UK: The UK Bribery Act 2010 And Its Impact On The Insurance Sector

Last Updated: 21 July 2011
Article by David De Ferrars, Lucy Cowan and Sascha Foulkes

The Bribery Act 2010 ("the Act") came into force on 1 July 2011. The Act reforms the previous criminal law to provide a new and comprehensive scheme of bribery offences to enable courts and prosecutors to respond more effectively to bribery, wherever it occurs in the world. It is of fundamental importance to all commercial organisations that either operate or are registered in the UK.

It is a far-reaching piece of legislation with provisions going beyond the current FSA regime and even the US Foreign Corrupt Practices Act governing insurers and brokers. Given that Aon was fined Ł5.25 million by the FSA in 2009 for failing to meet the standards expected of it under the then current regime, many organisations in the insurance industry will need to review their practices and policies to ensure that they do not fall foul of the new Act.

Offences under the Act

There are four main offences under the Act:

  1. Bribing another person
  2. Being bribed
  3. Bribing a foreign public official
  4. Failure of a commercial organisation to prevent bribery (the "Corporate Offence")

The Corporate Offence - which is likely to be of most relevance to the insurance industry - is a new strict liability offence. Commercial organisations can be prosecuted if they fail to prevent employees, agents or other persons "associated" with it committing one of the other bribery offences under the Act.

The Corporate Offence carries an unlimited fine. It is possible that a conviction could result in a company being ordered to pay a fine equal to the entire revenue that it obtained from a transaction that was tainted by the corrupt act. This could lead to fines of millions of pounds. It is a defence to the Corporate Offence to show that the organisation had in place adequate procedures designed to prevent such bribery (please see below).

Current practices in the insurance industry

Commission

Can a payment of commission be classed as a bribe under the Act? In situations where a party has a conflict of interest and accepts a commission on the basis that he or she will improperly direct more business to a party, yes it can. An example of this could arise where an insurer and a broker have entered into a contingent commission agreement on the understanding that the broker will direct business to the insurer. If as a consequence a broker improperly performs his duties by placing business with that insurer instead of other more suitable insurers, he could have arguably been bribed under the Act.

In contrast to English agency law, disclosure of a commission is not a defence under the Act. In fact, disclosure of a commission could result in the admission of an offence. Insurers and brokers need to be mindful of not only the conduct of their own staff but also the conduct of any agents or other representatives that conduct or arrange business on their behalf.

Corporate hospitality

Corporate hospitality has always played an important role in the insurance industry. The Government has made it clear in its Adequate Procedures Guidance that the Act will not prevent genuine hospitality from continuing providing that it is reasonable and proportionate. In determining whether a certain event or gift is reasonable and proportionate, the standards and norms for a particular industry will be taken into account. However, it should be noted that there is no minimum threshold for what may amount to a bribe and, therefore, organisations need to take care to consider whether a certain event could be seen by others as an attempt to induce the recipient into performing his/her duties in an improper way.

The question as to whether a particular item of expenditure constitutes a bribe will depend on all the surrounding circumstances. The Adequate Procedures Guidance states that the authorities will look at factors such as the level of hospitality offered, the way in which it was provided and the level of influence the person receiving it had on the business decision in question. Generally, the higher the expenditure and the more lavish the hospitality or expenditure provided to a public official the greater the likely inference that it is intended to influence the official to grant business or a business advantage in return.

International scope

Where the act of bribery or the Corporate Offence takes place is irrelevant. Acts or omissions overseas will be caught under the Act. An offence may be committed by an organisation if a bribe is made or received overseas by an employee, agent or other person associated with the organisation. The territorial scope of the Act is particularly relevant to the insurance industry given the numerous agency and other relationships that are central to the way in which insurers and brokers arrange business. Any person associated with a UK organisation that makes a bribe with the intention of obtaining or retaining business or a business advantage for the UK organisation could lead to liability for the UK organisation for a breach of the Corporate Offence.

What does your business need to do to avoid prosecution?

Your organisation can avoid prosecution under the Corporate Offence if it demonstrates that it had adequate procedures in place to prevent bribery. The Government's Adequate Procedures Guidance is based on six broad principles for bribery prevention. The following bullet points are a selection of good practice examples taken from the FSA's "Anti-bribery and corruption in commercial insurance broking" that we believe will assist your business in avoiding prosecution under the Act:

  • Clear, documented responsibility for anti-bribery and corruption apportioned to either a single senior manager or a committee with appropriate Terms of Reference and senior management membership, reporting ultimately to the Board.
  • Regular assessments of bribery and corruption risks with a specific senior person responsible for ensuring this is done, taking into account the country and class of business involved as well as other relevant factors.
  • Ensuring review teams have sufficient knowledge of relevant issues and supplementing this with external expertise where necessary. Establishing clear plans to implement improvements arising from reviews, including updating policies, procedures and staff training.
  • Robust due diligence on third parties which pose the greatest risk of bribery and corruption, including a detailed understanding of the business case for using them.
  • Having a clear understanding of the roles played by the people involved in your transactions to ensure they are not carrying out higher risk activities.
  • Considering the level of bribery and corruption risk posed by a third party when agreeing the level of commission. Setting commission limits or guidelines which take into account risk factors related to the role of the third party, the country involved and the class of business.
  • Providing good quality, standard training on anti-bribery and corruption for all staff. Consider additional anti-bribery and corruption training for staff in higher risk positions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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