U.K. FSA Fines Aon $7.9 Million Over Suspect Payments (Update3)
By Caroline Binham
January 8, 2009
Jan. 8 (Bloomberg) -- A U.K. unit of Aon Corp., the world's largest insurance broker, received a record 5.25 million pound ($7.9 million) fine from Britain's Financial Services Authority for not having sufficient anti-bribery controls.
Aon Ltd. made 40 "suspicious payments" totaling as much as $7 million to a number of overseas companies in countries including Indonesia, Vietnam, Bahrain and Burma from 2005 through 2007, the FSA said in a statement.
Aon "recognizes that certain failings in its systems and controls have occurred in the past and that this has led to a number of potentially inappropriate payments being made" in "high-risk jurisdictions" outside the U.K., the company said in an e-mailed statement.
The fine is the largest levied by the London-based regulator for a financial crime, the FSA said. It's part of a probe by international regulators into potential payoffs. Aon Corp. is still under investigation by the U.S. Securities and Exchange Commission.
Aon Corp, led by Chief Executive Officer Gregory Case, opened an investigation into its compliance with anti-bribery laws after receiving inquiries from the SEC and the Justice Department, the company said in November 2007. The Chicago-based company spent $31 million on anti-bribery and compliance initiatives in the first nine months of 2008.
Aon Ltd. will record a charge in the fourth quarter tied to the fine, David Prosperi, a spokesman for the parent company, said in an interview. The broker is still discussing the issue with the SEC, he said.
Aon Ltd. may have profited by as much as $8.6 million, according to the FSA's report.
The U.K. Serious Fraud Office and other authorities have long probed payments made by British companies to overseas contractors and individuals.
"Overseas corruption is a new area for the FSA," said Ian Mason, a former FSA enforcement director and now a regulatory lawyer at London-based Barlow Lyde & Gilbert. "The other noticeable point is the size of the fine, and that is a fine that has been settled at a discount."
Aon Ltd. cooperated with the regulator, the FSA said, and so qualified for a 30 percent discount in the fine.
While Aon Ltd. predecessor companies Alexander Howden Group Ltd. and Nicholson Leslie Ltd. were fined 300,000 pounds by a disciplinary tribunal in 2000 for bribing officials in Ghana and Nigeria, the company didn't ensure that it had proper checks on overseas payments made by its brokers, the FSA's report said.
Following the departure of brokers in its Indonesian energy reinsurance unit in 2006, payments made by them were flagged as potentially suspicious, according to the regulator.
The case shows the need for financial services companies to have proper checks on the payments its makes overseas, said Raj Parker, a London-based lawyer at Freshfields Bruckhaus Deringer, who advised the company on the investigation.
Parker said the FSA is also undertaking a "thematic review" of other commercial insurers, saying the regulator "will take robust action where appropriate."
'More Fines Coming'
More fines by the FSA may be coming if they find evidence of poor compliance, said Barlow Lyde & Gilbert's Mason. The FSA uses so-called thematic reviews when there is a widespread issue across several companies it wants to examine.
"The involvement of U.K. financial institutions in corrupt or potentially corrupt practices overseas undermines the integrity of the U.K. financial-services sector," said Margaret Cole, the FSA's enforcement director, in an e-mailed statement.
The FSA's scrutiny of how tight anti-bribery controls were is reflected in a 2008 U.K. Law Commission report that recommends a new fraud law where companies would be negligent if they fail to prevent employees from paying bribes, said Jeremy Cole, a litigator at London-based Lovells LLP.
"This reflects a new wave of enforcement by regulatory authorities across Europe, and reflects the approach the U.S. authorities have been taking for some years in clamping down on bribery and corruption," Cole said.
The FSA said that Aon Ltd.'s current management had resolved past problems and its improvements were a model of "best practice" for other companies. This included commissioning an unnamed accounting firm to undertake a thorough audit of all overseas payments between 2002 and 2007 and an internal disciplinary investigation. It was the accountants' forensic inquiry that discovered the 40 suspicious payments.
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