Financial Services, Sectors - Written by on Monday, August 8, 2011 2:18 - 2 Comments

SFO v. FSA – Is the FSA tougher than the SFO on bribery?

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The Director of the SFO recently said:

I often look at the foreword to the Guidance written by the Justice Secretary, Ken Clarke. There are a number of key messages in that foreword. One of the those messages, for example, is that the Act is aimed not at the vast majority of companies who want to get it right but at the mavericks who are determined to continue to use corruption.

What we in the SFO have been trying to do is to re-assure companies about our approach.”

We reported last week in a recent speech the SFO Director had this to say on the SFO approach to enforcement:

“What we do expect though is a proportionate approach by companies focussing on the key risks and on what they are doing in order to be able to combat those risks. This is what companies should be doing anyway. Indeed some companies have told us that this is a valuable exercise for them for all sorts of reasons that they should have carried out before.

A company that does this but which finds problems will receive very sympathetic treatment at the SFO. A company that closes its mind to the issues while perhaps having some veneer of paper procedures will receive different treatment.”

For a long time the SFO has been offering assurance to organisations that it will be taking a reasonable approach when enforcing the Bribery Act, including in relation to its exercise of prosecutorial discretion.

We welcome this approach.

Fast forward then to July 2011 and the Willis *FSA* decision which we have written about here and here.

We have noted before that unlike the SFO the FSA does not need to suspect bribery in order to take enforcement action.  In this way it is similar to the books and records offences in the United States under the FCPA.  The Willis decision pre-dates the Bribery Act and relates to a period between 2005 and 2009, when the Bribery Act was not conceived and for most of this time the latest Law Commission report on reforming the laws of Bribery had not even been published.

During all this time Willis had a policy. Willis conducted reviews. Willis updated its policies.

It is fair to say that the implementation was not perfect [Ed: is life ever perfect?] but in 2008 on the appointment of new General Counsel a new policy was implemented.

This was updated again in 2009 following feedback.  Nevertheless the FSA found that:

“…lack of adequate controls led to an unacceptable risk that payments made by Willis Limited to Overseas Third Parties may have been used to bribe individuals connected with the overseas clients in order to secure business.”

In summary the FSA concluded:

“Willis Limited breached Principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. Willis Limited also breached Rule SYSC 3.2.6 R by failing to take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system and for countering the risk that the firm might be used to further financial crime.” [our emphasis]

A read through the Willis final notice here catalogues deficiencies and (imperfect) attempts to iterate to improve the situation.

However, the picture painted is a far cry from the conduct (remember there was no proven bribery) which is purportedly the focus of the Bribery Act.

As the Director of the SFO said, one of Ken Clarke’s (the Minister of Justice) key messages in the government guidance was  “that the [Bribery] Act is aimed not at the vast majority of companies who want to get it right but at the mavericks who are determined to continue to use corruption.”

Willis received a £7 million fine.

As one of its four statutory objectives the FSA has to reduce the extent to which regulated persons and unauthorised businesses can be ‘used for a purpose connected with financial crime’.  In Willis and Aon the FSA has laid down a clear marker: it is going to assume a tough enforcement stance in the context of anti-bribery issues and it is going to be tough on those whose Adequate Procedures to prevent bribery are imperfect.

With all the focus there has been on the SFO and the Bribery Act it would be ironic if the FSA, which has been largely silent, turns out to be the agency which adopts an unreasonably harsh enforcement approach.

The irony would be compounded if it did so invoking serious penalties using rules and regulations which have been in place for years and have nothing to do with the Bribery Act.

 


 

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2 Comments

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Howard@OpenAir
Aug 8, 2011 11:31

I know I should know this, but what’s the range of the FSA’s jurisdiction. Is it just insurance and financial institutions?

It would indeed be ironic if the regulator took a tougher enforcement stance than the enforcement agency. I’m wondering if there are politics at play here also. Is it budget season over there?

Barry & Richard
Aug 8, 2011 12:01

Broadly, the FSA regulates FSA registered firms or those that should be and anyone who issues financial promotions. In English that means they regulate the financial services world from banks to collective investment schemes (and funeral planners…) so it’s a pretty broad remit.

The FSA is self funding so budgets don’t come into it . The FSA’s annual budget is GBP £500 million so it does have plenty of fire power… If you’d like to know more take a look at this teaser http://www.fsa.gov.uk/Pages/about/media/facts/index.shtml

Politics may come into it. But, given stamping out financial crime is one of their objectives it is hardly surprising that they’ve taken a stand. The real question is why it took them so long. We asked months ago where were they… http://thebriberyact.com/2011/04/25/financial-services-where-is-the-fsa-will-the-bba-miss-a-trick/

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