Final Notice
On , the Financial Conduct Authority issued a Final Notice to JLT Specialty Limited
FINAL NOTICE
To:
JLT Specialty Limited
Reference Number:
310428
Address:
The St Botolph Building, 138 Houndsditch, London, EC3A
7AW
Date:
16 June 2022
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on JLT
Specialty Limited (“JLTSL”) a financial penalty of £7,881,700 pursuant to section
206 of the Act.
1.2
JLTSL agreed to resolve this matter and qualified for a 30% (stage 1) discount
under the Authority’s executive settlement procedures. Were it not for this
discount, the Authority would have imposed a financial penalty of £11,259,500 on
JLTSL.
2.
SUMMARY OF REASONS
2.1.
The Authority has decided to take action against JLTSL for breaches of Principle 3
(Management and Control) of the Authority’s Principles for Businesses (“the
Principles”) that occurred between 21 November 2013 and 6 June 2017 (“the
Relevant Period”) in relation to failures to 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.
2.2.
JLTSL provided insurance broking, risk management and insurance claims
services across a wide range of business sectors to national and international
corporate clients.
2.3.
On 19 December 2013, the Authority imposed a financial penalty of £1,876,000
on JLTSL for breaches of Principle 3 of the Principles. The Authority found that
between 19 February 2009 and 9 May 2012, JLTSL failed to take reasonable care
to organise and control its affairs responsibly and effectively with adequate risk
management systems for countering the risks of bribery and corruption associated
with making payments to overseas third parties (“Overseas Introducers”) that
helped JLTSL win and retain business from overseas clients.
2.4.
Prior to and following the financial penalty, JLTSL and its senior management
made significant efforts to improve its systems and controls framework, especially
in relation to third parties such as Overseas Introducers, including with the advice
and approval of a Skilled Person. Following a review by the Skilled Person, JLTSL
implemented a three lines of defence control framework. A second review by the
Skilled Person focused on enhancing JLTSL’s third party controls framework and
focused specifically on situations where JLTSL directly engaged with a third party
(including Overseas Introducers).
2.5.
Those controls required that, where JLTSL intended to engage with and make
payments to an Overseas Introducer, JLTSL submitted the proposed engagement
to JLT Group Financial Crime (“the Financial Crime Team”) for due diligence, risk
assessment and approval of that third party relationship. The Overseas Introducer
was then considered for approval by the KYC Delegated Sub-Committee of JLTSL’s
Board (“KYC DSC”), taking into account the business case for the Overseas
Introducer and the Financial Crime Team’s risk assessment. JLTSL had in place
various monitoring and oversight processes to ensure that the system operated
3
as designed and intended. The Skilled Person approved the revised controls and
those controls were implemented on a group-wide basis.
2.6.
The Authority has found that JLTSL again breached Principle 3 during the Relevant
Period by failing to take reasonable care to organise and control its affairs
responsibly and effectively, with adequate risk management systems for
countering the risks of bribery and corruption arising from other JLT Group
entities’ relationships with Overseas Introducers. On this occasion JLTSL’s failure
allowed another JLT Group entity to engage in bribery (see paragraph 2.22
below).
2.7.
In some scenarios, JLTSL placed business in the London market where that
business was won and retained by another JLT Group entity with the assistance
of an Overseas Introducer engaged by that other entity. JLTSL failed to consider
whether additional safeguards or approvals should be incorporated into JLTSL’s
third party processes with respect to Overseas Introducers engaged by another
JLT Group entity where the introduced business was subsequently placed by JLTSL
in the London market. In particular, despite the heightened bribery and corruption
risk posed by Overseas Introducers to JLTSL, the processes did not require the
approval of the KYC DSC in addition to the approval of the JLT Group entity that
was proposing to engage the Overseas Introducer and the Financial Crime Team.
2.8.
Consequently, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
2.9.
As JLTSL’s approval was not required, JLTSL was also not notified when another
JLT Group entity’s relationship with an Overseas Introducer was being considered
for renewal. Consequently, JLTSL missed another opportunity to evaluate the
bribery and corruption risk posed to JLTSL and the continued appropriateness of
the engagement.
2.10.
During the Relevant Period, in instances where Overseas Introducers had
introduced reinsurance business to other JLT Group entities and those entities had
in turn instructed JLTSL to place that business on the London reinsurance market,
JLTSL made 466 placements on the London reinsurance market for 40 different
overseas insurers and 106 different insured clients, earning £8,515,292 in
commission from these placements. In all these instances, JLTSL did not consider
or approve the onboarding or renewal of the relationships with these Overseas
Introducers. Instead, JLTSL relied wholly on the other JLT Group entities and the
Financial Crime Team to approve and monitor these relationships and did not carry
out any additional monitoring or oversight.
2.11.
These control failings gave rise to an unacceptable risk that a share of the
commission JLTSL made from placing this 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.
2.12.
This risk of bribery and corruption materialised in JLTSL’s dealings with one such
Overseas Introducer. In 2013, JLTSL was appointed by a state-owned insurance
company (“Company A”), based in a country where there is perceived to be a high
level of bribery and corruption, 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 JLTSL in November 2013 that
it wanted to replace it, mid-term, as broker.
2.13.
Soon after, another JLT Group entity, JLT Re Colombia, became involved. JLT Re
Colombia introduced a company incorporated in Panama (“Company B”), also a
country where there is perceived to be a high level of bribery and corruption, to
JLTSL. Company B offered to help rebuild JLTSL’s relationship with Company A.
2.14.
Company B helped JLTSL to persuade Company A not to remove JLTSL as its
appointed broker for the aviation insurance policies. In return, JLTSL agreed to
share half of the commission it had earned from this placement (half of
approximately £1.3 million). Company B threatened that unless JLTSL increased
its offer not only would JLTSL 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,
JLTSL agreed in February 2014 to pay Company B US$1.8 million (US$500,000
more than JLTSL itself had earned in commission) and to pay Company B 8%
commission for any future business, on the condition that JLTSL would broker the
next two renewals of the same aviation risks.
2.15.
Company B told JLTSL in March 2014 that it had been instructed by Company A
to act as its agent and that JLTSL had to deal with both Company B and JLT Re
Colombia in order to win or retain Company A’s business. The following month,
Company B requested an upfront payment of US$500,000 as a sign of good faith.
2.16.
JLT Re Colombia initiated the due diligence process in May 2014. JLT Re Colombia
deliberately withheld from the Financial Crime Team that JLTSL had a pre-existing
relationship with Company A, that Company B had been appointed as Company
A’s agent, that Company B had threatened to ban JLT Group entities from doing
business in the country of Company A unless JLTSL paid it an amount which
significantly exceeded what JLTSL had earned in commission, and that it sought
an upfront payment of US$500,000 as a goodwill gesture.
2.17.
JLTSL employees that were involved in the negotiations and placing the business
in the London market also failed to escalate these matters which would have
materially affected the Financial Crime Team’s assessment of Company B.
2.18.
Separately, the Financial Crime Team failed to follow its own due diligence
processes in relation to this Overseas Introducer. It failed to challenge the
reasoning provided by JLT Re Colombia for using Company B to win Company A’s
business. It also failed to carry out certain checks on Company B. For example,
it did not obtain a copy of Company B’s certificate of incorporation (although it
did obtain confirmation from the Panamanian company registry that the company
had been incorporated) and did not verify its address, the identity of its directors
and shareholders and its bank account details. Despite the gaps in the enhanced
due diligence conducted by the Financial Crime Team in relation to Company B,
JLT Group subsequently approved Company B as an Overseas Introducer.
2.19.
Although the relationship with Company B ought to have been reviewed within 12
months, JLT Group did not initiate the review until September 2015 and did not
complete it until May 2016. Again, the due diligence exercise (including enhanced
due diligence) was commenced by JLT Re Colombia and performed by the
Financial Crime Team. Although the Financial Crime Team this time questioned
whether Company B’s share of commission was appropriate given it was not
performing any substantial services (in addition to its initial advocacy on JLT
Group’s behalf), these concerns were not addressed and JLT Group re-approved
Company B as an Overseas Introducer. JLTSL was not involved in this re-approval.
2.20.
In 2014 and 2015, JLTSL employees were involved in significant hospitality
expenditure provided to employees of Company A (who were government
officials) and Company B, as well as members of their families. At the request of
JLT Re Colombia, a significant proportion of this expenditure was reimbursed by
JLTSL through increased commission to Company B. This should have raised
concerns. Had JLTSL been asked to approve the renewal of Company B,
information about this expenditure would have been relevant and should have
been escalated to the KYC DSC. As JLTSL was not involved in the renewal, relevant
JLTSL employees were not consulted and no such red flags were raised during the
renewal process by JLT Re Colombia.
2.21.
As a result of Company B’s introduction, JLTSL made 87 placements on behalf of
Company A during the Relevant Period, earning £4.80 million in commission from
total gross premiums of £93.36 million. JLTSL paid a total of US$12.39 million to
JLT Re Colombia in commission from these placements. In turn, JLT Re Colombia
paid US$10.87 million to five bank accounts based in Panama, Switzerland, and
the United States, owned by four different entities associated with Company B.
Although the Financial Crime Team monitored payments to introducers from 2015
onwards, they did not begin to check the bank account details of each payment
made by JLT Group entities to Overseas Introducers until 2017.
2.22.
From the commission paid by JLT Re Colombia to Company B, Company B paid
US$3,157,000 in bribes to government officials at Company A to help retain and
secure business from Company A for JLTSL and JLT Re Colombia. A number of
individuals from JLT Re Colombia, Company A and Company B have been
convicted in the United States of conspiracy to launder money in connection with
this bribery scheme.
2.23.
The Authority considers JLTSL’s failings to be serious for the following reasons:
7
(1) the breach revealed a serious gap in JLTSL’s systems and controls and created
a significant risk that financial crime, particularly bribery and corruption,
would be facilitated or otherwise occur;
(2) JLTSL’s dealings with Company A and Company B began within a few months
of the Authority imposing the financial penalty referred to in paragraph 2.3
above and the conclusion of the Skilled Person’s review. JLTSL staff ought in
these circumstances to have been aware of the red flags presented by the
involvement of Company B. Had the KYC DSC been required to approve the
relationship with Company B, it is the Authority’s view that Company B would
not have been approved.
2.24.
JLTSL was not aware of the bribery scheme until the individuals were prosecuted
in the United States in 2018. However, upon discovering that JLT Re Colombia
had made payments to unapproved bank accounts associated with Company B in
2017, JLTSL reported to the relevant authorities and introduced a number of
additional controls to ensure that similar problems did not arise in future. This
included the requirement that overseas JLT Group entities providing business to
JLTSL confirm whether the business had been sourced via a third party introducer.
If it had, JLTSL would require evidence that appropriate due diligence had taken
place on the third party introducer, which would then be presented to the KYC
DSC to make a final decision on whether the business was acceptable.
2.25.
The Authority acknowledges the assistance JLTSL has provided during its
investigation, including providing access to materials from JLT Group’s internal
investigation. The Authority also acknowledges JLT Group’s disgorgement of
$29,081,951 to the US Department of Justice, which includes the financial benefit
arising directly from JLTSL’s breach of Principle 3.
2.26.
The Authority hereby imposes on JLTSL a financial penalty of £7,881,700 pursuant
to section 206 of the Act.
2.27.
Any facts or findings in this Notice relating to any function, committee or group of
persons should not be read as relating to all the members of that function,
committee, or group, or even necessarily any particular individual.
3.
DEFINITIONS
3.1.
The definitions below are used in this Notice:
“the Act” means the Financial Services and Markets Act 2000.
“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority.
“the Authority’s Handbook” means the Authority’s Handbook of rules and
guidance.
“ARC” means Audit and Risk Committee.
“DEPP” means the Decision Procedure and Penalties Manual as set out in the
Authority’s Handbook.
“EDD” means Enhanced Due Diligence.
“the Financial Crime Team” means JLT Group’s Financial Crime team.
“Company A” means a state-owned insurance company based in a country where
there is perceived to be a high level of bribery and corruption, according to
Transparency International’s Corruption Perception Index.
“Company B” means a third party introducer company incorporated in Panama, a
country where there is perceived to be a high level of bribery and corruption
according to Transparency International’s Corruption Perception Index.
“JLTCW” means JLT Colombia Wholesale Limited, a company incorporated in the
United Kingdom and wholly owned by JLT Latin America.
“JLT Group” means Jardine Lloyd Thompson Group plc which was renamed as
Jardine Lloyd Thompson Group Ltd on 7 June 2019 and JLT Group Holdings Limited
from 16 July 2020.
“JLT Group’s Anti-Bribery and Corruption Policy” means JLT Group’s Group Risk &
Compliance – Group Anti Bribery and Corruption Policy dated November 2014
(approved in December 2014).
“JLT Group entity” means a subsidiary of JLT Group.
“JLT Latin America” means JLT Latin American Holdings Limited, a wholly owned
subsidiary of the JLT Group of companies incorporated in the United Kingdom, the
ultimate parent company of which was JLT Group.
“JLT Re Colombia” means (i) JLT Re Colombia Corredores Colombianos de
Reaseguros, a company incorporated in Colombia and 94.5% owned by JLTCW
(the other shareholders are other JLT Group entities) and (ii) where appropriate
JLTCW (which, according to JLT Group, was in practice operated by JLT Re
Colombia).
“JLTSL” means JLT Specialty Limited.
“KYC DSC” means JLTSL’s KYC Delegated Sub-Committee of JLTSL’s Board.
“KYC Policy” means JLT Group’s Know Your Customer (KYC) Policy and Procedures
Manual – Third Party Due Diligence Process dated 1 October 2013 (Version 3).
“the KYC Team” means JLT Group’s KYC team, part of the Financial Crime Team.
“MMC” means Marsh & McLennan Companies, Inc.
“Overseas Introducer” means an overseas third party that helps JLTSL and other
JLT Group entities win or retain business from insurers or industry clients based
in overseas jurisdictions.
“PEP” means Politically Exposed Person.
“Relevant Period” means the period from 21 November 2013 to 6 June 2017.
“SYSC” means the Authority’s Senior Management Arrangements, Systems and
Controls Sourcebook.
“the Principles” means the Authority’s Principles for Businesses.
“the Skilled Person” means the skilled person engaged by JLT Group on 3 April
2012 to assess the control functions within JLT Group, including JLTSL, and on 2
January 2013 to assess the design and effectiveness of JLTSL’s third party anti-
bribery and corruption systems and controls.
“the Skilled Person’s first review” means the review to assess the control functions
within JLT Group which resulted in the final report produced by the Skilled Person
“the Skilled Person’s second review” means the review to assess the design and
effectiveness of JLTSL’s third party anti-bribery and corruption systems and
controls which resulted in the final report produced by the Skilled Person on 21
November 2013.
“Third Party Operating Manual” means JLT Group’s Operating Manual - Third
Parties (Version 1) dated 12 January 2017.
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4.
FACTS AND MATTERS
Background
4.1.
During the Relevant Period, JLTSL was a wholly owned subsidiary of the JLT group
of companies. The ultimate parent company of the group was JLT Group. JLT
Group provided insurance, reinsurance and employee benefits related advice,
brokerage, and associated services. On 1 April 2019, JLT Group was acquired by
MMC, a global professional services firm.
4.2.
JLTSL has been authorised by the Authority since 14 January 2005 to carry out
certain regulated activities, including assisting in the administration and
performance of a contract of insurance. It provided insurance broking, risk
management and claims services across a wide range of business sectors,
including aerospace, marine and energy, to national and international corporate
clients.
4.3.
As part of its services as an insurance broker, JLTSL worked with insurers based
in overseas jurisdictions who wanted to reinsure all or part of an insured client’s
risks on the London reinsurance market. JLTSL was instructed by overseas
insurers to place these risks on the London reinsurance market and acted as a
broker between an overseas insurer and a reinsurer.
JLTSL’s direct relationships with Overseas Introducers
4.4.
As part of its business, JLTSL entered into relationships with Overseas
Introducers. JLTSL dealt with Overseas Introducers from several countries in
connection with the reinsurance of risk from a number of industry sectors such as
aviation, marine and energy. Overseas Introducers include companies or
individuals that have limited or no involvement in the placement of insurance and
assist by introducing clients to JLTSL. JLTSL generated revenue from the
commission it received for placing the business of insured clients on the London
reinsurance market. JLTSL then paid a share of that commission to the Overseas
Introducer, as shown in Diagram 1 below.
4.5.
Due to the nature of the services they provide, Overseas Introducers pose a higher
risk of bribery and corruption in assisting insurance brokers to win or retain
business. There is likely to be an increased risk of an Overseas Introducer being
the recipient of a bribe or paying a bribe to others from the commission it receives
(1) the Overseas Introducer is connected to the overseas insurer, insured client,
or a public official;
(2) the Overseas Introducer is introducing business from a country which is
perceived to have a higher risk of bribery and corruption;
(3) the amount of commission paid appears high compared with the amount of
work the Overseas Introducer carried out;
(4) the Overseas Introducer is paid commissions on the instructions of another
party; or
(5) the Overseas Introducer requires payment of commission in advance of
premiums being paid and commissions received.
4.6.
As a result, it was important for JLTSL to take reasonable care to put in place
robust systems and controls to prevent and mitigate the risk of bribery and
corruption associated with Overseas Introducers. Indeed, prior to and throughout
the Relevant Period, JLTSL recognised the increased risk posed by Overseas
Introducers (see paragraph 4.9 onwards below).
4.7.
The Authority has published a number of reports and guides to assist commercial
insurance brokers in managing their bribery and corruption risks:
(1)
in May 2010, the Authority published guidance for commercial insurance
brokers on anti-bribery and corruption in a thematic report, with a particular
focus on reducing the risk of illicit payments or inducements to third parties
in order to obtain or retain business;
(2)
in November 2014, the Authority published a report of its findings from a
thematic review which provided examples of good practice for commercial
insurance broker firms to consider in managing their bribery and corruption
risks; and
(3)
the Authority has also published several financial crime guides which provide
guidance to firms on the steps they can take to reduce their financial crime
risk, including bribery and corruption risks, when dealing with third parties.
4.8.
Since 2009, the Authority has taken action against several commercial insurance
brokers for failing to take reasonable care to establish and maintain effective
systems and controls to counter the risks of bribery and corruption associated
with making payments to overseas third parties who assist in winning or retaining
business. This included taking enforcement action against JLTSL in 2013 (see
paragraph 4.16 below).
The Authority’s previous action against JLTSL
The Skilled Person’s first review
4.9
In April 2012, the Authority required JLT Group to commission a skilled person’s
review to assess the adequacy of the control functions within JLT Group which
provided control function services (Compliance, Risk, and Internal Audit) to four
regulated entities, including JLTSL. The review also assessed the governance of
these functions by JLT Group senior management.
4.10
The review identified weaknesses in JLT Group’s control framework and
accordingly, JLT Group, with the advice and approval of the Skilled Person,
implemented an enhanced three lines of defence control framework which was
adopted on a group-wide basis (including JLTSL).
The Skilled Person’s second review
4.11
Following a periodic review in May 2012, the Authority determined that there were
significant deficiencies in JLTSL’s third party systems and controls and required
JLTSL to commission a skilled person’s review under section 166 of the Act. The
purpose of the review was to assess the design and operational effectiveness of
JLTSL’s third party controls, including its risk assessment methodology,
procedures, and processes. The purpose of the review was also to make
recommendations to enable JLTSL to bring its third party systems and controls up
to a satisfactory standard so that it could control and mitigate its bribery and
corruption risks. The review also assessed JLTSL’s implementation of the Skilled
Person’s recommendations.
4.12
The review focused specifically on situations where JLTSL directly engaged with
and paid commission to third parties (including Overseas Introducers). The
review did not consider (and neither did JLTSL) whether additional safeguards or
processes should be incorporated into JLTSL’s third party processes in situations
where the introducer was engaged by another JLT Group entity, but where the
reinsurance was placed on the London reinsurance market by JLTSL (see
paragraph 4.18 below for more information).
4.13
Given the Authority’s concerns about the adequacy of JLTSL’s controls, on 6
December 2012 JLTSL voluntarily varied its permissions at the Authority’s request
such that it was unable to enter into new relationships with third parties, nor make
payments to third parties which had a connection to a high risk jurisdiction or
other known significant risk factors, without prior approval from the Skilled
Person.
4.14
In November 2013, the Skilled Person provided its findings in a report to JLTSL
and the Authority. These findings included that the revised procedures and
underlying documentation were effective in assessing and mitigating the potential
bribery and corruption risks to JLTSL arising from all situations where JLTSL
directly engaged with a third party (including Overseas Introducers), and that the
third party approval process was fit for purpose and working effectively in practice.
The Skilled Person also made a series of recommendations with which JLTSL
agreed and put in place actions to implement these.
4.15
As a result of the Skilled Person’s findings, the Authority agreed to remove JLTSL’s
variation of permissions in November 2013. However, the Authority told JLTSL
that “the process for assessing third party risk cannot be a mere box ticking
exercise” and “judgement has to be correctly exercised at the right time and at
the right level”.
The Authority’s previous enforcement action
4.16
On 19 December 2013, the Authority imposed a financial penalty on JLTSL of
£1,876,000 for breaches of Principle 3 of the Authority’s Principles for Businesses
during the period 19 February 2009 to 9 May 2012. The Authority found that
JLTSL breached Principle 3 by 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 Introducers. The Authority found that:
(1) JLTSL failed to conduct adequate due diligence before entering into a
relationship with an Overseas Introducer. In particular, JLTSL did not take
adequate steps to assess whether the Overseas Introducer was connected
with the clients it introduced and/or any public officials.
(2) JLTSL failed to adequately assess the risk associated with each piece of new
insurance business introduced by an Overseas Introducer, which meant that
JLTSL could not ensure that it took sufficient steps to counter the risk of
bribery and corruption prior to making payments to Overseas Introducers.
(3) JLTSL failed to adequately implement its own anti-bribery and corruption
policies, which resulted in the risk of JLTSL entering into higher risk
relationships
with
Overseas
Introducers
without
sufficient
senior
management oversight and approval. Moreover, JLTSL failed to carry out
adequate checks, which would have enabled it to identify that its policies were
not being implemented correctly.
4.17
The Authority concluded that the above failings gave rise to an unacceptable risk
that payments made by JLTSL to an Overseas Introducer could subsequently be
used for corrupt purposes, including the risk of paying bribes to persons connected
with the insured clients and/or public officials.
JLT Group’s group-wide anti-bribery and corruption framework
4.18
Prior to and following the above financial penalty, JLTSL and its senior
management made significant efforts to improve its systems and controls
framework, especially in relation to third parties such as Overseas Introducers,
including with the advice and approval of the Skilled Person.
4.19
In 2013 JLT Group and JLTSL worked with the Skilled Person to develop a group-
wide third party due diligence and approval process to mitigate the risk third
parties (including Overseas Introducers) posed to JLT Group entities, in particular
the risk of bribery and corruption. This group-wide process was in place
throughout the Relevant Period and included a number of JLT Group policies and
procedures, such as JLT Group’s Anti-Bribery and Corruption Policy and the KYC
4.20
For example, JLT Group’s Anti-Bribery and Corruption Policy prohibited employees
of all majority owned JLT Group entities, such as JLTSL, from engaging in any
activity with any party that might be construed as a corrupt relationship, including
improperly securing or retaining business for JLT Group. Other policies provided
examples to help employees of JLT Group entities based in the UK (including
JLTSL) assess whether a situation carried a risk of bribery and corruption,
including excessive payments or benefits to third parties (having regard to the
existing or potential business relationship), a payment to a third party being
disproportionate to the service provided by them and benefits being targeted
exclusively at key decision makers.
4.21
JLT Group’s third party due diligence and approval process, including the
requirements of its KYC Policy, are set out in paragraphs 4.58 to 4.65 below.
4.22
JLT Group entities, including JLTSL, were required to adopt JLT Group’s policies
and procedures and comply with them. JLT Group entities had a limited role in
the creation and content of JLT Group’s policies and procedures, but could
enhance them, for example where a policy needed to be amended to comply with
more stringent local legislation or regulations. Beyond this, they had no autonomy
to produce their own policies other than creating their own procedures to comply
with JLT Group standards and policies. Nonetheless, it was JLTSL’s responsibility,
as an authorised firm, to ensure that the policies and processes it relied upon
were appropriate for all of its dealings with Overseas Introducers.
4.23
In implementing the First Skilled Person’s Report, JLT Group introduced a three
lines of defence model to mitigate against risks to the business, including the risk
of bribery and corruption. In relation to JLTSL:
(1) its Business Controls team (which later became its Business Controls Quality
Assurance team) was a first line compliance team which assisted JLTSL
management to monitor compliance with systems and controls, including in
relation to third parties. Where JLTSL intended to directly engage with and
make payments to third parties (including Overseas Introducers), the
Business Controls team was responsible for preparing the application forms
and submitting them to the KYC Team for review and approval (see paragraph
4.60(1) below).
(2) the KYC Delegated Sub-Committee (a delegated sub-committee of JLTSL’s
Board) considered the bribery, corruption and other financial crime risk
exposure to JLT Group from JLTSL’s use of third parties who are paid a
commission (including Overseas Introducers). This included responsibility for
considering applications and either approving or declining requests to use
third parties, reviewing completed risk assessments and accompanying due
diligence for potential or existing third party accounts and considering the
approval of relationships where JLTSL received gross premiums from the
insured/reinsured and remitted commission back to the third party. Where
JLTSL intended to directly engage with and make payments to third parties
(including Overseas Introducers), the KYC DSC would be provided with a
summary of the risk assessment and due diligence undertaken on the third
party by the KYC Team. The KYC DSC would consider these cases and either
approve the relationship, request further information, or reject the
relationship.
4.24
JLTSL had in place various monitoring and oversight processes to ensure that this
system operated as designed and intended.
4.25
JLT Group Risk and Compliance acted as the JLT Group’s and the JLT Group
entities’ second line of defence. JLT Group Risk and Compliance owned JLT
Group’s third party policies and framework and provided advice to JLT Group
entities on compliance with the third party framework. In particular, its Financial
Crime team was responsible for the third party due diligence and approval process
both at the outset of a relationship and on renewal. The due diligence and
approval process for Overseas Introducers was performed by the KYC Team, part
of the Financial Crime Team.
JLTSL’s indirect relationships with Overseas Introducers
4.26
As well as directly entering into relationships with Overseas Introducers, JLTSL
also placed business on the London reinsurance market where that business was
won and retained by another JLT Group entity with the assistance of an Overseas
Introducer engaged by that other entity. In this arrangement, the Overseas
Introducer introduced the business of the insured client or the overseas insurer
to another JLT Group entity, which in turn instructed JLTSL to reinsure some or
all of this business on the London reinsurance market. The commission was
shared between JLTSL and the other JLT Group entity. The other JLT Group entity
then paid a share of the commission to the Overseas Introducer, as set out in
Diagram 2 below:
Diagram 2
4.27
As a result of these indirect relationships with Overseas Introducers, during the
Relevant Period JLTSL made 466 placements on the London reinsurance market
for 40 different overseas insurers and 106 different insured clients, earning
£8,515,292 in commission from these placements.
4.28
Almost a fifth of these placements were made on behalf of Company A, from which
JLTSL earned £4,807,938.63 in commission (approximately 56% of the total
commission earned from business introduced indirectly by Overseas Introducers).
JLTSL’s relationship with Company A
4.29
In March 2013, Company A, a state-owned insurance company based in a country
where there is perceived to be a high level of bribery and corruption, appointed
JLTSL as Broker of Record (an insurance agent who is responsible for managing
and representing a policyholder’s insurance policy) to broker the reinsurance of
aviation insurance policies for that country’s defence ministry for three months
from 6 April 2013 to 6 July 2013. These insurance policies covered defence assets
such as military aircraft.
4.30
Company A subsequently reappointed JLTSL as Broker of Record to broker the
reinsurance of the same aviation risks for the 12 months from 6 July 2013 to 6
July 2014 (the “2013/2014 aviation reinsurance”).
4.31
Between March 2013 and September 2013, JLTSL dealt with Company A via a
local reinsurance broker. However, following the appointment of new senior
management at Company A, Company A informed JLTSL in September 2013 that
JLTSL should deal directly with Company A instead. JLTSL learned the following
month that its relationship with Company A had deteriorated. Consequently, JLTSL
became concerned about its ability to win or retain business from Company A, in
particular the forthcoming renewal of the aviation risks referred to at paragraph
4.29 above from 7 July 2014.
4.32
At, or shortly after, a meeting between JLTSL and Company A on 6 November
2013, Company A informed JLTSL that it wanted to replace JLTSL, mid-way
through the contract, as the Broker of Record for the existing placement of the
2013/2014 aviation reinsurance.
4.33
In or around December 2013, JLT Re Colombia became involved in these
discussions. Company A told JLT Re Colombia that it would not work with JLT
Group entities until certain issues, including JLTSL’s use of local reinsurance
brokers on previous placements for Company A, had been resolved.
4.34
Soon after, JLT Re Colombia contacted Company B, a company incorporated in
Panama, a country where there is perceived to be a high level of bribery and
corruption, and Company B offered to help resolve these issues. JLT Re Colombia
accepted Company B’s offer to help rebuild JLTSL’s relationship with Company A.
4.35
On 13 January 2014, JLT Re Colombia met with Company A and thereafter, sought
to arrange a meeting between Company A and JLT Latin America. Company A
initially declined the meeting but eventually agreed after it was persuaded by
Company B to meet. The purpose of this meeting, which took place on 16 January
2014, was to rebuild JLTSL’s relationship with the new management of Company
A. However, Company A said at the meeting that it was not interested in
continuing a relationship with JLTSL.
4.36
In mid-February 2014, executives of Company A visited JLT Group’s offices in
London to meet with executives from JLT Latin America and JLT Group. Company
B also helped to arrange this meeting although it did not attend it. Company A
decided at, or following, the meeting not to remove JLTSL as the Broker of Record
for the 2013/2014 aviation reinsurance having been convinced by JLT Group that
it was reputable to deal with.
JLTSL’s dealings with Company B prior to May 2014
4.37
By February 2014, JLTSL was fully aware of Company B and its role in helping
rebuild JLTSL’s relationship with Company A. Around this time, JLTSL employees
entered into negotiations with Company B about the share of commission
Company B would receive for having helped JLT Group convince Company A not
to remove JLTSL as the Broker of Record midway through the existing placement
of the 2013/2014 aviation reinsurance.
4.38
Company B requested a 50% share of the commission earned by JLTSL for this
placement. JLTSL had expected to earn approximately US$1.3 million. Ahead of
a meeting with Company B, JLT Re Colombia told JLTSL it was concerned that
offering half of this amount would not be enough and could negatively affect their
relationship with Company B.
4.39
At their meeting on 19 February 2014, Company B told JLT Re Colombia it was
unhappy with JLTSL’s offer. It threatened that unless JLTSL increased its offer
not only would JLTSL not be renewed as the Broker of Record for the placement
of the 2014-2015 aviation risks but JLT Group entities may be banned from doing
business in the country of Company A.
4.40
Over the course of the next few days, JLT Re Colombia relayed to JLTSL both
Company B’s reaction and its request that JLTSL instead pay it approximately
US$1.8 million (approximately US$1.48 million more than JLTSL had offered and
approximately US$500,000 more than JLTSL had expected to earn in commission
on that placement). When questioned as to whether JLTSL was being fully
transparent with the amount of commission it had earned, a JLTSL senior manager
replied: “They [Company B] don’t appear to be able to do some very basic maths”.
4.41
Notwithstanding that the JLTSL senior manager felt that Company B had not done
anything to warrant a percentage of the commission from the placement of the
2013/2014 aviation reinsurance, they felt pressurised into agreeing to pay the
US$1.8 million it had requested because of the “harassment” from Company B.
One JLTSL employee also later referred to Company B’s demands as
“unreasonable”.
4.42
JLTSL nonetheless agreed on 21 February 2014 to pay Company B 8% commission
for any future business it introduced as well as US$1.8 million for helping JLTSL
remain as the Broker of Record for the placement of the 2013/2014 aviation
reinsurance. The agreement was conditional on a guarantee that JLTSL would
secure the next two renewals of the same risks. This condition allowed JLTSL to
use the commissions earned from these future renewals to pay Company B
US$1.8 million over a course of time rather than immediately. A few days later,
JLTSL told JLT Re Colombia that it would be able to pay US$300,000 to Company
B “as an initial down-payment toward (sic) the overall promised settlement” of
US$1.8 million “in order to cement [JLTSL’s] friendship” with Company B.
4.43
At this point, a couple of senior managers at JLTSL and JLT Latin America
expressed serious doubt to JLT Re Colombia about Company B’s role. On 25
February 2014, an executive of JLT Latin America told JLT Re Colombia that “there
is no way the JLT Group can pay an introductory commission in seven figures to
a couple of […] individuals in Miami. They seem to have no real company” and
said that “it is clear they are not a firm of substance”. Referring to the action that
had recently been taken by the Authority, he considered it was unlikely that
Company B would be approved as a third party introducer under the KYC Policy
and emphasised that “significant due diligence” would need to be undertaken
before any payments could be made to Company B.
4.44
In addition, on 18 March 2014, a member of JLTSL’s Board stressed to employees
at both JLT Re Colombia and JLTSL that “we would not be able to make any
payments to Third Parties without good cause and this would require proper Due
Diligence to understand who they are, what they are adding to the process, what
contacts they may have with [Company A]”.
4.45
However, as explained in paragraphs 4.66 to 4.74, insufficient due diligence was
performed on Company B before it was approved as an Overseas Introducer.
4.46
On 25 March 2014, a JLTSL employee visited Company B’s offices in Miami. JLT
Re Colombia had arranged the meeting with a view to JLTSL finalising an
agreement with Company B about its share of commission, particularly the US$1.8
million commission it had requested. JLT Re Colombia informed the JLTSL
employee ahead of the meeting that if an agreement was not reached, Company
B would take its services elsewhere to other international reinsurance brokers.
Prior to these meetings, a JLTSL senior manager advised the JLTSL employee that
they should do their best at these meetings but “stand firm on [their] principles”
because they were not “willing to compromise [JLTSL’s] integrity” to reach an
agreement with Company B.
4.47
At the meeting, the JLTSL employee met representatives of Company B and was
told that they “had been given the brief” by Company A “to act as the ongoing
guardian to the insurance requirements of the country”. Company B told the
JLTSL employee that JLT Re Colombia was “their interlocutor on the
insurances…who they had a trusted relationship with and who they had dealt with
previously over a number of years” and “was the axis point for the administration
of all opportunities that may arise on the [Company A’s] portfolio”.
4.48
At the following meeting on 1 April 2014, the JLTSL employee and Company B
agreed that JLTSL would attempt an early renewal of the aviation risks by
cancelling the existing policy and rewriting it again or renewing the policy in
advance of the July 2014 renewal date, which Company B supported. The JLTSL
employee also reminded Company B that JLT Re Colombia was in the process of
securing its approval as an Overseas Introducer under JLT Group’s policies and
procedures.
4.49
JLT Re Colombia then told JLTSL employees on 27 April 2014 that Company B was
not going to assist JLTSL unless it made an upfront payment of part of the US$1.8
million as a “good faith sign” or a “goodwill gesture”. On 29 April 2014, Company
B contacted JLTSL directly and requested an advance payment of US$500,000.
4.50
The following day, on 30 April 2014, JLT Re Colombia notified JLTSL that JLT Re
Colombia and JLTSL had been appointed by Company A as the reinsurance broker
for the aviation risks of an insured client. JLT Re Colombia asked JLTSL to confirm
the proposal to pay Company B US$500,000. On the same date, a JLTSL senior
manager confirmed that JLTSL would transfer US$500,000 to JLT Re Colombia to
pay Company B in “good faith”. As a result, Company B agreed to work with
JLTSL in helping it to win or retain business from Company A.
4.51
By the end of April 2014, certain JLTSL employees were therefore aware that:
(1) JLTSL’s client, Company A, was a state-owned entity incorporated in and
trading from a jurisdiction which presents a high risk of bribery and
corruption;
(2) following a change of senior management at Company A, it intended to
remove JLTSL as Broker of Record for the placement of the 2013/2014
aviation reinsurance;
(3) Company B had been appointed by Company A “to act as the ongoing
guardian to the insurance requirements” of the country Company A was
incorporated in and that JLT Re Colombia was Company B’s “interlocutor”;
(4) as Company B had not played any part in JLTSL’s initial appointment as Broker
of Record, the US$1.8 million it agreed to pay Company B for persuading
Company A not to remove it as Broker of Record was disproportionate to the
amount of work Company B carried out. The sum was US$500,000 more
than JLTSL itself was earning in commission;
(5) Company B threatened to ban JLT Group entities, including JLTSL, from
carrying out reinsurance business in the country of Company A unless JLTSL
agreed to pay Company B the US$1.8 million; and
(6) Company B then demanded an advance payment of US$500,000 out of the
agreed US$1.8 million as a gesture of “good faith”.
4.52
The following matters ought to have appeared to the JLTSL employees as red flags
indicating a significant risk of Company B paying a bribe to others from the
commission it was to receive:
(1) Company B was connected to Company A’s senior management, who were
government officials;
(2) Company B was introducing business from a jurisdiction which presents a
higher risk of bribery and corruption;
(3) the amount of commission that was agreed to be paid was high compared
with the amount of work that Company B carried out (Company B’s role was
that it assisted JLT Group in persuading Company A not to remove JLTSL from
a reinsurance placement that JLTSL had previously been appointed to carry
out without Company B’s involvement); and
(4) Company B required advance payment of part of its commission share.
4.53
However, the JLTSL employees did not treat these matters as red flags from a
bribery and corruption perspective.
Initiation of the due diligence process by JLT Re Colombia
4.54
On 1 May 2014, JLT Re Colombia initiated JLT Group’s third party due diligence
process to onboard Company B as an Overseas Introducer, and informed JLTSL
employees that it had done so.
4.55
JLTSL played no role in the consideration and approval of Company B as an
Overseas Introducer. For example, its Business Controls team was not involved
in the due diligence process and the KYC DSC was not involved in reviewing and
approving the relationship with Company B.
4.56
As shown in paragraphs 4.37 to 4.53 above, JLTSL employees were in direct
contact with Company B earlier in 2014. JLTSL was the decision maker in the
negotiation of Company B’s share of commission. Further, during the Relevant
Period, in carrying out a regulated activity, JLTSL placed 95.2% of Company A’s
business on the London reinsurance market as a result of Company B’s
introduction (only 4.8% of this business was reinsured locally by JLT Re
4.57
JLTSL employees that were involved in the negotiations with Company B and in
placing the business in the London market failed to escalate relevant facts to the
attention of the Financial Crime Team which would have materially affected its
assessment of Company B (see paragraph 4.71 below).
JLT Group’s third party due diligence and approval process
4.58
As explained in paragraph 4.18, following the Skilled Person’s first review, JLT
Group designed and implemented (with the approval of the Skilled Person) a
group-wide third party due diligence and approval process to mitigate the risk
posed by third parties (including Overseas Introducers) to JLT Group and its
subsidiaries, particularly the risk of bribery and corruption. This group-wide
process included the KYC Policy. This system was approved for all situations
where JLT Group entities directly engaged with third parties, including Overseas
Introducers.
Due diligence process
4.59
Between 1 October 2013 and 12 January 2017, the KYC Policy set out the detailed
procedures which employees of all JLT Group entities had to follow in order to
establish relationships with third parties. This included the use of a risk
assessment tool which was based upon five tiers of due diligence to be collated
and assessed according to the category of the third party and the risk profile
associated with it.
4.60
For Overseas Introducers, the first four tiers were as follows:
(1) In Tier 1 (Data Gathering), the JLT Group entity wanting to establish a
relationship with the Overseas Introducer was responsible for gathering or
completing the following information and submitting it to the KYC Team for
review:
(i)
a Business Case form (to be completed by the JLT Group entity) to
provide information about the Overseas Introducer, including a “strong
reasoning” for why the Overseas Introducer is required and a detailed
explanation of the Overseas Introducer’s role and services provided;
(ii)
an Introducer Questionnaire (to be completed by the Overseas
Introducer); and
(iii)
an Introducer Agreement (to be signed by both the JLT Group entity
and the Overseas Introducer following the due diligence process and
consequent approval of the Overseas Introducer).
(2) Tier 2 (Know Your Client) involved the KYC Team obtaining corporate
information about the Overseas Introducer, including WorldCheck searches,
an Orbis check and its incorporation or registration details.
(3) In Tier 3 (Know Your Client analysis) the KYC Team reviewed the information
gathered at tiers one and two, including the information contained within the
Business Case form and the Introducer Questionnaire. They also carried out
additional WorldCheck searches on the directors, shareholders and associated
companies of the Overseas Introducer, performed open source and Factiva
checks for any adverse media, verified that the directors of the Overseas
Introducer were the same as those listed in the Introducer Questionnaire, and
validated the Overseas Introducer’s bank account details. In particular:
(i)
In respect of the Business Case form, the KYC Team had to ensure
that there was an adequate commercial rationale to support payments
to the Overseas Introducer, including why it is necessary to use the
Overseas Introducer to win business and the service that will be
received from the Overseas Introducer in return for a share of
commission. If the Business Case form contained insufficient
reasoning for the sharing of commission, the Business Case form was
to be referred back to the JLT Group entity. Equally, if the Introducer
Questionnaire was incomplete or insufficient, it was to be referred back
to the Overseas Introducer.
(ii)
However, there was no guidance to assist the KYC Team with assessing
whether the Business Case form contained an adequate commercial
rationale to support payments to an Overseas Introducer or to assess
whether it contained a “strong reasoning” for why the Overseas
Introducer was required.
(4) At Tier 4 (Enhanced Bribery and Corruption), following their analysis of the
information gathered at tiers one to three, the KYC Team were required to
assess the bribery and corruption risk if the JLT Group entity was to enter into
a relationship with the Overseas Introducer. The assessment process, known
as the “Alarm Bells” process, involved the assessment of the risk presented
by the Overseas Introducer against ten key risk factors, with each risk factor
being assigned a score of up to three Alarm Bells up to a maximum total score
of 30 Alarm Bells. The ten risk factors included the nature of the role of the
third party (for example, Overseas Introducers were considered the highest
risk), the country where the third party was domiciled, whether the third
party’s bank account details had been validated, and the country where the
third party’s bank account was domiciled.
4.61
JLT Group did not provide any written guidance to the KYC Team on how to
determine the appropriate score for each of the ten key risk factors when
completing the risk assessment for an Overseas Introducer, for example, whether
to score a risk factor one, two or three Alarm Bells. However, the initial scoring
on the risk assessment forms was reviewed for quality assurance purposes by a
senior member of the Financial Crime Team to ensure the scores were
appropriate.
Enhanced Due Diligence (“EDD”)
4.62
During the Relevant Period, the need for EDD was considered at Tier 5 of the due
diligence process set out in the KYC Policy. The level of EDD required depended
on the Alarm Bells score at Tier 4:
(1) if an Overseas Introducer was assigned a score of up to 15 Alarm Bells, no
EDD was required, although EDD may have been required if particular risk
factors were identified in the risk assessment;
(2) if an Overseas Introducer was assigned a score of between 16 and 25 Alarm
Bells, EDD was required and could include one or more of the following: a JLT
Group entity board director meeting with the Overseas Introducer, searching
for adverse media in the language of the country where the Overseas
Introducer was based, searching additional external data sources, and
commissioning a report from a specialist external provider; or
(3) if an Overseas Introducer was assigned a score of 26 or more Alarm Bells,
EDD was required and, in addition to the steps listed in sub-paragraph (2)
above, could also include a more extensive report from a specialist external
provider.
Approval process
4.63
The number of Alarm Bells assigned to an Overseas Introducer during the risk
assessment process also determined the seniority of authorisation required to
approve the relationship with that Overseas Introducer. For example, if an
Overseas Introducer was assigned 16 to 25 Alarm Bells, the relationship would
need to be approved by the KYC Team manager or Financial Crime manager, JLT
Group’s Head of Financial Crime and members of the JLT Group entity’s Board.
For a score of over 25 Alarm Bells, approval was additionally required from JLT
Group’s Head of Risk and its Group Legal Director (although in practice, from
March 2015, approval was only required from one of these individuals not both).
4.64
Everyone required to approve a relationship with an Overseas Introducer received
a pack of documentation containing the risk assessment form, the Business Case
form, the Introducer Questionnaire, any pertinent email exchanges which brought
clarity to the relationship and any adverse media or results from screening (where
available).
4.65
Once all the due diligence checks had been completed and the relationship was
approved, the Overseas Introducer would be set up on JLT Group’s system as a
new contact.
4.66
As stated in paragraph 4.54 above, JLT Re Colombia initiated the due diligence
process to onboard Company B on 1 May 2014.
4.67
JLT Re Colombia deliberately withheld from the Financial Crime Team material
relevant information in respect of the proposed relationship with Company B.
JLTSL employees that were involved in the negotiations also failed to escalate
matters which would have materially affected the Financial Crime Team’s
assessment of Company B. In addition, notwithstanding that the Financial Crime
Team had previously advised a senior executive of JLT Group in April 2014 that
they would take a “close interest” in making sure that Company B received
“appropriate attention” during its due diligence process, the Financial Crime Team
failed to carry out adequate due diligence on Company B.
Failure to disclose material relevant information
4.68
JLT Re Colombia supplied the Financial Crime Team with copies of a Business Case
and Introducer Questionnaire, a reference letter from Company B’s bank, and a
letter from Company B. In addition, JLT Re Colombia supplied an Introducer
Agreement between JLT Re Colombia and Company B dated 21 April 2014 and
signed 5 May 2014.
4.69
However, JLT Re Colombia failed to include in Company B’s Business Case form
and otherwise failed to bring the following information to the attention of the
(1) that JLTSL had a pre-existing relationship with Company A without the
involvement of Company B and that, following a change of senior
management, Company A had sought to end this relationship;
(2) Company B’s involvement in convincing Company A not to replace JLTSL as
the Broker of Record;
(3) Company B’s demand for a US$1.8 million payment for helping JLTSL keep
this account, notwithstanding that JLTSL only earned US$1.3 million on that
placement;
(4) The threat Company B had made to ban JLT Group entities from doing
reinsurance business in the country of Company A if JLTSL did not increase
its initial offer to US$1.8 million; and
(5) Company B’s request for a US$500,000 “good faith sign” or “goodwill gesture”
payment which JLTSL had agreed to pay.
4.70
These matters are likely to have significantly affected JLT Group’s decision to
approve Company B as an Overseas Introducer if the relevant decision makers
had been aware of them at the time.
4.71
Certain JLTSL employees were aware of all of these matters through their contact
with Company B (see paragraph 4.47 above). Although the JLTSL employees
received copies of Company B’s completed Business Case form and Introducer
Questionnaire from JLT Re Colombia, there is no evidence that the JLTSL
employees considered notifying the Financial Crime Team or the KYC DSC of the
materially relevant information regarding Company B or took any steps to check
whether JLT Re Colombia raised these important matters during the due diligence
process.
Failure by the Financial Crime Team to adhere to the due diligence process
4.72
The Financial Crime Team, based on the information supplied to it by JLT Re
Colombia, identified a variety of red flags indicating that the proposed
engagement of Company B presented high risk and therefore conducted EDD in
relation to Company B. This EDD included:
(1) independently reviewing and confirming information contained within
Company B’s broker questionnaire (such as its location, legal status,
ownership, and banking information);
(2) asking JLT Re Colombia to answer various follow-up questions about Company
B (such as diagramming the proposed flow of premiums and commissions for
policies proposed to be introduced by Company B); and
(3) running various information checks on Company B (such as WorldCheck and
Factiva searches, and checks with Panama’s company register).
4.73
The Financial Crime Team, however, failed to carry out adequate due diligence in
a number of material ways:
(1) The Business Case completed by JLT Re Colombia did not contain a “strong
reasoning” as to why Company B was required to win Company A's business.
The Business Case also did not contain a detailed explanation of Company B’s
role and the services it would provide to JLT Group entities, including JLTSL,
in return for a share of commission, to ensure that there was adequate
commercial rationale to support payments to Company B:
(i)
In response to the question, “Please provide reasons/business
justification for doing business with this broker”, the Business Case
contained a single sentence that Company B had “Very strong
connections” with Company A and “with the largest industrial Groups”
in the same country.
(ii)
In response to the question, “Please provide full details of the activities
the broker proposes to undertake”, the Business Case simply stated
that one of Company B’s principals “has been an Insurance Broker
(life-high net worth individuals) for more than fifteen (15) years to
high net worth families” in the same country as Company A, which
“…has given him very strong influent (sic) connections”. This answer
failed to explain what Company B would do to help JLT Re Colombia
win or retain business, and how it would earn its share of the
commission.
(2) The Financial Crime Team did not verify the address that Company B had
provided in its Introducer Questionnaire and failed to obtain a copy of its
certificate of incorporation (although it did obtain confirmation from the
Panamanian company registry that the company had been incorporated).
(3) The Financial Crime Team failed to verify Company B’s directors and
shareholders. The search conducted by the Financial Crime Team on
Panama’s company register identified entirely different directors and
shareholders to those listed in the Introducer Questionnaire, but the Financial
Crime Team failed to carry out any further enquiries as to why this was the
case.
(4) The WorldCheck and Factiva searches that the Financial Crime Team carried
out were limited to Company B’s name and the directors and shareholders
but did not include other associated individuals and companies that were
identified in the Business Case form, or in information provided by Company
B, who may have presented a financial crime risk.
(5) The Financial Crime Team failed to verify Company B’s bank account number.
Although the Financial Crime Team did obtain confirmation from Company B’s
bank that Company B held an account with it, the confirmation did not state
Company B’s account number.
(6) The Financial Crime Team failed to notice that the Introducer Agreement
between JLT Re Colombia and Company B had already been signed by the
parties on 5 May 2014 before Company B had been formally approved as an
Overseas Introducer.
4.74
The Financial Crime Team also failed to score accurately some of Company B’s
risks relating to bank account validation and bank account domicile. This meant
that Company B scored 22 Alarm Bells, rather than 25 or more. This meant that
a lower level of authorisation was required for Company B, as well as a lower level
of EDD (see paragraph 4.63 above).
Approval of the relationship
4.75
Despite the above due diligence failings, Company B’s risk assessment was
approved by the Financial Crime Team on 16 May 2014. The failure to obtain a
copy of the certificate of incorporation and the failure to verify Company B’s
address was noted on the risk assessment form.
4.76
Company B was approved as an Overseas Introducer of JLT Re Colombia until 18
May 2015. The Financial Crime Team also failed to seek the appropriate
authorisation required by the KYC Policy as only one member of JLT Re Colombia’s
senior management signed the risk assessment form rather than two.
4.77
Company B’s approval was subject to the following conditions:
“Strict attention to the background to and validity of any payments to or from
[Company B] is required. All payments are to be open, transparent and subject
to documented contract terms. Payments must represent fair value for
goods/services received/supplied and be consistent with normal market practices.
Any engagement in terms of corporate entertainment and/or gifts is to be fully
documented and pre-authorized. Records must be kept and must stand up to
external scrutiny if required.
Adverse media searches are to be re-conducted on an annual basis.”
4.78
On 16 May 2014, two JLTSL employees were notified by JLT Re Colombia that
Company B’s risk assessment form had been approved by the Financial Crime
Team. However, those JLTSL employees did not take any steps to verify the
content of the risk assessment form.
4.79
In summary, JLTSL was required to have appropriate controls in place to mitigate
the risk of bribery and corruption from Company B’s involvement. As an
authorised firm, JLTSL failed to consider whether additional safeguards or
approvals should be incorporated into JLTSL’s third party processes with respect
to Overseas Introducers engaged by another JLT Group entity where the
introduced business was subsequently placed by JLTSL in the London market. In
particular, despite the heightened bribery and corruption risk posed by Overseas
Introducers to JLTSL, the processes did not require the approval of the KYC DSC
in addition to the approval of the JLT Group entity that was proposing to engage
the Overseas Introducer and the Financial Crime Team.
4.80
Consequently, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
4.81
The materially relevant information held by JLT Re Colombia and JLTSL employees
presented issues which raised concerns about the risks associated with Company
B. It was important that the Financial Crime Team was given the opportunity to
assess the significance of this information and take the necessary action. Had the
Financial Crime Team or the KYC DSC been in possession of this information
relating to the background and circumstances of Company B’s involvement, it is
unlikely that Company B would have been approved as an Overseas Introducer.
Other instances where JLTSL relied on other JLT Group entities to conduct
due diligence on Overseas Introducers
4.82
Besides Company B, there were several other instances where Overseas
Introducers had introduced business to other JLT Group entities and those entities
had in turn instructed JLTSL to place that business on the London reinsurance
market. During the Relevant Period, JLTSL made 357 placements for multiple
insured clients or overseas insurers where it had been instructed by another JLT
Group entity to do so, as a result of that JLT Group entity being introduced
business by an Overseas Introducer. Many of the Overseas Introducers were
domiciled in countries which presented a high risk of bribery and corruption,
according to Transparency International’s Corruption Perception Index. The total
premium paid across all of these placements was £30,149,134 with JLTSL earning
£3,438,745 in commission.
4.83
JLTSL did not consider or approve the onboarding or renewal of the relationships
with these Overseas Introducers. As was the case with Company B, JLTSL relied
wholly on other JLT Group entities and the Financial Crime Team to approve these
relationships.
Business introduced by Company B and commission shared during the
initial 12 months
4.84
Prior to JLT Re Colombia initiating JLT Group’s third party due diligence process
to onboard Company B as an Overseas Introducer in May 2014, JLTSL was
indirectly instructed, via JLT Re Colombia, to place eight of Company A’s policies,
earning US$1,917,400 in commission. JLT Re Colombia and Company B earned
US$309,785 and US$879,616 respectively in commission from these placements.
4.85
Between 19 May 2014 and 18 May 2015 (when JLT Group’s approval was set to
expire), as a result of Company B’s introduction JLTSL was instructed by Company
A, via JLT Re Colombia, to place 39 policies in the London reinsurance market.
JLTSL earned £1,258,151 in commission from these placements. JLT Re Colombia
and Company B earned US$1,824,534 and US$5,725,727 respectively in
commission from these placements.
4.86
As stated in paragraph 4.49 above, JLTSL had already agreed on 30 April 2014 to
pay US$500,000 to Company B as a “good faith” payment in advance of the
US$1.8 million commission JLTSL had also agreed to pay Company B from JLTSL’s
placement of the 2013/2014 aviation reinsurance. A JLTSL senior manager
authorised the payment of US$500,000 to JLT Re Colombia on 20 May 2014. As
explained in paragraphs 4.68 to 4.71 above, there is no evidence that the Financial
Crime Team was aware of the existence of this agreement when approving the
relationship with Company B.
4.87
However, JLT Re Colombia did not pay these funds to Company B. On 21 May
2014, the following day, JLT Re Colombia transferred US$500,000 to the bank
account of a company incorporated in Florida which was connected with Company
B, of which JLTSL had no knowledge or information. As set out at paragraph
4.70(5) of this Notice, the Financial Crime Team had in any event failed to verify
Company B’s bank account number. Although the Financial Crime Team did obtain
confirmation from Company B’s bank that Company B held an account with it, the
confirmation did not state Company B’s account number.
4.88
In addition, during this period, JLT Re Colombia paid a further US$4,430,746.06
to the accounts of the Florida company and another company incorporated in
Panama which was also connected with Company B. None of these funds were
paid to Company B.
Gifts and entertainment policies of JLT Group and JLTSL, and
unauthorised entertainment of third parties
4.89
Following Company B’s approval as an Overseas Introducer by JLT Group in May
2014, JLTSL employees continued to interact directly with both Company B and
Company A, including paying for individuals from Company B, Company A and
their families to attend a number of events. As set out below, these events
included the 2014 and 2015 Wimbledon Championships and the 2015 Monaco
Grand Prix. Over the course of a 10 month period, JLTSL spent nearly
US$200,000 on entertaining individuals from Company A, Company B and their
families.
JLTSL’s 2014 Gifts and Entertainment Policy
4.90
In 2014, JLTSL’s Gifts and Entertainment Policy required every JLTSL employee
to declare any benefit, monetary remuneration, gifts or entertainment that they
intended to receive from, or give to, clients and third parties (including Overseas
Introducers) with a value in excess of £250. A ”report” of all gifts and forms of
entertainment of any nature given or received in excess of £250 was maintained
centrally within JLT Group’s expense management system. It was the
responsibility of each JLTSL employee to ensure that all forms of benefits, gifts,
and entertainment in excess of £250 incurred were entered onto this system so
they could be presented to the employee’s line manager for approval. The report
was to be monitored by the Chief Financial Officer (“CFO”) and signed off by the
JLTSL Chief Executive Officer, Chairman, CFO or Chief Operating Officer quarterly,
reported at JLTSL Board and JLTSL ARC meetings and was to be subject to review
by the Group Internal Audit Team.
4.91
On 4 and 6 July 2014, JLTSL and JLT Re Colombia employees entertained a senior
manager of Company A (a foreign public official) and his wife, along with
representatives of Company B, at the Wimbledon Men’s Semi-Final and Final
events. The hospitality cost £67,200 and included food and drink, Centre Court
tickets, and a meet and greet with a former Wimbledon champion. On 10 June
2014, a JLTSL employee asked JLT Re Colombia to request that Company B pay
the vendor of the 2014 Wimbledon event for the cost of the hospitality planned
for 4 and 6 July 2014.
4.92
However, around the same time, JLT Re Colombia subsequently sought JLTSL’s
agreement to increase its share of commission by US$110,000 on a particular
transaction. Despite there being no adequate rationale for this, JLTSL agreed to
the commission being increased and transferred this amount to JLT Re Colombia
on 25 July 2014. However, JLT Re Colombia had already transferred US$110,000
to the Florida company associated with Company B on 16 June 2014, the day
before Company B had been asked to pay for the Wimbledon event. The Authority
notes that the cost of the event in US dollars was approximately US$110,000 at
the time.
4.93
The US$110,000 expense was not declared on JLT Group’s expense management
system for approval as was required by JLTSL’s 2014 Gifts and Entertainment
Policy. Instead, a JLTSL employee reimbursed Company B for this cost by
designating it as increased commission in US dollars equivalent to the value of
the US$110,000 expenditure Company B had incurred.
4.94
Had the JLTSL employee declared the US$110,000 reimbursement to Company B
for the cost of the 2014 Wimbledon event and sought prior approval for this
expense, it is unlikely this would have been approved. By reimbursing the cost
of this entertainment to Company B as increased commission, the JLTSL employee
was able to circumvent JLTSL’s 2014 Gifts and Entertainment Policy.
JLT Group’s Anti-Bribery and Corruption Policy
4.95
In December 2014, JLT Group’s Anti-Bribery and Corruption Policy came into
effect (replacing its prior Anti-Bribery and Corruption Policy), which all JLT
employees worldwide (including JLTSL employees) were required to adhere to.
The policy stated that expenses for gifts and entertainment given or received
could be incurred up to the value of £250 without prior approval. For expenses
over £250, prior approval was required to be given by specified senior managers
at JLTSL who were required to assess the appropriateness of the expense before
authorising it. Their assessment included, but was not limited to, an assessment
of the attendees, previous gifts and entertainment offered, the involvement of the
beneficiary in any procurement process and the industry and jurisdictional risks
associated with the beneficiary. These expenses had to be recorded within JLT
Group’s expense management system.
4.96
Due to the higher risk of bribery and corruption when dealing with PEPs and/or
foreign public officials, JLT Group’s Anti-Bribery and Corruption Policy also stated
that gifts and hospitality given to, or received from, such individuals would not
ordinarily be approved. In addition, it stated that other than in exceptional
circumstances, the spouses, partners, and other family members of JLT Group
staff or those of external beneficiaries may not be present at, or benefit from,
corporate hospitality, entertainment, or gifts. However, where a request for
attendance of family members, PEPs or foreign public officials was made,
employees were required to provide the Financial Crime Team with full details of
the proposed attendees and the reasons as to why their attendance was
appropriate or required.
4.97
On 12 July 2015, JLTSL and JLT Re Colombia employees entertained another
senior manager of Company A (a foreign public official), representatives of
Company B, and their families at the 2015 Wimbledon Men’s Final event. The
entertainment cost £48,000 in total. In March 2015, a JLTSL employee, with the
assistance of JLT Re Colombia, asked for Company B to pay for these Wimbledon
tickets in the same way as the 2014 Wimbledon tickets. Company B arranged for
the vendor of the 2015 Wimbledon event to be paid US$72,000 (approximately
equivalent to £48,000) from a Panamanian bank account of a company associated
with Company B on 25 March 2015. The same day the JLT Re Colombia and JLTSL
employees agreed to increase Company B’s share of commission by US$72,000.
It was also agreed that JLTSL would transfer US$72,000 to JLT Re Colombia so it
could pay this amount to Company B. JLTSL transferred US$72,000 to JLT Re
Colombia as part of a larger payment on 10 April 2015 and JLT Re Colombia
transferred this amount (again as part of a larger payment) to a Swiss bank
account owned by the same company associated with Company B on 15 May
2015.
4.98
This expense was not declared by the JLTSL employee on JLT Group’s expense
management system for prior approval by senior personnel of JLTSL, as required
by JLT Group’s Anti-Bribery and Corruption Policy. Had the JLTSL employee
declared the US$72,000 reimbursement to Company B for the cost of the 2015
Wimbledon tickets and sought prior approval for this expense, it is unlikely this
would have been pre-approved. By reimbursing Company B for the cost of this
entertainment as increased commission, the JLTSL and JLT Re Colombia
employees were able to circumvent JLT Group’s Anti-Bribery and Corruption
2015 Monaco Grand Prix and other entertainment provided
4.99
Between 21 and 27 May 2015, two senior JLTSL employees entertained
representatives of Company B at the Monaco Grand Prix. The same senior JLTSL
employees also entertained the same Company B individuals, as well as one of
Company A’s senior managers, at various restaurants before, during and after
this event. The total cost of the entertainment amounted to US$14,072. On this
occasion, the JLTSL senior employees declared the entertainment expenses for
this trip and gained the necessary approval from JLTSL senior management.
4.100
A JLTSL employee also declared and gained the necessary approval to spend
£3,137.38 on taking senior managers of Company A and representatives of
Company B to seven football matches at Chelsea and Tottenham Hotspur.
4.101
In total, JLTSL spent at least US$215,000 on entertaining individuals from
Company A, Company B, and their families during the Relevant Period. However,
JLTSL employees only recorded £19,267.27 (which included some of the
US$14,072 spent at the Monaco Grand Prix event) on JLT Group’s expense
management system.
Updates and improvements to JLT Group’s third party due diligence and
approval process
4.102
Between March 2015 and May 2016, the risk assessment form that was to be
completed as part of JLT Group’s third party due diligence and approval process
was updated to make it easier to understand how the relationship with an
Overseas Introducer worked and the risks involved, including giving more
prominence to the estimated annual payment to the Overseas Introducer and
requiring more information to be set out in the Business Case form.
4.103
In addition, a new risk assessment scoring system was developed to replace the
Alarm Bells scoring process, so that the assessment of the risk presented by an
Overseas Introducer was considered and scored against a wider range of risk
factors, not just the ten “Alarm Bell” risk factors. The additional risk factors
assessed and scored included the Overseas Introducer’s company details (its legal
status, whether it is regulated or Stock-Exchange Listed, whether it has a
website), screening results (whether PEPs have been identified for the Overseas
Introducer or insured client, whether any adverse media has been identified for
them), third party relationships (whether the Overseas Introducer has any links
to the insured client), payment details (is the commission split larger than normal,
the payment amount, bank account validation), country risk (Corruption
Perception Index scores of the Overseas Introducer and insured client) and the
industry risk of the insured client.
4.104
In December 2016, JLT Group introduced a Third Party Approvals and Payments
policy, replacing the KYC Policy, to set out JLT Group’s approach and minimum
requirements for the management of third parties. This policy applied to all JLT
employees group-wide, including JLTSL as a wholly owned subsidiary of JLT
Group. In particular, this policy set out the key individual roles and responsibilities
in the management of risks relating to third parties and third party payments so
that it was clear to employees what was required of them.
4.105
For example, the policy set out the role and responsibility of brokers and account
handlers within each JLT Group entity, including the requirement for them to
complete the Business Case form and ensure that the third party completed and
signed the Introducer Questionnaire. The policy also stated that brokers and
account handlers must not do business with, or make payments to, third parties
prior to approval by JLT Group. In addition, the policy set out the role and
responsibility of the Financial Crime Team, including the requirement for them to
perform due diligence on, and coordinate the approval of, third parties.
4.106
On 12 January 2017, JLT Group replaced the procedures from the KYC Policy with
the Third Party Operating Manual. Whilst the Third Party Operating Manual
replaced the procedures from the KYC Policy, the third party due diligence process
remained broadly the same, even though the five tier process was removed and
the ”Alarm Bell” risk scoring system was no longer referenced. A risk assessment
scoring system remained in place to assess the risk of an Overseas Introducer
(formally adopting the updated risk assessment form and newly developed risk
assessment scoring system), which determined the level of sign-off required to
authorise an Overseas Introducer. In addition, relationships with Overseas
Introducers were still required to be reviewed annually (with the information
required at renewal similar to that requested at the initial onboarding of the
Overseas Introducer), and the third party due diligence and approval process
remained the responsibility of the Financial Crime Team.
4.107
Although the Third Party Operating Manual came into force on 12 January 2017,
the Financial Crime Team followed the due diligence and approval process it set
out when it conducted the refresh of due diligence on Company B.
4.108
All of the changes to the JLT Group third party due diligence and approval process
applied to JLTSL.
Refresh of due diligence on Company B
4.109
The authorisation of an Overseas Introducer like Company B expired 12 months
after its previous approval and the expiry date reflected the period of validity for
the due diligence performed by the Financial Crime Team. Where a JLT Group
entity required the continued approval of an Overseas Introducer, the Financial
Crime Team informed the JLT Group entity of the information required for renewal.
The information required at renewal was similar to that requested at initial
approval and included the re-submission of the Business Case form and Introducer
Questionnaire, as well as the re-screening of the parties involved to see if there
was any adverse information or media. The renewal of the Overseas Introducer
was subject to refreshed satisfactory due diligence being completed by the
Financial Crime Team and the approval process was the same as that required for
the original onboarding of the Overseas Introducer.
4.110
Company B’s approval as a third party introducer of JLT Group expired on 18 May
2015 (see paragraph 4.76 above). Accordingly, the review and re-approval of
Company B ought to have been concluded by 19 May 2015. However, a review
of the relationship with Company B was not initiated until 16 September 2015 and
it was not approved as a third party introducer again until 18 May 2016 (twelve
months after its previous authorisation had expired). In the period between 19
May 2015 to 18 May 2016, JLT Re Colombia and JLTSL ought not to have accepted
business from, nor made payments to, Company B. Nevertheless, during this
period:
(1) JLTSL placed 15 policies for Company A, earning £1,373,502 in commission;
and
(2) JLT Re Colombia made payments totalling US$3,500,149.97 in respect of
business introduced by Company B. However, all of these payments, like the
payments referred to in paragraph 4.87 above, were not made to Company
B but were instead paid to bank accounts owned by entities in Panama and
Florida associated with Company B.
4.111
The refresh of Company B’s due diligence exercise was initiated on 16 September
2015 when JLT Re Colombia submitted a Business Case form and Introducer
Questionnaire for Company B to the Financial Crime Team. Despite JLTSL’s
continued close relationship with both Company A and Company B, JLTSL again
took no part in the approval of the renewal of the relationship with Company B.
It instead relied upon JLT Re Colombia and the Financial Crime Team to approve
the relationship.
Deficiencies in the refresh of due diligence on Company B
4.112
The Business Case form submitted by JLT Re Colombia to the Financial Crime
Team for this review contained almost identical information to the information
provided in the 2014 Business Case form. As such, the Authority has determined
that Business Case still did not contain a “strong reasoning” for why Company B
was required to win Company A’s business. It also still did not contain a detailed
enough explanation of Company B’s role and the services it would provide to JLT
Group entities including JLTSL, in return for a share of commission:
(1) In response to the question, “Please provide reasons/business justification for
doing business with the introducer”, the Business Case stated that Company
B had “Very strong connections” with Company A and “with the largest
industrial Groups” in the same country, that JLT will not place reinsurance via
Company B, and that Company B “will only act as Introducer of potential new
reinsurance business for JLT”.
(2) In response to the question, “Please provide full details of the activities the
introducer proposes to undertake”, the Business Case simply stated that one
of Company B’s principals “has been an Insurance Broker (life-high net worth
individuals) for more than fifteen (15) years to high net worth families” in the
same country as Company A, which “…has given him very strong influent (sic)
connections” in the same country. This answer failed to explain what
Company B would do to help JLT Re Colombia win or retain business, and how
it would earn its share of the commission.
4.113
The Financial Crime Team sought greater detail on the information provided in the
Business Case because it was “one of the highest risk relationships that [it had]
seen”. The team challenged JLT Re Colombia about the activities Company B was
going to undertake, including how Company B was going to get access to insured
clients, how Company B originally won the business from Company A and
Company B’s connections with Company A.
4.114
Having carried out its inquiries, the Financial Crime Team made the following
comments on Company B’s risk assessment form:
(1) in response to the question “Is commission split larger than normal”, the
Financial Crime Team noted “Yes”, explaining that Company B was “receiving
40% of Commission for not performing any substantial services to any party
in the chain”;
(2) in response to the question of whether Company B’s “Commission [was]
commensurate
with
services”,
the
Financial
Crime
Team
stated
“Questionable”, explaining that Company B does “not perform any direct
services to JLT. However, they are actively involved in assisting [Company A]
to arrange reinsurance”.
4.115
The Financial Crime Team also noted on the risk assessment form that they had
not been able to verify the address that Company B had provided in its Introducer
Questionnaire. However, they failed to note the following three matters on the
(1) The search conducted by the Financial Crime Team on Panama’s company
register identified entirely different directors and shareholders to those listed
in the Introducer Questionnaire;
(2) In addition, the same search conducted by the Financial Crime Team on
Panama’s company register identified a different incorporation date for
Company B to the one included in the Introducer Questionnaire; and
(3) The Financial Crime Team discovered commission payments to Company B
which did not correspond with what they had approved previously, and
identified insured clients they were not told about, which led to Company B
being paid around £400,000.
4.116
This meant that these discrepancies were not considered by the approvers of
Company B’s risk assessment before they signed-off and re-approved it as an
Overseas Introducer. Notwithstanding the clear reservations about Company B’s
role expressed by the Financial Crime Team on the risk assessment form and the
fact that this was “one of the highest risk relationships that [it had] seen”,
Company B was re-approved as an Overseas Introducer on 18 May 2016, subject
to the same conditions as in May 2014. The Financial Crime Team however again
failed to seek the appropriate authorisation required by the Third Party Operating
Manual as only one member of JLT Re Colombia’s senior management signed the
form rather than two.
4.117
Following Company B’s re-approval on 18 May 2016, JLTSL was instructed by
Company A, via JLT Re Colombia, to place a further 28 policies in the London
reinsurance market, earning £1,663,107 in commission from these placements.
JLT Re Colombia earned US$1,507,325 in commission from these placements.
4.118
As explained in paragraph 4.111, JLTSL took no part in the refresh of due diligence
on Company B. As JLTSL’s approval was not required, the KYC DSC was not
notified when JLT Re Colombia’s relationship with Company B was being
considered for renewal. Consequently, JLTSL missed another opportunity to
evaluate the bribery and corruption risk posed to JLTSL and the continued
appropriateness of the engagement.
4.119
The Authority has found no evidence that JLTSL employees considered notifying
the Financial Crime Team or the KYC DSC of materially relevant information during
the refresh of Company B’s due diligence exercise. In particular, there is no
evidence that JLTSL employees disclosed spending nearly US$200,000 on
entertaining individuals from Company A, Company B and their families. This
information presented issues which raised concerns about the risks associated
with Company B and it was important that the Financial Crime Team was given
the opportunity to assess the significance of this information and take the
necessary action. Had the Financial Crime Team or the KYC DSC been in
possession of this information, it is unlikely that Company B would have been re-
approved in 2016.
Monitoring and oversight of Company B
JLTSL’s role
4.120
As part of the group wide three lines of defence control framework, JLTSL did not
directly monitor or oversee the activities of Company B but relied on JLT Re
Colombia and JLT Group to do so.
4.121
Where JLTSL had entered into a direct relationship with a third party introducer,
and the relationship had been approved, JLTSL’s Business Controls team was
responsible for the day-to-day monitoring of payments made by JLTSL to third
party introducers, including ensuring that payments were made in accordance
with the terms of the approval. JLTSL’s Quality Assurance team offered an
additional level of monitoring through its review of placement files after the event,
to ensure that all placements were made in accordance with JLT Group policies
and procedures. However, neither the Business Controls team nor the Quality
Assurance team were involved in the monitoring of Company B.
4.122
Both the JLTSL Board and the JLTSL ARC (a subcommittee of JLTSL’s Board) had
oversight over JLTSL’s anti-bribery and corruption risks and controls. During the
Relevant Period, the JLTSL Board and ARC received numerous reports and pieces
of management information on third party introducers. These included, but were
not limited to, the following: a list of all third party introducer accounts opened
and all payments made to third party introducers in a given period; a summary
report of payments to high risk and low risk jurisdictions; and a review of the third
party payment process. However, the minutes from both the JLTSL Board
meetings and the ARC meetings during the Relevant Period do not show that
either the JLTSL Board or the ARC considered the relationship with Company B.
4.123
JLTSL was not required under the group wide control framework to monitor its
relationship with Company B because it did not directly engage or make any
payments to Company B. JLTSL instead relied on:
(1) JLT Re Colombia having appropriate controls in place to ensure that payments
to Company B were only made to bank accounts approved during Company
B’s risk assessment and due diligence process, in accordance with JLT Group’s
third party due diligence process; and
(2) the Financial Crime Team and JLT Group Internal Audit, as the second and
third lines of defence respectively, to monitor JLT Re Colombia’s compliance
regarding payments.
4.124
As a JLT Group entity, JLT Re Colombia was required by JLT Group’s third party
due diligence process to have appropriate controls in place to ensure that
payments to Company B were only made to bank accounts approved during
Company B’s risk assessment and due diligence process. This included the
monitoring of payments to Company B as the first line of defence. However, no
such monitoring occurred in the case of Company B which, as explained in more
detail in paragraph 4.130 below, enabled JLT Re Colombia to circumvent these
controls and arrange for payments to be made to bank accounts of entities
associated with Company B that had not been authorised for payment during the
due diligence process.
4.125
In addition, there is no evidence that JLT Re Colombia’s ARC discussed Company
B between 1 May 2014 when Company B was initially onboarded and 31 May 2016
when the due diligence refresh took place.
4.126
From 2015 onwards, JLT group entities, including JLTSL, were required to send to
the Financial Crime Team details of all payments made to Overseas Introducers,
including confirmation that the Overseas Introducer was approved, the
contractual arrangement, the amount paid, the payment method and the clients
to which the payment related. The Financial Crime Team did not begin to review
payments made by JLT entities in Latin America, including JLT Re Colombia, to
Overseas Introducers until 17 March 2016. However, it was not until early 2017
that the Financial Crime Team began checking the bank account details of each
individual payment to ensure they were only made to the correct bank account
which had been authorised during the due diligence process.
4.127
Prior to 2017, JLT Group relied on JLT Group entities to ensure they were making
payments to approved bank accounts and JLT Group Internal Audit to review the
JLT Group entity’s payment controls.
4.128
Although the Financial Crime Team monitored payments to introducers from 2015
onwards, there was no effective monitoring of payment controls by the Financial
Crime Team until early 2017 because prior to that date it failed to provide any
assurance that the payments made by JLT group entities to Overseas Introducers
had been paid to the approved bank account.
4.129
During the Relevant Period:
(1) JLTSL made 87 placements on behalf of Company A for seven different
insured clients, as a result of Company B’s introduction, earning
£4,807,938.63
in
commission
(from
total
gross
premiums
of
£93,367,077.47); and
(2) JLTSL paid a total of US$12,393,007.71 to JLT Re Colombia as shared
commission.
4.130
However, JLT Re Colombia did not pay Company B’s share of the commission
directly to Company B. Instead, at Company B’s request JLT Re Colombia made
payments to five bank accounts based in Panama, Switzerland, and the United
States, owned by four different entities associated with Company B. Between 21
May 2014 and 15 February 2017, JLT Re Colombia paid US$10,872,527.94 to
these unauthorised bank accounts. JLT Re Colombia’s finance and compliance
team failed to prevent this.
Discovery and reporting of the Unauthorised Payments
4.131
In October 2016, JLT Group Internal Audit conducted a regular audit of JLT Re
Colombia and identified instances of non-compliance with the conditions
established for the use of Company B, including undisclosed entertainment
expenses for Company A and Company B.
4.132
The Financial Crime Team subsequently visited JLT Re Colombia’s offices in
February 2017. During the visit, the Financial Crime Team identified that the
commission payments had not been made to Company B but instead made to
bank accounts that had not been approved during the due diligence process.
4.133
Immediately following this discovery, the Financial Crime Team escalated its
findings to JLT Group Risk and Compliance, commenced an internal investigation,
conducted on-site anti-bribery and corruption awareness training to JLT Re
Colombia staff and stopped any further payments (amounting to over US$3
million) being made to Company B.
4.134
JLT Group notified the Authority of its discovery in June 2017 and has since
cooperated fully with the Authority’s own investigation.
4.135
In December 2017, through its internal review, JLT Group identified an additional
issue concerning the level of gifts and entertainment provided to individuals from
Company A, Company B and to their respective families. These individuals had
been entertained at nine sporting and other events over a period of three years,
with the annual expenditure averaging approximately US$100,000. Additionally,
the internal review revealed that some of the expenditure on gifts and
entertainment was paid by Company B and then reimbursed via JLTSL and JLT Re
Colombia through commission payments, in breach of the JLT Group internal
policy on gifts and entertaining which applied to JLTSL. JLT Group shared its
findings from the internal review with the Authority together with material.
4.136
Upon discovering the above issues, JLT Group and JLTSL undertook a number of
risk mitigation and control enhancement actions:
(1) JLTSL introduced an additional control requiring any overseas JLT Group
entities passing business to JLTSL to confirm whether the business had been
sourced via a third party introducer or had come directly to the JLT Group
entity. If a third party introducer was used, JLTSL sought confirmation from
the Financial Crime Team that it recommended the approval of the third party
introducer, which was then presented to JLTSL’s governance committee to
make a final decision on whether the business was acceptable;
(2) from March 2017, the Financial Crime Team enhanced its review of payments
to third party introducers by checking the bank account details of each
individual payment;
(3) in April 2017, acknowledging the control failures within the regional ARCs
across JLT Group, senior executives of JLT Group asked management teams,
including those in JLTSL, to ensure their businesses adhered to JLT Group’s
Third Party Payments Policy and that no third party payments were being
made to any other company or bank account other than those approved
through JLT Group’s third party approvals and payments process;
(4) from July 2017, reviews were carried out in JLTSL and JLT Re Colombia to
ascertain what commissions were generated and how the funds were
transferred;
(5) in January 2018, JLT Group Internal Audit undertook a root cause analysis in
respect of the payments made to unapproved bank accounts owned by
entities associated with Company B;
(6) in early 2018, a new JLT Group Head of Financial Crime was hired, whose role
included enhancing the governance framework and anti-bribery and
corruption systems and controls;
(7) JLT Group created a new Third Party Payments Sub-Committee for JLT Latin
America in March 2018 as a further governance measure in the region;
(8) in April 2018, JLT Re Colombia withdrew from any government business in
the country in question that involved introducers, and in July 2018, JLT Re
Colombia withdrew from any engagement on government business in that
country entirely. JLTSL subsequently adopted this decision;
(9) in May 2018, the Financial Crime Team commenced a group-wide bribery and
corruption risk assessment to assess the risks faced by JLT Group, including
JLTSL, and possible mitigation of those risks;
(10) in 2018, the Financial Crime Team developed and delivered targeted anti-
bribery and corruption training, focusing on high-risk territories starting with
JLT Latin America. This involved conducting approximately 60 meetings with
over 120 key staff, and carrying out 40 bespoke training sessions to over 500
staff;
(11) in late 2018, JLT Group issued a new third party approvals and payments
policy, which applied to all group entities including JLTSL; and
(12) a review of JLT Group’s Gifts and Entertainment Policy and Anti-Bribery and
Corruption Policy was completed with new policies issued in late 2018. These
policies again applied to all group entities including JLTSL.
Action taken by authorities in the United States and the country of
4.137
JLTSL’s control failings gave rise to an unacceptable risk that a share of the
commission JLTSL made from placing this 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. This risk of bribery and corruption
materialised in JLTSL’s dealings with Company B. From the commission paid by
JLT Re Colombia to Company B, Company B paid approximately US$3,157,000 in
bribes to government officials employed by Company A. The payments were
made in order to influence these government officials in their official capacity and
to secure an improper advantage in order to assist Company B in obtaining and
retaining business from Company A for JLT Group (including JLTSL and JLT Re
Colombia) and Company B.
4.138
A number of individuals have been convicted in the United States of conspiracy to
launder money in connection with these payments.
4.139
Company A is in the process of being liquidated by Presidential Decree on account
of its corrupt practices.
5
FAILINGS
5.1
The regulatory provisions relevant to this Notice are referred to in Annex A.
5.2
Notwithstanding that JLTSL was required to follow JLT Group processes for
onboarding Overseas Introducers, it failed to ensure that those processes were
appropriate for all of its dealings with Overseas Introducers.
5.3
In particular, JLTSL failed to consider whether additional safeguards or approvals
should be incorporated into JLTSL’s third party processes with respect to Overseas
Introducers engaged by another JLT Group entity where the introduced business
was subsequently placed by JLTSL in the London market. In particular, despite
the heightened bribery and corruption risk posed by Overseas Introducers to
JLTSL, the processes did not require the approval of the KYC DSC in addition to
the approval of the JLT Group entity that was proposing to engage the Overseas
Introducer and the Financial Crime Team.
5.4
As a result, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
5.5
As a result of these findings, the Authority considers that JLTSL breached Principle
3 by failing to take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems.
6
SANCTION
6.1
For the reasons set out in this Notice, the Authority has found that JLTSL breached
Principle 3. The Authority has considered the disciplinary and other options
available to it and has concluded that a financial penalty is the appropriate
sanction in the circumstances of this case.
6.2
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five-step framework that applies in
respect of financial penalties imposed on firms.
Step 1: disgorgement
6.3
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the
financial benefit derived directly from the breach where it is practicable to quantify
this.
6.4
The financial benefit arising directly from JLTSL’s breach of Principle 3 has already
been disgorged from JLTSL by the US Department of Justice.
6.5
Step 1 is therefore £0.
Step 2: the seriousness of the breach
6.6
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that
reflects the seriousness of the breach. Where the amount of revenue generated
by a firm from a particular product line or business area is indicative of the harm
or potential harm that its breach may cause, that figure will be based on a
percentage of the firm’s revenue. A firm’s relevant revenue will be the revenue
derived by the firm during the period of the breach from the products or business
areas to which the breach relates.
6.7
The Authority considers that the revenue generated by JLTSL is indicative of the
harm or potential harm caused by the breach. The Authority has therefore
determined a figure based on a percentage of JLTSL’s relevant revenue. JLTSL’s
revenue from this business area is the commission it received for all business
generated during the Relevant Period where an Overseas Introducer had
introduced business to another JLT Group entity and that entity had, in turn,
instructed JLTSL to place that business on the London reinsurance market. This
includes the commission and fees JLTSL retained, the commission received by
JLTSL and passed to other JLT Group entities, and the commission subsequently
paid by JLT Group entities to Overseas Introducers. The Authority considers
JLTSL’s relevant revenue to be £27,801,463.
6.8
In deciding on the percentage of the relevant revenue that forms the basis of the
step 2 figure, the Authority considers the seriousness of the breach and chooses
a percentage between 0% and 20%. This range is divided into five fixed levels
which represent, on a sliding scale, the seriousness of the breach; the more
serious the breach, the higher the level. For penalties imposed on firms there are
the following five levels:
(1)
Level 1 – 0%
(2)
Level 2 – 5%
(3)
Level 3 – 10%
(4)
Level 4 – 15%
(5)
Level 5 – 20%
6.9
In assessing the seriousness level, the Authority takes into account various factors
which reflect the impact and nature of the breach, and whether it was committed
deliberately or recklessly.
6.10
DEPP 6.5A.2G(11) lists factors likely to be considered ‘level 4 or 5 factors’. Of
these, the Authority considers the following factors to be relevant:
(1) the breach revealed serious weaknesses in JLTSL’s systems and controls in
relation to its dealings with Overseas
Introducers, particularly in
circumstances where an Overseas Introducer was contracting with another
JLT Group entity, who in turn instructed JLTSL, as an authorised firm, to place
risk on the London reinsurance market;
(2) financial crime appears to have been facilitated by the breach; and
(3) the breach created a significant risk that financial crime, particularly bribery
and corruption, would be facilitated, occasioned, or otherwise occur.
6.11
DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of
these, the Authority considers the following factors to be relevant:
(1) there was no or little loss or risk of loss to consumers, investors, or other
market users individually and in general.
6.12
The Authority also considers that the following factors are relevant under DEPP
Factors relating to the impact of the breach
(1) the level of benefit gained by JLTSL during the Relevant Period was
£8,515,292; and
(2) confidence in the London reinsurance market was put at risk by the breach.
Factors relating to the nature of the breach
(1) the nature of the rules, requirements or provisions breached.
6.13
Taking all of these factors into account, the Authority considers the seriousness
of the breach to be level 4 and so the Step 2 figure is 15% of £27,801,463.
6.14
Step 2 is therefore £4,170,219.45.
Step 3: mitigating and aggravating factors
6.15
Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2 to take into account factors
which aggravate or mitigate the breach.
6.16
The Authority considers that the following factors aggravate the breach:
(1) the Authority has previously issued a Final Notice to JLTSL for a Principle 3
breach, namely by 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 Introducers (see paragraphs 4.16 to 4.17
above);
(2) the Authority has published widely and issued guidance to firms on matters
relating to reducing financial crime risk, including bribery and corruption risk,
when dealing with third parties like Overseas Introducers, both prior to and
during the Relevant Period, as set out at paragraph 4.7 above.
6.17
The Authority considers that the following factors mitigate the breach:
(1) JLTSL reported to the Authority in June 2017 its identification of commission
payments that had not been made to Company B but instead made to bank
accounts that had not been approved during the due diligence process.
(2) JLTSL assisted the Authority’s investigation by providing investigators with
access to materials from JLT Group’s internal investigation, including
transcripts of the interviews it conducted with key employees and financial
analysis.
(3) JLTSL took remedial steps after the breach was identified to ensure that similar
problems could not arise in future, including introducing a control requiring
overseas JLT Group entities producing business to confirm if the business has
been sourced via a third party introducer (see paragraph 4.136 above).
6.18
The Authority acknowledges JLT Group’s disgorgement of $29,081,951 to the US
Department of Justice, which included the financial benefit arising directly from
JLTSL’s breach of Principle 3.
6.19
Having taken into account these aggravating and mitigating factors, the Authority
considers that the Step 2 figure should be increased by 35%.
6.20
Step 3 is therefore £5,629,796.26.
Step 4: adjustment for deterrence
6.21
Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after
Step 3 is insufficient to deter the firm who committed the breach, or others, from
committing further or similar breaches, then the Authority may increase the
penalty.
6.22
The Authority considers that DEPP 6.5A.4G(1)(b) is relevant in this instance and
has therefore determined that this is an appropriate case where an adjustment
for deterrence is necessary. There have been a series of enforcement outcomes
against commercial insurance brokers for failings in their anti-bribery and
corruption systems and controls and these have not had a sufficient deterrent
effect. Given the nature of the misconduct, it is necessary for the Authority to
increase the penalty to achieve credible deterrence.
6.23
Having taken into account the factors outlined at DEPP 6.5A.4G the Authority
considers that a multiplier of two should be applied at Step 4.
6.24
Step 4 is therefore £11,259,592.50.
Step 5: settlement discount
6.25
Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to
be imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have
been payable will be reduced to reflect the stage at which the Authority and the
firm reached agreement. The settlement discount does not apply to the
disgorgement of any benefit calculated at Step 1.
6.26
The Authority and JLTSL reached agreement at Stage 1 and so a 30% discount
applies to the Step 4 figure.
6.27
Step 5 is therefore £7,881,714.76.
6.28
The Authority hereby imposes a total financial penalty of £7,881,700
(rounded
down to the nearest £100) on JLTSL for breaching Principle 3.
7
PROCEDURAL MATTERS
7.1
This Notice is given to JLTSL under and in accordance with section 390 of the Act.
7.2
The following statutory rights are important.
Decision maker
7.3
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
7.4
The financial penalty must be paid in full by JLTSL to the Authority no later than
30 June 2022.
If the financial penalty is not paid
7.5
If all or any of the financial penalty is outstanding on 1 July 2022, the Authority
may recover the outstanding amount as a debt owed by JLTSL and due to the
Authority.
7.6
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those provisions,
the Authority must publish such information about the matter to which this notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority
may not publish information if such publication would, in the opinion of the
Authority, be unfair to you or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.
7.7
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Authority contacts
7.8
For more information concerning this matter generally, contact Andrew Marra
(direct line: 020 7066 9072/email: andrew.marra@fca.org.uk) at the Authority.
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
Relevant Statutory Provisions
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
ensuring appropriate levels of consumer protection, ensuring market integrity and
promoting effective competition.
1.2.
Section 206(1) of the Act provides:
“If the Authority considers that an authorised person has contravened a relevant
requirement imposed on the person, it may impose on him a penalty, in respect
of the contravention, of such amount as it considers appropriate.”
2.
Relevant Regulatory Provisions
Principles for Businesses
2.1.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook. They
derive their authority from the Authority’s rule-making powers set out in the Act.
2.2.
Statement of Principle 3 (management and control) provides that:
“A firm must take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems.”
Senior Management Arrangements, Systems and Controls (“SYSC”)
2.3.
SYSC 3.2.6R provides:
“A firm must take reasonable care to establish and maintain effective systems and
controls for compliance with applicable requirements and standards under the
regulatory system and for countering the risk that the firm might be used to
further financial crime.”
DEPP
2.4.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.
The Enforcement Guide
2.5.
The Enforcement Guide sets out the Authority’s approach to exercising its main
enforcement powers under the Act.
2.6.
Chapter 7 of the Enforcement Guide sets out the Authority’s approach to
exercising its power to impose a financial a penalty.
To:
JLT Specialty Limited
Reference Number:
310428
Address:
The St Botolph Building, 138 Houndsditch, London, EC3A
7AW
Date:
16 June 2022
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on JLT
Specialty Limited (“JLTSL”) a financial penalty of £7,881,700 pursuant to section
206 of the Act.
1.2
JLTSL agreed to resolve this matter and qualified for a 30% (stage 1) discount
under the Authority’s executive settlement procedures. Were it not for this
discount, the Authority would have imposed a financial penalty of £11,259,500 on
JLTSL.
2.
SUMMARY OF REASONS
2.1.
The Authority has decided to take action against JLTSL for breaches of Principle 3
(Management and Control) of the Authority’s Principles for Businesses (“the
Principles”) that occurred between 21 November 2013 and 6 June 2017 (“the
Relevant Period”) in relation to failures to 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.
2.2.
JLTSL provided insurance broking, risk management and insurance claims
services across a wide range of business sectors to national and international
corporate clients.
2.3.
On 19 December 2013, the Authority imposed a financial penalty of £1,876,000
on JLTSL for breaches of Principle 3 of the Principles. The Authority found that
between 19 February 2009 and 9 May 2012, JLTSL failed to take reasonable care
to organise and control its affairs responsibly and effectively with adequate risk
management systems for countering the risks of bribery and corruption associated
with making payments to overseas third parties (“Overseas Introducers”) that
helped JLTSL win and retain business from overseas clients.
2.4.
Prior to and following the financial penalty, JLTSL and its senior management
made significant efforts to improve its systems and controls framework, especially
in relation to third parties such as Overseas Introducers, including with the advice
and approval of a Skilled Person. Following a review by the Skilled Person, JLTSL
implemented a three lines of defence control framework. A second review by the
Skilled Person focused on enhancing JLTSL’s third party controls framework and
focused specifically on situations where JLTSL directly engaged with a third party
(including Overseas Introducers).
2.5.
Those controls required that, where JLTSL intended to engage with and make
payments to an Overseas Introducer, JLTSL submitted the proposed engagement
to JLT Group Financial Crime (“the Financial Crime Team”) for due diligence, risk
assessment and approval of that third party relationship. The Overseas Introducer
was then considered for approval by the KYC Delegated Sub-Committee of JLTSL’s
Board (“KYC DSC”), taking into account the business case for the Overseas
Introducer and the Financial Crime Team’s risk assessment. JLTSL had in place
various monitoring and oversight processes to ensure that the system operated
3
as designed and intended. The Skilled Person approved the revised controls and
those controls were implemented on a group-wide basis.
2.6.
The Authority has found that JLTSL again breached Principle 3 during the Relevant
Period by failing to take reasonable care to organise and control its affairs
responsibly and effectively, with adequate risk management systems for
countering the risks of bribery and corruption arising from other JLT Group
entities’ relationships with Overseas Introducers. On this occasion JLTSL’s failure
allowed another JLT Group entity to engage in bribery (see paragraph 2.22
below).
2.7.
In some scenarios, JLTSL placed business in the London market where that
business was won and retained by another JLT Group entity with the assistance
of an Overseas Introducer engaged by that other entity. JLTSL failed to consider
whether additional safeguards or approvals should be incorporated into JLTSL’s
third party processes with respect to Overseas Introducers engaged by another
JLT Group entity where the introduced business was subsequently placed by JLTSL
in the London market. In particular, despite the heightened bribery and corruption
risk posed by Overseas Introducers to JLTSL, the processes did not require the
approval of the KYC DSC in addition to the approval of the JLT Group entity that
was proposing to engage the Overseas Introducer and the Financial Crime Team.
2.8.
Consequently, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
2.9.
As JLTSL’s approval was not required, JLTSL was also not notified when another
JLT Group entity’s relationship with an Overseas Introducer was being considered
for renewal. Consequently, JLTSL missed another opportunity to evaluate the
bribery and corruption risk posed to JLTSL and the continued appropriateness of
the engagement.
2.10.
During the Relevant Period, in instances where Overseas Introducers had
introduced reinsurance business to other JLT Group entities and those entities had
in turn instructed JLTSL to place that business on the London reinsurance market,
JLTSL made 466 placements on the London reinsurance market for 40 different
overseas insurers and 106 different insured clients, earning £8,515,292 in
commission from these placements. In all these instances, JLTSL did not consider
or approve the onboarding or renewal of the relationships with these Overseas
Introducers. Instead, JLTSL relied wholly on the other JLT Group entities and the
Financial Crime Team to approve and monitor these relationships and did not carry
out any additional monitoring or oversight.
2.11.
These control failings gave rise to an unacceptable risk that a share of the
commission JLTSL made from placing this 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.
2.12.
This risk of bribery and corruption materialised in JLTSL’s dealings with one such
Overseas Introducer. In 2013, JLTSL was appointed by a state-owned insurance
company (“Company A”), based in a country where there is perceived to be a high
level of bribery and corruption, 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 JLTSL in November 2013 that
it wanted to replace it, mid-term, as broker.
2.13.
Soon after, another JLT Group entity, JLT Re Colombia, became involved. JLT Re
Colombia introduced a company incorporated in Panama (“Company B”), also a
country where there is perceived to be a high level of bribery and corruption, to
JLTSL. Company B offered to help rebuild JLTSL’s relationship with Company A.
2.14.
Company B helped JLTSL to persuade Company A not to remove JLTSL as its
appointed broker for the aviation insurance policies. In return, JLTSL agreed to
share half of the commission it had earned from this placement (half of
approximately £1.3 million). Company B threatened that unless JLTSL increased
its offer not only would JLTSL 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,
JLTSL agreed in February 2014 to pay Company B US$1.8 million (US$500,000
more than JLTSL itself had earned in commission) and to pay Company B 8%
commission for any future business, on the condition that JLTSL would broker the
next two renewals of the same aviation risks.
2.15.
Company B told JLTSL in March 2014 that it had been instructed by Company A
to act as its agent and that JLTSL had to deal with both Company B and JLT Re
Colombia in order to win or retain Company A’s business. The following month,
Company B requested an upfront payment of US$500,000 as a sign of good faith.
2.16.
JLT Re Colombia initiated the due diligence process in May 2014. JLT Re Colombia
deliberately withheld from the Financial Crime Team that JLTSL had a pre-existing
relationship with Company A, that Company B had been appointed as Company
A’s agent, that Company B had threatened to ban JLT Group entities from doing
business in the country of Company A unless JLTSL paid it an amount which
significantly exceeded what JLTSL had earned in commission, and that it sought
an upfront payment of US$500,000 as a goodwill gesture.
2.17.
JLTSL employees that were involved in the negotiations and placing the business
in the London market also failed to escalate these matters which would have
materially affected the Financial Crime Team’s assessment of Company B.
2.18.
Separately, the Financial Crime Team failed to follow its own due diligence
processes in relation to this Overseas Introducer. It failed to challenge the
reasoning provided by JLT Re Colombia for using Company B to win Company A’s
business. It also failed to carry out certain checks on Company B. For example,
it did not obtain a copy of Company B’s certificate of incorporation (although it
did obtain confirmation from the Panamanian company registry that the company
had been incorporated) and did not verify its address, the identity of its directors
and shareholders and its bank account details. Despite the gaps in the enhanced
due diligence conducted by the Financial Crime Team in relation to Company B,
JLT Group subsequently approved Company B as an Overseas Introducer.
2.19.
Although the relationship with Company B ought to have been reviewed within 12
months, JLT Group did not initiate the review until September 2015 and did not
complete it until May 2016. Again, the due diligence exercise (including enhanced
due diligence) was commenced by JLT Re Colombia and performed by the
Financial Crime Team. Although the Financial Crime Team this time questioned
whether Company B’s share of commission was appropriate given it was not
performing any substantial services (in addition to its initial advocacy on JLT
Group’s behalf), these concerns were not addressed and JLT Group re-approved
Company B as an Overseas Introducer. JLTSL was not involved in this re-approval.
2.20.
In 2014 and 2015, JLTSL employees were involved in significant hospitality
expenditure provided to employees of Company A (who were government
officials) and Company B, as well as members of their families. At the request of
JLT Re Colombia, a significant proportion of this expenditure was reimbursed by
JLTSL through increased commission to Company B. This should have raised
concerns. Had JLTSL been asked to approve the renewal of Company B,
information about this expenditure would have been relevant and should have
been escalated to the KYC DSC. As JLTSL was not involved in the renewal, relevant
JLTSL employees were not consulted and no such red flags were raised during the
renewal process by JLT Re Colombia.
2.21.
As a result of Company B’s introduction, JLTSL made 87 placements on behalf of
Company A during the Relevant Period, earning £4.80 million in commission from
total gross premiums of £93.36 million. JLTSL paid a total of US$12.39 million to
JLT Re Colombia in commission from these placements. In turn, JLT Re Colombia
paid US$10.87 million to five bank accounts based in Panama, Switzerland, and
the United States, owned by four different entities associated with Company B.
Although the Financial Crime Team monitored payments to introducers from 2015
onwards, they did not begin to check the bank account details of each payment
made by JLT Group entities to Overseas Introducers until 2017.
2.22.
From the commission paid by JLT Re Colombia to Company B, Company B paid
US$3,157,000 in bribes to government officials at Company A to help retain and
secure business from Company A for JLTSL and JLT Re Colombia. A number of
individuals from JLT Re Colombia, Company A and Company B have been
convicted in the United States of conspiracy to launder money in connection with
this bribery scheme.
2.23.
The Authority considers JLTSL’s failings to be serious for the following reasons:
7
(1) the breach revealed a serious gap in JLTSL’s systems and controls and created
a significant risk that financial crime, particularly bribery and corruption,
would be facilitated or otherwise occur;
(2) JLTSL’s dealings with Company A and Company B began within a few months
of the Authority imposing the financial penalty referred to in paragraph 2.3
above and the conclusion of the Skilled Person’s review. JLTSL staff ought in
these circumstances to have been aware of the red flags presented by the
involvement of Company B. Had the KYC DSC been required to approve the
relationship with Company B, it is the Authority’s view that Company B would
not have been approved.
2.24.
JLTSL was not aware of the bribery scheme until the individuals were prosecuted
in the United States in 2018. However, upon discovering that JLT Re Colombia
had made payments to unapproved bank accounts associated with Company B in
2017, JLTSL reported to the relevant authorities and introduced a number of
additional controls to ensure that similar problems did not arise in future. This
included the requirement that overseas JLT Group entities providing business to
JLTSL confirm whether the business had been sourced via a third party introducer.
If it had, JLTSL would require evidence that appropriate due diligence had taken
place on the third party introducer, which would then be presented to the KYC
DSC to make a final decision on whether the business was acceptable.
2.25.
The Authority acknowledges the assistance JLTSL has provided during its
investigation, including providing access to materials from JLT Group’s internal
investigation. The Authority also acknowledges JLT Group’s disgorgement of
$29,081,951 to the US Department of Justice, which includes the financial benefit
arising directly from JLTSL’s breach of Principle 3.
2.26.
The Authority hereby imposes on JLTSL a financial penalty of £7,881,700 pursuant
to section 206 of the Act.
2.27.
Any facts or findings in this Notice relating to any function, committee or group of
persons should not be read as relating to all the members of that function,
committee, or group, or even necessarily any particular individual.
3.
DEFINITIONS
3.1.
The definitions below are used in this Notice:
“the Act” means the Financial Services and Markets Act 2000.
“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority.
“the Authority’s Handbook” means the Authority’s Handbook of rules and
guidance.
“ARC” means Audit and Risk Committee.
“DEPP” means the Decision Procedure and Penalties Manual as set out in the
Authority’s Handbook.
“EDD” means Enhanced Due Diligence.
“the Financial Crime Team” means JLT Group’s Financial Crime team.
“Company A” means a state-owned insurance company based in a country where
there is perceived to be a high level of bribery and corruption, according to
Transparency International’s Corruption Perception Index.
“Company B” means a third party introducer company incorporated in Panama, a
country where there is perceived to be a high level of bribery and corruption
according to Transparency International’s Corruption Perception Index.
“JLTCW” means JLT Colombia Wholesale Limited, a company incorporated in the
United Kingdom and wholly owned by JLT Latin America.
“JLT Group” means Jardine Lloyd Thompson Group plc which was renamed as
Jardine Lloyd Thompson Group Ltd on 7 June 2019 and JLT Group Holdings Limited
from 16 July 2020.
“JLT Group’s Anti-Bribery and Corruption Policy” means JLT Group’s Group Risk &
Compliance – Group Anti Bribery and Corruption Policy dated November 2014
(approved in December 2014).
“JLT Group entity” means a subsidiary of JLT Group.
“JLT Latin America” means JLT Latin American Holdings Limited, a wholly owned
subsidiary of the JLT Group of companies incorporated in the United Kingdom, the
ultimate parent company of which was JLT Group.
“JLT Re Colombia” means (i) JLT Re Colombia Corredores Colombianos de
Reaseguros, a company incorporated in Colombia and 94.5% owned by JLTCW
(the other shareholders are other JLT Group entities) and (ii) where appropriate
JLTCW (which, according to JLT Group, was in practice operated by JLT Re
Colombia).
“JLTSL” means JLT Specialty Limited.
“KYC DSC” means JLTSL’s KYC Delegated Sub-Committee of JLTSL’s Board.
“KYC Policy” means JLT Group’s Know Your Customer (KYC) Policy and Procedures
Manual – Third Party Due Diligence Process dated 1 October 2013 (Version 3).
“the KYC Team” means JLT Group’s KYC team, part of the Financial Crime Team.
“MMC” means Marsh & McLennan Companies, Inc.
“Overseas Introducer” means an overseas third party that helps JLTSL and other
JLT Group entities win or retain business from insurers or industry clients based
in overseas jurisdictions.
“PEP” means Politically Exposed Person.
“Relevant Period” means the period from 21 November 2013 to 6 June 2017.
“SYSC” means the Authority’s Senior Management Arrangements, Systems and
Controls Sourcebook.
“the Principles” means the Authority’s Principles for Businesses.
“the Skilled Person” means the skilled person engaged by JLT Group on 3 April
2012 to assess the control functions within JLT Group, including JLTSL, and on 2
January 2013 to assess the design and effectiveness of JLTSL’s third party anti-
bribery and corruption systems and controls.
“the Skilled Person’s first review” means the review to assess the control functions
within JLT Group which resulted in the final report produced by the Skilled Person
“the Skilled Person’s second review” means the review to assess the design and
effectiveness of JLTSL’s third party anti-bribery and corruption systems and
controls which resulted in the final report produced by the Skilled Person on 21
November 2013.
“Third Party Operating Manual” means JLT Group’s Operating Manual - Third
Parties (Version 1) dated 12 January 2017.
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4.
FACTS AND MATTERS
Background
4.1.
During the Relevant Period, JLTSL was a wholly owned subsidiary of the JLT group
of companies. The ultimate parent company of the group was JLT Group. JLT
Group provided insurance, reinsurance and employee benefits related advice,
brokerage, and associated services. On 1 April 2019, JLT Group was acquired by
MMC, a global professional services firm.
4.2.
JLTSL has been authorised by the Authority since 14 January 2005 to carry out
certain regulated activities, including assisting in the administration and
performance of a contract of insurance. It provided insurance broking, risk
management and claims services across a wide range of business sectors,
including aerospace, marine and energy, to national and international corporate
clients.
4.3.
As part of its services as an insurance broker, JLTSL worked with insurers based
in overseas jurisdictions who wanted to reinsure all or part of an insured client’s
risks on the London reinsurance market. JLTSL was instructed by overseas
insurers to place these risks on the London reinsurance market and acted as a
broker between an overseas insurer and a reinsurer.
JLTSL’s direct relationships with Overseas Introducers
4.4.
As part of its business, JLTSL entered into relationships with Overseas
Introducers. JLTSL dealt with Overseas Introducers from several countries in
connection with the reinsurance of risk from a number of industry sectors such as
aviation, marine and energy. Overseas Introducers include companies or
individuals that have limited or no involvement in the placement of insurance and
assist by introducing clients to JLTSL. JLTSL generated revenue from the
commission it received for placing the business of insured clients on the London
reinsurance market. JLTSL then paid a share of that commission to the Overseas
Introducer, as shown in Diagram 1 below.
4.5.
Due to the nature of the services they provide, Overseas Introducers pose a higher
risk of bribery and corruption in assisting insurance brokers to win or retain
business. There is likely to be an increased risk of an Overseas Introducer being
the recipient of a bribe or paying a bribe to others from the commission it receives
(1) the Overseas Introducer is connected to the overseas insurer, insured client,
or a public official;
(2) the Overseas Introducer is introducing business from a country which is
perceived to have a higher risk of bribery and corruption;
(3) the amount of commission paid appears high compared with the amount of
work the Overseas Introducer carried out;
(4) the Overseas Introducer is paid commissions on the instructions of another
party; or
(5) the Overseas Introducer requires payment of commission in advance of
premiums being paid and commissions received.
4.6.
As a result, it was important for JLTSL to take reasonable care to put in place
robust systems and controls to prevent and mitigate the risk of bribery and
corruption associated with Overseas Introducers. Indeed, prior to and throughout
the Relevant Period, JLTSL recognised the increased risk posed by Overseas
Introducers (see paragraph 4.9 onwards below).
4.7.
The Authority has published a number of reports and guides to assist commercial
insurance brokers in managing their bribery and corruption risks:
(1)
in May 2010, the Authority published guidance for commercial insurance
brokers on anti-bribery and corruption in a thematic report, with a particular
focus on reducing the risk of illicit payments or inducements to third parties
in order to obtain or retain business;
(2)
in November 2014, the Authority published a report of its findings from a
thematic review which provided examples of good practice for commercial
insurance broker firms to consider in managing their bribery and corruption
risks; and
(3)
the Authority has also published several financial crime guides which provide
guidance to firms on the steps they can take to reduce their financial crime
risk, including bribery and corruption risks, when dealing with third parties.
4.8.
Since 2009, the Authority has taken action against several commercial insurance
brokers for failing to take reasonable care to establish and maintain effective
systems and controls to counter the risks of bribery and corruption associated
with making payments to overseas third parties who assist in winning or retaining
business. This included taking enforcement action against JLTSL in 2013 (see
paragraph 4.16 below).
The Authority’s previous action against JLTSL
The Skilled Person’s first review
4.9
In April 2012, the Authority required JLT Group to commission a skilled person’s
review to assess the adequacy of the control functions within JLT Group which
provided control function services (Compliance, Risk, and Internal Audit) to four
regulated entities, including JLTSL. The review also assessed the governance of
these functions by JLT Group senior management.
4.10
The review identified weaknesses in JLT Group’s control framework and
accordingly, JLT Group, with the advice and approval of the Skilled Person,
implemented an enhanced three lines of defence control framework which was
adopted on a group-wide basis (including JLTSL).
The Skilled Person’s second review
4.11
Following a periodic review in May 2012, the Authority determined that there were
significant deficiencies in JLTSL’s third party systems and controls and required
JLTSL to commission a skilled person’s review under section 166 of the Act. The
purpose of the review was to assess the design and operational effectiveness of
JLTSL’s third party controls, including its risk assessment methodology,
procedures, and processes. The purpose of the review was also to make
recommendations to enable JLTSL to bring its third party systems and controls up
to a satisfactory standard so that it could control and mitigate its bribery and
corruption risks. The review also assessed JLTSL’s implementation of the Skilled
Person’s recommendations.
4.12
The review focused specifically on situations where JLTSL directly engaged with
and paid commission to third parties (including Overseas Introducers). The
review did not consider (and neither did JLTSL) whether additional safeguards or
processes should be incorporated into JLTSL’s third party processes in situations
where the introducer was engaged by another JLT Group entity, but where the
reinsurance was placed on the London reinsurance market by JLTSL (see
paragraph 4.18 below for more information).
4.13
Given the Authority’s concerns about the adequacy of JLTSL’s controls, on 6
December 2012 JLTSL voluntarily varied its permissions at the Authority’s request
such that it was unable to enter into new relationships with third parties, nor make
payments to third parties which had a connection to a high risk jurisdiction or
other known significant risk factors, without prior approval from the Skilled
Person.
4.14
In November 2013, the Skilled Person provided its findings in a report to JLTSL
and the Authority. These findings included that the revised procedures and
underlying documentation were effective in assessing and mitigating the potential
bribery and corruption risks to JLTSL arising from all situations where JLTSL
directly engaged with a third party (including Overseas Introducers), and that the
third party approval process was fit for purpose and working effectively in practice.
The Skilled Person also made a series of recommendations with which JLTSL
agreed and put in place actions to implement these.
4.15
As a result of the Skilled Person’s findings, the Authority agreed to remove JLTSL’s
variation of permissions in November 2013. However, the Authority told JLTSL
that “the process for assessing third party risk cannot be a mere box ticking
exercise” and “judgement has to be correctly exercised at the right time and at
the right level”.
The Authority’s previous enforcement action
4.16
On 19 December 2013, the Authority imposed a financial penalty on JLTSL of
£1,876,000 for breaches of Principle 3 of the Authority’s Principles for Businesses
during the period 19 February 2009 to 9 May 2012. The Authority found that
JLTSL breached Principle 3 by 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 Introducers. The Authority found that:
(1) JLTSL failed to conduct adequate due diligence before entering into a
relationship with an Overseas Introducer. In particular, JLTSL did not take
adequate steps to assess whether the Overseas Introducer was connected
with the clients it introduced and/or any public officials.
(2) JLTSL failed to adequately assess the risk associated with each piece of new
insurance business introduced by an Overseas Introducer, which meant that
JLTSL could not ensure that it took sufficient steps to counter the risk of
bribery and corruption prior to making payments to Overseas Introducers.
(3) JLTSL failed to adequately implement its own anti-bribery and corruption
policies, which resulted in the risk of JLTSL entering into higher risk
relationships
with
Overseas
Introducers
without
sufficient
senior
management oversight and approval. Moreover, JLTSL failed to carry out
adequate checks, which would have enabled it to identify that its policies were
not being implemented correctly.
4.17
The Authority concluded that the above failings gave rise to an unacceptable risk
that payments made by JLTSL to an Overseas Introducer could subsequently be
used for corrupt purposes, including the risk of paying bribes to persons connected
with the insured clients and/or public officials.
JLT Group’s group-wide anti-bribery and corruption framework
4.18
Prior to and following the above financial penalty, JLTSL and its senior
management made significant efforts to improve its systems and controls
framework, especially in relation to third parties such as Overseas Introducers,
including with the advice and approval of the Skilled Person.
4.19
In 2013 JLT Group and JLTSL worked with the Skilled Person to develop a group-
wide third party due diligence and approval process to mitigate the risk third
parties (including Overseas Introducers) posed to JLT Group entities, in particular
the risk of bribery and corruption. This group-wide process was in place
throughout the Relevant Period and included a number of JLT Group policies and
procedures, such as JLT Group’s Anti-Bribery and Corruption Policy and the KYC
4.20
For example, JLT Group’s Anti-Bribery and Corruption Policy prohibited employees
of all majority owned JLT Group entities, such as JLTSL, from engaging in any
activity with any party that might be construed as a corrupt relationship, including
improperly securing or retaining business for JLT Group. Other policies provided
examples to help employees of JLT Group entities based in the UK (including
JLTSL) assess whether a situation carried a risk of bribery and corruption,
including excessive payments or benefits to third parties (having regard to the
existing or potential business relationship), a payment to a third party being
disproportionate to the service provided by them and benefits being targeted
exclusively at key decision makers.
4.21
JLT Group’s third party due diligence and approval process, including the
requirements of its KYC Policy, are set out in paragraphs 4.58 to 4.65 below.
4.22
JLT Group entities, including JLTSL, were required to adopt JLT Group’s policies
and procedures and comply with them. JLT Group entities had a limited role in
the creation and content of JLT Group’s policies and procedures, but could
enhance them, for example where a policy needed to be amended to comply with
more stringent local legislation or regulations. Beyond this, they had no autonomy
to produce their own policies other than creating their own procedures to comply
with JLT Group standards and policies. Nonetheless, it was JLTSL’s responsibility,
as an authorised firm, to ensure that the policies and processes it relied upon
were appropriate for all of its dealings with Overseas Introducers.
4.23
In implementing the First Skilled Person’s Report, JLT Group introduced a three
lines of defence model to mitigate against risks to the business, including the risk
of bribery and corruption. In relation to JLTSL:
(1) its Business Controls team (which later became its Business Controls Quality
Assurance team) was a first line compliance team which assisted JLTSL
management to monitor compliance with systems and controls, including in
relation to third parties. Where JLTSL intended to directly engage with and
make payments to third parties (including Overseas Introducers), the
Business Controls team was responsible for preparing the application forms
and submitting them to the KYC Team for review and approval (see paragraph
4.60(1) below).
(2) the KYC Delegated Sub-Committee (a delegated sub-committee of JLTSL’s
Board) considered the bribery, corruption and other financial crime risk
exposure to JLT Group from JLTSL’s use of third parties who are paid a
commission (including Overseas Introducers). This included responsibility for
considering applications and either approving or declining requests to use
third parties, reviewing completed risk assessments and accompanying due
diligence for potential or existing third party accounts and considering the
approval of relationships where JLTSL received gross premiums from the
insured/reinsured and remitted commission back to the third party. Where
JLTSL intended to directly engage with and make payments to third parties
(including Overseas Introducers), the KYC DSC would be provided with a
summary of the risk assessment and due diligence undertaken on the third
party by the KYC Team. The KYC DSC would consider these cases and either
approve the relationship, request further information, or reject the
relationship.
4.24
JLTSL had in place various monitoring and oversight processes to ensure that this
system operated as designed and intended.
4.25
JLT Group Risk and Compliance acted as the JLT Group’s and the JLT Group
entities’ second line of defence. JLT Group Risk and Compliance owned JLT
Group’s third party policies and framework and provided advice to JLT Group
entities on compliance with the third party framework. In particular, its Financial
Crime team was responsible for the third party due diligence and approval process
both at the outset of a relationship and on renewal. The due diligence and
approval process for Overseas Introducers was performed by the KYC Team, part
of the Financial Crime Team.
JLTSL’s indirect relationships with Overseas Introducers
4.26
As well as directly entering into relationships with Overseas Introducers, JLTSL
also placed business on the London reinsurance market where that business was
won and retained by another JLT Group entity with the assistance of an Overseas
Introducer engaged by that other entity. In this arrangement, the Overseas
Introducer introduced the business of the insured client or the overseas insurer
to another JLT Group entity, which in turn instructed JLTSL to reinsure some or
all of this business on the London reinsurance market. The commission was
shared between JLTSL and the other JLT Group entity. The other JLT Group entity
then paid a share of the commission to the Overseas Introducer, as set out in
Diagram 2 below:
Diagram 2
4.27
As a result of these indirect relationships with Overseas Introducers, during the
Relevant Period JLTSL made 466 placements on the London reinsurance market
for 40 different overseas insurers and 106 different insured clients, earning
£8,515,292 in commission from these placements.
4.28
Almost a fifth of these placements were made on behalf of Company A, from which
JLTSL earned £4,807,938.63 in commission (approximately 56% of the total
commission earned from business introduced indirectly by Overseas Introducers).
JLTSL’s relationship with Company A
4.29
In March 2013, Company A, a state-owned insurance company based in a country
where there is perceived to be a high level of bribery and corruption, appointed
JLTSL as Broker of Record (an insurance agent who is responsible for managing
and representing a policyholder’s insurance policy) to broker the reinsurance of
aviation insurance policies for that country’s defence ministry for three months
from 6 April 2013 to 6 July 2013. These insurance policies covered defence assets
such as military aircraft.
4.30
Company A subsequently reappointed JLTSL as Broker of Record to broker the
reinsurance of the same aviation risks for the 12 months from 6 July 2013 to 6
July 2014 (the “2013/2014 aviation reinsurance”).
4.31
Between March 2013 and September 2013, JLTSL dealt with Company A via a
local reinsurance broker. However, following the appointment of new senior
management at Company A, Company A informed JLTSL in September 2013 that
JLTSL should deal directly with Company A instead. JLTSL learned the following
month that its relationship with Company A had deteriorated. Consequently, JLTSL
became concerned about its ability to win or retain business from Company A, in
particular the forthcoming renewal of the aviation risks referred to at paragraph
4.29 above from 7 July 2014.
4.32
At, or shortly after, a meeting between JLTSL and Company A on 6 November
2013, Company A informed JLTSL that it wanted to replace JLTSL, mid-way
through the contract, as the Broker of Record for the existing placement of the
2013/2014 aviation reinsurance.
4.33
In or around December 2013, JLT Re Colombia became involved in these
discussions. Company A told JLT Re Colombia that it would not work with JLT
Group entities until certain issues, including JLTSL’s use of local reinsurance
brokers on previous placements for Company A, had been resolved.
4.34
Soon after, JLT Re Colombia contacted Company B, a company incorporated in
Panama, a country where there is perceived to be a high level of bribery and
corruption, and Company B offered to help resolve these issues. JLT Re Colombia
accepted Company B’s offer to help rebuild JLTSL’s relationship with Company A.
4.35
On 13 January 2014, JLT Re Colombia met with Company A and thereafter, sought
to arrange a meeting between Company A and JLT Latin America. Company A
initially declined the meeting but eventually agreed after it was persuaded by
Company B to meet. The purpose of this meeting, which took place on 16 January
2014, was to rebuild JLTSL’s relationship with the new management of Company
A. However, Company A said at the meeting that it was not interested in
continuing a relationship with JLTSL.
4.36
In mid-February 2014, executives of Company A visited JLT Group’s offices in
London to meet with executives from JLT Latin America and JLT Group. Company
B also helped to arrange this meeting although it did not attend it. Company A
decided at, or following, the meeting not to remove JLTSL as the Broker of Record
for the 2013/2014 aviation reinsurance having been convinced by JLT Group that
it was reputable to deal with.
JLTSL’s dealings with Company B prior to May 2014
4.37
By February 2014, JLTSL was fully aware of Company B and its role in helping
rebuild JLTSL’s relationship with Company A. Around this time, JLTSL employees
entered into negotiations with Company B about the share of commission
Company B would receive for having helped JLT Group convince Company A not
to remove JLTSL as the Broker of Record midway through the existing placement
of the 2013/2014 aviation reinsurance.
4.38
Company B requested a 50% share of the commission earned by JLTSL for this
placement. JLTSL had expected to earn approximately US$1.3 million. Ahead of
a meeting with Company B, JLT Re Colombia told JLTSL it was concerned that
offering half of this amount would not be enough and could negatively affect their
relationship with Company B.
4.39
At their meeting on 19 February 2014, Company B told JLT Re Colombia it was
unhappy with JLTSL’s offer. It threatened that unless JLTSL increased its offer
not only would JLTSL not be renewed as the Broker of Record for the placement
of the 2014-2015 aviation risks but JLT Group entities may be banned from doing
business in the country of Company A.
4.40
Over the course of the next few days, JLT Re Colombia relayed to JLTSL both
Company B’s reaction and its request that JLTSL instead pay it approximately
US$1.8 million (approximately US$1.48 million more than JLTSL had offered and
approximately US$500,000 more than JLTSL had expected to earn in commission
on that placement). When questioned as to whether JLTSL was being fully
transparent with the amount of commission it had earned, a JLTSL senior manager
replied: “They [Company B] don’t appear to be able to do some very basic maths”.
4.41
Notwithstanding that the JLTSL senior manager felt that Company B had not done
anything to warrant a percentage of the commission from the placement of the
2013/2014 aviation reinsurance, they felt pressurised into agreeing to pay the
US$1.8 million it had requested because of the “harassment” from Company B.
One JLTSL employee also later referred to Company B’s demands as
“unreasonable”.
4.42
JLTSL nonetheless agreed on 21 February 2014 to pay Company B 8% commission
for any future business it introduced as well as US$1.8 million for helping JLTSL
remain as the Broker of Record for the placement of the 2013/2014 aviation
reinsurance. The agreement was conditional on a guarantee that JLTSL would
secure the next two renewals of the same risks. This condition allowed JLTSL to
use the commissions earned from these future renewals to pay Company B
US$1.8 million over a course of time rather than immediately. A few days later,
JLTSL told JLT Re Colombia that it would be able to pay US$300,000 to Company
B “as an initial down-payment toward (sic) the overall promised settlement” of
US$1.8 million “in order to cement [JLTSL’s] friendship” with Company B.
4.43
At this point, a couple of senior managers at JLTSL and JLT Latin America
expressed serious doubt to JLT Re Colombia about Company B’s role. On 25
February 2014, an executive of JLT Latin America told JLT Re Colombia that “there
is no way the JLT Group can pay an introductory commission in seven figures to
a couple of […] individuals in Miami. They seem to have no real company” and
said that “it is clear they are not a firm of substance”. Referring to the action that
had recently been taken by the Authority, he considered it was unlikely that
Company B would be approved as a third party introducer under the KYC Policy
and emphasised that “significant due diligence” would need to be undertaken
before any payments could be made to Company B.
4.44
In addition, on 18 March 2014, a member of JLTSL’s Board stressed to employees
at both JLT Re Colombia and JLTSL that “we would not be able to make any
payments to Third Parties without good cause and this would require proper Due
Diligence to understand who they are, what they are adding to the process, what
contacts they may have with [Company A]”.
4.45
However, as explained in paragraphs 4.66 to 4.74, insufficient due diligence was
performed on Company B before it was approved as an Overseas Introducer.
4.46
On 25 March 2014, a JLTSL employee visited Company B’s offices in Miami. JLT
Re Colombia had arranged the meeting with a view to JLTSL finalising an
agreement with Company B about its share of commission, particularly the US$1.8
million commission it had requested. JLT Re Colombia informed the JLTSL
employee ahead of the meeting that if an agreement was not reached, Company
B would take its services elsewhere to other international reinsurance brokers.
Prior to these meetings, a JLTSL senior manager advised the JLTSL employee that
they should do their best at these meetings but “stand firm on [their] principles”
because they were not “willing to compromise [JLTSL’s] integrity” to reach an
agreement with Company B.
4.47
At the meeting, the JLTSL employee met representatives of Company B and was
told that they “had been given the brief” by Company A “to act as the ongoing
guardian to the insurance requirements of the country”. Company B told the
JLTSL employee that JLT Re Colombia was “their interlocutor on the
insurances…who they had a trusted relationship with and who they had dealt with
previously over a number of years” and “was the axis point for the administration
of all opportunities that may arise on the [Company A’s] portfolio”.
4.48
At the following meeting on 1 April 2014, the JLTSL employee and Company B
agreed that JLTSL would attempt an early renewal of the aviation risks by
cancelling the existing policy and rewriting it again or renewing the policy in
advance of the July 2014 renewal date, which Company B supported. The JLTSL
employee also reminded Company B that JLT Re Colombia was in the process of
securing its approval as an Overseas Introducer under JLT Group’s policies and
procedures.
4.49
JLT Re Colombia then told JLTSL employees on 27 April 2014 that Company B was
not going to assist JLTSL unless it made an upfront payment of part of the US$1.8
million as a “good faith sign” or a “goodwill gesture”. On 29 April 2014, Company
B contacted JLTSL directly and requested an advance payment of US$500,000.
4.50
The following day, on 30 April 2014, JLT Re Colombia notified JLTSL that JLT Re
Colombia and JLTSL had been appointed by Company A as the reinsurance broker
for the aviation risks of an insured client. JLT Re Colombia asked JLTSL to confirm
the proposal to pay Company B US$500,000. On the same date, a JLTSL senior
manager confirmed that JLTSL would transfer US$500,000 to JLT Re Colombia to
pay Company B in “good faith”. As a result, Company B agreed to work with
JLTSL in helping it to win or retain business from Company A.
4.51
By the end of April 2014, certain JLTSL employees were therefore aware that:
(1) JLTSL’s client, Company A, was a state-owned entity incorporated in and
trading from a jurisdiction which presents a high risk of bribery and
corruption;
(2) following a change of senior management at Company A, it intended to
remove JLTSL as Broker of Record for the placement of the 2013/2014
aviation reinsurance;
(3) Company B had been appointed by Company A “to act as the ongoing
guardian to the insurance requirements” of the country Company A was
incorporated in and that JLT Re Colombia was Company B’s “interlocutor”;
(4) as Company B had not played any part in JLTSL’s initial appointment as Broker
of Record, the US$1.8 million it agreed to pay Company B for persuading
Company A not to remove it as Broker of Record was disproportionate to the
amount of work Company B carried out. The sum was US$500,000 more
than JLTSL itself was earning in commission;
(5) Company B threatened to ban JLT Group entities, including JLTSL, from
carrying out reinsurance business in the country of Company A unless JLTSL
agreed to pay Company B the US$1.8 million; and
(6) Company B then demanded an advance payment of US$500,000 out of the
agreed US$1.8 million as a gesture of “good faith”.
4.52
The following matters ought to have appeared to the JLTSL employees as red flags
indicating a significant risk of Company B paying a bribe to others from the
commission it was to receive:
(1) Company B was connected to Company A’s senior management, who were
government officials;
(2) Company B was introducing business from a jurisdiction which presents a
higher risk of bribery and corruption;
(3) the amount of commission that was agreed to be paid was high compared
with the amount of work that Company B carried out (Company B’s role was
that it assisted JLT Group in persuading Company A not to remove JLTSL from
a reinsurance placement that JLTSL had previously been appointed to carry
out without Company B’s involvement); and
(4) Company B required advance payment of part of its commission share.
4.53
However, the JLTSL employees did not treat these matters as red flags from a
bribery and corruption perspective.
Initiation of the due diligence process by JLT Re Colombia
4.54
On 1 May 2014, JLT Re Colombia initiated JLT Group’s third party due diligence
process to onboard Company B as an Overseas Introducer, and informed JLTSL
employees that it had done so.
4.55
JLTSL played no role in the consideration and approval of Company B as an
Overseas Introducer. For example, its Business Controls team was not involved
in the due diligence process and the KYC DSC was not involved in reviewing and
approving the relationship with Company B.
4.56
As shown in paragraphs 4.37 to 4.53 above, JLTSL employees were in direct
contact with Company B earlier in 2014. JLTSL was the decision maker in the
negotiation of Company B’s share of commission. Further, during the Relevant
Period, in carrying out a regulated activity, JLTSL placed 95.2% of Company A’s
business on the London reinsurance market as a result of Company B’s
introduction (only 4.8% of this business was reinsured locally by JLT Re
4.57
JLTSL employees that were involved in the negotiations with Company B and in
placing the business in the London market failed to escalate relevant facts to the
attention of the Financial Crime Team which would have materially affected its
assessment of Company B (see paragraph 4.71 below).
JLT Group’s third party due diligence and approval process
4.58
As explained in paragraph 4.18, following the Skilled Person’s first review, JLT
Group designed and implemented (with the approval of the Skilled Person) a
group-wide third party due diligence and approval process to mitigate the risk
posed by third parties (including Overseas Introducers) to JLT Group and its
subsidiaries, particularly the risk of bribery and corruption. This group-wide
process included the KYC Policy. This system was approved for all situations
where JLT Group entities directly engaged with third parties, including Overseas
Introducers.
Due diligence process
4.59
Between 1 October 2013 and 12 January 2017, the KYC Policy set out the detailed
procedures which employees of all JLT Group entities had to follow in order to
establish relationships with third parties. This included the use of a risk
assessment tool which was based upon five tiers of due diligence to be collated
and assessed according to the category of the third party and the risk profile
associated with it.
4.60
For Overseas Introducers, the first four tiers were as follows:
(1) In Tier 1 (Data Gathering), the JLT Group entity wanting to establish a
relationship with the Overseas Introducer was responsible for gathering or
completing the following information and submitting it to the KYC Team for
review:
(i)
a Business Case form (to be completed by the JLT Group entity) to
provide information about the Overseas Introducer, including a “strong
reasoning” for why the Overseas Introducer is required and a detailed
explanation of the Overseas Introducer’s role and services provided;
(ii)
an Introducer Questionnaire (to be completed by the Overseas
Introducer); and
(iii)
an Introducer Agreement (to be signed by both the JLT Group entity
and the Overseas Introducer following the due diligence process and
consequent approval of the Overseas Introducer).
(2) Tier 2 (Know Your Client) involved the KYC Team obtaining corporate
information about the Overseas Introducer, including WorldCheck searches,
an Orbis check and its incorporation or registration details.
(3) In Tier 3 (Know Your Client analysis) the KYC Team reviewed the information
gathered at tiers one and two, including the information contained within the
Business Case form and the Introducer Questionnaire. They also carried out
additional WorldCheck searches on the directors, shareholders and associated
companies of the Overseas Introducer, performed open source and Factiva
checks for any adverse media, verified that the directors of the Overseas
Introducer were the same as those listed in the Introducer Questionnaire, and
validated the Overseas Introducer’s bank account details. In particular:
(i)
In respect of the Business Case form, the KYC Team had to ensure
that there was an adequate commercial rationale to support payments
to the Overseas Introducer, including why it is necessary to use the
Overseas Introducer to win business and the service that will be
received from the Overseas Introducer in return for a share of
commission. If the Business Case form contained insufficient
reasoning for the sharing of commission, the Business Case form was
to be referred back to the JLT Group entity. Equally, if the Introducer
Questionnaire was incomplete or insufficient, it was to be referred back
to the Overseas Introducer.
(ii)
However, there was no guidance to assist the KYC Team with assessing
whether the Business Case form contained an adequate commercial
rationale to support payments to an Overseas Introducer or to assess
whether it contained a “strong reasoning” for why the Overseas
Introducer was required.
(4) At Tier 4 (Enhanced Bribery and Corruption), following their analysis of the
information gathered at tiers one to three, the KYC Team were required to
assess the bribery and corruption risk if the JLT Group entity was to enter into
a relationship with the Overseas Introducer. The assessment process, known
as the “Alarm Bells” process, involved the assessment of the risk presented
by the Overseas Introducer against ten key risk factors, with each risk factor
being assigned a score of up to three Alarm Bells up to a maximum total score
of 30 Alarm Bells. The ten risk factors included the nature of the role of the
third party (for example, Overseas Introducers were considered the highest
risk), the country where the third party was domiciled, whether the third
party’s bank account details had been validated, and the country where the
third party’s bank account was domiciled.
4.61
JLT Group did not provide any written guidance to the KYC Team on how to
determine the appropriate score for each of the ten key risk factors when
completing the risk assessment for an Overseas Introducer, for example, whether
to score a risk factor one, two or three Alarm Bells. However, the initial scoring
on the risk assessment forms was reviewed for quality assurance purposes by a
senior member of the Financial Crime Team to ensure the scores were
appropriate.
Enhanced Due Diligence (“EDD”)
4.62
During the Relevant Period, the need for EDD was considered at Tier 5 of the due
diligence process set out in the KYC Policy. The level of EDD required depended
on the Alarm Bells score at Tier 4:
(1) if an Overseas Introducer was assigned a score of up to 15 Alarm Bells, no
EDD was required, although EDD may have been required if particular risk
factors were identified in the risk assessment;
(2) if an Overseas Introducer was assigned a score of between 16 and 25 Alarm
Bells, EDD was required and could include one or more of the following: a JLT
Group entity board director meeting with the Overseas Introducer, searching
for adverse media in the language of the country where the Overseas
Introducer was based, searching additional external data sources, and
commissioning a report from a specialist external provider; or
(3) if an Overseas Introducer was assigned a score of 26 or more Alarm Bells,
EDD was required and, in addition to the steps listed in sub-paragraph (2)
above, could also include a more extensive report from a specialist external
provider.
Approval process
4.63
The number of Alarm Bells assigned to an Overseas Introducer during the risk
assessment process also determined the seniority of authorisation required to
approve the relationship with that Overseas Introducer. For example, if an
Overseas Introducer was assigned 16 to 25 Alarm Bells, the relationship would
need to be approved by the KYC Team manager or Financial Crime manager, JLT
Group’s Head of Financial Crime and members of the JLT Group entity’s Board.
For a score of over 25 Alarm Bells, approval was additionally required from JLT
Group’s Head of Risk and its Group Legal Director (although in practice, from
March 2015, approval was only required from one of these individuals not both).
4.64
Everyone required to approve a relationship with an Overseas Introducer received
a pack of documentation containing the risk assessment form, the Business Case
form, the Introducer Questionnaire, any pertinent email exchanges which brought
clarity to the relationship and any adverse media or results from screening (where
available).
4.65
Once all the due diligence checks had been completed and the relationship was
approved, the Overseas Introducer would be set up on JLT Group’s system as a
new contact.
4.66
As stated in paragraph 4.54 above, JLT Re Colombia initiated the due diligence
process to onboard Company B on 1 May 2014.
4.67
JLT Re Colombia deliberately withheld from the Financial Crime Team material
relevant information in respect of the proposed relationship with Company B.
JLTSL employees that were involved in the negotiations also failed to escalate
matters which would have materially affected the Financial Crime Team’s
assessment of Company B. In addition, notwithstanding that the Financial Crime
Team had previously advised a senior executive of JLT Group in April 2014 that
they would take a “close interest” in making sure that Company B received
“appropriate attention” during its due diligence process, the Financial Crime Team
failed to carry out adequate due diligence on Company B.
Failure to disclose material relevant information
4.68
JLT Re Colombia supplied the Financial Crime Team with copies of a Business Case
and Introducer Questionnaire, a reference letter from Company B’s bank, and a
letter from Company B. In addition, JLT Re Colombia supplied an Introducer
Agreement between JLT Re Colombia and Company B dated 21 April 2014 and
signed 5 May 2014.
4.69
However, JLT Re Colombia failed to include in Company B’s Business Case form
and otherwise failed to bring the following information to the attention of the
(1) that JLTSL had a pre-existing relationship with Company A without the
involvement of Company B and that, following a change of senior
management, Company A had sought to end this relationship;
(2) Company B’s involvement in convincing Company A not to replace JLTSL as
the Broker of Record;
(3) Company B’s demand for a US$1.8 million payment for helping JLTSL keep
this account, notwithstanding that JLTSL only earned US$1.3 million on that
placement;
(4) The threat Company B had made to ban JLT Group entities from doing
reinsurance business in the country of Company A if JLTSL did not increase
its initial offer to US$1.8 million; and
(5) Company B’s request for a US$500,000 “good faith sign” or “goodwill gesture”
payment which JLTSL had agreed to pay.
4.70
These matters are likely to have significantly affected JLT Group’s decision to
approve Company B as an Overseas Introducer if the relevant decision makers
had been aware of them at the time.
4.71
Certain JLTSL employees were aware of all of these matters through their contact
with Company B (see paragraph 4.47 above). Although the JLTSL employees
received copies of Company B’s completed Business Case form and Introducer
Questionnaire from JLT Re Colombia, there is no evidence that the JLTSL
employees considered notifying the Financial Crime Team or the KYC DSC of the
materially relevant information regarding Company B or took any steps to check
whether JLT Re Colombia raised these important matters during the due diligence
process.
Failure by the Financial Crime Team to adhere to the due diligence process
4.72
The Financial Crime Team, based on the information supplied to it by JLT Re
Colombia, identified a variety of red flags indicating that the proposed
engagement of Company B presented high risk and therefore conducted EDD in
relation to Company B. This EDD included:
(1) independently reviewing and confirming information contained within
Company B’s broker questionnaire (such as its location, legal status,
ownership, and banking information);
(2) asking JLT Re Colombia to answer various follow-up questions about Company
B (such as diagramming the proposed flow of premiums and commissions for
policies proposed to be introduced by Company B); and
(3) running various information checks on Company B (such as WorldCheck and
Factiva searches, and checks with Panama’s company register).
4.73
The Financial Crime Team, however, failed to carry out adequate due diligence in
a number of material ways:
(1) The Business Case completed by JLT Re Colombia did not contain a “strong
reasoning” as to why Company B was required to win Company A's business.
The Business Case also did not contain a detailed explanation of Company B’s
role and the services it would provide to JLT Group entities, including JLTSL,
in return for a share of commission, to ensure that there was adequate
commercial rationale to support payments to Company B:
(i)
In response to the question, “Please provide reasons/business
justification for doing business with this broker”, the Business Case
contained a single sentence that Company B had “Very strong
connections” with Company A and “with the largest industrial Groups”
in the same country.
(ii)
In response to the question, “Please provide full details of the activities
the broker proposes to undertake”, the Business Case simply stated
that one of Company B’s principals “has been an Insurance Broker
(life-high net worth individuals) for more than fifteen (15) years to
high net worth families” in the same country as Company A, which
“…has given him very strong influent (sic) connections”. This answer
failed to explain what Company B would do to help JLT Re Colombia
win or retain business, and how it would earn its share of the
commission.
(2) The Financial Crime Team did not verify the address that Company B had
provided in its Introducer Questionnaire and failed to obtain a copy of its
certificate of incorporation (although it did obtain confirmation from the
Panamanian company registry that the company had been incorporated).
(3) The Financial Crime Team failed to verify Company B’s directors and
shareholders. The search conducted by the Financial Crime Team on
Panama’s company register identified entirely different directors and
shareholders to those listed in the Introducer Questionnaire, but the Financial
Crime Team failed to carry out any further enquiries as to why this was the
case.
(4) The WorldCheck and Factiva searches that the Financial Crime Team carried
out were limited to Company B’s name and the directors and shareholders
but did not include other associated individuals and companies that were
identified in the Business Case form, or in information provided by Company
B, who may have presented a financial crime risk.
(5) The Financial Crime Team failed to verify Company B’s bank account number.
Although the Financial Crime Team did obtain confirmation from Company B’s
bank that Company B held an account with it, the confirmation did not state
Company B’s account number.
(6) The Financial Crime Team failed to notice that the Introducer Agreement
between JLT Re Colombia and Company B had already been signed by the
parties on 5 May 2014 before Company B had been formally approved as an
Overseas Introducer.
4.74
The Financial Crime Team also failed to score accurately some of Company B’s
risks relating to bank account validation and bank account domicile. This meant
that Company B scored 22 Alarm Bells, rather than 25 or more. This meant that
a lower level of authorisation was required for Company B, as well as a lower level
of EDD (see paragraph 4.63 above).
Approval of the relationship
4.75
Despite the above due diligence failings, Company B’s risk assessment was
approved by the Financial Crime Team on 16 May 2014. The failure to obtain a
copy of the certificate of incorporation and the failure to verify Company B’s
address was noted on the risk assessment form.
4.76
Company B was approved as an Overseas Introducer of JLT Re Colombia until 18
May 2015. The Financial Crime Team also failed to seek the appropriate
authorisation required by the KYC Policy as only one member of JLT Re Colombia’s
senior management signed the risk assessment form rather than two.
4.77
Company B’s approval was subject to the following conditions:
“Strict attention to the background to and validity of any payments to or from
[Company B] is required. All payments are to be open, transparent and subject
to documented contract terms. Payments must represent fair value for
goods/services received/supplied and be consistent with normal market practices.
Any engagement in terms of corporate entertainment and/or gifts is to be fully
documented and pre-authorized. Records must be kept and must stand up to
external scrutiny if required.
Adverse media searches are to be re-conducted on an annual basis.”
4.78
On 16 May 2014, two JLTSL employees were notified by JLT Re Colombia that
Company B’s risk assessment form had been approved by the Financial Crime
Team. However, those JLTSL employees did not take any steps to verify the
content of the risk assessment form.
4.79
In summary, JLTSL was required to have appropriate controls in place to mitigate
the risk of bribery and corruption from Company B’s involvement. As an
authorised firm, JLTSL failed to consider whether additional safeguards or
approvals should be incorporated into JLTSL’s third party processes with respect
to Overseas Introducers engaged by another JLT Group entity where the
introduced business was subsequently placed by JLTSL in the London market. In
particular, despite the heightened bribery and corruption risk posed by Overseas
Introducers to JLTSL, the processes did not require the approval of the KYC DSC
in addition to the approval of the JLT Group entity that was proposing to engage
the Overseas Introducer and the Financial Crime Team.
4.80
Consequently, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
4.81
The materially relevant information held by JLT Re Colombia and JLTSL employees
presented issues which raised concerns about the risks associated with Company
B. It was important that the Financial Crime Team was given the opportunity to
assess the significance of this information and take the necessary action. Had the
Financial Crime Team or the KYC DSC been in possession of this information
relating to the background and circumstances of Company B’s involvement, it is
unlikely that Company B would have been approved as an Overseas Introducer.
Other instances where JLTSL relied on other JLT Group entities to conduct
due diligence on Overseas Introducers
4.82
Besides Company B, there were several other instances where Overseas
Introducers had introduced business to other JLT Group entities and those entities
had in turn instructed JLTSL to place that business on the London reinsurance
market. During the Relevant Period, JLTSL made 357 placements for multiple
insured clients or overseas insurers where it had been instructed by another JLT
Group entity to do so, as a result of that JLT Group entity being introduced
business by an Overseas Introducer. Many of the Overseas Introducers were
domiciled in countries which presented a high risk of bribery and corruption,
according to Transparency International’s Corruption Perception Index. The total
premium paid across all of these placements was £30,149,134 with JLTSL earning
£3,438,745 in commission.
4.83
JLTSL did not consider or approve the onboarding or renewal of the relationships
with these Overseas Introducers. As was the case with Company B, JLTSL relied
wholly on other JLT Group entities and the Financial Crime Team to approve these
relationships.
Business introduced by Company B and commission shared during the
initial 12 months
4.84
Prior to JLT Re Colombia initiating JLT Group’s third party due diligence process
to onboard Company B as an Overseas Introducer in May 2014, JLTSL was
indirectly instructed, via JLT Re Colombia, to place eight of Company A’s policies,
earning US$1,917,400 in commission. JLT Re Colombia and Company B earned
US$309,785 and US$879,616 respectively in commission from these placements.
4.85
Between 19 May 2014 and 18 May 2015 (when JLT Group’s approval was set to
expire), as a result of Company B’s introduction JLTSL was instructed by Company
A, via JLT Re Colombia, to place 39 policies in the London reinsurance market.
JLTSL earned £1,258,151 in commission from these placements. JLT Re Colombia
and Company B earned US$1,824,534 and US$5,725,727 respectively in
commission from these placements.
4.86
As stated in paragraph 4.49 above, JLTSL had already agreed on 30 April 2014 to
pay US$500,000 to Company B as a “good faith” payment in advance of the
US$1.8 million commission JLTSL had also agreed to pay Company B from JLTSL’s
placement of the 2013/2014 aviation reinsurance. A JLTSL senior manager
authorised the payment of US$500,000 to JLT Re Colombia on 20 May 2014. As
explained in paragraphs 4.68 to 4.71 above, there is no evidence that the Financial
Crime Team was aware of the existence of this agreement when approving the
relationship with Company B.
4.87
However, JLT Re Colombia did not pay these funds to Company B. On 21 May
2014, the following day, JLT Re Colombia transferred US$500,000 to the bank
account of a company incorporated in Florida which was connected with Company
B, of which JLTSL had no knowledge or information. As set out at paragraph
4.70(5) of this Notice, the Financial Crime Team had in any event failed to verify
Company B’s bank account number. Although the Financial Crime Team did obtain
confirmation from Company B’s bank that Company B held an account with it, the
confirmation did not state Company B’s account number.
4.88
In addition, during this period, JLT Re Colombia paid a further US$4,430,746.06
to the accounts of the Florida company and another company incorporated in
Panama which was also connected with Company B. None of these funds were
paid to Company B.
Gifts and entertainment policies of JLT Group and JLTSL, and
unauthorised entertainment of third parties
4.89
Following Company B’s approval as an Overseas Introducer by JLT Group in May
2014, JLTSL employees continued to interact directly with both Company B and
Company A, including paying for individuals from Company B, Company A and
their families to attend a number of events. As set out below, these events
included the 2014 and 2015 Wimbledon Championships and the 2015 Monaco
Grand Prix. Over the course of a 10 month period, JLTSL spent nearly
US$200,000 on entertaining individuals from Company A, Company B and their
families.
JLTSL’s 2014 Gifts and Entertainment Policy
4.90
In 2014, JLTSL’s Gifts and Entertainment Policy required every JLTSL employee
to declare any benefit, monetary remuneration, gifts or entertainment that they
intended to receive from, or give to, clients and third parties (including Overseas
Introducers) with a value in excess of £250. A ”report” of all gifts and forms of
entertainment of any nature given or received in excess of £250 was maintained
centrally within JLT Group’s expense management system. It was the
responsibility of each JLTSL employee to ensure that all forms of benefits, gifts,
and entertainment in excess of £250 incurred were entered onto this system so
they could be presented to the employee’s line manager for approval. The report
was to be monitored by the Chief Financial Officer (“CFO”) and signed off by the
JLTSL Chief Executive Officer, Chairman, CFO or Chief Operating Officer quarterly,
reported at JLTSL Board and JLTSL ARC meetings and was to be subject to review
by the Group Internal Audit Team.
4.91
On 4 and 6 July 2014, JLTSL and JLT Re Colombia employees entertained a senior
manager of Company A (a foreign public official) and his wife, along with
representatives of Company B, at the Wimbledon Men’s Semi-Final and Final
events. The hospitality cost £67,200 and included food and drink, Centre Court
tickets, and a meet and greet with a former Wimbledon champion. On 10 June
2014, a JLTSL employee asked JLT Re Colombia to request that Company B pay
the vendor of the 2014 Wimbledon event for the cost of the hospitality planned
for 4 and 6 July 2014.
4.92
However, around the same time, JLT Re Colombia subsequently sought JLTSL’s
agreement to increase its share of commission by US$110,000 on a particular
transaction. Despite there being no adequate rationale for this, JLTSL agreed to
the commission being increased and transferred this amount to JLT Re Colombia
on 25 July 2014. However, JLT Re Colombia had already transferred US$110,000
to the Florida company associated with Company B on 16 June 2014, the day
before Company B had been asked to pay for the Wimbledon event. The Authority
notes that the cost of the event in US dollars was approximately US$110,000 at
the time.
4.93
The US$110,000 expense was not declared on JLT Group’s expense management
system for approval as was required by JLTSL’s 2014 Gifts and Entertainment
Policy. Instead, a JLTSL employee reimbursed Company B for this cost by
designating it as increased commission in US dollars equivalent to the value of
the US$110,000 expenditure Company B had incurred.
4.94
Had the JLTSL employee declared the US$110,000 reimbursement to Company B
for the cost of the 2014 Wimbledon event and sought prior approval for this
expense, it is unlikely this would have been approved. By reimbursing the cost
of this entertainment to Company B as increased commission, the JLTSL employee
was able to circumvent JLTSL’s 2014 Gifts and Entertainment Policy.
JLT Group’s Anti-Bribery and Corruption Policy
4.95
In December 2014, JLT Group’s Anti-Bribery and Corruption Policy came into
effect (replacing its prior Anti-Bribery and Corruption Policy), which all JLT
employees worldwide (including JLTSL employees) were required to adhere to.
The policy stated that expenses for gifts and entertainment given or received
could be incurred up to the value of £250 without prior approval. For expenses
over £250, prior approval was required to be given by specified senior managers
at JLTSL who were required to assess the appropriateness of the expense before
authorising it. Their assessment included, but was not limited to, an assessment
of the attendees, previous gifts and entertainment offered, the involvement of the
beneficiary in any procurement process and the industry and jurisdictional risks
associated with the beneficiary. These expenses had to be recorded within JLT
Group’s expense management system.
4.96
Due to the higher risk of bribery and corruption when dealing with PEPs and/or
foreign public officials, JLT Group’s Anti-Bribery and Corruption Policy also stated
that gifts and hospitality given to, or received from, such individuals would not
ordinarily be approved. In addition, it stated that other than in exceptional
circumstances, the spouses, partners, and other family members of JLT Group
staff or those of external beneficiaries may not be present at, or benefit from,
corporate hospitality, entertainment, or gifts. However, where a request for
attendance of family members, PEPs or foreign public officials was made,
employees were required to provide the Financial Crime Team with full details of
the proposed attendees and the reasons as to why their attendance was
appropriate or required.
4.97
On 12 July 2015, JLTSL and JLT Re Colombia employees entertained another
senior manager of Company A (a foreign public official), representatives of
Company B, and their families at the 2015 Wimbledon Men’s Final event. The
entertainment cost £48,000 in total. In March 2015, a JLTSL employee, with the
assistance of JLT Re Colombia, asked for Company B to pay for these Wimbledon
tickets in the same way as the 2014 Wimbledon tickets. Company B arranged for
the vendor of the 2015 Wimbledon event to be paid US$72,000 (approximately
equivalent to £48,000) from a Panamanian bank account of a company associated
with Company B on 25 March 2015. The same day the JLT Re Colombia and JLTSL
employees agreed to increase Company B’s share of commission by US$72,000.
It was also agreed that JLTSL would transfer US$72,000 to JLT Re Colombia so it
could pay this amount to Company B. JLTSL transferred US$72,000 to JLT Re
Colombia as part of a larger payment on 10 April 2015 and JLT Re Colombia
transferred this amount (again as part of a larger payment) to a Swiss bank
account owned by the same company associated with Company B on 15 May
2015.
4.98
This expense was not declared by the JLTSL employee on JLT Group’s expense
management system for prior approval by senior personnel of JLTSL, as required
by JLT Group’s Anti-Bribery and Corruption Policy. Had the JLTSL employee
declared the US$72,000 reimbursement to Company B for the cost of the 2015
Wimbledon tickets and sought prior approval for this expense, it is unlikely this
would have been pre-approved. By reimbursing Company B for the cost of this
entertainment as increased commission, the JLTSL and JLT Re Colombia
employees were able to circumvent JLT Group’s Anti-Bribery and Corruption
2015 Monaco Grand Prix and other entertainment provided
4.99
Between 21 and 27 May 2015, two senior JLTSL employees entertained
representatives of Company B at the Monaco Grand Prix. The same senior JLTSL
employees also entertained the same Company B individuals, as well as one of
Company A’s senior managers, at various restaurants before, during and after
this event. The total cost of the entertainment amounted to US$14,072. On this
occasion, the JLTSL senior employees declared the entertainment expenses for
this trip and gained the necessary approval from JLTSL senior management.
4.100
A JLTSL employee also declared and gained the necessary approval to spend
£3,137.38 on taking senior managers of Company A and representatives of
Company B to seven football matches at Chelsea and Tottenham Hotspur.
4.101
In total, JLTSL spent at least US$215,000 on entertaining individuals from
Company A, Company B, and their families during the Relevant Period. However,
JLTSL employees only recorded £19,267.27 (which included some of the
US$14,072 spent at the Monaco Grand Prix event) on JLT Group’s expense
management system.
Updates and improvements to JLT Group’s third party due diligence and
approval process
4.102
Between March 2015 and May 2016, the risk assessment form that was to be
completed as part of JLT Group’s third party due diligence and approval process
was updated to make it easier to understand how the relationship with an
Overseas Introducer worked and the risks involved, including giving more
prominence to the estimated annual payment to the Overseas Introducer and
requiring more information to be set out in the Business Case form.
4.103
In addition, a new risk assessment scoring system was developed to replace the
Alarm Bells scoring process, so that the assessment of the risk presented by an
Overseas Introducer was considered and scored against a wider range of risk
factors, not just the ten “Alarm Bell” risk factors. The additional risk factors
assessed and scored included the Overseas Introducer’s company details (its legal
status, whether it is regulated or Stock-Exchange Listed, whether it has a
website), screening results (whether PEPs have been identified for the Overseas
Introducer or insured client, whether any adverse media has been identified for
them), third party relationships (whether the Overseas Introducer has any links
to the insured client), payment details (is the commission split larger than normal,
the payment amount, bank account validation), country risk (Corruption
Perception Index scores of the Overseas Introducer and insured client) and the
industry risk of the insured client.
4.104
In December 2016, JLT Group introduced a Third Party Approvals and Payments
policy, replacing the KYC Policy, to set out JLT Group’s approach and minimum
requirements for the management of third parties. This policy applied to all JLT
employees group-wide, including JLTSL as a wholly owned subsidiary of JLT
Group. In particular, this policy set out the key individual roles and responsibilities
in the management of risks relating to third parties and third party payments so
that it was clear to employees what was required of them.
4.105
For example, the policy set out the role and responsibility of brokers and account
handlers within each JLT Group entity, including the requirement for them to
complete the Business Case form and ensure that the third party completed and
signed the Introducer Questionnaire. The policy also stated that brokers and
account handlers must not do business with, or make payments to, third parties
prior to approval by JLT Group. In addition, the policy set out the role and
responsibility of the Financial Crime Team, including the requirement for them to
perform due diligence on, and coordinate the approval of, third parties.
4.106
On 12 January 2017, JLT Group replaced the procedures from the KYC Policy with
the Third Party Operating Manual. Whilst the Third Party Operating Manual
replaced the procedures from the KYC Policy, the third party due diligence process
remained broadly the same, even though the five tier process was removed and
the ”Alarm Bell” risk scoring system was no longer referenced. A risk assessment
scoring system remained in place to assess the risk of an Overseas Introducer
(formally adopting the updated risk assessment form and newly developed risk
assessment scoring system), which determined the level of sign-off required to
authorise an Overseas Introducer. In addition, relationships with Overseas
Introducers were still required to be reviewed annually (with the information
required at renewal similar to that requested at the initial onboarding of the
Overseas Introducer), and the third party due diligence and approval process
remained the responsibility of the Financial Crime Team.
4.107
Although the Third Party Operating Manual came into force on 12 January 2017,
the Financial Crime Team followed the due diligence and approval process it set
out when it conducted the refresh of due diligence on Company B.
4.108
All of the changes to the JLT Group third party due diligence and approval process
applied to JLTSL.
Refresh of due diligence on Company B
4.109
The authorisation of an Overseas Introducer like Company B expired 12 months
after its previous approval and the expiry date reflected the period of validity for
the due diligence performed by the Financial Crime Team. Where a JLT Group
entity required the continued approval of an Overseas Introducer, the Financial
Crime Team informed the JLT Group entity of the information required for renewal.
The information required at renewal was similar to that requested at initial
approval and included the re-submission of the Business Case form and Introducer
Questionnaire, as well as the re-screening of the parties involved to see if there
was any adverse information or media. The renewal of the Overseas Introducer
was subject to refreshed satisfactory due diligence being completed by the
Financial Crime Team and the approval process was the same as that required for
the original onboarding of the Overseas Introducer.
4.110
Company B’s approval as a third party introducer of JLT Group expired on 18 May
2015 (see paragraph 4.76 above). Accordingly, the review and re-approval of
Company B ought to have been concluded by 19 May 2015. However, a review
of the relationship with Company B was not initiated until 16 September 2015 and
it was not approved as a third party introducer again until 18 May 2016 (twelve
months after its previous authorisation had expired). In the period between 19
May 2015 to 18 May 2016, JLT Re Colombia and JLTSL ought not to have accepted
business from, nor made payments to, Company B. Nevertheless, during this
period:
(1) JLTSL placed 15 policies for Company A, earning £1,373,502 in commission;
and
(2) JLT Re Colombia made payments totalling US$3,500,149.97 in respect of
business introduced by Company B. However, all of these payments, like the
payments referred to in paragraph 4.87 above, were not made to Company
B but were instead paid to bank accounts owned by entities in Panama and
Florida associated with Company B.
4.111
The refresh of Company B’s due diligence exercise was initiated on 16 September
2015 when JLT Re Colombia submitted a Business Case form and Introducer
Questionnaire for Company B to the Financial Crime Team. Despite JLTSL’s
continued close relationship with both Company A and Company B, JLTSL again
took no part in the approval of the renewal of the relationship with Company B.
It instead relied upon JLT Re Colombia and the Financial Crime Team to approve
the relationship.
Deficiencies in the refresh of due diligence on Company B
4.112
The Business Case form submitted by JLT Re Colombia to the Financial Crime
Team for this review contained almost identical information to the information
provided in the 2014 Business Case form. As such, the Authority has determined
that Business Case still did not contain a “strong reasoning” for why Company B
was required to win Company A’s business. It also still did not contain a detailed
enough explanation of Company B’s role and the services it would provide to JLT
Group entities including JLTSL, in return for a share of commission:
(1) In response to the question, “Please provide reasons/business justification for
doing business with the introducer”, the Business Case stated that Company
B had “Very strong connections” with Company A and “with the largest
industrial Groups” in the same country, that JLT will not place reinsurance via
Company B, and that Company B “will only act as Introducer of potential new
reinsurance business for JLT”.
(2) In response to the question, “Please provide full details of the activities the
introducer proposes to undertake”, the Business Case simply stated that one
of Company B’s principals “has been an Insurance Broker (life-high net worth
individuals) for more than fifteen (15) years to high net worth families” in the
same country as Company A, which “…has given him very strong influent (sic)
connections” in the same country. This answer failed to explain what
Company B would do to help JLT Re Colombia win or retain business, and how
it would earn its share of the commission.
4.113
The Financial Crime Team sought greater detail on the information provided in the
Business Case because it was “one of the highest risk relationships that [it had]
seen”. The team challenged JLT Re Colombia about the activities Company B was
going to undertake, including how Company B was going to get access to insured
clients, how Company B originally won the business from Company A and
Company B’s connections with Company A.
4.114
Having carried out its inquiries, the Financial Crime Team made the following
comments on Company B’s risk assessment form:
(1) in response to the question “Is commission split larger than normal”, the
Financial Crime Team noted “Yes”, explaining that Company B was “receiving
40% of Commission for not performing any substantial services to any party
in the chain”;
(2) in response to the question of whether Company B’s “Commission [was]
commensurate
with
services”,
the
Financial
Crime
Team
stated
“Questionable”, explaining that Company B does “not perform any direct
services to JLT. However, they are actively involved in assisting [Company A]
to arrange reinsurance”.
4.115
The Financial Crime Team also noted on the risk assessment form that they had
not been able to verify the address that Company B had provided in its Introducer
Questionnaire. However, they failed to note the following three matters on the
(1) The search conducted by the Financial Crime Team on Panama’s company
register identified entirely different directors and shareholders to those listed
in the Introducer Questionnaire;
(2) In addition, the same search conducted by the Financial Crime Team on
Panama’s company register identified a different incorporation date for
Company B to the one included in the Introducer Questionnaire; and
(3) The Financial Crime Team discovered commission payments to Company B
which did not correspond with what they had approved previously, and
identified insured clients they were not told about, which led to Company B
being paid around £400,000.
4.116
This meant that these discrepancies were not considered by the approvers of
Company B’s risk assessment before they signed-off and re-approved it as an
Overseas Introducer. Notwithstanding the clear reservations about Company B’s
role expressed by the Financial Crime Team on the risk assessment form and the
fact that this was “one of the highest risk relationships that [it had] seen”,
Company B was re-approved as an Overseas Introducer on 18 May 2016, subject
to the same conditions as in May 2014. The Financial Crime Team however again
failed to seek the appropriate authorisation required by the Third Party Operating
Manual as only one member of JLT Re Colombia’s senior management signed the
form rather than two.
4.117
Following Company B’s re-approval on 18 May 2016, JLTSL was instructed by
Company A, via JLT Re Colombia, to place a further 28 policies in the London
reinsurance market, earning £1,663,107 in commission from these placements.
JLT Re Colombia earned US$1,507,325 in commission from these placements.
4.118
As explained in paragraph 4.111, JLTSL took no part in the refresh of due diligence
on Company B. As JLTSL’s approval was not required, the KYC DSC was not
notified when JLT Re Colombia’s relationship with Company B was being
considered for renewal. Consequently, JLTSL missed another opportunity to
evaluate the bribery and corruption risk posed to JLTSL and the continued
appropriateness of the engagement.
4.119
The Authority has found no evidence that JLTSL employees considered notifying
the Financial Crime Team or the KYC DSC of materially relevant information during
the refresh of Company B’s due diligence exercise. In particular, there is no
evidence that JLTSL employees disclosed spending nearly US$200,000 on
entertaining individuals from Company A, Company B and their families. This
information presented issues which raised concerns about the risks associated
with Company B and it was important that the Financial Crime Team was given
the opportunity to assess the significance of this information and take the
necessary action. Had the Financial Crime Team or the KYC DSC been in
possession of this information, it is unlikely that Company B would have been re-
approved in 2016.
Monitoring and oversight of Company B
JLTSL’s role
4.120
As part of the group wide three lines of defence control framework, JLTSL did not
directly monitor or oversee the activities of Company B but relied on JLT Re
Colombia and JLT Group to do so.
4.121
Where JLTSL had entered into a direct relationship with a third party introducer,
and the relationship had been approved, JLTSL’s Business Controls team was
responsible for the day-to-day monitoring of payments made by JLTSL to third
party introducers, including ensuring that payments were made in accordance
with the terms of the approval. JLTSL’s Quality Assurance team offered an
additional level of monitoring through its review of placement files after the event,
to ensure that all placements were made in accordance with JLT Group policies
and procedures. However, neither the Business Controls team nor the Quality
Assurance team were involved in the monitoring of Company B.
4.122
Both the JLTSL Board and the JLTSL ARC (a subcommittee of JLTSL’s Board) had
oversight over JLTSL’s anti-bribery and corruption risks and controls. During the
Relevant Period, the JLTSL Board and ARC received numerous reports and pieces
of management information on third party introducers. These included, but were
not limited to, the following: a list of all third party introducer accounts opened
and all payments made to third party introducers in a given period; a summary
report of payments to high risk and low risk jurisdictions; and a review of the third
party payment process. However, the minutes from both the JLTSL Board
meetings and the ARC meetings during the Relevant Period do not show that
either the JLTSL Board or the ARC considered the relationship with Company B.
4.123
JLTSL was not required under the group wide control framework to monitor its
relationship with Company B because it did not directly engage or make any
payments to Company B. JLTSL instead relied on:
(1) JLT Re Colombia having appropriate controls in place to ensure that payments
to Company B were only made to bank accounts approved during Company
B’s risk assessment and due diligence process, in accordance with JLT Group’s
third party due diligence process; and
(2) the Financial Crime Team and JLT Group Internal Audit, as the second and
third lines of defence respectively, to monitor JLT Re Colombia’s compliance
regarding payments.
4.124
As a JLT Group entity, JLT Re Colombia was required by JLT Group’s third party
due diligence process to have appropriate controls in place to ensure that
payments to Company B were only made to bank accounts approved during
Company B’s risk assessment and due diligence process. This included the
monitoring of payments to Company B as the first line of defence. However, no
such monitoring occurred in the case of Company B which, as explained in more
detail in paragraph 4.130 below, enabled JLT Re Colombia to circumvent these
controls and arrange for payments to be made to bank accounts of entities
associated with Company B that had not been authorised for payment during the
due diligence process.
4.125
In addition, there is no evidence that JLT Re Colombia’s ARC discussed Company
B between 1 May 2014 when Company B was initially onboarded and 31 May 2016
when the due diligence refresh took place.
4.126
From 2015 onwards, JLT group entities, including JLTSL, were required to send to
the Financial Crime Team details of all payments made to Overseas Introducers,
including confirmation that the Overseas Introducer was approved, the
contractual arrangement, the amount paid, the payment method and the clients
to which the payment related. The Financial Crime Team did not begin to review
payments made by JLT entities in Latin America, including JLT Re Colombia, to
Overseas Introducers until 17 March 2016. However, it was not until early 2017
that the Financial Crime Team began checking the bank account details of each
individual payment to ensure they were only made to the correct bank account
which had been authorised during the due diligence process.
4.127
Prior to 2017, JLT Group relied on JLT Group entities to ensure they were making
payments to approved bank accounts and JLT Group Internal Audit to review the
JLT Group entity’s payment controls.
4.128
Although the Financial Crime Team monitored payments to introducers from 2015
onwards, there was no effective monitoring of payment controls by the Financial
Crime Team until early 2017 because prior to that date it failed to provide any
assurance that the payments made by JLT group entities to Overseas Introducers
had been paid to the approved bank account.
4.129
During the Relevant Period:
(1) JLTSL made 87 placements on behalf of Company A for seven different
insured clients, as a result of Company B’s introduction, earning
£4,807,938.63
in
commission
(from
total
gross
premiums
of
£93,367,077.47); and
(2) JLTSL paid a total of US$12,393,007.71 to JLT Re Colombia as shared
commission.
4.130
However, JLT Re Colombia did not pay Company B’s share of the commission
directly to Company B. Instead, at Company B’s request JLT Re Colombia made
payments to five bank accounts based in Panama, Switzerland, and the United
States, owned by four different entities associated with Company B. Between 21
May 2014 and 15 February 2017, JLT Re Colombia paid US$10,872,527.94 to
these unauthorised bank accounts. JLT Re Colombia’s finance and compliance
team failed to prevent this.
Discovery and reporting of the Unauthorised Payments
4.131
In October 2016, JLT Group Internal Audit conducted a regular audit of JLT Re
Colombia and identified instances of non-compliance with the conditions
established for the use of Company B, including undisclosed entertainment
expenses for Company A and Company B.
4.132
The Financial Crime Team subsequently visited JLT Re Colombia’s offices in
February 2017. During the visit, the Financial Crime Team identified that the
commission payments had not been made to Company B but instead made to
bank accounts that had not been approved during the due diligence process.
4.133
Immediately following this discovery, the Financial Crime Team escalated its
findings to JLT Group Risk and Compliance, commenced an internal investigation,
conducted on-site anti-bribery and corruption awareness training to JLT Re
Colombia staff and stopped any further payments (amounting to over US$3
million) being made to Company B.
4.134
JLT Group notified the Authority of its discovery in June 2017 and has since
cooperated fully with the Authority’s own investigation.
4.135
In December 2017, through its internal review, JLT Group identified an additional
issue concerning the level of gifts and entertainment provided to individuals from
Company A, Company B and to their respective families. These individuals had
been entertained at nine sporting and other events over a period of three years,
with the annual expenditure averaging approximately US$100,000. Additionally,
the internal review revealed that some of the expenditure on gifts and
entertainment was paid by Company B and then reimbursed via JLTSL and JLT Re
Colombia through commission payments, in breach of the JLT Group internal
policy on gifts and entertaining which applied to JLTSL. JLT Group shared its
findings from the internal review with the Authority together with material.
4.136
Upon discovering the above issues, JLT Group and JLTSL undertook a number of
risk mitigation and control enhancement actions:
(1) JLTSL introduced an additional control requiring any overseas JLT Group
entities passing business to JLTSL to confirm whether the business had been
sourced via a third party introducer or had come directly to the JLT Group
entity. If a third party introducer was used, JLTSL sought confirmation from
the Financial Crime Team that it recommended the approval of the third party
introducer, which was then presented to JLTSL’s governance committee to
make a final decision on whether the business was acceptable;
(2) from March 2017, the Financial Crime Team enhanced its review of payments
to third party introducers by checking the bank account details of each
individual payment;
(3) in April 2017, acknowledging the control failures within the regional ARCs
across JLT Group, senior executives of JLT Group asked management teams,
including those in JLTSL, to ensure their businesses adhered to JLT Group’s
Third Party Payments Policy and that no third party payments were being
made to any other company or bank account other than those approved
through JLT Group’s third party approvals and payments process;
(4) from July 2017, reviews were carried out in JLTSL and JLT Re Colombia to
ascertain what commissions were generated and how the funds were
transferred;
(5) in January 2018, JLT Group Internal Audit undertook a root cause analysis in
respect of the payments made to unapproved bank accounts owned by
entities associated with Company B;
(6) in early 2018, a new JLT Group Head of Financial Crime was hired, whose role
included enhancing the governance framework and anti-bribery and
corruption systems and controls;
(7) JLT Group created a new Third Party Payments Sub-Committee for JLT Latin
America in March 2018 as a further governance measure in the region;
(8) in April 2018, JLT Re Colombia withdrew from any government business in
the country in question that involved introducers, and in July 2018, JLT Re
Colombia withdrew from any engagement on government business in that
country entirely. JLTSL subsequently adopted this decision;
(9) in May 2018, the Financial Crime Team commenced a group-wide bribery and
corruption risk assessment to assess the risks faced by JLT Group, including
JLTSL, and possible mitigation of those risks;
(10) in 2018, the Financial Crime Team developed and delivered targeted anti-
bribery and corruption training, focusing on high-risk territories starting with
JLT Latin America. This involved conducting approximately 60 meetings with
over 120 key staff, and carrying out 40 bespoke training sessions to over 500
staff;
(11) in late 2018, JLT Group issued a new third party approvals and payments
policy, which applied to all group entities including JLTSL; and
(12) a review of JLT Group’s Gifts and Entertainment Policy and Anti-Bribery and
Corruption Policy was completed with new policies issued in late 2018. These
policies again applied to all group entities including JLTSL.
Action taken by authorities in the United States and the country of
4.137
JLTSL’s control failings gave rise to an unacceptable risk that a share of the
commission JLTSL made from placing this 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. This risk of bribery and corruption
materialised in JLTSL’s dealings with Company B. From the commission paid by
JLT Re Colombia to Company B, Company B paid approximately US$3,157,000 in
bribes to government officials employed by Company A. The payments were
made in order to influence these government officials in their official capacity and
to secure an improper advantage in order to assist Company B in obtaining and
retaining business from Company A for JLT Group (including JLTSL and JLT Re
Colombia) and Company B.
4.138
A number of individuals have been convicted in the United States of conspiracy to
launder money in connection with these payments.
4.139
Company A is in the process of being liquidated by Presidential Decree on account
of its corrupt practices.
5
FAILINGS
5.1
The regulatory provisions relevant to this Notice are referred to in Annex A.
5.2
Notwithstanding that JLTSL was required to follow JLT Group processes for
onboarding Overseas Introducers, it failed to ensure that those processes were
appropriate for all of its dealings with Overseas Introducers.
5.3
In particular, JLTSL failed to consider whether additional safeguards or approvals
should be incorporated into JLTSL’s third party processes with respect to Overseas
Introducers engaged by another JLT Group entity where the introduced business
was subsequently placed by JLTSL in the London market. In particular, despite
the heightened bribery and corruption risk posed by Overseas Introducers to
JLTSL, the processes did not require the approval of the KYC DSC in addition to
the approval of the JLT Group entity that was proposing to engage the Overseas
Introducer and the Financial Crime Team.
5.4
As a result, JLTSL did not:
(1) ensure that information, including potential red flags, held by JLTSL
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;
(2) ensure that the other JLT Group entity disclosed all material information about
an Overseas Introducer to the Financial Crime Team for review, consideration,
and action as necessary; and
(3) consider
whether additional monitoring and oversight
of
Overseas
Introducers, in accordance with JLTSL’s processes, was appropriate.
5.5
As a result of these findings, the Authority considers that JLTSL breached Principle
3 by failing to take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems.
6
SANCTION
6.1
For the reasons set out in this Notice, the Authority has found that JLTSL breached
Principle 3. The Authority has considered the disciplinary and other options
available to it and has concluded that a financial penalty is the appropriate
sanction in the circumstances of this case.
6.2
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five-step framework that applies in
respect of financial penalties imposed on firms.
Step 1: disgorgement
6.3
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the
financial benefit derived directly from the breach where it is practicable to quantify
this.
6.4
The financial benefit arising directly from JLTSL’s breach of Principle 3 has already
been disgorged from JLTSL by the US Department of Justice.
6.5
Step 1 is therefore £0.
Step 2: the seriousness of the breach
6.6
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that
reflects the seriousness of the breach. Where the amount of revenue generated
by a firm from a particular product line or business area is indicative of the harm
or potential harm that its breach may cause, that figure will be based on a
percentage of the firm’s revenue. A firm’s relevant revenue will be the revenue
derived by the firm during the period of the breach from the products or business
areas to which the breach relates.
6.7
The Authority considers that the revenue generated by JLTSL is indicative of the
harm or potential harm caused by the breach. The Authority has therefore
determined a figure based on a percentage of JLTSL’s relevant revenue. JLTSL’s
revenue from this business area is the commission it received for all business
generated during the Relevant Period where an Overseas Introducer had
introduced business to another JLT Group entity and that entity had, in turn,
instructed JLTSL to place that business on the London reinsurance market. This
includes the commission and fees JLTSL retained, the commission received by
JLTSL and passed to other JLT Group entities, and the commission subsequently
paid by JLT Group entities to Overseas Introducers. The Authority considers
JLTSL’s relevant revenue to be £27,801,463.
6.8
In deciding on the percentage of the relevant revenue that forms the basis of the
step 2 figure, the Authority considers the seriousness of the breach and chooses
a percentage between 0% and 20%. This range is divided into five fixed levels
which represent, on a sliding scale, the seriousness of the breach; the more
serious the breach, the higher the level. For penalties imposed on firms there are
the following five levels:
(1)
Level 1 – 0%
(2)
Level 2 – 5%
(3)
Level 3 – 10%
(4)
Level 4 – 15%
(5)
Level 5 – 20%
6.9
In assessing the seriousness level, the Authority takes into account various factors
which reflect the impact and nature of the breach, and whether it was committed
deliberately or recklessly.
6.10
DEPP 6.5A.2G(11) lists factors likely to be considered ‘level 4 or 5 factors’. Of
these, the Authority considers the following factors to be relevant:
(1) the breach revealed serious weaknesses in JLTSL’s systems and controls in
relation to its dealings with Overseas
Introducers, particularly in
circumstances where an Overseas Introducer was contracting with another
JLT Group entity, who in turn instructed JLTSL, as an authorised firm, to place
risk on the London reinsurance market;
(2) financial crime appears to have been facilitated by the breach; and
(3) the breach created a significant risk that financial crime, particularly bribery
and corruption, would be facilitated, occasioned, or otherwise occur.
6.11
DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of
these, the Authority considers the following factors to be relevant:
(1) there was no or little loss or risk of loss to consumers, investors, or other
market users individually and in general.
6.12
The Authority also considers that the following factors are relevant under DEPP
Factors relating to the impact of the breach
(1) the level of benefit gained by JLTSL during the Relevant Period was
£8,515,292; and
(2) confidence in the London reinsurance market was put at risk by the breach.
Factors relating to the nature of the breach
(1) the nature of the rules, requirements or provisions breached.
6.13
Taking all of these factors into account, the Authority considers the seriousness
of the breach to be level 4 and so the Step 2 figure is 15% of £27,801,463.
6.14
Step 2 is therefore £4,170,219.45.
Step 3: mitigating and aggravating factors
6.15
Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2 to take into account factors
which aggravate or mitigate the breach.
6.16
The Authority considers that the following factors aggravate the breach:
(1) the Authority has previously issued a Final Notice to JLTSL for a Principle 3
breach, namely by 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 Introducers (see paragraphs 4.16 to 4.17
above);
(2) the Authority has published widely and issued guidance to firms on matters
relating to reducing financial crime risk, including bribery and corruption risk,
when dealing with third parties like Overseas Introducers, both prior to and
during the Relevant Period, as set out at paragraph 4.7 above.
6.17
The Authority considers that the following factors mitigate the breach:
(1) JLTSL reported to the Authority in June 2017 its identification of commission
payments that had not been made to Company B but instead made to bank
accounts that had not been approved during the due diligence process.
(2) JLTSL assisted the Authority’s investigation by providing investigators with
access to materials from JLT Group’s internal investigation, including
transcripts of the interviews it conducted with key employees and financial
analysis.
(3) JLTSL took remedial steps after the breach was identified to ensure that similar
problems could not arise in future, including introducing a control requiring
overseas JLT Group entities producing business to confirm if the business has
been sourced via a third party introducer (see paragraph 4.136 above).
6.18
The Authority acknowledges JLT Group’s disgorgement of $29,081,951 to the US
Department of Justice, which included the financial benefit arising directly from
JLTSL’s breach of Principle 3.
6.19
Having taken into account these aggravating and mitigating factors, the Authority
considers that the Step 2 figure should be increased by 35%.
6.20
Step 3 is therefore £5,629,796.26.
Step 4: adjustment for deterrence
6.21
Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after
Step 3 is insufficient to deter the firm who committed the breach, or others, from
committing further or similar breaches, then the Authority may increase the
penalty.
6.22
The Authority considers that DEPP 6.5A.4G(1)(b) is relevant in this instance and
has therefore determined that this is an appropriate case where an adjustment
for deterrence is necessary. There have been a series of enforcement outcomes
against commercial insurance brokers for failings in their anti-bribery and
corruption systems and controls and these have not had a sufficient deterrent
effect. Given the nature of the misconduct, it is necessary for the Authority to
increase the penalty to achieve credible deterrence.
6.23
Having taken into account the factors outlined at DEPP 6.5A.4G the Authority
considers that a multiplier of two should be applied at Step 4.
6.24
Step 4 is therefore £11,259,592.50.
Step 5: settlement discount
6.25
Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to
be imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have
been payable will be reduced to reflect the stage at which the Authority and the
firm reached agreement. The settlement discount does not apply to the
disgorgement of any benefit calculated at Step 1.
6.26
The Authority and JLTSL reached agreement at Stage 1 and so a 30% discount
applies to the Step 4 figure.
6.27
Step 5 is therefore £7,881,714.76.
6.28
The Authority hereby imposes a total financial penalty of £7,881,700
(rounded
down to the nearest £100) on JLTSL for breaching Principle 3.
7
PROCEDURAL MATTERS
7.1
This Notice is given to JLTSL under and in accordance with section 390 of the Act.
7.2
The following statutory rights are important.
Decision maker
7.3
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
7.4
The financial penalty must be paid in full by JLTSL to the Authority no later than
30 June 2022.
If the financial penalty is not paid
7.5
If all or any of the financial penalty is outstanding on 1 July 2022, the Authority
may recover the outstanding amount as a debt owed by JLTSL and due to the
Authority.
7.6
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those provisions,
the Authority must publish such information about the matter to which this notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority
may not publish information if such publication would, in the opinion of the
Authority, be unfair to you or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.
7.7
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Authority contacts
7.8
For more information concerning this matter generally, contact Andrew Marra
(direct line: 020 7066 9072/email: andrew.marra@fca.org.uk) at the Authority.
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
Relevant Statutory Provisions
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
ensuring appropriate levels of consumer protection, ensuring market integrity and
promoting effective competition.
1.2.
Section 206(1) of the Act provides:
“If the Authority considers that an authorised person has contravened a relevant
requirement imposed on the person, it may impose on him a penalty, in respect
of the contravention, of such amount as it considers appropriate.”
2.
Relevant Regulatory Provisions
Principles for Businesses
2.1.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook. They
derive their authority from the Authority’s rule-making powers set out in the Act.
2.2.
Statement of Principle 3 (management and control) provides that:
“A firm must take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems.”
Senior Management Arrangements, Systems and Controls (“SYSC”)
2.3.
SYSC 3.2.6R provides:
“A firm must take reasonable care to establish and maintain effective systems and
controls for compliance with applicable requirements and standards under the
regulatory system and for countering the risk that the firm might be used to
further financial crime.”
DEPP
2.4.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.
The Enforcement Guide
2.5.
The Enforcement Guide sets out the Authority’s approach to exercising its main
enforcement powers under the Act.
2.6.
Chapter 7 of the Enforcement Guide sets out the Authority’s approach to
exercising its power to impose a financial a penalty.