The Financial Conduct Authority (FCA) has fined JLT Specialty Limited (JLTSL) £7,881,700 for financial crime control failings relating to bribery and corruption. The FCA reports that in one instance bribery of over US $3 million took place. The penalty includes a 30% discount for agreed settlement.
JLTSL provided insurance broking, risk management and insurance claims services across a wide range of business activities. In 2013, JLTSL was fined by the FCA for failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems and controls for countering the risk of bribery and corruption associated with commission payments to overseas introducers. The FCA recognises JLTSL made significant efforts to improve systems and controls frameworks following the 2013 penalty. However, JLTSL was found to have breached Principle 3 by failing to take reasonable care to organise and controls its affairs responsibly and effectively, in this case by not managing the risk of other JLT Group entities facilitating bribery.
Controls which JLTSL introduced following the 2013 penalty – requiring introducers of business to be approved by a KYC Delegated Sub-Committee of JLTSL's board (KYC DSC) – were not always applied for business introduced by other subsidiary members of the JLT Group.
The FCA found that JLTSL did not:
- Ensure that information, including potential red flags, held by JLTSL employees who were either involved in negotiating the relationship with an overseas introducer or placing the business in the London market, was brought to the attention of the KYC DSC or Financial Crime Team;
- Ensure that other JLT Group entities disclosed all material information about an overseas Introducer to the Financial Crime Team for review; or
- Consider whether additional monitoring and oversight of overseas introducers was appropriate.
The FCA reported that during the relevant period (21 November 2013 to 6 June 2017) JLTSL made 466 placements on the London reinsurance market for 40 different overseas insurers and 106 different insured clients. These were in circumstances where overseas brokers had introduced business to other JLT Group entities who then instructed JLTSL to place that business on the London market.
The failings came to light following prosecutions by the US authorities. JLTSL had paid US$12.39 million in commission to another group company, JLT Re Colombia, in relation to introduced business. From this sum, US$10.87 million was paid to various entities associated with an intermediary, which in turn paid US$3.157 million in bribes to various Government officials. A number of individuals have been convicted in the US for money laundering offences.
As part of its investigation, the FCA highlighted other failings within JLTSL. In particular, it reported that employees of JLTSL had sought to bypass controls relating to excessive hospitality by agreeing that hospitality (Wimbledon, Monaco Grand Prix, restaurants and Premiership football) for a client should be paid for by an intermediary, who would then be compensated through increased commission. All in all, at least US$215,000 was spent on entertainment with only £19,267.27 recorded. The FCA found that this should have raised concerns and resulted in investigation by the KYC DSC.
Because of the nature of the general insurance sector, involving multiple chains of intermediaries, bribery and corruption presents the main risk of financial crime (rather than money laundering) and this is a further example of a firm getting it wrong.
Groups operating in multiple jurisdictions are often faced with having to comply with multiple and sometimes inconsistent regulatory standards. Firms often view business introduced by other group companies as lower risk, meriting a lower level of due diligence. However, if the other group company is operating to lower standards, that presents a significant regulatory risk, as JLTSL discovered to its cost.
Given that this was a repeat of the 2013 penalty, it is unsurprising that the FCA sought to reflect this in the penalty. After deciding that the failings represented level 4 on its 5-point scale of seriousness, the FCA increased the penalty by 35% for aggravating factors, including the previous fine and the fact that the FCA has published widely and issued guidance to firms on bribery and corruption risks. The FCA then determined that the resulting figure was insufficient deterrence and therefore doubled the penalty to achieve credible deterrence.