pdf

Aon Settles corruption case with the FSA for £5.25m

January 1, 0001

 

On 8 January 2009 Aon Limited ("Aon"), the subsidiary of Fortune 500 company Aon Corporation and one of the London market’s largest insurance and reinsurance brokers, was fined £5.25m for failure to maintain adequate systems to counter the risks of bribery and corruption.

The settlement with the Financial Services Authority (“FSA”) arose out of questionable payments made to overseas third party introducers over a two year period; it is the largest fine ever imposed by the FSA for a financial crime and is amongst the largest ever made by the body. The settlement also represents the UK authorities’ latest response to increasing domestic and international criticism for a poor record of dealing with overseas bribery and corruption offences.

Whilst the figure is substantial it represents a reduced penalty: Aon agreed at an early stage to cooperate with the FSA; to settle, and therefore to be subject to a lesser ultimate fine. Under the FSA’s settlement discount scheme, in return for settling at ‘stage 1’ of the investigation Aon was entitled to a set 30% reduction to the penalty (which otherwise would have totaled £7.5m).

The penalty imposed is notable for its magnitude, both in real terms, and relative to the commission or brokerage which Aon earned by reason of the possibly suspect payments (reported as being roughly equivalent to the reduced fine).

In commenting on the settlement, the FSA has stated that it intended its decision to have a deterrent effect: sending a message to the UK financial services industry that it is unacceptable for firms to conduct business overseas without having in place appropriate anti-bribery systems and controls.

Summary of Findings

Aon was penalised by the FSA for failing to “take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems” thus breaching Principle 3 of the FSA’s (high level standards) Principles for Business.

Aon’s actions which attracted the finding relate to numerous financial dealings the company has had with overseas third parties in efforts to win business in foreign jurisdictions. The FSA determined that the use of these third parties without sufficient controls in place (or where these controls were circumvented) created a risk that funds had been used as bribes or otherwise for inappropriate purposes. Between 14 January 2005 and 30 September 2007, 66 suspicious payments were made to secure or retain Aon’s business in Vietnam, Indonesia, Burma, Bulgaria, Bangladesh, and Bahrain. Amongst those payments were two significant sums (£1.26m and £2.13m) paid to unnamed third parties and in connection with clients who were state owned entities or who otherwise had government affiliations.

In coming to its decision, the FSA took note that Aon’s failings had persisted over a number of years and that it was possible that the company could have benefited from business that was secured or retained as a result of the suspicious payments. The FSA also had regard to Aon’s size and financial resources (£595m income generated from regulated activity in 2007) and considered the deterrent effect a significant financial penalty might carry. Although it specifically found that Aon’s misconduct was neither deliberate or reckless, the FSA considered that the company ought to have been aware of the significant risks inherent in making payments to overseas third parties where those payments might provide the opportunity for bribery or might fail to represent a genuine commercial purpose.

Although Aon had risk prevention and anti-corruption systems in place throughout the relevant period, the FSA found that these were:

  • inconsistently followed (due to insufficient training and guidance);
  • insufficiently monitored (including an absence of monitoring of third parties that did not conduct business in the UK);
  • insufficiently overseen by the internal committees charged with assessing whether bribery and corruption risks were being managed correctly.
  • not adequate in terms of due diligence (including a failure to recognise exposure to higher risk transactions or higher risk jurisdictions)
  • not assessed, reviewed, or changed as appropriate.

Cumulatively these failings were described as contributing to a ‘weak control environment’ and Aon was not assisted by its apparent inability to repair historically faulty systems:

  • Aon’s predecessor had been censured and fined in 2000 for lacking systems and procedures to prevent questionable payments to overseas third parties.
  • an internal review undertaken in 2006 disclosed potentially inappropriate payments, but these were cursorily investigated and closed only to be flagged a year later during a more detailed investigation (at which time they were incorporated in the FSA notification).
  • in July 2007, at the time of notification, Aon stated that it had already put in place new systems and controls. These were shown to be inadequate when a new suspicious payment was made whilst the FSA investigation was underway.

Emerging from the investigation and despite the fine imposed, the FSA has praised Aon for its full cooperation and for its actions to identify and eliminate past failings. As a result of the investigations (both in the UK and in the US), Aon now reports implementation of a global anti-corruption compliance programme, and says it has implemented a cultural change within the company. Aon reports that it has implemented new, risk-based procedures to review all existing and proposed third party relationships and a global policy that controls and restricts the use of overseas third parties, particularly those in high-risk jurisdictions.

The Decision in Context

Over the past 12 months, UK authorities and regulators have come under increasing pressure, both from inside and outside the country, to address the country’s poor record of enforcing anti-corruption and anti-bribery laws. In 2008, the OECD criticised the UK’s failure to prosecute and its lax regulations. These same issues were the subject of a Law Commission report published in late 2008 reflecting recommendations that have been debated and discussed for over a decade. The Law Commission criticised the anti-bribery measures in the UK as being outdated; if its recommendations are adopted, a new criminal offence for negligent failure to prevent bribery will go some way to satisfying critics.

As to enforcement, the FSA’s settlement with Aon represents another positive step by UK prosecuting authorities to demonstrate their intention to enforce, utilising powers currently at their disposal. By way of example, in the months prior to the Aon settlement, the Serious Fraud Office also entered into a record settlement (brought under its newly granted civil recovery powers) for £2.25m (plus costs) over admitted unlawful conduct and payment irregularities by Balfour Beatty PLC arising out of a construction project in Egypt. The City of London Police and the Crown Prosecution service have also been taking steps forward in their responses to overseas bribery and corruption.

The UK bodies are echoing the actions of the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) which, in lieu of pursuing time-consuming and expensive bribery prosecutions, have also seen a trend towards accepting guilty pleas or settlements in FCPA (Foreign Corrupt Practices Act) cases[1]. FCPA settlements typically result in the payment of a civil or criminal fine and the imposition of an independent compliance monitor. Aon’s payment to the FSA, by contrast, effectively disgorged the profits made as a result of the questionable payments. In November 2007, Aon self-reported potential FCPA violations to the DOJ and SEC. According to media reports, the U.S. investigation is ongoing.

Like the FSA, the SEC does not mandate specific internal controls but bases decisions as to compliance on whether a company’s internal control system, taken as a whole, reasonably meets the relevant objectives. Although the FCPA requirements are much more detailed, the FSA appears to have regard to similar benchmarks with regard to the adequacy of internal controls.

In recent years, the DOJ and SEC have settled cases involving the FCPA’s internal controls provision. In December 2008, Siemens AG pled guilty for conduct arising out of thousands of illicit payments made in a number of countries. Siemens marked the first time the DOJ criminally charged violations of the internal controls provisions. The company agreed to a total penalty of $800 million in addition to €596 million previously paid to the Office of the Prosecutor General in Munich.

Lessons

Those watching the investigation and enforcement actions of the UK regulatory bodies will note that although Aon did not admit to paying bribes; was not found to have acted deliberately or recklessly; and had a system of controls in place (such as it was), the FSA still imposed a substantial penalty for failure to maintain an effective anti-corruption program. The FSA did not establish that illegal payments were in fact made, merely that Aon’s internal controls were not sufficient to demonstrate that suspect payments had not been made.

Many corporations in the UK regulated by the FSA will also be subject to the requirements of the FCPA. Accordingly, corporations whose legitimate business requires the aid of overseas introducers, or necessitates payments to be made in foreign jurisdictions, must adopt sufficient internal controls. With respect to third-parties acting on the company’s behalf, these controls include: adopting a due diligence program to assess the risk of engaging the third party, evaluating the third-party’s links to government officials, and ensuring that payments are transparent and are accurately recorded in the company’s books and records. As Aon and Siemens demonstrate, failure to take such steps is now attracting the attention of enforcement authorities on both sides of the Atlantic.





[1] The FCPA prohibits providing anything of value to a non-U.S. government official to win or retain business or secure any improper advantage. For companies that trade on U.S. stock exchanges (including through American Depository Receipts “ADRs”) the statute also requires the maintenance of accurate books and records and the establishment of internal accounting controls.


 

Please contact any of the following if you have any questions related to this Client Alert.

 

Beijing
Yin Tai Centre, Office Tower, 37th Floor
2 Jianguomenwai Avenue
Chao Yang District
Beijing, 100022
People's Republic of China

Nathan Bush  

+86-10-6563-4207

Century City
1999 Avenue of the Stars
Seventh Floor
Los Angeles
CA 90067-6035

Greyson Bryan   

+1-310-246-8444

Los Angeles
400 South Hope Street
18th Floor
Los Angeles
CA 90071-2899

Jeremy Maltby
Steve Olson

Dan Shallman

+1-213-430-8373
+1-213-430-7855
+1-213-430-6143

New York
Times Square Tower
7 Times Square
New York, NY 10036

Howard Heiss

+1-212-326-2116

San Francisco
Two Embarcadero Center
San Francisco, CA 94111

Daniel Bookin

+1-415-984-8786

Shanghai
Plaza 66, 37th Floor
1266 Nanjing Road West
Shanghai 200040
People's Republic of China

Susan Munro   

+86-21-2307-7028

Washington, D.C.
1625 Eye Street, NW
Washington, D.C. 20006

Richard Grime
Greta Lichtenbaum   

 +1-202-383-5178
+1-202-383-5249