UK: Recent UK Enforcement Actions Highlight Broad Range Of UK Anti-Corruption Laws

Last Updated: 25 August 2011
Article by David S. Lorello and Fiona Laurence

The UK's Bribery Act 2010 came into force on 1 July 2011, following a long period of government consultation.1  However, UK authorities have been bringing enforcement actions with some regularity over the last two years, employing a variety of different tools.  Two recent UK enforcement actions, summarised in this alert, highlight the different legal strategies available to UK authorities to bring penalties against individuals and companies for corruption-related infractions, separate from the Bribery Act.  These strategies will continue to be available alongside the new Bribery Act, and thus must be taken into account by companies that carry on business in the UK when evaluating the nature and scope of their UK anti-corruption risk exposures and compliance programs.

FSA £6.9 Million Fine Against Willis Limited

On 21 July 2011 the UK Financial Services Authority ("FSA") imposed an administrative fine of £6.895 million on UK insurance broker Willis Limited, arising from alleged failures on the part of Willis to maintain an effective anti-corruption compliance program.  The penalty was imposed pursuant to the Financial Services and Markets Act 2000 ("FSMA"), and associated regulations.  The FSMA applies to financial services providers, including banks and insurers who are regulated by the FSA.

Section 206(1) of the FSMA provides that:

"If the Authority considers that an authorised person has contravened a requirement imposed on him by or under this Act...it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate."

The Willis action represents the second case where the FSA has brought an enforcement action for deficiencies in anti-corruption compliance programs, following the FSA's £5.25 million fine against Aon Limited in January 2009, and is one of the largest FSA fines on record.2  The ultimate fine against Willis reflected a 30% discount under the FSA's executive settlement procedures, in recognition of Willis's active cooperation with the FSA and its agreement to settle the matter early in the FSA's investigation.

The FSA exercised its enforcement authority in the Willis matter under section 206(1) of the FSMA, which provides that:

"If the [FSA] considers that an authorised person has contravened a requirement imposed on him by or under this Act...it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate."

The FSA determined that Willis Limited had breached the following:

  • Principle 3 of the FSA's Principles for Businesses3, which provides that:

"A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems"; and

  • The FSA's Senior Management Arrangements, Systems and Controls4 sourcebook which provides that:

"A firm must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system and for countering the risk that the firm might be used to further financial crime."

The FSA found that between January 2006 and December 2009 Willis made payments totalling £27 million to overseas third party sales representatives, who assisted Willis in winning and retaining business from overseas clients, particularly in high-risk corruption jurisdictions. The FSA found that Willis failed to implement several anti-corruption safeguards in connection with those third parties, and in particular:

  1. Willis did not adequately document the services provided by some of its external providers with only brief descriptions in support of commission payments being given in many cases (such as "introducer" or "producing broker");
  2. Willis did not ensure that adequate due diligence was carried out on third party representatives to evaluate the corruption risks that the role might entail, particularly in high-risk jurisdictions;
  3. Willis did not regularly review its relationships with its sales representatives to confirm whether it was necessary and appropriate to continue the relationships; and
  4. Willis did not adequately train staff on anti-corruption issues, or ensure that improved anti-bribery and corruption policies and guidance, introduced by the company in August 2008, were fully implemented.

Notably, the FSA did not conclude that Willis had acted in a deliberate or reckless manner.  However, given that Willis would have been aware of bribery and corruption risks associated with making payments to obtain or retain business, particularly in high- risk jurisdictions, the FSA found that additional steps should have been taken to monitor the adequacy of procedures.   The FSA noted, in particular, that Willis was on notice of the risks of failing to maintain adequate compliance programs given the FSA's "Dear CEO" letter to the insurance brokering industry in November 2007 (which highlighted the corruption risks that insurance brokers face), and the FSA's January 2009 fine against Aon Limited. 

On the other hand, the FSA acknowledged that Willis has taken steps to address the alleged deficiencies in its program, and the FSA also recognized the company's efforts to conduct a thorough internal review of its past payments to third-party representatives in conjunction with its remedial efforts. Those and other factors contributed to the 30% penalty reduction assessed by the FSA under its executive settlement procedures.

£11.3 Million Fine Against Macmillan Publishers Limited Under Proceeds of Crime Act, Following Referral From World Bank

In an unrelated matter, on 22 July 2011 the UK Serious Fraud Office ("SFO") settled an enforcement action against Macmillan Publishers Limited ("MPL"), resulting in a High Court order for MPL to pay £11.3 million in a civil recovery action, under Part 5 of the Proceeds of Crime Act 2002.  The civil recovery is in recognition of sums which MPL allegedly received through bribery-related misconduct relating to sales of educational products in East and West Africa.

The SFO's initial enquiry arose following a World Bank investigation into allegations of corruption by MPL in connection with sales in a World Bank-financed project in Sudan.   The World Bank debarred MPL for three years from participating in Bank-financed projects under the World Bank's Sanctions Procedures. 

The SFO-mandated review was, notably, considerably broader than the World Bank investigation (which focused only on World Bank financed projects).  The SFO required MPL to conduct a broad internal review of its books and records – at the company's own expense – with a view toward identifying corruption-related risks.  The first phase of the SFO-mandated review led to a further, more detailed review of three jurisdictions – Rwanda, Uganda, and Zambia – where potential bribery and corruption risks were evident.  Throughout the process, the SFO worked in collaboration with the World Bank, as well as the City of London Police. 

In view of evidence disclosed through the MPL investigations, the SFO concluded that certain of the contract awards (which often were conducted through public tenders) were "susceptible to improper relationships being formed and corruption taking place". The SFO thus concluded that MPL may have received revenue that had been derived from unlawful conduct.  Accordingly, although the SFO findings may not have supported a prosecution under the existing UK anti-bribery laws, the SFO elected to pursue a civil recovery under Part 5 of the Proceeds of Crime Act, which provides a broad authority to recover, in a civil action, property that represents the proceeds of unlawful conduct. 

The SFO took into account a number of factors in determining its position on settlement with MPL:

1.MPL cooperated fully with the SFO and other authorities including the World Bank;
2.Once informed of the allegations of corruption, MPL responded appropriately by reviewing its internal anti-bribery and corruption policies and engaging external consultants to assist in the implementation of these policies;
3.The SFO recognized the World Bank's decision to debar MPL, as well as MPL's decision voluntarily to cease all live and prospective public tenders in its Education Division in East and West Africa, and the loss of prospective revenue which this caused.

The SFO settlement included a requirement that, for a period of one year, MPL submit to an external monitor, who will report to both the SFO and the World Bank.  This is consistent with the SFO's tendency in other recent enforcement actions to require an independent monitor as part of corruption-related settlements. 

Strikingly, according to the SFO press release announcing the MPL action, the SFO spent only £27,000 in pursuing enforcement against MPL.  This sum highlights the SFO's potential to leverage internal investigatory work by companies in achieving enforcement results, and will be cold comfort to many commentators, who have suggested that the SFO's limited enforcement budget for Bribery Act cases (approximately £2 million per year) will inhibit the SFO's ability to enforce UK anti-corruption laws.

Conclusions

The Willis and MPL enforcement actions are informative in four respects:

  • Multiple Statutory and Regulatory Enforcement Tools. Both the FSMA and the Proceeds of Crime Act provide administrative or civil enforcement alternatives, with potentially broader standards and lower evidential thresholds than the Bribery Act (which is a criminal statute).  Much attention has been given in recent months to parsing the provisions of the Bribery Act in relation to potential corporate liabilities.  Although those discussions are certainly important, companies should not lose sight of the fact that other statutes are available to UK enforcement authorities to penalise corruption-related activity.
  • Internal Controls Requirements. The Willis action in particular illustrates the importance of implementing and maintaining anti-bribery policies and controls. Although the Bribery Act does not expressly require companies to implement internal controls (in contrast to the U.S. Foreign Corrupt Practices Act, which contains books and records requirements for publicly-traded companies), FSA Principle 3 does contain an affirmative internal controls requirement.  Even companies which are not in the financial sector (and thus are not regulated by the FSA), accounting controls requirements exist in the general UK corporate laws (such as the Companies Act) and could be used to support enforcement actions.
  • Guidance on Best Practices. The FSA's Final Notice in Willis provides a detailed discussion of the FSA's views on what a compliance program should include (in particular, in the context of third-party due diligence and monitoring).  Accordingly, although the FSA notice does not address the Bribery Act, it can serve as useful guidance for UK companies which are seeking to develop their anti-corruption compliance programs (complementing the UK Ministry of Justice's Bribery Act "adequate procedures" guidance, issued in March 2011).
  • World Bank / International Financial Institution Enforcement and Referral Risk.  The MPL enforcement action arose following a World Bank investigation and referral.  The World Bank and other international financial institutions have been increasingly active in investigating corruption-related misconduct in contracts which those institutions finance, with significant consequences for breaches, including long debarment periods, cross-debarment by other international financial institutions, and (as the MPL case highlights) national enforcement authority actions.

Footnotes

1. For background on the Bribery Act, please see our alerts dated 12 April 2010, "UK Parliament Passes Anti-Bribery Reform Law" and 30 March 2011, "UK Ministry of Justice Publishes Guidance to the UK Bribery Act; Announces Act to Enter into Force on July 1 2011".

2. See our alert of 21 January 2009, "UK Financial Services Authority Fines Aon Limited £5.25 Million For Failing to Maintain Adequate Anti-Bribery Controls".

3. See PRIN 2.1.1R in the FSA Handbook

4. SYSC 3.2.6R

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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