Clifford Chance

The UK Serious Fraud Office ("SFO") is prosecuting a UK based insurance broker for failing to prevent its overseas agents from bribing Ecuadorian public officials.

The facts

The SFO has charged United Insurance Brokers Limited ("UIBL") with the corporate offence of failing to prevent bribery under section 7 of the Bribery Act 2010 ("the Corporate Offence").

The SFO's press release outlines that the proceedings concern allegations that bribes of approximately USD 3 million were paid by US based intermediaries retained by UIBL to state officials in Ecuador between October 2013 and March 2016 in order to secure reinsurance contracts worth USD 38 million.

Proceedings have not yet substantively commenced, no pleas have yet been entered and no allegations have been proven.

A potentially significant case – further clarity on "adequate procedures"?

If a not guilty plea is entered, this will not be the first occasion on which a jury in the UK has had to consider whether a company charged with the Corporate Offence has a defence because it maintained "adequate procedures" to prevent "associated persons" from engaging in bribery. However, it will be the first to involve substantive examination of whether particular aspects of a compliance programme maintained by a company were in fact "adequate" for these purposes.

In the only other case in which this issue has come before a jury, in 2018, Skansen Interiors Limited sought (unsuccessfully) to argue that it did not need to have any such procedures in place because it was a small company. For further commentary on these cases, see our Clifford Chance briefing from March 2018. In other cases to date in which companies have been prosecuted in connection with the Corporate Offence, they have pleaded guilty, meaning that questions relating to the meaning of "adequate procedures" were not considered.

Neither the statutory guidance issued by the Ministry of Justice ("the MOJ Guidance") in relation to the Corporate Offence nor cases to date (including those concluded by way of deferred prosecution agreements) have provided meaningful details about what it is necessary and proportionate for corporate organisations to do in order to prevent bribery by "associated persons". Key questions on which this case could provide helpful supplementary detail will include:

1. What are the essential features to be included in contractual documents with intermediaries? – The MOJ Guidance refers in general terms to the expectation that contractual documents should contain express requirements that bribes should not be offered or paid and for bribes requested from intermediaries to be reported to the principal. It also refers to the need to include appropriate audit and termination rights in such documents. Discussion of the specific wording in place with intermediaries in the US, in this case, may provide more of a yardstick for corporate organisations to assess the robustness of their current arrangements.
2. Which additional controls should be put in place when doing business in higher risk jurisdictions? – Throughout the period with which this case is concerned, Ecuador higher risk jurisdictions? – Throughout the period with which this case is concerned, Ecuador featured in the lower half of Transparency International's Corruption Perceptions Index. The prosecution case advanced by the SFO in this case may provide some steers as to particular steps which it considers should be taken in situations where corruption risk is objectively elevated.
3. Is whether a corporate organisation has adhered to regulatory rules and guidance on financial crime compliance determinative of whether "adequate procedures" were in place? – The MOJ Guidance suggests that corporate organisations could draw on indications given by regulators about good or bad practice. The alleged conduct giving rise to this prosecution was preceded in May 2010 by the publication by the Financial Services Authority of guidance entitled Anti-bribery and corruption in commercial insurance broking: Reducing the risk of illicit payments or inducements to third parties. Prosecutors may argue that compliance arrangements in place cannot amount to "adequate procedures" if they are not aligned to regulatory guidance such as this (or other standards set out in the regulators' rule books, in particular those set out in the FCA's Principles for Businesses and the Senior Management Arrangements, Systems and Controls section of its Handbook). The extent to which such arguments are accepted will inform assessments by regulated firms about whether departures from regulatory guidance may in fact bring significant risks of criminal liability.

The SFO's (and others') enforcement approach

The decision by the SFO to commence criminal proceedings in this case came at a time of heightened public activity by the SFO in relation to alleged international bribery and corruption. It came shortly before the release by the SFO of its refreshed guidance on corporate co-operation, in which it confirmed its readiness to entertain the prospect of negotiated settlements with corporate organisations which proactively engage with it. For further commentary, see our RIFC Insights blog post.

However, as this case demonstrates, the SFO will not regard such settlements as appropriate in every case. Some significant investigations concerning alleged bribery outside the UK remain ongoing. The SFO commenced the latest of these earlier this week, conducting searches and making arrests of individuals in connection with suspected bribery relating to the construction of a data centre in the Netherlands. These ongoing investigations could similarly lead to proceedings being commenced against corporate organisations. Public statements issued by the SFO indicate that it is committed to progressing cases towards a disposal, whether by way of negotiated settlement or immediate prosecution, quicker than has previously been the case.

As if to illustrate the current divergence of approaches to anti-bribery and corruption enforcement being taken by UK and US authorities, although UIBL is now being prosecuted in respect of its alleged failures to prevent bribery by US intermediaries retained by it, there are no indications that action has been or will be taken by US (or any other) authorities in respect of any other party. This contrasts with the approach taken by the US Department of Justice in previous cases concerning UK based reinsurance brokers' activities in Ecuador during the same period with which this prosecution is concerned, which has led to the imposition of substantial financial penalties and disgorgement under deferred prosecution agreements. As the pause on enforcement investigations concerning the US Foreign Corrupt Practices Act continues, there is currently no sign of a return to concurrent UK/US enforcement action in this area.

The case continues. Further details may emerge at a hearing scheduled for 7 May, and as the case progresses thereafter.