By Eoin O’Shea
Bribery offences in the UK are mostly policed by the Serious Fraud Office and, sometimes, the City of London Police, between whom there is a significant amount of cooperation.
However there is another very powerful regulator in London, the Financial Services Authority (FSA). As you would expect, the FSA regulates financial firms and can impose significant penalties for non-compliance with the (vast) Financial Services and Markets Act and the (even vaster) FSA Handbook. The FSA has a much larger staff and budget than the SFO, whose budget has recently been cut and about whom there have long been mutterings about merger or disbandment (which I hope won’t happen).
Some of us have long suspected that the UK authorities would start to (informally) share the burden of anti-bribery work, with cases of clear criminality being reserved for the SFO and systems failures, at least among financial firms, being taken up by the FSA. This now looks to be happening.
In 2009 the FSA imposed a £5.25 million ($8.5 million) fine on Aon for failure to have effective anti-bribery systems in place and failing to stop questionable payments to overseas parties. That decision can be found here.
They have today followed this up by imposing a £6.895 million ($11.2 million) penalty on another large insurance broker, Willis. The Willis decision is here. According to Bloomberg, the SFO was aware of the case and happy for it to be dealt with by the FSA.
In neither case did the FSA rely directly on anti-bribery law such as the Bribery Act or the previous Prevention of Corruption Acts. It didn’t have to. Instead, the FSA could simply rely on its own business principles, in particular the very wide Principle 3, which says: “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.” Like the books and records provisions of the FCPA, this can give regulators a very wide jurisdiction on which to hang an investigation or penalty in the field of ABC compliance.
The essence of Willis’s wrongdoing was failures of management, information, systems and controls in the company’s relationships with overseas intermediaries who might have been paying bribes to win business. These are much like the issues which got Aon into trouble in 2009. What is especially telling in the Willis case is that the FSA obviously got into the nitty-gritty detail of how individual appointments were justified and examined by Willis. Plainly, it just isn’t enough to have a set of forms which show that “we followed a process”.
In the Willis case, the FSA cites a failure to demonstrate a proper commercial rationale for the appointments, failure to do proper due diligence, lack of documentation and monitoring of appointees and lack of information getting to committees responsible for anti-corruption policies. As with so much in ABC enforcement, what matters is the substance, not the form, and a “see no evil” approach is heavily frowned on.
The FSA recognised that Willis has cooperated with the investigation, which earned it a hefty 30% credit against the possible penalty. Also, since 2010 Willis seems to have taken a root and branch approach to improving ABC systems and controls, especially around appointing and monitoring overseas third parties, with lots more information being considered by a more robust and independent compliance function. A historic review of all past payments to overseas third parties (which must be costing a pretty penny) is also under way.
So what have we learned? :
a) If you are have a financial services business in the UK the FSA is now very, very interested in your ABC compliance programme;
b) That programme needs to be fully functional, not just an exercise in form-filling;
c) You can get leniency for past sins if you invest in training and external assurance now.
I admit I like point c) the best, but it’s true whether I happen to like it or not.
I am pondering the role played by lawyers and advisers in corporate ethics more generally, especially in light of the scandals surrounding News Corporation where “legal advice” is regularly being cited as a justification by various parties. I hope to write a bit more on this in the near future.
Eoin O’Shea is a partner and Head of the Anti-Corruption Group at Lawrence Graham LLP. His book The Bribery Act 2010: A Practical Guide was published on 29 June 2011 by Jordan Publishing. He can be contacted here.