Aon Pays $16.2 Million In Settlement

Aon Corporation, one of the biggest insurance brokerage firms in the world, agreed today to resolve FCPA charges with the DOJ and SEC.

It will pay a $1.76 million criminal penalty to the DOJ and $14.5 million in disgorgement and prejudgment interest to the SEC.

A U.K. subsidiary of Chicago-based Aon paid a penalty of £5.25 million to the U.K.'s Financial Services Authority in 2009 to resolve overseas bribery allegations. The fine was the largest the FSA had levied for financial crimes.

Citing Aon’s 'extraordinary cooperation,' the DOJ entered into a non-prosecution agreement with the company and its U.K. subsidiary, Aon Limited.

Aon’s subsidiaries, the SEC said, made over $3.6 million in improper payments between 1983 and 2007 to win or retain insurance business in Costa Rica, Egypt, Vietnam, Indonesia, the United Arab Emirates, Myanmar, and Bangladesh. The company made $11.4 million in profits from the bribes.

'[S]ome of the improper payments,' the SEC said, 'were made directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the company’s interests. . . . [T]hese payments were not accurately reflected in Aon’s books and records, and Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent the improper payments.'

The improper payments were for training, travel, and entertainment provided to employees of foreign government-owned clients, and to 'third-party facilitators.'

The DOJ said Aon was given a non-prosecution agreement because of 'its timely and complete disclosure of improper payments in Costa Rica and other countries that it discovered during its thorough investigation of its global operations; its early and extensive remedial efforts; the prior financial penalty of £5.25 million that Aon Limited paid to the United Kingdom’s Financial Services Authority (FSA); and the FSA’s close and continuous supervisory oversight over Aon Limited.'

Aon Corporation trades on the NYSE under the symbol AON.

View the DOJ's December 20, 2011 release here.

View the SEC's Litigation Release No. 22203 and Accounting and Auditing Enforcement Release No. 3348 (both dated December 20, 2011) in Securities and Exchange Commission vs. Aon Corporation, Civil Action No. 1:11-cv-02256 (D.D.C.) (filed Dec. 20, 2011) here.

Who Paid FCPA-Related Fines Overseas?

Here's a list of fines paid overseas for bribery by companies that have settled FCPA enforcement actions.

There may be others but these are what a friend of the FCPA Blog has found so far.

Of the seventeen spots, Siemens occupies three and sits on top with a whopping $856 million fine paid in Germany.

Nigeria has most often followed FCPA enforcement actions. It appears seven times, the U.K. five times, Germany, Costa Rica, Italy, Norway, and the Holland once each.

The list points to a problem more global companies will face -- bribery prosecutions and penalties in multiple jurisdictions. We talked about the coming chaos in June.

	Company	Country	Total Fines (US$)	Date Reported
1	Siemens	Germany	856,000,000	Dec-08
2	BAE	UK	49,000,000	Feb-10
3	Siemens	Nigeria	46,500,000	Nov-10
4	Halliburton	Nigeria	35,000,000	Dec-10
5	Eni SpA / Snamprogetti	Nigeria	32,500,000	Dec-10
6	Technip	Nigeria	30,000,000	Feb-11
7	JGC Corp	Nigeria	30,000,000	Feb-11
8	Innospec	UK	12,700,000	Mar-10
9	MW Kellogg /KBR	UK	11,400,000	Feb-11
10	Alcatel Lucent	Costa Rica	10,000,000	Jan-10
11	Aon Ltd	UK	8,500,000	Jan-09
12	Johnson & Johnson / DePuy	UK	7,850,000	April-11
13	Tidewater Inc	Nigeria	6,300,000	Mar-11
14	Statoil	Norway	3,000,000	Oct-04
15	Nobel Corp	Nigeria	2,500,000	Jan-11
16	Siemens	Italy	1,200,000	Apr-09
17	Azko Nobel	Holland	600,000	Dec-07

UK Bribery: Another Scalp For The FSA

By Eoin O'Shea

Bribery offences in the UK are mostly policed by the Serious Fraud Office and, sometimes, the City of London Police, between whom there is a significant amount of cooperation.
 
However there is another very powerful regulator in London, the Financial Services Authority (FSA). As you would expect, the FSA regulates financial firms and can impose significant penalties for non-compliance with the (vast) Financial Services and Markets Act and the (even vaster)  FSA Handbook. The FSA has a much larger staff and budget than the SFO, whose budget has recently been cut and about whom there have long been mutterings about merger or disbandment (which I hope won't happen).
 
Some of us have long suspected that the UK authorities would start to (informally) share the burden of anti-bribery work, with cases of clear criminality being reserved for the SFO and systems failures, at least among financial firms, being taken up by the FSA. This now looks to be happening.
 
In 2009 the FSA imposed a £5.25 million ($8.5 million) fine on Aon for failure to have effective anti-bribery systems in place and failing to stop questionable payments to overseas parties. That decision can be found here.
 
They have today followed this up by imposing a £6.895 million ($11.2 million) penalty on another large insurance broker, Willis. The Willis decision is here. According to Bloomberg, the SFO was aware of the case and happy for it to be dealt with by the FSA.
 
High Standards
 
In neither case did the FSA rely directly on anti-bribery law such as the Bribery Act or the previous Prevention of Corruption Acts. It didn't have to. Instead, the FSA could simply rely on its own business principles, in particular the very wide  Principle 3, which says:  “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”  Like the books and records provisions of the FCPA, this can give regulators a very wide jurisdiction on which to hang an investigation or penalty in the field of ABC compliance.
 
The essence of Willis's wrongdoing was failures of management, information, systems and controls in the company's relationships with overseas intermediaries who might have been paying bribes to win business. These are much like  the issues which got Aon into trouble in 2009. What is especially telling in the Willis case is that the FSA obviously got into the nitty-gritty detail of how individual appointments were justified and examined by Willis. Plainly, it just isn't enough to have a set of forms which show that "we followed a process".
 
In the Willis case, the FSA cites a failure to demonstrate a proper commercial rationale for the appointments, failure to do proper due diligence, lack of documentation and monitoring of appointees and lack of information getting to committees responsible for anti-corruption policies.  As with so much in ABC enforcement, what matters is the substance, not the form, and a "see no evil" approach is heavily frowned on.    
 
Mitigation
 
The FSA recognised that Willis has cooperated with the investigation, which earned it a hefty 30% credit against the possible penalty. Also, since 2010 Willis seems to have taken a root and branch approach to improving ABC systems and controls, especially around appointing and monitoring overseas third parties, with lots more information being considered by a more robust and  independent compliance  function.  A historic review of all past payments to overseas third parties (which must be costing a pretty penny) is also under way.
 
So what have we learned? :

a)    If you are have a financial services business in the UK the FSA is now very, very interested in your ABC compliance programme;

b)    That programme needs to be fully functional, not just an exercise in form-filling;

c)    You can get leniency for past sins if you invest in training and external assurance now.

I admit I like point c) the best, but it's true whether I happen to like it or not.

I am pondering the role played by lawyers and advisers in corporate ethics more generally, especially in light of the scandals surrounding News Corporation where "legal advice" is regularly being cited as a justification by various parties. I hope to write a bit more on this in the near future.

Eoin O'Shea is a partner and Head of the Anti-Corruption Group at Lawrence Graham LLP. His book The Bribery Act 2010: A Practical Guide was published on 29 June 2011 by Jordan Publishing. He can be contacted here.

The 2011 Watch List

The Justice Department said this year it has about 150 ongoing  FCPA investigations and prosecutions. It doesn't name those under the microscope and, while issuers probably should disclose investigations, not all of them do. Non-issuers, on the other hand, usually aren't required to say a word, so most don't.

Of the files in the DOJ's hopper, we think the list below includes more than half of them, counting individuals being investigated at some of the companies mentioned. (Tom Fox picked his favorite investigations in a great post on Monday.)

Most of the cases we've included represent something unusual -- they involve brand names, multiple defendants, high-profile news stories, unique disclosures, etc. There will also be plenty of surprises in 2011 -- the SEC is hearing from a new FCPA whistleblower every day.

In the coming year, of course, we'll cover all FCPA-related enforcement actions, as we've done in the past.

Some pending corporate investigations on our watch list include:

Alcoa -- criminal investigations of the company, its agent and some executives, growing out of allegations in a civil fraud and RICO suit filed by Bahrain's Alba.

Aon -- A U.K. subsidiary of the U.S. parent was fined £5.25 million in 2009 for failing to recognize and control the risks of overseas payments being used as bribes. U.S. investigations were first disclosed in 2007.

Avon -- The beauty-products giant in 2008 disclosed promotional payments in China that may violate the FCPA. This year, it reportedly suspended three executives in China and another in New York and expanded its internal to "a dozen or more countries."

CB Richard Ellis -- In February this year, the company self-disclosed to the DOJ and SEC potentially improper payments by employees for entertainment and gifts to Chinese government officials.

China Northeast Petroleum Corporation -- An American director who chaired the board's audit committee made a loud exit this year after the board refused to investigate alleged improper practices in China.

Drug companies -- All of them, apparently, are under scrutiny for overseas sales practices, according to unusual public warnings emanating from the DOJ during 2010.

Hewlett Packard -- It disclosed compliance problems in Russia, former CIS countries, and Serbia, potentially involving employees in Russia, Germany, Austria, Serbia, the Netherlands and perhaps other countries.

JGC -- The Japanese company is the last of the four TSKJ partners still not charged in connection with bribes in Nigeria.

Medical Device Makers -- Biomet Inc., DePuy, Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc, Medtronic Inc., and Wright Medical disclosed FCPA investigations that started in 2007 and 2008.

Morgan Stanley -- In 2009, it reported potential illegal payments in China and fired some employees allegedly involved.

PBSJ Corporation -- In December 2009, the Florida-based non-public "issuer" self-disclosed an internal investigation into potential FCPA violations, possibly in connection with road-building projects.

Schlumberger -- There were frequent press press reports during 2010 about payments in Yemen that might have violated the FCPA.

Smith & Wesson -- The biggest company involved in the shot-show case disclosed in 2010 a DOJ / SEC investigation.

Sojitz -- The Japanese trading company allegedly paid bribes to Bahraini officials, according to a civil suit filed by Alba. Like Alcoa, the U.S. intervened in Alba's suit to protect its criminal investigation into potential FCPA violations.

Team Inc. -- The oil rig operator in 2009 disclosed payments in Trinidad that might violate the FCPA.

Weatherford -- The giant oil-field services company disclosed an overseas bribery investigation in 2007 that has since expanded to include allegations of violating the Iraq oil-for-food program and possible illegal trade with Cuba, Iran, Sudan, and Syria.

FCPA-related cases in the post-indictment phase with trials pending include:

The CFE defendants (all charged in connection with alleged bribes to employees at Mexico's state-owned utility, the Comisión Federal de Electricidad):

Enrique Faustino Aguilar Noriega

Angela Maria Gomez Aguilar

Dr. Keith E. Lindsey

Steve K. Lee

Lindsey Manufacturing

The CCI defendants:

Stuart Carson

Hong (Rose) Carson

Paul Cosgrove

David Edmonds

Han Yong Kim

Flavio Ricotti

The Shot-show defendants (grouped for trial as proposed by the DOJ):

The first group: Daniel Alvirez, Lee Allen Tolleson, Andrew Bigelow, Pankesh Patel, John Benson Weir III

The second group: David Painter, Lee Wares, Jonathan Spiller, Michael Sacks, Israel Weisler

The third group: Patrick Caldwell, Stephen Giordanella, John Mushriqui, Jeana Mushriqui, John Godsey, Mark Morales

And the fourth group: Helmie Ashiblie, Yochanan Cohen, Haim Geri, Amaro Goncalves, Saul Mishkin, Ofer Paz

There are three appeals pending in FCPA-related cases that we'll be watching in 2011:

Frederick Bourke

William Jefferson

Gerald and Patricia Green

Bourke and Jefferson are free on bail pending their appeals. The Greens are serving their six-month prison terms.

Readers are welcome to let us know about other companies and people they're watching.

Unfinished Business

We don't know how many of the 50 or so disclosed and pending Foreign Corrupt Practices Act investigations will be resolved this year. But here are some we're watching:

Alcoa. In February 2008, government-owned Aluminum Bahrain BSC (Alba) accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba's executives for more contracts. Alcoa's conspiracy, Alba said in a federal civil complaint filed in Pittsburgh, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

The Justice Department quickly intervened, asking the court to stay all discovery. It said the facts of Alba's allegations, if true, might violate the FCPA and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. That investigation is pending and the civil suit is still on hold.

Aon. The giant Chicago-based insurance broker disclosed in November 2007 an internal investigation into possible violations of the FCPA and non-U.S. anti-corruption laws. It said it had self-reported the investigation to the Justice Department, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. Meanwhile, in January this year, the U.K.'s Financial Services Authority (FSA) fined Aon's U.K. subsidiary £5.25 million for failing to recognize and control the risks of overseas payments being used as bribes. The fine was the largest the FSA had ever levied for financial crimes.

Avon. It said in October 2008 that it had launched an internal investigation into possible FCPA violations in China. The global beauty-products retailer didn't release details. The investigation may be linked to the payment to regulators of improper promotional expenses. China imposed restrictions on direct selling in the late 1990s that forced Avon to market its products through shops and boutiques. Two years ago, the company convinced China's regulators to allow its traditional door-to-door sales model. Avon's FCPA disclosure referred to "certain travel, entertainment and other expenses."

BAE. The case is about alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when U.K.-based BAE was trying to sell jet fighters to the Saudi government. Britain's Serious Fraud Office opened, then closed, an examination into the allegations. But the DOJ is conducting its own investigation of possible violations of the FCPA and anti-money laundering laws. In May 2008, BAE's chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave.

The DOJ has also reportedly served subpoenas on other BAE employees in the U.S. And in November 2007, according to the U.K.'s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there, the paper said.

BAE apparently stonewalled the U.S. investigation at first but has since begun cooperating.

Medical Device Makers. Their overseas sales practices probably came under scrutiny in early 2007. That's when Johnson & Johnson (which owns device-maker Depuy) said it voluntarily disclosed to the DOJ and SEC that "subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. " In September 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Now the SEC and DOJ want to know whether the companies bribed overseas doctors employed by government-owned hospitals to use their products. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007 and Wright Medical reported a similar investigation in June 2008.

Panalpina. In February 2007, the Justice Department said in connection with the resolution of Vetco's FCPA case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then about a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina . . ." Among those involved are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., Pride International, Global Industries and Parker Drilling.

Swiss-based Panalpina said in its 2008 half-yearly report that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction in November. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary in Houston had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.

* * *
And a long-standing prosecution that isn't mentioned much these days but should be watched is US v. Giffen. It's in the U.S. District Court for the Southern District of New York (Foley Square). American businessman James H. Giffen was arrested in New York in March 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan's president and its former oil and gas minister. He was charged with violating the FCPA, mail and wire fraud, false statements and money laundering.

When arrested, Giffen was carrying a Kazakhstan diplomatic passport. His lawyers have said he was acting in Kazakhstan with the full knowledge and approval of the U.S. government. Most of the court record is sealed, apparently because it contains classified documents. After nearly six years of little activity (raising speedy-trial issues, no doubt), there's more going on in the case now. A pre-trial conference was held this month and the next one is scheduled for June. Giffen is free on $10,000,000 bail.
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