination of Aon’s current senior management to identify past issues and improve the firm’s systems and controls in this area is a model of best practice that other firms may wish to adopt.”
Testing Systems
Due to its cooperation with the FSA, Aon’s fine was reduced by 30%. The FSA’s current thematic review of the anti-bribery systems and controls of a number of commercial insurance intermediaries, in particular systems to prevent illicit or inducement payments to third parties, may result in a wider thematic review. As a consequence those firms that are in a brokerage chain where third party payments may be made, may wish to stress test their existing systems against the following areas flagged by the recent FSA enforcement action:
- Identification of risks – firms need to be proactive to investigate and assess the risks of illicit payments to third parties. Firms that make direct payments have the most control; however further along the brokerage chain the greater the risk that the payment or netting off may be a prohibited payment. How far the FSA expects firms to assess these risks will probably depend on the jurisdiction where payments are made. Firms may wish to consult the corruption indicators prepared by various organisations, such Transparency International’s corruption perceptions index.
- Staff training – carefully drafted systems and procedures are meaningless if employees are not correctly trained how to use them, identify potential corruption risks, undertake appropriate due diligence and report concerns to senior management. Staff training, and not just one-off training during induction, is key to any anti-corruption system and control.
- Self-check – before payments are made firms need to ask themselves where the payment seems appropriate. If in any doubt, further due diligence and questions should
- be asked.
- Robust payment authorisation procedures – firms should only allow payments that are authorised by employees or managers with appropriate seniority.
- Due diligence – existing anti-financial crime checks, such as Know Your Client checks for anti-money laundering, can be tailored to ensure sufficient due diligence on third parties.
- Ongoing relationships – established third party relationships require ongoing monitoring.
- Management information – to ensure adequate stress testing of anti-corruption systems and controls, payment authorisation procedures and staff training, senior management require accurate and up-to-date management information.
As UK law enforcement agencies and the FSA increase their efforts to combat bribery and corruption, regulated firms need to do the same. The costs of failing to identify bribery and corruption risks for a firm’s business go far beyond mere criticism; unfortunately, regulatory fines and even criminal sanctions could follow. Now is time to be ahead of the race. n
Richard Burger is a solicitor in the commercial and regulatory group of law firm, Reynolds Porter Chamberlain LLP. He is a former FSA enforcement lawyer
