In this series, we examine compliance violations and the resulting fines paid by companies. We will also explore the details of the violations to help other organizations steer away from these pitfalls.
In this eighth post, we will look into the FCPA settlements with two major UK reinsurance brokers, Tysers and H.W. Wood, for their involvement in a bribery scheme in Ecuador. As with the other posts, we will also delve into what other organizations can learn from these compliance violations.
Background of the Case
Tysers Insurance Brokers Limited (known during the relevant period as Integro Insurance Brokers Limited) and H.W. Wood Limited, both based in the UK, were involved in a bribery scheme to secure lucrative reinsurance contracts with Ecuadorian state-owned insurance companies, Seguros Sucre S.A. and Seguros Rocafuerte S.A. 2017. These companies paid approximately $2.8 million in bribes to the chairman of these state-owned firms and other Ecuadorian officials. The scheme relied on a third-party intermediary to facilitate the payments and disguise them as legitimate business expenses, such as commissions.
DOJ’s Unorthodox Approach
In a strategic move, the U.S. Department of Justice (DOJ) prioritized prosecuting individuals before targeting the companies involved. This approach helped gather evidence and secure cooperation from key figures, ultimately leading to over $36 million in fines and forfeited money. The DOJ charged many individuals, including the chairman of the Ecuadorian insurance companies, who pleaded guilty in 2020, and others who played key roles in the scheme. This tactic allowed the DOJ to build a strong case against the reinsurance brokers by leveraging evidence and testimonies from the prosecuted individuals.
Tysers Settlement
Tysers entered into a three-year deferred prosecution agreement (DPA) with the DOJ. Under this agreement, Tysers agreed to pay a $36 million criminal penalty and forfeit approximately $10.5 million. The DOJ considered many factors in reaching this resolution, including the seriousness of the offense and Tysers’ cooperation during the investigation. Despite not receiving voluntary disclosure credit, Tysers benefited from a 25% reduction in its criminal penalty due to its remedial measures and cooperation, which included:
- Placing involved employees on paid administrative leave.
- Terminating business relationships with the intermediary company.
- Conducting a comprehensive review of its compliance program.
- Enhancing governance and oversight of its compliance operations.
- Increasing resources and personnel dedicated to compliance.
- Updating its anti-bribery and anti-corruption policies.
H.W. Wood Settlement
H.W. Wood also entered into a DPA with the DOJ, agreeing to pay a $508,000 criminal penalty and forfeit approximately $2.3 million. However, due to its financial condition and demonstrated inability to pay the penalty, the DOJ reduced the original $22.5 million fine. The DOJ acknowledged H.W. Wood’s cooperation and timely acceptance of responsibility, which contributed to a reduced penalty.
Key remedial actions taken by H.W. Wood included:
- Terminating employees involved in the misconduct
- Enhancing its compliance program by creating new positions
- Improving compliance controls and monitoring third-party relationships
- Updating policies and procedures related to compliance
Notably, both companies failed to receive credit for voluntary disclosure, reducing their chances of getting more favorable outcomes.
Learnings from the Settlement
While this is a classic bribery case, some interesting aspects can translate to learnings for other organizations.
Importance of Robust Compliance Programs
The Tysers and H.W. Wood cases highlight the need for robust compliance programs to detect and prevent bribery and corruption. Companies must implement effective internal controls to monitor transactions, scrutinize third-party relationships, and identify red flags. The lack of supervision and oversight allowed the reinsurance brokers to engage in corrupt practices unchecked, leading to legal and financial consequences.
Role of Third-Party Due Diligence
Third-party intermediaries played a central role in the bribery scheme, as they facilitated illicit payments. Organizations must conduct thorough due diligence on third parties to assess their integrity and potential risks. This includes verifying their business practices, financial history, and relationships with government officials. Establishing clear guidelines and monitoring mechanisms can help mitigate the risks associated with third-party interactions.
Benefits of Cooperation and Remediation
Both Tysers and H.W. Wood benefited from reduced penalties due to their cooperation with the DOJ and the implementation of remedial measures. This reduction brings up the importance of promptly addressing compliance issues, cooperating with authorities, and taking corrective actions to prevent future violations. Companies can even take a proactive approach to build a culture of transparency and accountability to encourage employees to report potential misconduct without fear of retaliation.
Strategic Prosecution Approach
The DOJ’s decision to prosecute individuals before targeting the companies proved highly effective in this case. With the cooperation of key individuals, the DOJ could gather considerable evidence, which eventually led to the imposition of heavy penalties against Tysers and H.W. Wood. This approach emphasizes the importance of holding both individuals and corporations accountable for their actions in combating corruption and upholding the integrity of the marketplace.
Final Thoughts
The FCPA settlements with Tysers and H.W. Wood highlight the pervasive issue of bribery and corruption in international business dealings. These cases highlight the importance of maintaining robust compliance programs, conducting thorough due diligence on third parties, and creating a culture of transparency and accountability.
From this case, organizations can learn the importance of compliance and take proactive measures to prevent and detect improper conduct. This includes implementing effective internal controls, monitoring third-party relationships, and promptly addressing any red flags or suspicious activities.