This post highlights recent developments from the United Kingdom.
In an enforcement action similar to the 2009 action against Aon Limited (see here) and the 2011 action against Willis Limited (see here), the U.K. Financial Conduct Authority (a regulator of the financial services industry) recently announced that JLT Specialty Limited (JLTSL – a company that provides insurance broking and risk management services) was fined “over £1.8million for failing to have in place appropriate checks and controls to guard against the risk of bribery or corruption when making payments to overseas third parties.”
According to the FCA release:
“JLTSL was found to have failed to conduct proper due diligence before entering into a relationship with partners in other countries who helped JLTSL secure new business, known as overseas introducers. JLTSL also did not adequately assess the potential risk of new insurance business secured through its existing overseas introducers.
JLTSL’s failure to manage the risks created by overseas payments, which occurred between 19th February 2009 and 9th May 2012, breached the FCA’s principle on management and control. During this period, JLTSL received almost £20.7 million in gross commission from business provided by overseas introducers, and paid them over £11.7 million in return. Inadequate systems around these payments created an unacceptable risk that overseas introducers could use the payments made by JLTSL for corrupt purposes, including paying bribes to people connected with the insured clients and/or public officials.”
The FCA’s director of enforcement and financial crime stated:
“These failings are unacceptable given JLTSL actually had the checks in place to manage risk, but didn’t use them effectively, despite being warned by the FCA that they needed to up their game. Businesses can be profitable but firms must ensure that they take the necessary steps to control the risks in that business. Bribery and corruption from overseas payments is an issue we expect all firms to do everything they can to tackle. Firms cannot be complacent about their controls – when we take enforcement action we expect the industry to sit up and take notice.”
The FCA release notes that “JLTSL’s penalty was increased because of its failure to respond adequately either to the numerous warnings the FCA had given to the industry generally or to JLTSL specifically.”
Add Another to the Compliance Defense List
What is most striking about many of the opposition pieces written about FCPA reform is that while opponents of FCPA reform warn of a U.S. retreat on bribery and corruption issues should the FCPA be amended, opponents fail to address the fact that an amended FCPA, or revisions to FCPA enforcement policy, would actually align the FCPA with many FCPA-like laws or enforcement policies of peer nations.
For instance, and as discussed in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” many countries have compliance-like defenses in their FCPA-like law.
Add the Isle of Man, a self-governing British Crown Dependency, to the list. Its recent Bribery Act 2013, largely modeled on the U.K. Bribery Act, states:
“(1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending —
(a) to obtain or retain business for C; or
(b) to obtain or retain an advantage in the conduct of business for C.
(2) But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”
Scrutiny Alerts and Updates
“U.K.’s Serious Fraud Office has opened a formal investigation into concerns that employees of the U.K.-based engineering group may have been involved in bribery and corruption. The maker of engines for aerospace, defense and marine customers said a year ago that it had handed over material to the SFO having previously initiated its own independent review into allegations of malpractice in overseas countries, including China and Indonesia. “We have been informed by the Serious Fraud Office that it has now commenced a formal investigation into these matters,” Rolls-Royce said. Rolls-Royce declined to provide further details on the progress of the investigation. An SFO official confirmed that “a criminal investigation into allegations of bribery at Rolls-Royce” is under way but declined to comment further.”
See here for the related U.K. Serious Fraud Office statement.
As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.
Interesting snippets from a recent Financial Times article – “GSK China Probe Flags Up Wider Concerns” – concerning GSK in China.
“[A]cross the healthcare spectrum, from doctors to hospital officials to sales representatives for rival local companies, there is agreement that foreign pharmaceutical groups are not the main culprits of corruption in the Chinese healthcare industry. Local companies are far more profligate with so-called “commissions” to doctors because they are not subject to the kind of scrutiny that foreign companies face under global anti-bribery laws. A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs.” That situation normally arises when both are local generic businesses, industry analysts say. “In China, foreign drug companies are the best boys, but the parents beat them first,” says one industry insider, echoing a sentiment heard frequently from Chinese doctors who say foreign drug companies pay for educational activities that no one else will pay for in China. “Financial flows – both legal and illegal – tied to drug and device sales are funding perhaps 60-80 per cent of total hospital costs,” says George Baeder, an independent drug industry adviser. “Without this funding, the current system would collapse.” Many drug analysts see kickbacks as structural, and therefore hard to eradicate: central and provincial Chinese governments cannot afford to pay doctors a living wage, and many patients cannot afford to pay the true cost of care. Up to now, Beijing has turned a blind eye as pharma companies find ways to subsidise doctor salaries and underwrite their medical education.”
Speaking of GSK, as noted in this New York Times article, the company recently announced that it “will no longer pay doctors to promote its products and will stop tying compensation of sales representatives to the number of prescriptions doctors write.”
Great Speech, But a Major Contradiction
Ben Morgan (SFO – Joint Head of Bribery and Corruption) recently delivered this speech titled “Striking Tigers As Well As Flies: Non-Selective Anti-Corruption Law Enforcement.”
Morgan talked about “the widely accepted premise that the law should apply to everyone, equally, regardless of any external factors such as the identity of an alleged offender, their background, their status, who they know or, if they are a commercial organisation, their size, their share price, their line of business or their financial resources.”
Morgan stated as follows:
“So if we’re being asked to discuss the need to be non-selective in the way we enforce anti-corruption legislation – to treat all potential defendants equally regardless of the external factors I have mentioned – that implies, does it not, that we have a problem in the way we currently enforce anti-corruption law. The implicit accusation we are answering in this session is “you don’t strike Tigers; you only strike flies”. So let’s test that.
First, let’s look at why it might be tempting not to prosecute certain offenders. Well, on the one hand, it might be for practical reasons. Many of our countries have endured difficult financial times recently. In times of austerity and ever decreasing resources, there might be a temptation to avoid prosecuting the really difficult, complex cases that are likely to consume resources. Those kinds of cases where the evidence is scattered all over the globe, where there are lots of witnesses and perhaps where specialist skills are needed. Far easier, surely, to deploy what resources one has into the easier targets, the “low hanging fruit”.
Another reason not to prosecute certain offenders might be for political reasons. Does a situation appear to involve state officials of one’s own country, or of an important ally? Does it concern an issue that those with power would prefer not to be investigated? Or perhaps, in the corporate world, does it involve a company that is of real national significance – a major employer and tax payer?
These are the sorts of situations where it seems to me there is a risk that the Tigers might be treated differently to the Flies. And while they are not to be underestimated, I hope that one thing we can all agree on here is that as a statement of principle, we cannot accept that for any reason the rule of law should be applied differently to some groups than others.”
Morgan’s points are spot-on of course.
However, the irony is that the U.K. government – in the minds of many – contradicted all of these points in its handling of BAE over the past several years. (See here). (So too did the U.S. government – see here and here).