U.K. Financial Services Authority Fines Aon Limited £5.25 Million For Failing to Maintain Adequate Anti-Bribery Controls

On 6 January 2009, in a decision that represents a substantial development in the United Kingdom’s approach to anti-corruption regulation, the U.K. Financial Services Authority (“FSA”) imposed a £5.25 million fine (approximately $7.2 million) on Aon Limited (Aon Corporation’s principal U.K. subsidiary), for failing to implement effective systems and controls for countering bribery risks.  The FSA found that Aon’s practices violated Principle 3 of the FSA’s Principles for Businesses, which sets forth a general requirement for FSA-regulated entities to “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”[1] 

The FSA’s action opens a new front in the United Kingdom’s approach to anti-corruption regulation.  The primary agency responsible for anti-bribery enforcement in the United Kingdom is the Serious Fraud Office (“SFO”), which is responsible for investigating and bringing enforcement actions for violations of the U.K.’s domestic and foreign bribery laws.  The SFO has recently signalled an increased focus on enforcement, including through the use of newly-acquired civil recovery powers that it has already utilized in one major enforcement action (discussed below).  The FSA’s penalty against Aon indicates that U.K. financial entities must have a further focus, from an FSA regulatory standpoint, in implementing and maintaining adequate anti-bribery controls with respect to both domestic and overseas transactions. 

Action Against Aon

The FSA determined that limitations in Aon’s pre-existing anti-corruption compliance program contributed to the company making 66 “suspicious” payments between January 2005 and September 2007.  Those payments amounted to USD $2.5 million and €3.4 million, and were made to third party representatives who assisted Aon in obtaining or retaining business in various countries presenting high bribery risks (including Bahrain, Bangladesh, Bulgaria, Burma, Indonesia, and Vietnam).  Notably, the FSA did not view Aon’s conduct as “deliberate or reckless,” but found that Aon “should have been aware of the risks” associated with payments to third-party representatives in the countries in question.  Accordingly, the FSA has taken a clear position that, from a regulatory standpoint, it is not only the presence or absence of knowledge of misconduct that matters, but also that companies have evaluated their anti-corruption risks on a proactive basis, and taken adequate measures to protect against those risks.

In its decision, the FSA scrutinized Aon’s pre-existing anti-bribery compliance controls, and found that they were either inadequate or had not been fully implemented.  The Aon code of conduct had, for instance, contained statements prohibiting Aon employees from offering bribes or excessively generous gifts or entertainment, and Aon had implemented certification requirements for certain managers that included anti-bribery issues.  The FSA found, however, that insufficient measures were taken to ensure that those general principles were implemented in the company’s day-to-day global operations.  The FSA noted the following points in particular:

• Aon’s prior due diligence procedures for overseas third-party representatives did not contain an adequate level of scrutiny over potential representatives at the time of the formation of the relationship, or measures for monitoring the practices of those representatives on an ongoing basis.  The earlier procedures also did not take into account heightened anti-bribery risks in certain countries where Aon operated. 

• The FSA found that Aon had not provided relevant staff with adequate training or written guidance with regard to bribery and corruption risks.

• The FSA also determined that Aon’s internal compliance and audit functions, and the management committees responsible for oversight of third-party representatives, had failed to adequately monitor whether corruption risks were being managed effectively.

• The FSA noted various areas in which Aon’s pre-existing compliance program was focused on ensuring that the company’s dealings with third parties within the U.K. were compliant with FSA regulatory requirements, without providing similar controls for the company’s overseas business.

• The FSA observed that Aon had been censured and fined by the Lloyd’s Disciplinary Board in 2006 in relation to similar actions by two predecessor entities of Aon, and that Aon had subsequently become aware of potential improper payments in connection with other transactions, but that Aon had not reconsidered its foreign bribery compliance procedures in light of those incidents.

From an overarching standpoint, the FSA observed that although codes of conduct and self-certification processes can represent important elements of compliance programs, they “are not of themselves sufficient controls but need to be supplemented by adequate training and written guidance, robust procedures for the authorisation of third party payments and proper monitoring particularly of areas where risks are high.” 

The Aon fine represented a 30% discount from the base fine amount cited by the FSA (£7.5 million).  The FSA reduced Aon penalty as a result of Aon’s ongoing cooperation with the FSA, its disclosure of suspicious payments to the FSA and Serious Organised Crime Agency, and its decision to conduct a thorough investigation of past payments and to implement, on a moving forward basis, what the FSA characterized as “a model of best practices for other firms to adopt.”  Those new compliance procedures include, among other measures, (1) stringent restrictions on engaging third party representatives where the representative’s only services to Aon is through introductions to potential clients; (2) global anti-corruption protocols, including specific approval requirements for entering into third-party representative contracts and for paying those representatives (with enhanced controls in high-risk jurisdictions); (3) enhanced risk-based compliance training for Aon staff in a range of company roles; and (4) closer senior management oversight and accountability over the anti-corruption compliance program.

Notably, although the FSA observed in its penalty notice that parts of Aon’s business dealt with clients with state or government connections in jurisdictions with high bribery risks, the “suspicious” payments identified in the FSA notice do not appear to be limited to payments to government or government-owned entities.  Accordingly, the requirements identified in the FSA notice should be viewed as applicable not only to bribery involving government officials, but also commercial bribery.

Broader Implications For U.K. Companies

The Aon fine represents the most assertive enforcement action the FSA has taken to-date in the area of corrupt practices.  The fact that the FSA was able to secure a fine of this magnitude from a major U.K. entity demonstrates the U.K. Government’s increasing focus and success in securing compliance and deterrence through civil settlements, rather than full trials and administrative enforcement proceedings (which challenge governmental enforcement resources and take longer to achieve resolution).

The FSA is responsible for regulating the UK's financial services industry, including banks, insurers and a variety of other institutions that are headquartered or carry on business in the U.K..  The FSA-Aon enforcement notice is directly relevant to such entities.  Notably, the FSA observed in its penalty notice that Aon “has a leading competitive position in the market and the firm’s practices set an example which is seen by other market practitioners and customers,” and that “the financial penalty [imposed on Aon] will help deter other firms from committing similar breaches as well as demonstrating generally the benefits of a compliant business.”  The FSA notice therefore provides affected companies with a clear measuring stick for evaluating their own anti-bribery compliance programs, and a signal for how the FSA might react to other similar instances of non-compliance that come to the agency’s attention moving forward. 

The FSA action represents, moreover, the latest in a series of broader developments over the last year on the U.K. anti-corruption front.  To-date, the U.K. Serious Fraud Office (“SFO”) has been viewed as the primary U.K. regulatory agency responsible for enforcing the U.K. anti-corruption policy, but the SFO has received criticism in recent years for its relative inaction in bringing foreign bribery enforcement cases.  However, the SFO reached a £2.25 million civil settlement in October 2008 with U.K. construction firm Balfour Beatty plc, in connection with certain payment irregularities arising from the company’s business in Egypt.  That matter represented the SFO’s first use of civil recovery powers, which it obtained through legislation enacted earlier in 2008, and the SFO has elsewhere indicated an increased focus on enforcement of the U.K.’s existing foreign bribery laws. 

Additional measures are under consideration in the U.K., pursuant to recommendations issued in November 2008 by the U.K. Law Commission [2], that may further enhance the U.K. Government’s anti-corruption resources.  These include proposed legislation that would clarify the definition of bribery in U.K. law (which currently flows from a series of statutes and common law sources, including legislation dating to the 19^th Century), as well as a proposed new offence for negligently failing to prevent bribery by an employee or agent.

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We will continue to monitor developments on the U.K. anti-corruption front.  If you would like to discuss the implications of the FSA-Aon penalty, please contact Angus Rodger, Partner in Steptoe’s London office and head of the firm’s U.K. financial regulatory practice (+44(0)20 7367 8048); Tom Sprange, Partner in Steptoe’s London office responsible for the firm’s U.K. fraud practice (+44(0)20 7367 8024); or David Lorello, Senior Associate in Steptoe’s London office (+44(0)20 7367 8007).

[1] A copy of the FSA penalty notice is available on the FSA website at the following link: www.fsa.gov.uk/pubs/final/aon.pdf. 

[2] The Law Commission report is available at the following link:  www.lawcom.gov.uk/docs/lc313.pdf.