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The U.K. Financial Conduct Authority And Its Focus On Adequate Procedures To Prevent Bribery

By on January 27, 2014 in Aon Limited, Books and Records, Guest Posts, Internal Controls, JLT Specialty Limited, U.K. Bribery Act, United Kingdom, Willis Limited

Today’s post is from Robert Amaee (Covington & Burling), the United Kingdom Expert for FCPA Professor.

In the post, Amaee notes that while the U.K. Bribery Act does not have formal books and records and internal controls provisions like the FCPA, the U.K. Financial Conduct Authority (which regulates firms in the U.K. that provide financial products and services to U.K. and overseas customers and is the U.K. listing authority) has brought several recent enforcement actions against regulated entities on grounds similar to typical FCPA books and records and internal controls actions.

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The recent enforcement action taken by the U.K. Financial Conduct Authority (“FCA”) against JLT Specialty Limited (“JLTSL”) is the latest example of the regulator’s drive to penalize companies in the financial sector for failures in their anti-corruption policies and procedures, even in the absence of any evidence of bribery.  There is every indication that the FCA will continue to use its regulatory powers to bring enforcement actions against companies that it deems not to have adequate anti-corruption controls.  In the words of Tracy McDermott, the FCA’s Director of enforcement and financial crime:

“[b]ribery 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.”

This article outlines the FCA’s role in combating financial crime and discusses some pertinent aspects of the JLTSL case as well as previous cases against Willis Limited (“Willis”), and Aon Limited (“Aon”).

The remit and track record of the Securities and Exchange Commission (“SEC”) in enforcing the internal control and accounting provisions of the Foreign Corrupt Practices Act 1977 is well known to readers of FCPA Professor.  Companies that are US issuers have an obligation to keep accurate books, records and accounts, and to devise and maintain sufficient internal accounting controls to ensure such accuracy.  In the UK, the Bribery Act 2010, does not contain equivalent internal control or accounting provisions.

In the case of a company that is suspected of failing to prevent bribery, the Serious Fraud Office (“SFO”) — the lead agency tasked with enforcing the Bribery Act — must assess the adequacy of the company’s procedures (i.e., whether the company has a defence) before deciding to bring Bribery Act charges (see Sec. 7 of the Bribery Act).   In the absence of evidence of bribery, however, the SFO cannot simply take enforcement action under the Bribery Act against a company for failures in its anti-corruption procedures.  In respect of a suspected failure to keep adequate accounting records, UK Prosecutors have in the past resorted to bringing action under the provisions of the Companies Acts of 1985 and 2006.  In 2010, for example, the SFO relied on section 221 of the Companies Act 1985 (now replaced, in substantially the same form, by the sections 386 and 387 of the Companies Act 2006) to sanction BAE for a failure to keep adequate accounting records in relation to payments made to a third party intermediary.

The FCA

The FCA, which took over the majority of the responsibilities of the Financial Services Authority (“FSA”) in April 2013, however, has a statutory objective under the Financial Services & Markets Act 2000 (as amended by the Financial Services Act 2012) to protect and enhance the integrity of the UK financial system.  This market integrity objective includes tackling the risk that the financial sector companies that it regulates may be used for a purpose connected with financial crime, including fraud, money laundering, and bribery and corruption.  In its July 2013 publication, The FCA’s Approach to Advancing its Objectives, the FCA states: “we will take action against firms found to be using corrupt practices, or failing to prevent bribes being paid to win business.”

To achieve this objective, the FCA has imposed, via the FCA Handbook, a number of financial crime requirements on the financial sector companies that it regulates. The key requirements are set out in Principles 1 (integrity), 2 (skill, care and diligence), 3 (management and control) and 11 (relations with regulators) of the FCA’s Principles for Businesses (“PRIN”); and Chapters 3 and 6 of the FCA’s Senior Management Arrangements, Systems and Controls sourcebook (“SYSC”).

In addition, the FCA’s recently published Thematic Review TR13/9 (October 2013) (here) on Anti-Money Laundering and Anti-Bribery and Corruption Systems and Controls, based on an assessment of 22 companies, sets out a case-based analysis of good and bad practice examples for businesses dealing with the risks of bribery and corruption. The October 2013 review followed previous thematic reviews of anti-corruption controls in commercial insurance broking (2010), in investment banking (2012), and AML and sanctions controls in trade finance (2013). The foregoing, together with the FCA’s Financial Crime: A Guide for Firms (here), provide companies with a clear indication of the FCA’s expectations in relation to the implementation and monitoring of anti-corruption systems and controls.

The recent JLTSL enforcement action followed the FCA findings of a breach of Principle 3 of PRIN.  Principle 3 provides that “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”  This includes implementing checks and controls designed to prevent bribery and corruption overseas.   For a breach of Principle 3 to be established, there is no need for the FCA to show that suspicious payments were made or that an act of bribery has taken place.  In both the Aon and Willis cases investigations did show that suspicious payments were in fact made, while in the JLTSL case there was no evidence of suspicious payments having been made.

JLT Speciality Limited

On December 19, 2013 JLTSL, a wholly owned subsidiary of JLT Group (the largest European broker quoted on the London Stock Exchange), was fined £1,876,000 in respect of breaches of Principle 3 of PRIN.  The FCA found that JLTSL had failed to carry out effective due diligence before entering into relationships with, and making payments to overseas introducers.  The FCA found that the overseas introducers had been paid in excess of £11.7 million, representing some 57% of the total amount received by JLTSL from the business that had been introduced by the overseas introducers.  There was no evidence of bribery or any improper intent on the part of JLTSL, but the FCA concluded that the failings gave rise to an unacceptable risk that the payments made to the overseas introducers could have been used to pay bribes “to persons connected with the insured clients and/or public officials.”

It is worth noting that the FCA brought this action against JLTSL in spite of the fact that it found that JLTSL had (i) implemented policies and procedures aimed at countering the risk of bribery and corruption, including an Employee handbook and a Group Anti-Bribery and Corruption Policy which prohibited JLTSL employees from engaging in any form of bribery, an Operating Procedure Manual which contained more detailed procedures that employees had to follow in order to establish relationships with overseas introducers, and a 7 Alarm Bells policy to assess the bribery and corruption risk associated with entering into a relationship with an overseas introducer; and (ii) engaged an external adviser to review its systems and controls to assess compliance with the provisions of the Bribery Act 2010, concluding that the due diligence procedures in relation to introducer/facilitator relationships appeared comprehensive and broadly in line with the Act.

The FCA took the position that there was a failure to conduct adequate due diligence, and the external advisor had not conducted a “holistic” review of JLTSL’s systems and controls.  JLTSL also was found to have failed to adequately assess bribery and corruption risks, only carrying out a risk assessment at the start of each relationship not every time that overseas introducer introduced a new piece of business.  JLTSL also failed to adequately implement its own anti-bribery and corruption policies, which resulted in the risk of JLTSL entering into higher risk relationships with overseas introducers without senior management oversight and approval.

Specifically, JLTSL failed to assess whether or not there were any connections between the overseas introducers and the clients or any public officials.  Although both the OPM and the Alarm Bells highlighted the importance of carrying out due diligence, there was a lack of practical guidance “to employees in order to establish whether the Overseas Introducer was connected to the client it was introducing.”  On reviewing 17 of JLTSL’s relationships with overseas introducers, the FCA found that in the majority of cases in which the overseas introducer was a company, JLTSL had failed to screen one or more directors or beneficial owners.  In one example, a major shareholder of the overseas introducer was known to JLTSL to be a Nigerian public official. The FCA concluded that as a Nigerian public official it was entirely possible even probable that the shareholder of the overseas introducer would have connections to West African public officials.

Willis Limited

On July 21, 2011 the insurance broker Willis was fined £6,895,000 for failings in its anti-corruption systems and controls (breaches were for Principle 3 of PRIN and Rule 3.2.6 R of the SYSC) which “contributed to a weak control environment surrounding the making of payments to Overseas Third Parties.”

The FSA found that overseas third parties had received commissions of approximately £27 million, representing some 45% of the brokerage earned by Willis from the business that had been introduced by the overseas third parties.  The FSA’s findings were supported by Willis’ own internal investigation which identified a number of suspicious payments made to overseas third parties, two of which formed the subject of suspicious activity reports that Willis submitted to the Serious Organised Crime Agency (“SOCA”) (now replaced by the National Crime Agency (“NCA”)).

The FSA did not find any evidence to suggest that Willis’s conduct was either deliberate or reckless.  It acknowledged that Willis had introduced improved anti-corruption policies and guidance in 2008, reviewed how its new policies were operating in practice and further revised its guidance in 2009.  The FSA, however, formed the view that Willis had failed to ensure its policies were adequately implemented, that failures by staff to adhere to the new policies were identified in a timely manner, or that the Board was provided with sufficient relevant management information regarding the performance of the new policies.

Specifically, the FSA concluded, inter alia, that Willis had (i) failed to ensure that it had established and recorded an adequate commercial rationale for using overseas third parties; (ii) failed to provide formal training or adequate guidance for staff who only recorded brief descriptions of the reason for making commission payments; and (iii) conducted inadequate due diligence on overseas third parties to establish, for example, any connections with the insured, insurer or public officials.

Aon Limited

On January 6, 2009 Aon was fined £5,250,000 for failing to “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems” (breach of Principle 3 of PRIN).  In particular, the FSA highlighted Aon’s failure to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with its use of overseas Third parties in high risk jurisdictions.

As in the Willis case, the FSA found that the failings led to a weak control environment that gave rise to an unacceptable risk that Aon could become involved in potentially corrupt payments to win or retain business. The FSA highlighted 66 suspicious payments totalling in excess of US$7 million that were paid to nine overseas third parties.  Aon’s own internal investigation identified a number of suspicious payments that it later reported to SOCA.

The FSA concluded, inter alia, that (i) procedures lacked adequate levels of due diligence either before commencing relationships with overseas third parties or before payments were made; (ii) Aon failed to monitor its relationships with overseas third parties in respect of specific bribery risks; (iii) Aon did not provide its staff with sufficient training and guidance on bribery and corruption matters; and (iv) Aon failed to ensure that the committees it appointed to oversee bribery and corruption risks received relevant management information or routinely assessed whether bribery and corruption risks were managed effectively.  Aon also failed to implement effective internal systems and controls to mitigate those risks.  Margaret Cole, FSA director of enforcement at the time, described the case as sending a clear message that it is “completely unacceptable for firms to conduct business overseas without having in place appropriate anti-bribery and corruption systems and controls”.

Adequate Procedures

The FSA’s 2009 action against Aon marked the start of period of concerted effort by the regulator to take action against companies deemed to have inadequate policies and controls, in particular in respect of the risks associated with making payments to overseas third parties.  The Aon action was followed in 2011 by the FSA’s action against Willis for failings in its anti- corruption policies and controls.  In bringing its recent action against JLTSL, the FCA has clearly signalled its intention to continue the focus on companies’ internal anti-corruption control environment. In addition, a number of separate enforcement actions have confirmed that the FCA remains focused on ensuring companies also maintain adequate anti-money laundering policies and controls.  See here, here, here and here.

It is clear, in particular from the JLTSL case, that the FCA will not be impressed by the volume of policies and controls that have been drafted or the fact that an external vendor has given the anti-corruption program the all clear.  The FCA is focused on the effectiveness of the policies and controls and how they have been implemented, and how they are being monitored in practice.  There is little doubt that when the SFO starts to bring enforcement actions against companies under the failure to prevent bribery offence contained in section 7 of the Bribery Act, its assessment of the adequacy of a company’s policies and controls will similarly focus on their real life implementation, and not on the elegance of the prose, or the sign off of external vendors.

The FCPA Meets Insurance – Aon Resolves Enforcement Action

By on December 21, 2011 in 2011 Enforcement Actions, Aon Corp., Aon Limited, Bangladesh, Bulgaria, Costa Rica, DOJ Enforcement Action, Egypt, Financial Services Authority, Indonesia, Insurance Industry, Myanmar, Non-Prosecution Agreement, Panama, SEC Enforcement Action, Travel and Entertainment, United Arab Emirates, Vietnam

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).

DOJ

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.

SEC

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.”

Kirkland & Ellis attorneys Laurence Urgenson (here) and Craig Primis (here) represented Aon.

Foreign Enforcement Action Roundup

By on August 4, 2011 in Africa, Aon Limited, Australia, Bangladesh, Canada, Egypt, Financial Services Authority, Indonesia, Macmillan Publishers, Malaysia, Nigeria, Niko Resources, Oil and Gas Industry, Publishing Industry, Russia, Securency International, Serious Fraud Office, United Kingdom, Vietnam, Willis Limited

The U.S., of course, is not the only country with an FCPA-like law. Canada’s version is the Corruption of Foreign Public Officials Act (“CFPOA”).  Australia’s version is part of its general Criminal Code.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI’s] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.

Canada

Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA – in 2005 against Hydro Kleen – resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”

Australia

Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”

U.K.

Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  “to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the ” procedure based on the guidance contained within [the SFO’s] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

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