The FSA has fined Willis Limited £6.895m for failings in its anti-bribery and corruption systems and controls. Willis fully co-operated with the FSA and settled the enforcement at the earliest possible stage; but for that the fine would have been £9.85m. This fine follows on from the fine of £5.25m on Aon Limited in January 2009 and the FSA’s May 2010 thematic review into the adequacy of systems and controls at a number of insurance brokers.
The FSA final notice expressly notes that the FSA did not determine whether any business was in fact corrupt.
The FSA proceedings relate to payments made between January 2005 and December 2009, all before the Bribery Act 2010 came into force on 1 July this year.
There is no criticism in the final notice, even indirectly or implicitly, of any insurer, and all the FSA’s anti-bribery and corruption work in the insurance industry to date has focused on intermediaries rather than insurers, but the proceedings could nonetheless have significant implications for insurers and managing agents.
The facts of the case
The case relates to payments made by Willis Limited to overseas third parties, especially in high risk jurisdictions. There is no focus, and no criticism of procedures relating to the business in the United Kingdom. Willis Limited paid approximately £27m commission to overseas third parties based in high risk jurisdictions for introducing new business, out of gross commission or brokerage earned by Willis on that business of £59.7m. The FSA’s criticisms were threefold:
- Willis failed to establish and record in its documentation an adequate commercial rationale for the payments. The mere statement that the payments were to introducers or producing brokers, without any specific or detailed explanation of the nature of the overseas third party’s role, was inadequate.
- Willis failed to undertake adequate due diligence on the overseas third parties and to evaluate the risk involved in doing business with them. In particular they should have investigated whether the overseas third party was connected with the insured, the insurer or public officials. In some cases, payments were made to companies with opaque corporate structures and there were unusual payment arrangements, such as to individuals or to bank accounts in different countries to those where the payee was based. The FSA final notice describes favourably Willis’ new enhanced due diligence which provides that where the insured or the third party to whom payment is being made is a government entity or based in a country with a higher perceived risk of bribery and corruption, there should be enhanced due diligence including checking the payee’s ownership and making checks on any shareholders with a 25% or greater shareholding.
- Willis failed adequately to review its relationship with the overseas third parties on a regular basis to confirm whether it was still necessary and appropriate to continue the relationship.
Implications for insurers
Insurers and managing agents, together with all other regulated firms including intermediaries, are required to take reasonable care to establish and maintain effective systems and controls to counter the risk that they might be used to further financial crime (SYSC 3.2.6). An insurer therefore needs to ensure that both its agents and employees are not making potentially improper payments to win business.
London market insurers’ risk is greatly reduced by the fact that in most cases the only payment they make is to the London broker directly introducing the business to them. Where insurers deal direct and make payments to overseas intermediaries, especially in high risk jurisdictions, their need for anti-bribery systems and controls is far greater.
To avoid committing the offence under section 7 of the Bribery Act 2010, which arises if an associated person bribes another person intending to obtain or retain business for the insurer, insurers must maintain adequate procedures to prevent bribery by associated persons. An associated person is defined as an organisation which performs services for or on behalf of an organisation. There is doubt whether, in the ordinary course, a broker introducing business to an insurer will be an associated person, but the SFO has said the relevant sections of the Bribery Act were intended to have wide application, so we think insurers would be acting prudently to treat all brokers as associated persons. When there is a placement services agreement (PSA) or market services agreement (MSA) between an insurer and broker for the provision of services in return for payment to the broker, then the broker will undoubtedly be an associated person.
The Ministry of Justice guidance on the Bribery Act in the case of supply chains (such as the relationship between insurer, placing broker and producing broker) indicates that it is normally sufficient for the insurer to undertake risk based due diligence and impose anti-bribery terms and conditions in its relationship with its immediate counterparty, and by requesting that counterparty to adopt a similar approach with the next party in the chain. There is a recognition that they may not even know the identity of parties further down the chain. This will be sufficient to avoid committing an offence under the Bribery Act, but may not be sufficient to satisfy the FSA an insurer has effective systems and controls.
Where insurers enter into service agreements with brokers, in the light of the Willis fine we consider it is essential to identify the jurisdictions and industries from which the relevant business emanates. The risk is not just that the payment to the broker under the PSA or MSA may be viewed as improper, but that it may be used by the broker to pay bribes to third parties to win business for the insurer. There needs to be adequate commercial rationale for the payment.
In the FSA’s final notice, high risk countries were treated as those with a rating of 5 or less on the corruption perceptions index published by Transparency International. High risk industries were described as including aviation, marine and energy. PSA and MSA agreements with brokers should always contain antibribery clauses and require anti-bribery systems and controls, but more than that is necessary where business emanates from high risk territories or high risk industries.