This post analyzes the DOJ and SEC enforcement actions against Aon Corporation (one of the largest insurance brokerage firms in the world) announced yesterday. Total fines and penalties are approximately $16.3 million ($1.8 million via a DOJ non-prosecution agreement and $14.5 million via a settled SEC civil complaint).
The NPA (here) begins as follows. The DOJ will not criminally prosecute Aon Corporation or its subsidiaries for any crimes “related to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions of the FCPA .. arising from and related to the making of improper payments to government officials in Consta Rica in order to assist Aon in obtaining and retaining business” or “for the conduct related to improper payments and associated recordkeeping […] relating to Aon’s improper payments in Bangladesh, Bulgaria, Egypt, Indonesia, Myanmar, Panama, the United Arab Emirates, and Vietnam that it discovered during its thorough investigation of its global operations.”
The NPA has a term of two years. As is typical in FCPA NPAs or DPAs, Aon agreed “not to make any public statement” contradicting the below facts.
According to the NPA, the DOJ agreed to resolve the action via an NPA based, in part, on the following factors:
(a) Aon’s extraordinary cooperation with the DOJ and SEC;
(b) Aon’s timely and complete disclosure of facts relating to the above payments; [unlike many corporate FCPA enforcement actions, the Aon action does not appear to be the result of a voluntary disclosure; as stated in Aon’s most recent quarterly SEC filing, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”]
(c) the early and extensive remedial efforts undertaken by Aon, including the substantial improvements the company has made to its anti-corruption compliance procedures;
(d) the prior financial penalty of 5.25 million paid to the U.K. Financial Services Authority (“FSA”) [see here] by Aon Limited, a U.K. subsidiary of Aon, in 2009 concerning certain of the conduct at issue; and
(e) the FSA’s close and continuous supervisory oversight over Aon Limited.
The NPA’s Statement of Facts begin by detailing the business of reinsurance – that is insurance for insurance companies. Specifically, the NPA states as follows. “Reinsurance involves the transfer of all or part of the risk of paying claims under a policy from the insurance company that issued the policy to a reinsurance company. A reinsurance broker arranges this transfer of risk, which takes place under a contract of reinsurance. The insurance company is the reinsurance broker’s client and the broker acts on behalf of the insurance company. The broker collects the premium due from the insurance company under the contract of reinsurance, and is typically paid for its services by retaining a portion of the premium for its own account. The portion of premium retained by the broker is known as ‘brokerage.'”
The conduct at issue focuses on the Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company” (here) that “had a monopoly over the Costa Rican insurance industry.” The NPA states as follows. “INS was created by Act No. 12 of October 30, 1924, with the aim of meeting the protection needs of Costa Rican society. All insurance agreements in Costa Rica, including the reinsurance contracts that Aon Limited [a subsidiary of Aon Corporation based in and organized under U.K. law that “reported financially through a series of intermediary entities into its U.S.-based issuer parent] assisted in obtaining to insure Costa Rican entities, were required to be issued through INS. The head of INS was appointed by the President of Costa Rica.”
According to the NPA, a company Aon Limited acquired established a “Training and Education Fund” or “Brokerage Fund” for the benefit of INS “to sponsor training and education trips for INS officials.” The NPA states that the “Brokerage Fund eventually became used for a wide variety of purported ‘training’ purposes, as well as to pay for client renewal trips to European insurers.” The NPA also states that a second training account (the so-called 3% Fund) was funded by premiums to reinsurers and that “INS required that Aon Limited manage the fund, handle the paperwork, and provide reimbursement for the expenses incurred by INS officials.”
According to the NPA, “the supposed purpose of both the Brokerage Fund and the 3% Fund was to provide education and training for INS officials.” However, the NPA states, “Aon Limited used a significant portion of the funds to reimburse for non-training related activity or for uses that could not be determined from Aon’s books and records.”
The NPA cites an e-mail from a former Aon Limited executive which stated as follows. “INS started telling [another brokerage company] how [various reinsurers] were inviting their managers to seminars and were contributing positively to INS’s technological improvement with all expenses paid by the reinsurers. The message was clear to both [the other brokerage company] and ourselves that unless we did the same we would see the gradual process of disintermediation and a continued erosion of our orders.”
The NPA then states as follows. “Aon Limited disbursed nearly all of the $215,000 in the Brokerage Fund from 1997 until 2002, approximately $650,000 of the money in the 3% Fund from 1999 until 2002, and made a small number of additional disbursements from these funds between 2003 and 2005 to pay for the third-party services used by INS officials. These services often included travel related expenses, such as airfare and hotel accommodations, as well as conference fees, meals, and other related expenses for INS officials and their relatives. It was common for INS to hire a
travel agency or tourism company to arrange for the particulars of the travel and educational conferences attended by its officials. The majority of the money paid from the two funds was disbursed to a tourism company in Costa Rica. The director of INS’ reinsurance department, who played an active role in setting up the training funds, served on the board of directors of tourism company. The director of INS’ reinsurance department himself took fourteen trips from 1996 to 2001 with expenses totaling approximately $44,000 that Aon Limited paid from the two funds. The funds also covered the official’s wife’s attendance on at least five of the trips. On several occasions, Aon Limited reimbursed the official directly for expenses that were invoiced for his various trips, sometimes with cash payments. The director of INS took six trips from 1998-2001 with expenses totaling approximately $20,000 that Aon Limited paid from the two funds. The director’s spouse accompanied him on four of these trips. The director of INS, the director of reinsurance at INS, their wives, and another INS official and her husband traveled to Europe in 1998 and charged their expenses of approximately $15,160 to the Brokerage Fund. While these trips had a small business-related component, a significant portion of the funds expended on the trips were used for the personal benefit of the officials and their wives. A substantial number of the trips taken by INS offcials were in connection with conferences and seminars in tourist destinations, including London, Paris, Monte Carlo, Zurich, Munich, Cologne, and Cairo. Many of the invoices and other records for these trips do not provide the business purpose of the expenditures, if any, or showed that the expenses were clearly not related to a legitimate business purpose. In addition, the subject matters of some of the better documented conferences and trainings, such as a literary conference and a Mexican information technology conference, had no logical connection to the insurance industry. INS officials traveled to the United States for approximately twenty-five training events. Aon Limited paid approximately $115,000 out of the funds in connection with these events in the United States. In some instances, Aon Limited paid third parties at INS’s direction where the business purpose of the travel or expenses could not be discerned from the documentation, or where the purpose of the travel and expenses appeared to be improper, such as those pertaining to literary conferences, holiday expenses, and pure entertainment. Aon Limited paid large expenses for hotels, without any indication that the stays were business related. Aon Limited’s employees did not question the requests for payment or reimbursement from the funds. While virtually all payments made in connection with the funds originated in London, Aon Limited made at least forty payments via, or that terminated in, the United States. From 1995 to 2002, Aon Limited [and the company it acquired] earned profits of approximately $1.840,200 in connection with reinsurance brokerage business with INS.”
As to statute of limitation issues, Aon’s recent quarterly filing states as follows. Aon “has agreed with the U.S. agencies to toll any applicable statute of limitations pending completion of the investigations.”
Under the heading “Books and Records/Internal Controls,” the NPA states as follows. “The books and records of Aon Limited were consolidated into those of Aon Corporation. With respect to the Costa Rican training funds, although Aon Limited maintained accounting records for the payments that it made from both the Brokerage Fund and the 3% Fund, these records did not accurately and fairly reflect, in reasonable detail, the purpose for which the expenses were incurred. A significant portion of the records associated with payments made through tourist agencies gave the name of the tourist agency with only generic descriptions such as “various airfares and hotel.” Additionally, to the extent that the accounting records did provide the location or purported educational seminar associated with travel expenses, in many instances they did not disclose or itemize the disproportionate amount of leisure and non-business related activities that were also included in the costs. As a result, during the relevant time period, Aon failed to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its assets and failed to devise and maintain an adequate system of internal accounting controls with respect to foreign sales activities sufficient to ensure compliance with the FCPA.”
Pursuant to the NPA, “Aon admits, and accepts and acknowledges responsibility” for the above conduct; however, there is no suggestion or implication in the NPA that anyone at Aon Corporation knew of, participated in, or authorized the conduct at issue.
See here for the DOJ’s release.
Pursuant to the NPA, Aon agreed to pay a monetary penalty in the amount of $1.76 million. The NPA states as follows. “This substantially reduced monetary penalty reflects the Department’s determination to credit meaningfully Aon for its extraordinary cooperation with the Department, including its thorough investigation of its global operations and complete disclosure of facts to the Department, and its early and extensive remediation. In agreeing to this monetary penalty, the Department also took into account the penalty paid to the FSA relating to Aon Limited’s systems and controls in countries other than Costa Rica.” Pursuant to the NPA, Aon also agreed to “continue to strengthen its compliance, bookkeeping, and internal controls standards and procedures” as set forth in “Corporate Compliance Program” appendix to the NPA.
The SEC’s settled civil complaint (here) begins as follows. “From as early as 1983 until as recent as 2007, subsidiaries of Aon Corporation in numerous countries made improper payments to various parties as a means of obtaining or retaining insurance business in those countries. During this period, over $3.6 million in such payments were made, including some directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the Company’s interest. These payments were not accurately reflected in Aon’s books and records. During this period, Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent these payments.”
According to the SEC complaint, “the improper payments made by Aon’s subsidiaries fall into two general categories: (i) training, travel and entertainment provided to employees of foreign-government owned clients and third parties and (ii) payments made to third-party facilitators.”
As to the first category of payments, the SEC complaint is largely focused on the same Costa Rica / INS payments described in the DOJ’s NPA. Additional payments concern Egypt and the complaint alleges that from 1983 to 2009 Aon (or its predecessor) “served as insurance broker for an Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”). According to the complaint, delegation trips for EAA and EPO officials to various U.S. destinations “had some business component” but also “included a disproportionate amount of leisure activities and lasted longer than the business component would justify.” According to the SEC, the company’s “books and records did not fairly and accurately reflect the true nature of the payments made in connection with the delegation trips.”
As to the second category of payments, under the heading “Payments to Third-Party Facilitators” the complaint alleges as follows. “Aon’s subsidiaries also made payments to third parties that were retained to assist in obtaining accounts in several countries. In some instances, the subsidiaries made payments to the third parties without taking steps to assure that they would not be passed to foreign government officials. The subsidiaries made some payments under circumstances in which the third parties appeared to have performed no legitimate services relating to the prospective accounts, thereby suggesting that they were simply conduits for improper payments to government officials in order to obtain or retain business for Aon.”
In Vietnam, the complaint alleges that “Aon Limited served as a co-broker on an insurance policy for Vietnam Airlines, a Vietnamese government-owned entity, since 2003.” According to the complaint, a third-party facilitator assisted in securing the account and “company record indicate that the third-party facilitator did not provide legitimate services, but instead transferred some of the money that Aon Limited paid under its consultancy agreement to unidentified individuals referred to as ‘related people.'”
In Indonesia, the complaint alleges that “Aon Limited served as a broker on reinsurance contracts with BP Migas and Pertamina, two Indonesian state-owned entities in the oil and gas industry.” The complaint alleges that “several former Aon Limited employees authorized improper payments to government officials in Indonesia to secure the Pertamina and BP Migas accounts for Aon Limited.”
In the United Arab Emirates, the complaint alleges that “Aon Limited provided brokerage services to a privately-held insurance company” and that payments were made “to the general manager of the insurance company as inducements to secure and retain the account for Aon Limited.”
In Myanmar, the complaint alleges that “Aon Limited retained an introducer in Myanmar to assist Aon Limited in connection with its account with Myanmar Airways and Myanmar Insurance, two government-owned entities.” According to the complaint, “company records indicate that the introducer likely used a portion of his commission to improperly influence a government official on Aon Limited’s behalf in connection with the Myanmar account.”
In Bangladesh, the complaint alleges that “Aon Limited made approximately $1.07 million in payments to secure its account with Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities.”
Based on the above allegations, the SEC complaint alleges FCPA books and records and internal controls violations – but not FCPA anti-bribery violations – notwithstanding the fact that the DOJ’s NPA refers to “Aon’s knowing violation of the anti-bribery, books and records, and internal controls.”
As stated in the SEC’s release (here), without admitting or denying the allegations in the SEC’s complaint, Aon consented to entry of a final judgment permanently enjoining it from future FCPA books and records and internal controls violations and ordering the company to pay “disgorgement of $11,416,814 in profits together with prejudgement interest thereon of $3,128,206 for a total of $14,545,020.”
In a release (here) Aon stated as follows. “Since beginning an internal review of these issues in 2007, Aon has put in place a comprehensive, global and robust anti-corruption program designed to prevent and detect improper conduct.” Greg Case, Aon’s President and Chief Executive Officer stated as follows. “Acting with integrity is Aon’s core value and we embody this in our commitment to the highest professional standards for our clients, markets and colleagues. Aon has invested a significant amount of time and resources in anti-corruption compliance and transparency to greatly enhance our controls and processes.”