Actions speak louder than words, leading to FSA record fine

Failure to implement proper anti-bribery controls over payments to overseas third parties leads to FSA record fine

The FSA has today fined insurance and reinsurance brokers Willis Limited £6.895 million for failings in its anti-bribery systems, including failing to implement its own policies in that regard. Those failings created an unacceptable risk that its payments to overseas third parties to help it to secure business from other overseas clients could be used for corrupt purposes. Indeed, the fine would have been over £9.5 million had Willis Limited not agreed to settle at an early stage of the FSA investigation. The fine, under section 206 of the Financial Services and Markets Act 2000, is a stark reminder of the dangers of not having and enforcing sufficient systems and controls dealing with anti-bribery and corruption when making payments to overseas entities. It also demonstrates the importance of not just having appropriate policies, but constantly and consistently implementing them.

The payments to overseas third parties in this case totalled over £27 million and helped Willis Limited to win and retain business from overseas clients, many in high risk jurisdictions. The FSA investigation found that between January 2005 and December 2009, Willis Limited had failed to:

• Ensure that it adequately established and reported a commercial rationale to justify such payments. It should have demonstrated in each case why it was necessary to use an overseas third party to win business and what services Willis Limited would receive from the third party in return for a share of commission. Willis Limited’s policies did not provide any guidance on the amount of detail required when providing each explanation and no formal training was given on this issue. Staff in question only recorded "very brief" descriptions. This meant that Willis Limited could not adequately monitor the effectiveness of its procedures;
• Ensure that adequate due diligence was carried out on the overseas third parties to evaluate the risk involved in conducting business with them. Willis Limited apparently did not carry out enough due diligence, for example, to ensure that those third parties were not connected to various parties, including public officials;
• Adequately review the third party relationship regularly, to confirm whether the relationship should continue; and
• Implement its anti-bribery and corruption policies and guidance. The FSA found that Willis Limited did not take "reasonable care" to ensure that the policies that it put in place were "effective". Although Willis Limited introduced improved policies in August 2008, and even reviewed how its new policies were operating in practice, it failed to ensure they were adequately implemented or even spot at an early stage that they were being poorly implemented. The FSA also noted that the Board, which had been involved in the development of the policies, did not receive sufficient information to enable to them to assess whether the risks were being mitigated properly.

From 2010, Willis Limited took significant steps to address its failings, including introducing a third party introducers approval committee with increased accountability for those involved, better document retention, production of relevant management information and providing staff training and guidance with the introduction of electronic questionnaires and workshops. However, Tracey McDermott, FSA acting director of enforcement and financial crime, is reported to have stated that the failings were:

"particularly disappointing as we have repeatedly communicated with the industry on the issue and have previously taken enforcement action for failings in this area."

"Dear CEO" letters had been circulated to such firms by the FSA in 2007, and in January 2009 the FSA 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. The FSA also considered the failings in this case to be serious given the period they covered and that Willis Limited is one of the largest insurance and reinsurance brokerage firms in the UK and sets an example to other market practitioners and customers. The involvement of such institutions in potentially corrupt practices was deemed to undermine the integrity of the UK financial services sector.

The fine is a record in this context for the FSA, particularly given that there was no evidence that the conduct in question was deliberate or reckless. However, conversely, given that the gross commission earned by Willis Limited from business introduced by overseas third parties based in high risk jurisdictions reportedly amounted to over £59 million during the relevant period, it might be considered that the fine was relatively modest. The record may not stand for long following the implementation of the Bribery Act from 1 July this year. The lesson is clear, however. All organisations are well advised to pay heed to the detailed findings in this case and not rest on their laurels once they have an anti-bribery and corruption policy in place. Detailed implementation and regular review are essential.

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Lawyers David de Ferrars, Julie Simpson Day