UK Insurance Broker (UIBL), one of the largest privately-owned insurance brokers in the UK, is facing the first ever criminal prosecution for ‘failure to prevent bribery’ in relation to multi-million pound contracts in Ecuador. The UK Serious Fraud Office (SFO) has brought the charges, and company officials are set to appear at Westminster Magistrates’ Court on Wednesday, May 7.
The SFO said UIBL failed in the legal requirement to prevent its associates from paying bribes between October 2013 and March 2016. The instant case involves allegations that US-based intermediaries for UIBL paid bribes to state officials in Ecuador for contracts worth approximately US$38 million in re-insurance.
Corruption and bribery accusations
To define it, re-insurance is a financial service in which an insurer transfers portions of its risk portfolio to other parties in order to reduce the likelihood of having to pay large obligations resulting from insurance claims. For example, in Ecuador, UIBL (which had its own little history) offered re-insurance services to the state-owned insurers. These insurers were responsible for underwriting key domains in the public sector, namely the national water and electricity companies.
According to a report, these transactions earned UIBL a commission of US$6.2 million. But at least US$3 million was allegedly channeled through intermediaries who used part of it to bribe Ecuadorian authorities who assigned the re-insurance contracts.
They relate to the UK Bribery Act 2010, specifically, the corporate offence of “failure to prevent bribery” which makes a company liable when it does not have sufficient procedures in place to prevent persons associated with it from engaging in corruption. If this case wins through to a full trial and is actually contested, it will be the first case of this kind to go before a jury in the UK under this particular law.
SFO Sends a Strong Message
Nick Ephgrave QPM, Director of the Serious Fraud Office, said the case had wider implications.
Mr Alderman added: “The SFO continues to be a relentless force against international bribery. It is vital that British companies facilitate the prevention of the harm perpetrated by bribery in doing business home and abroad and this is both a challenge and an opportunity that I am sure the UK will embrace in order to ensure it remains a sound and fair place to do business,’ he said.
We hope that the SFO pursues this case vigorously, as this will provide a strong message to any UK company that operates overseas that effective bribes prevention is required conduct, not just good practice. Noncompliance may lead to facing criminal charges, damage to reputation, and high fines.
Potential Legal and Corporate Consequences
Depending on the outcome, the impacts of this case could be far-reaching and affect compliance practices throughout the insurance and financial sectors. It could also lead to a review of internal controls at many UK-based companies operating in high-risk international markets, legal experts say, if the court decides against UIBL.
Not only is this charge significant, but it also comes during a time in which regulatory bodies around the world are becoming more stringent on corporate governance and ethical behavior in cross-border business dealings.
UIBL, while also yet to comment publicly on the charges, is expected to reply in court when the company appears on. The proceedings are being closely observed in the industry, in the light of very few full jury trials being conducted of the ‘failure to prevent’ clause in the Bribery Act.
What Comes Next?
The case is likely to revive scrutiny of the accountability standards for companies implicated in foreign business. The SFO has since reached out to any other individuals/entities who may have further information, noting that the case involved serious issues of corporate transparency (and if you cannot see the first link above, try here).
Members of the public and media wishing to receive further updates on the case can contact the SFO press office at news@sfo.gov.uk or on +44 (0)7557 009842 (out of hours).
