Willis warning: five steps to a fine

The £6.9m FSA fine on Willis is the biggest that the financial services watchdog has ever imposed on an insurance broker, outstripping the £5.5m penalty dished out to Aon in early 2009.

The sum would have been even greater if Willis had not made an early settlement with the FSA, enabling the company to qualify for a 30% discount. Without this deduction, Willis would have faced a £9.85m penalty.

At the centre of the FSA investigation is £27m worth of payments made by Willis to foreign business partners that introduced business to the broking giant between January 2005 and the end of 2009. All of the payments were made in countries where the risk of corruption is high.

Willis Ltd split the £59.7m worth of commission it earned on business introduced by these overseas third parties with those businesses. The payments accounted for around 45% of the brokerage earned by Willis from the business in question.

The FSA’s investigation threw up suspicious payments for $227,000 (£14,000) made to two overseas third parties in relation to business carried out in Egypt and Russia between 2005 and 2008, which Willis has reported to the Serious Organised Crime Agency.

Willis Ltd was not fined for involvement in corrupt activity, however. The penalty stems specifically from failures to demonstrate that it had been above board in its relationships with its foreign business partners in the territories in questions.

So, where did Willis slip up?

1) Failing to make a business case

The FSA’s decision notice states that Willis Limited “failed to ensure that it established and recorded an adequate commercial rationale to support its payments” to the overseas third parties.

In each case, an adequate business case would have demonstrated why Willis Limited needed to use a foreign partner to win business and what services it would receive in return for splitting the commission.

As an example, the FSA highlighted a relationship Willis Ltd had with a Buenos Aires-based broker, which introduced primarily marine insurance business in Argentina from 2002 onwards.

Willis Ltd had not reviewed its business case in order to show why it needed to use an overseas third party, how the latter would help it to win business and the services it would provide.

In addition, Willis Ltd did not document why payments were made to the broker’s personal account and to an account in America. Notwithstanding this inadequate due diligence and business case, the relationship was renewed.

2) Not keeping adequate records

Between January 2005 and August 2008, Willis Ltd did not adequately record why it shared commission with the foreign partners that introduced business to the company. This meant, according to the FSA, that the company could not monitor the effectiveness of its procedures. A review carried out by Willis’s own compliance division showed that there was insufficient detail to explain why commission had been shared with many of the overseas third parties in question.

3) Not carrying out sufficient due diligence

Willis Ltd didn’t carry out adequate due diligence to evaluate the risks involved in doing business with foreign business partners in high-risk locations, the FSA said. In addition, the report found confusion about the degree of due diligence that needed to be carried out.

By carrying out this due diligence, Willis Ltd could have assessed whether the third parties in question were connected with the insured, the insurer or public officials - significant factors in assessing the risk of that improper payments had been made to help Willis win or retain business. Between January 2005 and August 2008, Willis Ltd carried out some due diligence, but this wasn’t sufficient, according to the FSA notice.

4) Not keeping close enough tabs on staff

The notice says that Willis Ltd did not adequately monitor its staff to ensure an adequate commercial rationale had been established each time it engaged an overseas third party.

5) Not doing enough to implement anti-corruption measures

In August 2008, Willis Ltd introduced improved policies and guidance designed to mitigate the risk of bribery and corruption. But it failed to ensure that those policies were adequately implemented with staff who continued to fail to carry out sufficient due diligence regarding payments to overseas third parties. Although it reviewed how its new policies were operating in late 2008, leading to revised guidance in May 2009, Willis Ltd should have taken additional steps before then to ensure that its improved policies were being adequately implemented by staff.

What it all adds up to

The decision notices states that: “These failures contributed to a weak control environment surrounding the making of payments to overseas third parties. This gave rise to an unacceptable risk that payments made by Willis Ltd to overseas third parties could be used for corrupt purposes, including paying bribes to persons connected with the insured, the insurer or public officials.”