Compliance code cracker: Bribery and the wholesale reinsurance market – Game set and match to the FCA? | Thomson Reuters Regulatory Intelligence and Compliance Learning

Complimentary tickets to Wimbledon men’s tennis finals, the Monaco Grand Prix and Chelsea and Tottenham Hotspur football matches made up a £215,000 entertainment package provided by employees of reinsurance broker JLT Specialty Ltd (JLTS), of which only £19,727.27 was recorded on the JLT Group’s expense management system. The specifics of the package were included in a Financial Conduct Authority (FCA) Final Notice addressed to JTLS for breach of Principle 3 of the FCA’s Principles for Businesses.

The FCA found that JLTS had failed take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems to counter the risk that it might be used to further financial crime, particularly bribery and corruption. It also found that JLTS’s failure had allowed its Colombian subsidiary entity, JLT Re Colombia Corredores Colombianos de Reaseguros (JLT Re Colombia), to engage in bribery.

According to the FCA, JLT Re Colombia is a company incorporated in Colombia and 94.5% owned by JLT Colombia Wholesale Limited (JLTCW) which was, in practice, operated by JLT Re Colombia. The FCA also said that the other shareholders of JLT Re Colombia are JLT Group entities.

The 2013 Final Notice

In 2013 the Financial Conduct Authority (FCA) had also found JLTS liable for breach of Principle 3 (discussed further here, here, and here) 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 risks of bribery and corruption associated with making payments to overseas third parties that helped JLTS win and retain business from overseas clients.

The FCA in this instance did not, however, find any evidence to suggest that JLTS had permitted any illicit payment or inducement to any overseas introducer, nor that JLTS had intended to permit any illicit payment or inducement to any overseas introducer.

The U.S. declination letter and criminal cases against individuals

In March 2022, the U.S. Department of Justice (DOJ) sent a declination of prosecution letter to Jardine Lloyd Thompson Group Holdings Ltd (JLT) regarding breaches of the Foreign Corrupt Practices Act (FCPA) in Ecuador and successfully prosecuted several individuals for bribery and money laundering offences, including Felipe Moncaleano Botero (Botero).

He is described in the complaint as a Colombian citizen who was an “executive and shareholder of JLT’s Colombian-based subsidiaries from in or around at least 2013 through in or around 2019” and in the related factual proffer as the “CEO of a Colombia-based subsidiary of a UK based reinsurance broker.” In the Ecuadorian press he is described as a “principal of JLT Re Colombia, a subsidiary of the British JLT Specialty Ltd”. He is also described in documents in Companies House as a director of JLTCW until from 2005 until his resignation in 2019.

JLTS and the Serious Fraud Office

In the declination letter the DOJ said that JLTS had agreed to disgorge $29,081,951, which represented its profit from the corruptly obtained and retained contracts, as calculated by the DOJ, and to credit that amount against the amount JLTS would pay to the UK Serious Fraud Office (SFO), so long as JLTS paid the disgorgement amount to the SFO pursuant to JLTS’s separate resolution with the SFO that addressed the same underlying conduct.

The resolution with the SFO was based on U.S. Justice Manual 1– 12000 which provides that the DOJ should also endeavour, as appropriate, to coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct.

The overseas introducer and JLTS’s onboarding failings

The FCA said in its 2022 Final Notice that JLTS was required to follow JLT Group processes for onboarding overseas introducers, but failed to ensure that those processes were appropriate for all of its dealings with such introducers. Specifically, it said, JLTS had failed to consider whether additional safeguards or approvals should be incorporated into JLTS’s third party processes with respect to overseas introducers engaged by another JLT Group entity where the introduced business was subsequently placed by JLTS in the London market. In particular, despite the heightened bribery and corruption risk posed by overseas introducers to JLTS, the processes did not require the approval of the JLTS KYC Delegated Sub-Committee of JLTS’s Board (KYC DSC), in addition to the approval of the “JLT Group entity that was proposing to engage the overseas introducer” (JLT Re Colombia) and the JLT Group’s Financial Crime Team.

This meant that JLTS had failed to ensure that information, including potential red flags, held by JLTS employees who were either involved in negotiating the relationship with the overseas introducer, or placing the business in the London market was brought to the attention of the KYC DSC or the Financial Crime Team. It also found that JLT Re Colombia had disclosed all material information about an overseas introducer to the Financial Crime Team for review, consideration, and action as necessary, and to consider whether additional monitoring and oversight of overseas introducers, in accordance with JLTS’s processes, had been appropriate.

As a result of these findings, the FCA found that JLTS had breached Principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

The FCA concluded that those control failings had given rise to an unacceptable risk that a share of the commission JLTS made from placing business, which it paid to the other JLT Group entities who then paid a portion of their share to the overseas introducers, could be used for corrupt purposes, including paying bribes to persons connected with the insured clients and/or public officials. That risk it said, had materialized in JLTS’s dealings with one overseas introducer – referred to in the sentencing memorandum for politically exposed person bribe recipient, Juan Ribas Domenech (RIBAS), as “IHG.”

The bribery scheme

The FCA said that in 2013, JLTS had been appointed by a state-owned insurance company referred to as “Company A”, based in Ecuador, to broker the reinsurance of aviation insurance policies for that country’s defence ministry. However, following the appointment of new senior management, Company A informed JLTS in November 2013 that it wanted to replace it, mid-term, as broker. The FCA goes on to describe how, soon after that event, JLT Re Colombia introduced a “company incorporated in Panama,” IHG, (referred to by the FCA as “Company B”), to JLTS and that “Company B” offered to help rebuild JLTS’s relationship with “Company A.”

It said that “Company B” helped JLTS to persuade Company A not to remove JLTS as its appointed broker for the aviation insurance policies. In return, JLTS agreed to share half of the commission it had earned from this placement (half of approximately £1.3 million).

The FCA also said that Company B had then threatened that – unless JLTS increased its offer – not only would JLTS be removed as broker, but JLT Group entities may be banned from doing business “in the country of Company A.” Notwithstanding that it considered Company B had done little to warrant payment of this amount, JLTS agreed in February 2014 to pay Company B US$1.8 million (US$500,000 more than JLTS itself had earned in commission) and to pay Company B 8% commission for any future business, on the condition that JLTS would broker the next two renewals of the same aviation risks, said the FCA.

The FCA then said that Company B told JLTS in March 2014 that it had been instructed by Company A to act as its agent and that JLTS had to deal with both Company B and JLT Re Colombia in order to win or retain Company A’s business, and the following month, Company B requested an upfront payment of US$500,000 as a sign of good faith.

The FCA also said that from the commission paid by JLT Re Colombia to IHG, IHG paid US$3,157,000 in bribes to government officials at Company A to help retain and secure its business for JLTS and JLT Re Colombia.

The bribery scheme and the indictment of Botero

Another version of the bribery scheme is provided in the factual proffer of JLT Re Colombia’s CEO, Botero. It states that in or around 2013, JLTS was appointed by Seguros Sucre S.A. (Seguros Sucre) – the state-owned and state-controlled insurance company which performed government functions for and on behalf of Ecuador – to be the reinsurance broker for the Ecuadorian Ministry of Defence for 2013-2014, but that in late 2013 Seguros Sucre had informed JLTS that it might not renew JLTS’s MOD reinsurance policy.

It also says that, in or around early 2014, the “introducer company” (IHG) had spoken with Botero about helping to retain the MOD business for JLTS; Jose Vicente Gomez Aviles and Roberto Heinert (co-owners of IHG) had arranged meetings between representatives of JLTS and Seguros Sucre, including Chairman Juan Ribas Domenech (Ribas). After this meeting, it says that Seguros Sucre agreed to retain JLTS’s MOD policy and Botero, Aviles and Heinert agreed to pay bribes to Ribas and another Segros Sucre official.

The arrangement was also described in the sentencing memorandum of Juan Ribas Domenech. It said that Ecuador’s political and economic instability made it all but impossible for “Mr Ribas” to approach members of the London-based reinsurance market directly. Instead, he had learned from IHG officers Jose Gomez Aviles and Roberto Heinert that he would need to go through “introducer” entities like IHG to gain access to large insurance brokers like JLTS, that in turn would provide access to London-based reinsurers. It also said that Mr. Ribas had also learned that – whatever commissions insurance brokers like JLTS would earn on the reinsurance contracts they placed – they would share with the introducer companies and, ultimately, with officials at Seguros Sucre.

Due diligence failures by JLTS

In the 2022 Final Notice the FCA noted that JLT Re Colombia initiated the due diligence process with regard to IHG, the overseas introducer, but deliberately withheld from the JLT Group Financial Crime Team the fact that:

  1. JLTS had a pre-existing relationship with Seguros Sucre;
  2. IHG had been appointed as Seguros Sucre’s agent and had threatened to ban JLT Group entities from doing business in Ecuador unless JLTSL paid it an amount which significantly exceeded what JLTS had earned in commission; and
  3. that it had sought an upfront payment of US$500,000 as a goodwill gesture.

The FCA also found that JLTS employees that were involved in the negotiations and placing the business in the London market had failed to escalate those matters which would have materially affected the JLT Board’s Financial Crime Team’s assessment of introducer IHG.

Due diligence failures by the Financial Crime Team

The FCA also found that the JLT Board’s Financial Crime Team had failed to follow its own due diligence processes in relation to IHG as it had failed to challenge the reasoning provided by JLT Re Colombia for using IHG to win Seguros Sucre’s business. It also failed to carry out certain checks on IHG, such as failing to obtain a copy of IHG’s certificate of incorporation, and did not verify its address, the identity of its directors and shareholders or its bank account details. Notwithstanding these failures, JLT Group subsequently approved IHG as an overseas introducer.

Serious failings

The FCA found that JLTS’s failings were serious because the breach revealed a serious gap in its systems and controls and created a significant risk that financial crime, particularly bribery and corruption, would be facilitated or otherwise occur. It also found that JLTS’s dealings with Seguros Sucre and IHG had begun within a few months of the first FCA final notice and the conclusion of a skilled person’s review. In such circumstances, it said, JLTS staff ought to have been aware of the red flags presented by IHG’s involvement. It also concluded that, if KYC DSC been required to approve the relationship with IHG, it would not have been approved.

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