ISSUES PAPER ON
COMBATING BRIBERY AND CORRUPTIONOCTOBER 2014

About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions innearly 140 countries. The mission of the IAIS is to promote effective and globally consistentsupervision of the insurance industry in order to develop and maintain fair, safe and stable
insurance markets for the benefit and protection of policyholders and to contribute to global
financial stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision andinsurance markets. In addition to active participation of its Members, the IAIS benefits from
input in select IAIS activities from Observers representing international institutions,professional associations and insurance and reinsurance companies, as well as consultants
and other professionals.
The IAIS coordinates its work with other international financial policymakers andassociations of supervisors or regulators, and assists in shaping financial systems globally.
In particular, the IAIS is a member of the Financial Stability Board (FSB), founding member
and co-parent of the Joint Forum, along with the Basel Committee on Banking Supervision(BCBS) and the International Organization of Securities Commissions (IOSCO), member of
the Standards Advisory Council of the International Accounting Standards Board (IASB), andpartner in the Access to Insurance Initiative (A2ii). In recognition of its collective expertise,
the IAIS also is routinely called upon by the G20 leaders and other international standard
setting bodies for input on insurance issues as well as on issues related to the regulationand supervision of the global financial sector.
About IAIS Issues Papers
Issues Papers provide background on particular topics, describe current practices, actual
examples or case studies pertaining to a particular topic and identify related regulatory andsupervisory issues and challenges. Issues Papers are primarily descriptive and not meant tocreate expectations on how supervisors should implement supervisory material. Issues
Papers often form part of the preparatory work for developing standards and may containrecommendations for future work by the IAIS.

This paper was prepared by the Financial Crime Task Force in consultation with IAIS
Members and Observers.
The publication is available free of charge on the IAIS website (www.iaisweb.org).
© International Association of insurance Supervisors [2014]. All rights reserved. Brief
excerpts may be reproduced or translated provided the source is stated.

Contents
1.

Introduction ................................................................................................................ 4

2.

Corruption issues and the insurance sector ................................................................ 6

3.

Relationship to AML/CFT frameworks ........................................................................ 7

4.

Insurance supervision in combating bribery and corruption ........................................ 9
4.1

IAIS Survey ............................................................................................................. 9

4.2

The insurance supervisor’s role .............................................................................. 9

4.3

Insurance Core Principles ..................................................................................... 10

5.

6.

Approaches that supervisors use in combating bribery and corruption ..................... 16
5.1

Supervisory review................................................................................................ 16

5.2

Risk-based approach ............................................................................................ 16

5.3

Approaches to risk management and internal controls .......................................... 17

5.4

Third party risks .................................................................................................... 18

5.5

Organisational measures ...................................................................................... 19

5.6

Training................................................................................................................. 19

5.7

Taking supervisory action ..................................................................................... 20
Conclusions .............................................................................................................. 21

Annex I

Case studies

Annex IIInternational developments in combating bribery and corruption

Annex III

Acronyms

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1.

Introduction

1.
Bribery and corruption are challenges all over the world, and phenomena that costeconomies huge amounts of money. They are areas of financial crime to which the financial
sector, including insurance, is exposed. Indeed, the insurance sector has been the subject ofsome high-profile regulatory enforcement proceedings, which are discussed further in thepaper (including annex I). In recent years bribery and corruption have received a great dealof attention from the international community, primarily because of concern as to their effecton developing countries. However, the risk of bribery and corruption also exists in developed
markets, as evidenced by some of the examples provided in annex I to this paper. 1 Bribery
and corruption offences usually involve dishonestly obtained proceeds or other benefits.
Bribery and corruption can undermine the delivery of basic government services, such as
healthcare and education, which are heavily relied on by the most impoverished sections ofsociety. However, whilst bribery and corruption are usually referred to in the context of public
office, this is not always the case. For example, a bribe may be paid to an employee of acommercial enterprise in order to secure preferential treatment in a tender process. This canhave a distorting effect on competition, with adverse consequences for the viability of a local
economy. 2
2.
The insurance sector is at risk to bribery and corruption in two ways. Firstly, policies
could be funded from the proceeds of bribery and corruption. The risks of this are greater inlife insurance and other investment-related insurance. Second, Board members, Senior
Management and staff or other representatives of the insurer or insurance intermediary
could be involved with bribery and corruption on their own behalf, on behalf of the firm or on
behalf of third parties. Where insurers’ and insurance intermediaries’ employees and sales
staff engage in activities (such as making payments or otherwise exerting undue influence)
to win clients and business, there is a risk that such activity could cross the line legally or
ethically, and potentially constitute bribery or corruption. Where insurers deal with publicauthorities or insure public institutions, the relevant laws on combating bribery and corruption– or “anti-bribery and corruption” (ABC) – can sometimes set particularly high standards inrespect of dealing with such authorities. It should therefore be of concern to insurance
supervisors that appropriate anti-bribery and anti-corruption measures are taken by thesector.
3.
Given an increasing international focus on bribery and corruption, and in view of therisks they pose to the insurance sector, the Financial Crime Working Group considered ittimely to explore how this activity affects insurers and insurance intermediaries as well as
how insurance supervision can help to ensure that insurers and insurance intermediaries
manage such risks effectively.
Structure of the paper
4.
Section 2 of this paper considers the relevance of bribery and corruption to theinsurance sector and highlights a number of high-profile cases to date involving theinsurance sector.
5.
Section 3 considers the relationship between measures to combat bribery andcorruption and frameworks for anti-money laundering/countering the financing of terrorism(AML/CFT).
6.
Section 4 considers the insurance supervisor’s role in combating bribery andcorruption. This includes references to the Insurance Core Principles (ICPs) that are most
1 Also highlighted in a Report from the Commission to the Council and the European Parliament (“EU Anticorruption report”), February 2014
2 An EU Anti-Corruption report shows the challenges of corruption, which costs the European economy around
120 billion euros per year: http://ec.europa.eu/dgs/home-affairs/what-we-do/policies/organized-crime-and-humantrafficking/corruption/anti-corruption-report/index_en.htm.
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relevant to combating bribery and corruption, and highlights relevant supervisory
requirements of the ICPs. It also draws upon the results of a survey of IAIS members, which
the Financial Crime Working Group conducted in 2013.
7.
Section 5 highlights approaches that some supervisors use in combating bribery
and corruption, also drawing upon the results of the survey.
8.
Annex I provides examples of bribery and corruption involving the insurance sector,
including additional details of the cases described in Section 2. Annex II provides an outlineof major international developments in the area of bribery and corruption. Thesedevelopments are not specific to insurance but are included as general backgroundinformation because they affect the insurance sector in the same way as other areas ofbusiness. Annex III provides a list of acronyms used in this paper.

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2.

Corruption issues and the insurance sector

9.
Measures to combat corruption generally apply to the insurance industry in thesame way as to any other area of activity. To date the insurance sector has not been
involved in any significant prosecutions but it has been the subject of some high-profile
regulatory enforcement proceedings. The following are summaries of some of theseenforcement proceedings; additional detail is provided in Annex I.
10.
In 2009 the United Kingdom’s Financial Services Authority (FSA) brought regulatory
enforcement proceedings against a UK subsidiary of insurance brokerage firm AON for
failing to establish and maintain effective systems and controls to counter the risks of bribery
and corruption. These proceedings resulted in the imposition of a £5.25 million penalty. In
December 2011, the criminal enforcement authorities in the United States settled charges
under the Foreign Corrupt Practices Act (FCPA) with AON. The US Department of Justice(DOJ) cited the prior financial penalty paid by the UK subsidiary to the FSA and the FSA's"close and continuous supervisory oversight" of the subsidiary as factors in its decision toenter into a non-prosecution agreement and to impose a monetary penalty of $1.76 million,
which the DOJ described as substantially reduced.
11.
In 2011 the FSA took action against another insurance brokerage firm, Willis Ltd, inrespect of failings in the actions it had taken to counter the risks of bribery and corruption
resulting in a £6,895,000 penalty.
12.
In both cases the risks arose from making payments to non-FSA authorised
overseas third parties who assisted in winning business from overseas clients, particularly injurisdictions which had been deemed as high risk. 3 Also common to both cases was the factthat the companies concerned had agreed to settle at an early stage of the FSA's
investigation and therefore qualified for a 30% discount under the FSA's executive
settlement procedures. Otherwise the penalties would have been £7.5 million for AON and£9.85 million for Willis Ltd.
13.
A more recent insurance–related case in the US involved Allianz, a German-based
insurance and asset management company, which was charged by the US Securities andExchange Commission (SEC) with FCPA violations based on allegations that its Indonesiansubsidiary paid bribes to secure sales of its insurance products. In December 2012 Allianz
settled the case on payment of a $12.3 million fine.
14.
It is significant that the FSA enforcement actions were based on breaches ofexisting regulatory requirements which were not specific to bribery and corruption. These
requirements were for businesses to take reasonable care to organise and control theiraffairs responsibly and effectively, with adequate risk management systems, and also to takereasonable care to establish and maintain effective systems and controls for compliance withapplicable requirements and standards under the regulatory system and for countering therisk that they might be used to further financial crime. This suggests that supervisory
authorities are able to take significant enforcement action under their general regulatory
standards in respect of failings related to bribery and corruption issues, even if thejurisdictions in which they are operating have not implemented legislation to criminalise
those failings.

3 These included Bahrain, Bangladesh, Bulgaria, Burma, Indonesia and Vietnam in the case of AON and Russia,
Liberia, Argentina and Egypt in the case of Willis Ltd.
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3.

Relationship to AML/CFT frameworks

15.
The 2003 and 2012 Financial Action Task Force (FATF) Recommendations on
combating money laundering and terrorist financing require jurisdictions to have AML/CFT
frameworks in place; measures to combat bribery and corruption offences overlap to aconsiderable degree with these frameworks. This is particularly so in respect of politically
exposed persons (PEPs) and asset recovery.
16.
At a general level, both the 2003 and the 2012 FATF Recommendations requirejurisdictions to treat bribery and corruption as predicate offences for money laundering. Thismeans that bribery and corruption issues fall within the entirety of a jurisdiction’s criminal
justice and regulatory frameworks as required by the FATF.
17.
More specifically, both the 2003 and the 2012 FATF Recommendations contain arequirement for financial services businesses to carry out enhanced due diligence measuresin respect of business relationships with PEPs and their family members or close associates.
PEPs are defined for the purposes of the 2003 Recommendations as individuals “who are or
have been entrusted with prominent public functions in a foreign country, for example Heads
of State or of government, senior politicians, senior government, judicial or military officials,
senior executives of state owned corporations, important political party officials.”
18.
These requirements remain in force under the 2012 Recommendations. However,in addition, financial institutions now have to take reasonable measures to determine
whether a customer or beneficial owner is a domestic PEP (using a definition based on thatfor foreign PEPs) or a person who is or has been entrusted with a prominent function by aninternational organisation. Higher risk business relationships with any such persons must be
subject to enhanced due diligence measures.
19.
These measures are underpinned by the FATF’s June 2013 guidance on PEPs,
and its June 2013 typologies paper providing assistance to reporting institutions on specificrisk factors in the laundering of proceeds of corruption.
20.
The FATF Recommendations also contain transparency requirements in respect oflegal persons and legal arrangements which are aimed at the identification of underlying
beneficial owners in order to facilitate asset tracing. While these measures are not confined
to corruption issues, they are increasingly coming to be seen as key to the international fightagainst corruption.
21.
Despite these areas of overlap, it is important to be aware that compliance with the
FATF standards with regard to bribery and corruption does not necessarily equate tocompliance with all aspects of the different international instruments set out in Annex II. The
FATF Recommendations do not define bribery and corruption, and expressly provide thatjurisdictions may decide how to define predicate offences for money laundering.
22.
There are a number of differences in the way that jurisdictions define bribery andcorruption. For example, the extra-territorial reach of the offences is much wider in somejurisdictions than in others. In addition, some jurisdictions make a distinction between active
bribery (the offence committed by the person who offers, promises or gives a bribe) andpassive bribery (the offence committed by the recipient), and do not criminalise the latter. In
some jurisdictions, knowledge that an agent or third party is making a bribery payment onbehalf of the person or company is also deemed to constitute bribery. Some jurisdictions
also distinguish between “according to rule” corruption, where a bribe is a facilitation
payment, or “grease payment”, made to speed up the provision of a service which therecipient is required to carry out by law (e.g. processing paperwork), and “against the rule”
corruption, where a bribe is paid to obtain a service that the recipient of the bribe isprohibited from providing (e.g. suppressing evidence of criminal activity). In somejurisdictions only the latter is illegal.

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23.
As a result of differences such as these, not all jurisdictions that comply with the
FATF standards also meet the entire range of requirements in the various international
initiatives. The need to bring AML/CFT measures and anti-corruption measures closer
together was addressed in a guidance document issued by the FATF in October 2013,
entitled Best Practices Paper: The Use of the FATF Recommendations to Combat
Corruption, which followed on from earlier work in this area.
24.
There is also a degree of overlap between AML/CFT measures and economic
sanctions in relation to corruption. Historically, sanctions have not been used for the
purposes of fighting corruption, but in 2011, in the wake of the Arab spring, the European
Union enacted corruption-related restrictive measures against persons in Egypt and Tunisia.
This was on the basis that they or their associates were suspected of misappropriation ofState funds from their respective countries, and were therefore depriving their citizens of thebenefits of sustainable development of their economy and society and undermining thedevelopment of democracy in the country. In early 2014 restrictive measures were enacted
against former officials and their associates in the Ukraine on similar grounds. These
restrictive measures include an asset freeze and a prohibition on making funds or othereconomic resources available to listed persons. As the proceeds of suspected corruption,
the relevant assets and funds come within the AML/CFT frameworks outlined above, as well
as being caught by restrictive sanctions measures. These measures are prima facie
applicable to all movements of money, so would prevent payments being made or received
by an insurer if the insured were a listed person. There are, however, some derogations
under the global sanctions framework that may be applicable, whereby competentauthorities may license the release of frozen funds or the making of payments if, forexample, this is necessary to meet basic needs (usually defined as including the payment of
insurance premiums) or to discharge pre-existing contractual obligations (which could
include obligations under a contract of insurance).

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4.

Insurance supervision in combating bribery and corruption

4.1

IAIS Survey

25.
In 2013, the IAIS conducted a survey of its Members on combatingbribery andcorruption. The purpose of the survey was to learn more about how bribery and corruption isdealt with in Member jurisdictions, and in particular the insurance supervisor’s involvement in
implementing, monitoring and enforcing anti-bribery and anti-corruption measures. Parts ofthis section and section 5 are based on the responses to the survey.
4.2

The insurance supervisor’s role

26.
Each jurisdiction establishes its own framework to combat bribery and corruption.
Survey responses indicated that some jurisdictions have dedicated anti-corruption bodies toinvestigate corruption offences. These may be separate authorities or may exist within
existing law enforcement bodies. Other jurisdictions take a multi-agency approach, which
includes separate bodies for policy making and legislation, and for investigation andprosecution of corruption cases. Decisions to adopt a particular model flow from individual
jurisdictional criteria, that are a result of factors such as :•features of the domestic financial system•

the powers and resources of existing agencies•

priorities in combating bribery and corruption.

27.
The large majority of survey respondents indicated that the insurance supervisor is
not directly responsible for combating bribery and corruption, but rather such matters fallwithin the competence of judicial authorities, notably the police, criminal prosecutor andcriminal courts. The criminal prosecutor and the police generally have responsibility for legal
prosecution. Based on the survey responses, most supervisors ensure that insurers comply
with fit and proper provisions (during the licensing process) and that they have appropriate
risk management and internal controls to identify and manage potential risks including
AML/CFT and corruption and/or bribery risks. Two respondents indicated that they are thecompetent authority to monitor and take action to combat bribery and corruption whenevernecessary (in cooperation with dedicated agencies).
28.
Cooperation between insurance supevisors and the relevant criminal authorities
responsible is important in combating bribery and corruption. This involves the supervisor
and the prosecution authorities being able to provide each other with mutual andadministrative assistance in accordance with the relevant acts, and coordinate theirinvestigations, as far as is practicable and/or required. Where the supervisor obtains
knowledge of findings of corruption, bribery or general offences against financial markets, it
is able to notify the competent prosecution authorities. In some jurisdictions the supervisor
becomes involved in the legal proceedings.
29.
In view of the importance of information exchange in combating bribery andcorruption, it is essential that the supervisor has the legal power and authority to exchange
information with the prosecution authorities. 430.
Regarding cross-border cases of bribery and corruption, the involved jurisdictions’authorities cooperate with each other, sometimes on the basis of international agreements(memorandums of understanding) or on the basis of specific requests for information (lettersrogatory 5). The degree of involvement of the supervisor and method of cooperation will
depend on the applicable confidentiality regime, the jurisdiction involved and the case being
investigated. The survey responses indicated that insurance supervisors do cooperate with
4 See ICP 3 (including ICP 3.2.1 which specifically refers to law enforcement agencies).
5 A formal request from a court to a foreign court for some type of judicial assistance.
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agencies or judicial (criminal) authorities in charge of combating bribery and corruption andthat they notify the competent authorities of relevant findings. Most insurance supervisors
are empowered to exchange information with judicial (criminal) authorities, and some statedthat when they encounter situations that might justify criminal prosecution during theirsupervisory work, they inform the prosecutor. Thus, it is clear that cooperation between therelevant authorities, agencies, and supervisors is essential whatever approach is used atboth the jurisdictional and international levels.
31.
The survey responses also indicated that most supervisors require insurers tocomply with fit and proper standards, and with AML/CFT regulations. Most supervisors also
require insurers to have appropriate internal controls to ensure that they become aware ofpotential bribery and corruption issues. Most supervisory authorities supervise these throughoff-site monitoring and on-site inspections, and are able to take action when necessary andappropriate.
4.3

Insurance Core Principles

32.
As discussed above, insurance supervisors are generally not the principal
competent authorities for anti-bribery and anti-corruption matters; their involvement in thesematters arises mainly from their objective of ensuring that insurers and insuranceintermediaries comply with the legal and regulatory requirements applicable to theiractivities. These requirements are likely to concern licensing, risk management and internal
controls, countering fraud, and countering money laundering and terrorist financing (inparticular when they are the competent authority in this matter).
33.
As noted by the FATF, efforts to combat money laundering and anti-corruption
measures are closely linked. There are cases where particularly rigorous customer
identification and verification procedures are required. High-risk business relationships, inparticular with PEPs and those from jurisdictions where corruption is widespread, may
expose the insurance sector to significant reputational and/or legal risks.
34.
Consequently, ICP 22 (Anti-money Laundering and Combating the Financing ofTerrorism) and the related Application Paper on combating money laundering and terrorist
financing are particularly relevant to insurance supervisors in combating bribery andcorruption, as well as relevant documents published by the FATF.
35.
Other ICPs place various requirements upon insurance supervisors that are
relevant to combating bribery and corruption, in particular:•

ICP 4 (Licensing)•

ICP 5 (Suitability of Persons)•

ICP 7 (Corporate Governance)•

ICP 8 (Risk Management and Internal Controls)•

ICP 18 (Intermediaries)•

ICP 19 (Conduct of Business)•

ICP 21 (Countering Fraud in Insurance)

The following section considers how the requirements of these ICPs contribute towards
combating bribery and corruption.
4.3.1

Licensing36.
The supervisor’s role includes seeking to ensure that insurers are able to fulfill their
obligations on an ongoing basis. In this regard the licensing procedure, as set out in ICP 4, isthe first step in achieving this objective. The supervisor assesses whether the applicant
meets the licensing requirements, which include:
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•the suitability of the applicant’s Board Members, Senior Management (bothindividually and collectively), Significant Owners and Key Persons in Control
6Functions•the soundness of the corporate or group structure and governance framework. The
related internal control system and procedures would be expected to include theprevention and detection of money laundering, and extend to the offences of bribery
and corruption.

Indications of offences of bribery and corruption would be relevant to a suitability review; agovernance framework needs to take into account the prevention and detection of bribery
and corruption.
4.3.2

Suitability and integrity requirements

37.
Suitability is defined in ICP 5 as “having the competence and integrity to fulfil theirroles” (in respect of Board Members, Senior Management and Key Persons in Control
Functions), and as “having the financial soundness and integrity to fulfil their roles” (inrespect of Significant Owners). Most relevant to combating bribery and corruption is thequality of “integrity”, demonstrated through evidence regarding character and in personal
behaviour and business conduct. ICP 5 guidance gives a number of indicators to assess
suitability, which includes criminal indicators. A criminal indicator would include conviction fora criminal offence, such as money laundering, terrorist financing, dishonesty or fraud; thesupervisor should recognise criminal convictions or past misconduct as relevant in assessing
suitability. 7 A conviction or pending proceedings for bribery or corruption would clearly be
relevant in assessing suitability.
38.
An assessment of suitability should be done both prior to licensing (see ICP 4) andon an ongoing basis. 8 Where suitability requirements are no longer met, the supervisor
should take action. 9 For instance, the supervisor can suspend, dismiss or disqualify anindividual in a position of member of the Board, member of Senior Management or a Key
Person in a Control Function.
39.
In a similar vein, ICP 7 requires that individual Board Members act in good faith,honestly and reasonably, and in the best interests of the insurer and policyholders, putting
the interests of the insurer and policyholders ahead of his/her own interests. 10 Clearly, if a
Board Member engages in bribery and corruption this would be contrary to theserequirements.
40.
In light of the suitability and integrity requirements, senior management is expected
to set the right tone at the top – that bribery and corruption are not accepted in the insurer’sorganisation.
4.3.3

Requirements on risk management and internal controls

41.
In accordance with ICP 7, supervisors require insurers to have appropriate policies
and procedures that include promoting a culture of compliance. Such policies andprocedures cover, inter alia, standards of conduct and codes of ethics, which includes
procedures for dealing with conflicts of interest. 11 It would be important that the code of
6 See ICP 4.3 and 4.4.
7 See ICP 5.2.3 and 5.2.4.
8 See ICP 5.3.3.
9 See ICP 5.5.
10 See ICP 7.4.
11 See ICP7 and 7.9.1.
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conduct and policies that deal with such conflicts (e.g. those that cover travel and expenses)
are explicit on prohibiting payments or practices that may border on being improper or illegal
from an anti-bribery and anti-corruption standpoint.
42.
It is the Board’s responsibility to ensure that the insurer has appropriate systems
and functions for risk management and overall internal controls (that include anti-bribery andanti-corruption), and to provide oversight to ensure that these systems and the functions thatoversee them are operating effectively and as intended.
43.
The supervisor requires the insurer’s Board to have appropriate policies andprocedures to ensure that Senior Management promotes a culture of sound risk
management and compliance; 12 such systems and controls should encompass procedures
to deal effectively with bribery and corruption.
44.
This is reinforced in ICP 8, which requires insurers to have effective systems of risk
management and internal controls including both an effective compliance function that
promotes a corporate culture of compliance and integrity, 13 and an internal audit function
whose remit includes reporting to the Board on fraud prevention measures. 14 Appropriate
written policies may include a definition and categorisation of reasonably foreseeable andrelevant material risks to which the insurer is exposed; this would include bribery andcorruption risks. Where the insurer is part of a financial group, the supervisor would seek
evidence that the risk management system is established on a group-wide basis, including
bribery and corruption risks.
45.
Bribery and corruption usually involve dishonestly obtained proceeds or otherbenefits, which could be accomplished through fraud. In accordance with ICP 21,
supervisors require insurers and insurance intermediaries to take effective measures tocombat fraud. Policies and procedures that combat fraud in insurance can also contributetowards combating bribery and corruption.
4.3.4

Compliance function46.
ICP 8 highlights the role of the compliance function. The compliance function would
typically be led by a Chief Compliance Officer or similar, at least in the case of larger or more
complex organisations. Since the Board has overall responsibility for compliance, thecompliance function would be expected to report regularly to it. This would include reportingon, amongst other things, the insurer’s preparedness against bribery and corruption risks,and on performance against ABC standards and goals, including any incidents of material
non-compliance.
47.
The compliance function would be responsible for establishing, implementing andmaintaining appropriate mechanisms and activities, for purposes that include promoting andsustaining an ethical corporate culture that values responsible conduct and compliance withinternal and external obligations. 15 This would include compliance with anti-bribery and anticorruption legislation and the confidential reporting of (suspicions of) non-compliance. Thesemechanisms would also include addressing compliance shortcomings.
48.
ICP 8 also identifies the compliance function as responsible for holding training on
an appropriate code of conduct as well as on key legal and regulatory obligations; bribery
and corruption would be relevant to both.

12 See ICP 7.9.
13 See ICP 8.4.
14 See ICP 8.6 and 8.6.2.
15 See ICP 8.4.5.
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4.3.5Internal Audit

49.
In addition, the internal audit function can play an important role in providing
independent assurance over the design and effectiveness of the internal control system andthe extent of compliance with established policies, processes and controls, as well as theextent of compliance with applicable laws, regulations, rules and directives. 16
4.3.6

Money laundering and terrorist financing

50.
As noted in section 3 the FATF recognises the link between corruption and money
laundering. While the focus of the FATF Recommendations is on combating money
laundering and terrorist financing, they include specific measures which recognise corruption
risks, for example, requiring countries to make corruption and bribery predicate offences formoney laundering, and insurers to take action to mitigate the risks posed by politically
exposed persons (PEPs). The IAIS survey clearly showed that various jurisdictions use
AML/CFT measures to help combat corruption.
51.
ICP 22 requires supervisors to understand the ML/FT risks to which insurers andinsurance intermediaries are exposed, and to have effective measures in place that enable
them to cooperate with other authorities in combating ML/FT. 17 Where the insurance
supervisor is the competent authority for AML/CFT, these requirements go further – inter alia
the supervisor should:•

issue enforceable rules
Recommendations)on

AML/CFT

compliance(consistent

with

FATF

•

have an effective supervisory framework to monitor and enforce AML/CFT
compliance•review the effectiveness of AML/CFT measures being taken. 18

52.
Key AML/CFT requirements of the FATF that enhance the fight against bribery andcorruption in this regard include enhanced due diligence for high risk relationships, and thefiling of suspicious transaction reports.
Enhanced due diligence measures 19
53.
The FATF requires enhanced due diligence measures to be taken by insurers andinsurance intermediaries in respect of PEPs, as many PEPs are in positions which can be
subject to abuse for the purpose of committing money laundering and related predicate
offences, including bribery and corruption. Such measures require insurers and insuranceintermediaries to have appropriate risk management systems to determine whether apotential customer, a customer or the beneficial owner of a customer is a foreign PEP.
Insurers and insurance intermediaries should obtain senior management approval forestablishing (or, in the case of existing customers, maintaining) such business relationships;
they should take reasonable measures to establish the source of wealth and source of fundsof customers and beneficial owners identified as PEPs, and conduct enhanced ongoing
monitoring of the business relationship. They should also take reasonable measures todetermine whether a customer is a domestic PEP or a person who is, or has been, entrustedwith a prominent function by an international organisation. In cases of a higher risk business
relationship with a domestic PEP, insurers and insurance intermediaries must apply themeasures mentioned above. Measures for PEPs increase the possibility of detecting
instances where public officials and other persons who are (or have been) entrusted with
16 See ICP 8.6 and related guidance.
17 See ICP 22.6 and 22.7
18 See ICPs 22.2, 22.3 and 22.4
19 See FATF Recommendations and Interpretive Notes, including recommendations 1, 3, 10 and 19.
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prominent public functions are abusing their positions for private gain. The supervisor should
ensure effective implementation of these measures by insurers and insuranceintermediaries.
Suspicious transaction reports
54.
If an insurer or insurance intermediary suspects, or has reasonable grounds tosuspect, that funds are the proceeds of a criminal activity (including corruption), or are
related to terrorist financing, the FATF Recommendations require that it reports its
suspicions promptly to the financial intelligence unit by means of a suspicious transaction
report (STR). Analysis of STRs can provide a valuable source of financial information in boththe identification and tracing of the proceeds of corruption.
4.3.7

Intermediaries

55.
ICP 18 focuses specifically on intermediaries. It requires them to be licensed andsubject to ongoing supervisory review.
Professional integrity56.
In accordance with ICP 18 the supervisor should require insurance intermediaries tobe licensed, to possess appropriate levels of professional knowledge and experience,
integrity and competence. 20 The supervisor also expects them to act with integrity, including
high ethical standards. The guidance provides examples of these qualities, which include nottaking unfair advantage and not accepting or offering gifts where this might imply an
improper obligation. 21
57.
Insurance intermediaries therefore need to meet certain personal requirements,
evidenced for example by there being no penal judgements on account of actions which areincompatible with the high ethical conduct expected of an insurance intermediary or there
being no outstanding certificates of unpaid debts against them. An insurance intermediary’s
involvement in a criminal tribunal procedure may already give cause for supervisory concern
in serious cases.
58.
The supervisor may wish to ensure that individuals acting as intermediaries are
subject either to internal policies and procedures, or to the ethical standards of professional
bodies, that require integrity. 22 The supervisor may also wish to lay down its own
expectations through a code of conduct with which insurance intermediaries should
comply. 23
59.
The IAIS survey shows that various jurisdictions have established a code of conduct
and/or code of ethics that deals with bribery and corruption risks and sets out supervisory
expectations regarding principles of acting honestly and with integrity.
60.
Intermediary firms themselves should operate procedures to assess the integrity of
those acting as intermediaries on their behalf. 24
Corporate governance61.
In accordance with ICP 18.4 the supervisor requires that insurance intermediaries
apply appropriate corporate governance. In respect of governance-related matters, thesupervisor may set out expectations in ensuring an appropriate level of internal controls of

20 See ICP 18.1 and 18.3
21 See ICP 18.3 and 18.3.6
22 See ICP 18.3.7
23 See ICP 18.3.8

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the business and compliance with all relevant domestic and foreign legislation, including
non-insurance legislation and would include anti-bribery and corruption legislation.
Client monies
62.
The supervisor requires an insurance intermediary who handles client monies tohave sufficient safeguards in place to protect these funds. 25 Insurance intermediaries’
vulnerability to bribery and corruption risks may be higher if they handle client monies (forexample where the insurance intermediary receives funds from a client for the payment ofpremiums to an insurer, or receives claims proceeds or refunded premiums from an insurer
for onward payment to a client).
63.
To mitigate bribery and corruption risk it is crucial that insurance intermediaries
have clear client money policies and procedures in place. Such policies are there to ensurethat adequate financial systems and controls are maintained that cover, amongst otherthings, the authorisation of payments from the account, the maintenance of adequate books
and records that are subject to audit, and the use of separate client accounts that are clearly
distinguishable from the intermediary’s own bank accounts. 26
64.
The insurance intermediary’s senior management’s awareness, involvement andresponsibility are vital in ensuring adequate anti-bribery and corruption systems and controls
are in place and that appropriate resources are allocated to mitigate identified risks.
Conflicts of interest
65.
As noted above, in accordance with ICP 19, the supervisor requires both insurers
and intermediaries to manage potential conflicts of interest; soliciting or accepting
inducements (including cash, cash equivalents, commission, goods and hospitality) is
specifically cited as having the potential to create conflicts of interest. 27 Soliciting or
accepting inducements could also be seen as taking bribes.
66.
ICP 19 also notes that an insurance intermediary is more likely to than an insurer toencounter such conflicts of interest, as the intermediary interacts with both the customer andthe insurer. Appropriate policies and procedures are needed to identify and manage suchconflicts.

25 See ICP 18.6.
26 See ICP 18.6.5
27 See ICP 19.7 and 19.7.1-2
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5.

Approaches that supervisors use in combating bribery and corruption

5.1

Supervisory review

67.
The supervisor can use both off-site monitoring and on-site inspections to examine
the business of each insurer 28 and be expected to take into account bribery and corruption
risks within its risk-based approach.
68.
In its approach to bribery and corruption risks, the supervisor could take into
account the interlinkage between AML/CFT and ABC in its supervision of bribery andcorruption risks. For example, if suspicious transactions are being reported to satisfy
AML/CFT requirements, then more intensive supervision of bribery and corruption may beappropriate.
69.
Approaches to the supervisor’s evaluation of the effectiveness of the corporate
governance framework, including its risk management and internal control systems, arediscussed further in ICP 9. 29
70.
The supervisor may review involvement of risk management in areas that are
exposed to bribery and corruption risks, for example in assessing the business case for new
business in emerging markets from a risk management point of view.
71.
The supervisor can check whether, and to what extent, bribery and corruption risks
are covered by internal audit. If necessary, the supervisor may ask an insurer or insuranceintermediary to enhance its internal audit coverage of bribery and corruption risks. The
supervisor may also follow up on relevant audit findings – either from an internal or from theexternal audit.
72.
Thematic reviews that cover both AML/CFT and ABC could enable the supervisor toassess an insurer’s capability and effectiveness to interrelate the two subjects in order todeal with them in a comprehensive way.
5.2

Risk-based approach73.
In combating bribery and corruption the supervisor should follow a risk-based
approach. Following a risk-based approach involves paying more attention to areas of higher
risk, and this would take into account insurers’ and insurance intermediaries’ businessmodels and their activity abroad. For example, if target markets are under pressure,competition may be stiff and margins may tighten, leading to a higher risk of bribery andcorruption. The risk of bribery and corruption might also be higher if the businessenvironment in a jurisdiction (including the legal and political situation) offers fewer
protections against it.
74.
The Corruption Perceptions Index, 30 issued annually by Transparency International,
provides valuable data for analysing the situation in the various jurisdictions, and isconsulted by a number of supervisors as part of their approach to risk-based supervision.
75.
Red flags that may highlight potential risks and trigger intensified supervision of
insurers and insurance intermediaries might include: 31•

inadequate administrative and compliance resources

28 See ICP 9.
29 See ICP 9.7.7 guidance and corresponding annex.
30 Corruption Perceptions Index 2013: http://www.transparency.org/cpi2013/results.
31 Source: “Preventing corruption – Information for Swiss business operating abroad”: A brochure by the State
Secretariat for Economic Affairs (SECO), in collaboration with: The Federal Office of Justice, The Federal
Department of Foreign Affairs: economiesuisse, and Transparency International Switzerland.
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•

ill-defined competencies and responsibilities•

irregularities or substantial delays in operational reports•

significant and unsubstantiated deviations from operational plans•

deficiencies in procurement processes•

non-transparent, poorly managed bookkeeping and irregularities in financial andaudit reports•

an excessively high budget in relation to planned activities and unjustified changes
in the budget or invoicing•

unusual short- or long-term expenditures•

excessive commissions•

a disregard of internal instructions•

inappropriate salaries or commissions•

employees’ lavish lifestyle and personal property and assets inconsistent with theirincome levels•

employees’ personal dependencies, and favouritism.

76.
The supervisor may require the insurer or insurance intermediary to make use ofknowledge it gains in the process of combating money laundering, terrorist financing, andother related threats to the integrity of the financial system in its evaluation of bribery andcorruption risks. Where the FATF identifies a jurisdiction as high-risk and non-cooperative(i.e. having strategic deficiencies) in its Public Statements, 32 it either•

calls on its members and other jurisdictions to apply counter-measures to protect theinternational financial sysytem from the on-going and substantial ML/FT risks
emanating from the jurisdictions, or•calls on its members to consider the risks arising from the deficiencies associatedwith each jurisdiction (in situations where a jurisdiciton has made insufficient
progess in addressing the deficiencies).

77.
Where insurance business in conducted in such jurisdictions, this is likely to impact
the level of supervisory intensity in respect of such business, particularly where theinsurance supervisor is the competent authority for AML/CFT.
5.3

Approaches to risk management and internal controls

78.
The supervisor expects insurers’ risk management systems to be designed andoperated to manage all reasonably foreseeable material risks, and to report on them in atimely manner. Insurers’ risk appetite frameworks should include risks of money laundering
and unethical practices. 33
79.
Consistent with ICP 8 the supervisor should gain assurance that risks related tobribery and corruption are an integrated part of the insurer’s risk management and internal
control system. This should include not only whether processes to mitigate bribery and
32 FATF Public Statement - 14 February 2014 / High-risk and non-cooperative jurisdictions: http://www.fatfgafi.org/topics/high-riskandnon-cooperativejurisdictions/documents/public-statement-feb-2014.html.
33
See
FSB
Principles
oneffective
risk
appetite
frameworks
at:https://www.financialstabilityboard.org/publications/r_131118.htm. Whilst these principles aim to enhance thesupervision of SIFIs, supervisors and financial institutions may apply them proportionately to non-SIFIs so thatthe risk appetite framework is appropriate to the nature, scope and complexity of the activities of the financial
institution.
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corruption risks have been followed but also regarding the effectiveness of the processes
themselves, including the reporting of bribery and corruption.
80.
Risk management can help to avoid or mitigate bribery and corruption. For
example, the supervisor could make sure that the insurer:•

identifies the risks related to bribery and corruption 34 and assesses how these risks
can affect their business•takes appropriate precautions by putting adequate procedures and measures inplace to mitigate the risks•

monitors and analyses bribery and corruption risks periodically to determine gaps
and improvement opportunities•

routinely performs compliance and/or internal audit checks of high risk areas (e.g.
third party payments).

5.4

Third party risks

81.
Issues with bribery and corruption can spread to insurers and insuranceintermediaries via third party agreements: an insurer or insurance intermediary bears the riskof enforcement and damage to its reputation for bribery and corruption committed by third
parties acting on its behalf. The case studies in Annex I illustrate some of the risks related tothird party agreements.
82.
Accordingly, it is important for the supervisor to check whether the insurer has
implemented appropriate systems and controls to mitigate the risk that third parties acting on
its behalf may engage in bribery and corruption. For example, the supervisor may want tocheck whether the insurer:•

has well established and documented policies with a clear definition of “third party”
in place•

has procedures to identify and risk-assess the use of third parties, which might
include the use of internal audit•

has sufficiently robust due diligence processes on third parties and reviews third
party relationships on a regular basis•

includes appropriate clauses in third party contractual agreements in relation tobribery and corruption, or a “right to audit clause”•

checks third party payments prior to approval, to ensure that they are supported by avalid business case for that account. 35

83.
The supervisor could include review of the insurer’s or insurance intermediary’s
material third-party agreements as part of the supervisory process. Initially, the supervisor
may check whether there is an adequate commercial rationale and whether adequate due
diligence has been performed. On a regular basis, the supervisor may review the operational
effectiveness of the insurer’s/insurance intermediary’s material third-party relationships,
including whether these achieve the business objectives for which they have been
established.

34 See Allianz Risk Barometer on Business Risks 2014: Corruption together with theft and fraud ranks eighth outof the ten top business risks: http://www.agcs.allianz.com/about-us/news/press-riskbarometer2014/.
35 See Publication FSA: “Anti-bribery and corruption in commercial insurance broking: Reducing the risk of illicit
payments or inducements to third parties”, May 2010.
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5.5

Organisational measures

84.
The supervisor expects insurers and insurance intermediaries to adopt policies andprocedures that promote an ethical culture, including a code of conduct and/or code of ethics
that deals with bribery and corruption risks. The supervisor can also set out its own
expectations regarding principles of acting honestly and with integrity.
85.
The supervisor could also set requirements for insurers and insuranceintermediaries to take appropriate organisational measures such as:•

having transparent business processes, documents and keeping adequate records•

pre-employment and in-employment screening of staff on bribery and corruption
risks

•

clearly specifying employees’ competence requirements in job descriptions•

keeping a record of additional functions fulfiled by their staff or even in prohibiting
staff to take up certain functions•

including integrity clauses in employment contracts•

applying appropriate internal controls that include a principle of requiring dual
authorisation in respect of significant commitments•

implementing control functions within the organisation – or outsourcing these toexternal entities – that are responsible for assessing potential conflict of interest andapplying particular due diligence in the selection and assignments of local agents•

applying appropriate controls in establishing and managing relationships with third
parties (eg agents, clients, and suppliers)•

including ABC within the supervisory requirements regarding anti-fraud initiatives
that aim to prevent, detect, and prosecute fraudulent activities•

including ABC in the code of conduct – to be complied with by all employees andthird party contractors•

reflecting compliance with ABC standards and processes in remuneration schemes
to include malus or clawback provisions in the case of breaches of ABC
requirements•

defining sales targets and incentives in a way that deters corruption or bribery•

establishing whistleblowing procedures that include protection of, andencouragement to, people willing to take the risk of speaking out on corruption.

86.
In general, policy and procedures can be expected on gifts, hospitality andentertainment, including specific guidelines regarding an acceptable value threshold(including cumulative value), and reporting, record-keeping and pre-approval requirements.
As mentioned in 5.4, third party arrangements may also require special attention in policies
and procedures. Other areas include donations, charity and sponsoring. Setting criteria
beforehand and applying risk-based due diligence on the receiving party can reduce therisks on bribery.
5.6

Training

87.
Regular training of an insurer’s or insurance intermediary’s staff, combined with themonitoring of business practices may be a protective barrier against bribery and corruption.
It can enable staff to understand the risk they face, react adequately in a way the firm
expects and avoid breaching company policy, regulatory requirements or the law.

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88.
The survey results showed that in many jurisdictions there is no explicit supervisory
requirement for ABC training of an insurer’s Board Members and Senior Management.
However, various jurisdictions promote the idea of ABC training, and such training is often
organised (independently of supervisory requirements) by insurers for their staff, or
integrated within their overall compliance and integrity training.
89.

Elements that could be considered include:•

providing basic ABC training for all staff and additional training for staff in high risk
positions•ensuring the training covers practical examples of risk and how to comply with
policies•

testing that staff understood the training•

maintaining records of who attended the training and when.

90.
Effective supervision of bribery and corruption risks similarly requires thesupervisor’s staff to have appropriate training and expertise.
5.7

Taking supervisory action

91.
In many jurisdictions the criminal code or other legislation applies to bribery andcorruption. Individuals as well as insurers and insurance intermediaries can be subject tolegislation.
92.
If an insurer or insurance intermediary is convicted of bribery or corruption, it would
be important for the supervisor to investigate circumstances, including relevant individuals’
responsibilities. In the case of a conviction of the firm or an executive officer, the supervisor
would expect the firm to disclose the incident to it immediately. The supervisor could thentake appropriate action. If necessary, the supervisor could order the dismissal of an
executive who is considered not to fulfil suitability requirements.
93.
The survey responses indicated that the conviction of a Board Member, Senior
Manager, Significant Owner or Key Person in a Control Function would pose a question as
to their suitability for such a function within an insurer. 36 They would no longer meet thelicensing and suitability requirements 37 set out for such positions. The timeframe forsuspension of an individual from acting in such a capacity varies among jurisdictions.
94.
When an insurer or insurance intermediary, or a third party acting on the insurer’s orintermediary’s behalf, fails to implement adequate mechanisms and procedures to combat
bribery and corruption, the supervisor may impose a disciplinary sanction on, or demand
restorative measures by, the supervised entity.
95.
Depending on the circumstances, the supervisor can also consider revoking thelicence or imposing licensing conditions.

36 See ICP 5.
37 See ICP 4.
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6.

Conclusions

96.
The insurance sector is vulnerable to bribery and corruption, as illustrated by cases
highlighted in this paper. Falsifying books and records as well as using “off-the-books”
accounts can be used to facilitate improper payments. Insurance contracts on large
government projects may be particularly at risk of bribery and corruption. Oversea third-party
agreements can bear high bribery and corruption risks. Setting up new businesses in foreigncountries can involve bribery and corruption risks that need to be addressed by all relevant
parties, including insurers, insurance intermediaries and supervisors.
97.
Although insurance supervisory authorities are not usually directly responsible forcombating bribery and corruption, the supervisor has an interest in requiring insurers andinsurance intermediaries to take measures to combat bribery and corruption. That means,amongst other things, that insurers’ and insurance intermediaries’ risk management andinternal control systems need to be effective in preventing and detecting bribery andcorruption risks.
98.
Insurers’ and insurance intermediaries’ AML/CFT frameworks can be useful in thefight against bribery and corruption. Measures taken in applying enhanced due diligence tohigher risks relationships, and the filing of suspicious transaction reports may help to detectrisks. Thus supervisors could encourage insurers and insurance intermediaries to take acomprehensive approach that incorporates AML/CFT requirements and techniques incombating bribery and corruption. This can draw upon synergies in the approaches andtechniques in combating both forms of financial crime that can work to the mutual benefit of
both.
99.
The awareness, involvement and responsibility of the Board and Senior
Management are vital in ensuring that these are in place, and that appropriate resources areallocated to mitigate identified risks. It is crucial that the management is seen to take therisks seriously.
100.
High standards of integrity help protect the insurance sector aginst bribery andcorruption. Integrity should be ingrained throughout insurers’ and insurance intermediaries’organisations and be part of their culture, and this will enhance protection not only against
bribery and corruption but also against other forms of financial crime.
101.
Regular training by insurers and insurance intermediaries of their staff, combinedwith the monitoring of business conduct, should help to strengthen the application of ABC
systems and controls. It can enable staff to understand the risks that their organisation andthe sector face, react adequately in a way the firm expects and avoid breaching company
policy, regulatory requirements or the law. Training can thus contribute to a company culturethat promotes integrity and recognises bribery and corruption risks.
102.
The supervisor can contribute to combating bribery and corruption in the insurance
sector by requiring insurers and insurance intermediaries to have appropriate systems andcontrols in place that involve management’s positive engagement, in taking action in thecase of non-compliance with the requirements, and in cooperating with law enforcement
authorities when an incident occurs. The supervisor could also be active in promoting
awareness of bribery and corruption risks to insurers and insurance intermediaries operatingin their jurisdiction, to encourage risk mitigation efforts.
103.
Although the IAIS does not have a core principle or other supervisory material that
deals specifically with bribery and corruption risks, this paper demonstrates that theapplication of relevant governance and other requirements of the ICPs, as highlighted in
section 4, can contribute significantly towards mitigating bribery and corruption risks.

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Annex I
Case studies
Allianz
Facts 38
The US Securities and Exchange Commission on Dec. 17, 2012 charged Germany-based insurance and asset
management company Allianz SE with violating the books and records and internal controls provisions of theForeign Corrupt Practices Act (FCPA) for improper payments to government officials in Indonesia during aseven-year period.
The SEC’s investigation uncovered 295 insurance contracts on large government projects that were obtained orretained by improper payments of $650,626 by Allianz’s subsidiary in Indonesia to employees of state-owned
entities, by creating an 'off-the-books' account that served as a slush fund for bribe payments to foreign officials
to win insurance contracts worth several million dollars. Allianz made more than $5.3 million in profits as a resultof the improper payments.
Allianz, which is headquartered in Munich, agreed to pay more than $12.3 million to settle the SEC’s charges.
According to the SEC’s order instituting settled administrative proceedings against Allianz, the misconduct
occurred from 2001 to 2008 while the company’s shares and bonds were registered with the SEC and traded on
the New York Stock Exchange. Two complaints brought the misconduct to Allianz’s attention. The first complaint
submitted in 2005 reported unsupported payments to agents, and a subsequent audit of accounting records at
Allianz’s subsidiary in Indonesia uncovered that managers were using “special purpose accounts” to make illegal
payments to government officials in order to secure business in Indonesia. The misconduct continued in spite ofthat audit.
According to the SEC’s order, the second complaint was made to Allianz’s external auditor in 2009. Allianz failed
to properly account for certain payments in their books and records. The improper payments were disguised in
invoices as an “overriding commission” for an agent that was not associated with the government insurance
contract. In other instances, the improper payments were structured as an overpayment by the government
insurance contract holder, who was later “reimbursed” for the overpayment. Excess funds were then paid toforeign officials who were responsible for procuring the government insurance contracts. Allianz lacked sufficientinternal controls to detect and prevent the wrongful payments and improper accounting.
Comment: Lessons learned
Falsifying books and records as well as using “off-the-books” accounts are ways to carry out improper payments.
Insurance contracts on large government projects are prey to bribery and corruption. The case shows theimportance of the effectiveness of internal controls. Even once detected, bribery and corruption may continue indifferent manners, if not firmly combatted.

38

Source: U.S. Securities and Exchange Commission, Press Release, Homepage
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486902.
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AON Limited
Facts 39
The Financial Services Authority (FSA) fined Aon Limited (Aon Ltd) £5.25 million on the 8 January 2009 for
failing to take reasonable care to establish and maintain effective systems and controls to counter the risks ofbribery and corruption associated with making payments to overseas firms and individuals on the 8 January
2009..
Between 14 January 2005 and 30 September 2007, Aon Ltd failed to properly assess the risks involved in its
dealings with overseas firms and individuals who helped it win business and failed to implement effective
controls to mitigate those risks. As a result of Aon Ltd’s weak control environment, the firm made various
suspicious payments, amounting to approximately US$7 million, to a number of overseas firms and individuals.
Aon Ltd cooperated fully with the FSA and agreed to settle at an early stage of the FSA’s investigation. The firm
qualified for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would
have been £7.5 million.
Since the discovery of its failings in 2007, Aon Ltd and its current senior management have demonstrated thatthey treat this matter with the utmost seriousness. The FSA considers that the pro-active determination of Aon
Ltd’s current senior management to identify past issues and improve the firm’s systems and controls in this area
is a model of best practice that other firms may wish to adopt.
Comment: Lessons learned
It is crucial that the senior management properly assesses ABC risks and implements effective risk management
and internal controls to address such risks.
Willis Limited
Facts 40
The Financial Services Authority (FSA) fined Willis Limited £6.895 million for failings in its anti-bribery andcorruption systems and controls on 21 July 2011.
These failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could
be used for corrupt purposes.
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 tooverseas third parties;•

ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved indoing business with them; and•adequately review its relationships on a regular basis to confirm whether it was still necessary andappropriate for Willis Limited to continue with the relationship.

These failures contributed to a weak control environment surrounding payments to overseas third parties andgave 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 adequately to monitor its staff to ensurethat each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that39

See Homepage former FSA, Press release:
http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/004.shtml.
40

See Homepage former FSA, Press release:
http://www.fsa.gov.uk/pages/Library/Communication/PR/2011/066.shtml.
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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 theperformance 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. These were
subsequently reported to the Serious Organised Crime Agency.
The FSA’s view was that Willis Limited had failed to take the appropriate steps to ensure that payments it was
making to overseas third parties were not being used for corrupt purposes. The FSA was disappointed because
it had repeatedly communicated with the industry on the issue and had previously taken enforcement action for
failings in this area.
It said that the involvement of UK financial institutions in corrupt or potentially corrupt practices overseas
undermined the integrity of the UK financial services sector. The action it had taken against Willis Limited
showed that it was vital for firms not only to put in place appropriate anti-bribery and corruption systems andcontrols, but also to ensure that those systems and controls were adequately implemented and monitored.
Willis Limited has taken significant steps to address the failings identified by the FSA and has committed tocarrying out a review of past payments made to overseas third parties to identify any inappropriate payments.
Willis Limited cooperated with the FSA and agreed to settle at an early stage of the FSA’s investigation. The firm
qualified for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would
have been £9.85 million.
Comment: Lessons learned
Third-party agreements which involve overseas participants may bear high ABC risks. An adequate commercial
rationale, effective due diligence and review third party relationships on a regular basis are crucial.

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JLT Specialty Limited
Facts 41JLT Specialty Limited (JLTSL), which provides insurance broking and risk management services, was found tohave 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.
The FCA felt that JLTSL’s failings were 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 thatbusiness.
Bribery and corruption from overseas payments was an issue the FCA expects all firms to do everything they can
to tackle. Firms cannot be complacent about their controls – when it takes enforcement action, it expects theindustry to sit up and take notice.
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 byoverseas 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.
At the FCA’s request, JLTSL also varied its permissions 42 until such time as the FCA was satisfied that JLTSL
could adequately mitigate the risk of making payments to overseas third parties.
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. The fine of £1,876,000 follows JLTSL’s
agreement to settle at an early stage of the investigation. As a result, it qualifies for a 30% reduction on theoriginal penalty of £2,684,013.
Comment: Lessons learned
Setting up new business in foreign countries bears bribery and corruption risks that must be addressed
accordingly by both insurers and supervisors. Insurers must control oversea payments by any means. Insurers
may not take warning of supervisors seriously enough so that further supervisory action may become necessary.

41 Source: Financial Conduct Authority UK, Press release, Homepage : http://www.fca.org.uk/news/firm-fined18million-for-unacceptable-approach-to-bribery-corruption-risks-from-overseas-payments.
42 A variation of permission can be at the supervisor’s or the firm’s initiative. It is essentially a change (usually a
restriction) in the kinds or classes of business a firm can undertake. The variation can be temporary (as in thiscase) of permanent.
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Annex II

International developments in combating bribery and corruption
1.
Growing international concern has led to a number of initiatives to combat bribery
and corruption, most of which treat these terms as synonymous. However, over time theinternational focus has gone beyond the act of bribery and has extended to any abuse of
public office for private gain. Whilst this clearly would include bribery, it would also coversituations where no act of bribery is involved. An example is where a head of state awards alucrative contract or government post to a close family member. The wider definition would
also encompass offences of dishonesty other than bribery such as theft or fraud, for example
where state assets or international aid payments are diverted by an official to a shambusiness created by him which purports to provide a service to the government. For ease ofreference, corruption should be taken to include bribery and other activities unless thecontrary is clear from the context.
International Conventions
2.

The three principal international instruments dealing with corruption are:•1997 Organisation for Economic Co-operation and Development Convention on
Combating Bribery of Foreign Public Officials in International Business Transactions(OECD Convention)•

1999 Council of Europe Criminal Law Convention on Corruption & its 2003 Additional
Protocol (C of E Convention)•

2003 United Nations Convention Against Corruption (UNCAC)

OECD Convention
3.
The OECD Convention is expressly aimed at reducing the effect of bribery on
international business transactions including trade and investment. It is therefore focused on
the offence of bribing foreign public officials and matters related to that offence including
penalties, liability of legal persons, jurisdiction, accounting, extradition and mutual legal
assistance. Bribery for these purposes means active bribery. The creation of ancillary
offences such as incitement, conspiracy and aiding and abetting is also required.
C of E Convention
4.
The C of E Convention aims to promote a common criminal policy for the protectionof society against corruption. It goes beyond the OECD Convention in that it deals with bothactive and passive bribery and applies to dealings with a much wider range of persons,namely:•domestic and foreign public officials•

members of domestic and foreign public assemblies•

those who direct or work for private sector entities•

officials of international organisations•

members of international parliamentary assemblies•

judges and officials of international courts•

domestic and foreign arbitrators•

domestic and foreign jurors.

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5.
It also covers trading in influence. As in the OECD Convention, provision is also
made for ancillary offences and for a range of related measures such as penalties, liability oflegal persons, jurisdiction, accounting, extradition and mutual legal assistance. There arefurther measures concerning co-operation between national authorities, evidence gatheringand the protection of witnesses.
UNCAC
6.
UNCAC is more comprehensive than either the OECD Convention or the C of E
Convention and is now regarded as the primary international instrument governing
corruption. Its aims are to promote and strengthen measures to prevent and combat
corruption more efficiently and effectively; to promote, facilitate and support international
cooperation and technical assistance in the prevention of and fight against corruption,
including asset recovery; and to promote integrity, accountability and proper management ofpublic affairs and public property. Corruption is not defined so its ambit is not limited tobribery. UNCAC deals with the creation of similar offences to those in the C of E Convention
in respect of the active and passive bribery of national and foreign public officials andofficials of public organizations, active and passive bribery in the private sector and trading in
influence. However, it goes further in that it covers offences of embezzlement,
misappropriation or other diversion of property by a public official, abuse of functions andillicit enrichment. UNCAC also sets out extensive asset recovery measures, measuresrelating to technical assistance and training, and a range of preventive measures. The
preventive measures include:•

codes of conduct for public officials•

standards for public procurement and management of public finances•

measures to promote integrity and reduce the risk of corruption in respect of the
judiciary and prosecution services•

accounting and auditing standards to prevent corruption in the private sector.

Other international measures
7.
Bodies such as the Stolen Asset Recovery Initiative (a joint body set up by theWorld Bank and the United Nations Office on Drugs and Crime), the International Monetary
Fund, the OECD, the Commonwealth Secretariat, the G20 and the FATF have anticorruption working groups that regularly issue reports, plans and guidance documents. A
recent example is the G20’s 2013 – 2014 Anti-Corruption Action Plan.
Domestic legislation and enforcement trends
8.
Many countries have introduced legislation to implement the requirements of theanti-corruption conventions and in some cases to go further, particularly in respect of extraterritoriality. For example, in some countries such as the US and Canada, domestic anticorruption legislation requires companies whose securities are listed in those countries tomeet certain accounting provisions, irrespective of place of incorporation. In addition, many
countries have enacted legislation that contains provisions governing extra-territorial
application of criminal offences, in order fully to cover the bribery of foreign officials. In somecountries this is limited by a requirement that a significant part of the offending conduct has
occurred within the country’s territory. However, in some other countries, notably the US andthe UK, extra-territoriality for corruption offences goes much further.
9.
The US’s Foreign Corrupt Practices Act (FCPA), introduced in 1977 andsubsequently amended, creates offences that apply to acts by US businesses, foreign
corporations trading securities in the US, American nationals, citizens, and residents acting
in furtherance of a foreign corrupt practice whether or not physically present in the UnitedStates. The UK’s Bribery Act 2010, which unlike the FCPA applies to both public sector andIssues paper on combating bribery and corruption
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private sector bribery, contains extra-territorial provisions which extend the reach of the Act
to the activities anywhere in the world of British citizens or companies incorporated under thelaw of any part of the UK.
10.
The Bribery Act creates a new offence of failure by corporate entities to prevent
bribery. This is an offence of strict liability and applies to the failure by a company to prevent
bribery on the part of any legal or natural person who performs services for it anywhere in
the world, whether or not that person is one of its employees, if the bribery was carried out
with the intention of gaining or retaining business or a business advantage for the company.
The company will have a defence to this offence if it can demonstrate that it had in place
adequate procedures designed to prevent persons associated with it from acting in this way.
There is a similar offence under the FCPA but without the adequate procedures defence.
However, the FCPA contains an exemption for facilitation payments which the Bribery Act
does not.
11.
There are indications of a move towards the creation of equivalent legislation inother countries. In 2011 Russia and China introduced foreign bribery legislation for the firsttime. In August 2013 the Brazilian President signed into law the anti-corruption bill also
referred to as the "Brazilian Clean Company Act." Under this legislation, Brazilian companies
and foreign companies having offices, branches, or agents in Brazil may be held strictly
liable for acts of corruption against public authorities either in Brazil or abroad.
12.
In addition to extra-territoriality, the domestic legislation of countries such as the US
and the UK has a wider reach than that of some other jurisdictions because it applies to both
legal and natural persons. In countries where no liability can attach to legal persons, it is notpossible to take any enforcement action in connection with corruption by corporate entities
unless there is sufficient evidence to establish offences or regulatory breaches on the part ofindividual employees, managers or board members, whether on the basis of their deliberateacts or negligence. This is usually extremely difficult to establish, and the absence of liabilityof legal persons is often cited as a major obstacle to the effective tackling of corruption. On
the other hand, the need to take action against particular individuals means that enforcement
action is more likely to be directed against those truly at fault, and will not adversely affectothers such as shareholders who have had no part to play in the relevant conduct.
13.
Although differences will remain in the way countries implement anti-bribery andcorruption measures, the global direction at present is clearly towards an increasing
exposure to strict anti-corruption measures for businesses that trade internationally, and thisis unlikely to change.
14.
The US has been active in bringing criminal prosecutions for corruption. The level offoreign corruption cases being prosecuted in the US under the FCPA continues to rise andthe authorities are increasingly targeting individual employees as well as corporations. A
recent example concerns senior executives of a French company, who in July 2013 werecharged with FCPA violations in Asia. Other counties are becoming more active in bringing
such action. In July 2013 a Canadian businessman was convicted in Canada of a foreign
bribery offence in relation to his role in a conspiracy to bribe an Indian politician. In Finland
six former executives of a Finnish defence equipment company were put on trial for allegedly
offering to bribe Slovenian officials.
15.
Regarding regulatory enforcement action, the SEC in the US has brought a higher
number of civil proceedings relating to corruption than other supervisory authorities(although there has also been significant regulatory enforcement action in the financial
services sector in the UK).
16.
There is a trend towards an expansion in the use of alternatives to conventional
enforcement in both criminal and regulatory corruption cases, such as declinations or nonprosecution agreements (NPAs) and deferred prosecution agreements (DPAs). These
involve an enforcement authority agreeing to refrain from or to postpone taking action
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against a particular person or entity, provided that that person/entity complies with certain
conditions (usually making a restitution payment and carrying out specified remedial
measures). Such arrangements have been available to the prosecuting authorities in the US
for many years and in 2010 became available to the SEC. In 2011 the SEC entered into its
first DPA with Tenaris, a global manufacturer of steel pipe products, in relation to bribes paid
to government officials in Uzbekistan in order to secure a contract to supply pipelines for oiland natural gas. Tenaris paid a $5.4 million fine as part of the DPA. In early 2013 the UK
introduced legislation permitting the use of DPAs in certain criminal proceedings. It is likelythat other jurisdictions will give consideration to doing the same and to enabling theirsupervisory authorities to enter into DPAs and NPAs.
17.

Other relevant enforcement trends include:•

the significance of whistleblowers and whistleblower programs as a source of
information leading to investigations and enforcement action in corruption cases. Thishas been accompanied by the development of significant legal protection against
dismissal or other reprisals for whistleblowers in some countries, for example
Romania and Luxembourg. It is probable that protective measures of this kind, whichhave received considerable support from organisations such as Transparency
International, will be adopted by a wider range of countries as part of their ongoing
efforts to address corruption.

•use of non-prosecution agreements and declinations as well as deferred prosecutionagreements in the US•

the inclusion of accounting provisions in foreign bribery and corruption statutes (e.g.,
FCPA and CFPOA43).

43 The Canadian Corruption of Foreign Public Officials Act.
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Annex III

Acronyms
AML/CFT

Anti-Money Laundering/Countering the Financing of Terrorism

C of E Convention

1999 Council of Europe Criminal Law Convention on
Corruption & its 2003 Additional Protocol

CFPOA

Corruption of Foreign Public Officials Act (Canada)

DOJ

Department of Justice

DPA

Deferred Prosecution Agreements

FATF

Financial Action Task Force

FCA

Financial Conduct Authority

FCPA

Foreign Corrupt Practices Act (US)FSA

Financial Services Authority

IMF

International Monetary FundOECD

Organisation for Economic Co-operation and Development

OECD Convention

1997 OECD Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions

PEP

Politically Exposed Person

SEC

Securities and Exchange Commission

UNCAC

2003 United Nations Convention Against Corruption

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