Bribery

Bribery Compliance Awareness Quiz

Test your knowledge of the UK Bribery Act 2010 and its implications for brokers and associated persons. This quiz covers essential legislation, risk factors, and compliance requirements important for maintaining integrity in business operations.

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The definition and impact of bribery
Legislation surrounding bribery in the UK
Best practices for compliance and risk assessment

22 Questions6 MinutesCreated by ReviewingGuide57

When a broker carries out business on behalf of an insurer or Lloyd's they expect that its conduct ensures they remain compliant with the UK Bribery Act 2010 because a broker's act could create criminal liability for them as an "Associated Person".

WHAT IS BRIBERY: And what does it mean to Brokers?

Bribery is the giving or receiving of a financial or other advantage in connection with the "improper performance" of a position of trust or a function that is expected to be performed impartially or in good faith.

Bribery does not have to involve cash or actual payment but could be a lavish gift or treatment during business activities intended to obtain an unfair advantage.

Examples of commercial bribery could include:

Bribery to secure a contract or an order to win or retain business
Bribery of a foreign public official to secure a contract or obtain a licence or authorisation of a company
Bribery to falsify an inspection or loss adjuster's report

There could be a number of red flags to alert to the risk of bribery including:

Unusual payments to third parties outside the normal standards or routine such as high commissions or large cash advances
Payments made to a third party with no apparent business purpose
Payments made to a third party which is not commensurate with the product/service being paid for
Timing, frequency and value of gifts and/or entertainment could be construed to have an ulterior purpose if excessive and/or coincide with a high value transaction/negotiation

LEGISLATION
The UK Bribery Act 2010 consists of 4 offences set out under the following sections of the Act:

Bribing another person (Section 1)
Being bribed (Section 2)
Bribing a Foreign Public Official (Section 6)
Failure by a commercial organisation to prevent bribery by "Associated Persons" (Section 7)

LEGISLATION - Continued
A Foreign Public Official ("FPO") is an individual holding a legislative, administrative or judicial position or who exercises a public function for or on behalf of a country outside the UK or for any public agency/enterprise of that country. It can also be an official of agent of a public international organisation such as the UN or World bank.

The Section 7 offence is most relevant to the broker-managing agent-insurer relationship as it may lead to a commercial organisation being found criminally liable if they fail to prevent persons associated with them from bribing another person in order to obtain/retain business or a business advantage for that commercial organisation.

LEGISLATION - Continued
The only defence to a Section 7 offence is to show that a commerical organisation has adequate procedures in place designed to prevent bribery.

Commercial organisations include:

UK companies, partnerships and other incorporated bodies WHEREVER they conduct business and
Foreign companies, partnerships and other incorporated bodies who conduct business in the UK

To trigger the offences, the conduct can take place anywhere in the World. Therefore corrupt actions by "Associated Persons" of any Managing Agents and/or Insurers would fall within the Act and could potentially result in a charge against the Managing Agent/Insurer.

LEGISLATION - Continued
The UK Bribery Act does not permit facilitation payments, which is the practice of paying small sums of money to induce foreign officials to perform routine functions they are already obliged to perform. Examples of such routine functions include issuing licences or permits. Even local business practices, which could the form of facilitation to public officials, unless expressly permitted by law, would not be a defence.

PENALTIES:

Failure to comply with the Bribery Act could lead to a maximum of 10 years imprisonment and/or an unlimited fine for an individual, and an unlimited fine can be imposed for failure to comply by a commercial organisation.

REGULATORY ACTION

Brokers should also be mindful of enforcement action by Regulators, regardless of domicile, for failures in anti-bribery compliance. The UK Financial Services Regulator has already fined two major brokers penalties of £5.25m and £6.895m, not for any act of bribery, but for failure to have adequate systems and controls in place to prevent bribery.

IMPACT ON COVERHOLDER'S/BROKER'S ARRANGEMENTS
A coverholder/broker, as a Managing Agent and/or Insurer's "Associate Person", no matter where located, could create criminal liability under the Act, if the Managing Agent and/or Insurer does not have adequate systems and controls in place to prevent and act of bribery by that "Associated Person", when they are obtaining or retaining business for the managing Agent/Insurer's benefit.

The Act broadly defines an "Associated Person" as an individual or company performing services for or on behalf of an organisation and a coverholder/broker is therefore an "Associate Person" of a Managing Agent/Insurer when it enters in to a contract on their behalf.

IMPACT ON COVERHOLDER'S/BROKER'S ARRANGEMENTS - Continued
Managing Agents/Insurers must therefore ensure that coverholders/brokers are not making potentially improper payments to win or retain business for their benefit and to counter this, should have effective systems and controls in place. Coverholders/Brokers may therefore be questioned on this as part of any audit.

Guidance issued by the UK Government recommends that commercial organisations and their "Associated Parties" implement a number of risk based measures to mitigate the risk of bribery around 6 Guiding Principles:

Proportionate Procedures
Top Level Commitment
Risk Assessment
Due Diligence
Communication (including training)
Monitoring and Review

IMPACT ON COVERHOLDER'S/BROKER'S ARRANGEMENTS - Continued
Coverholders/Brokers can therefore be expected to be questioned about their compliance with some or all of the following:

That risk based assessments and due diligence are carried out on third parties (e.g. On any producing brokers)
That the above will take account of:
1. territorial risk e.g. The risk of corruption within a country
2. the nature of the insurance and its origins e.g. Whether the business has been acquired from a third party and how the business is retained and documented
3. whether the business involves industries at higher risk of bribery, relationships with government officials or high value contracts
4. the size of premium, the distribution method and payment methods
5. financial crime history of the entities/individuals involved
That where relevant, coverholders/brokers are in compliance with financial crime requirements imposed by Managing Agents/Insurers
That coverholder/broker staff are adequately trained and aware of their obligations to ensure Managing Agents/Insurers remain compliant under the Act
That coverholders/brokers have sound anti-financial crime systems and controls

What is Bribery?

Bribery is the giving/receiving of an improper advantage in connection with:

The improper performance of a function which is expected to be performed impartially or in good faith

A function performed by a public official

Transactions with an overseas company

Transactions with high risk and/or high value business

When would a coverholder/broker be considered an Associated Person of a Managing Agent or Insurer?

If they are engaged in business with them & are located in the UK

If they are engaged in business with them & located anywhere in the World

If they engage in business with no connection to the Insurer or Managing Agent

Even if they don't engage in business with the Managing Agent or Insurer

What type of measures should brokers expect Managing Agents to put in place to monitor them?

Check whether the broker:

Carries out risk based assessments & due diligence on relevant 3rd parties

Provides adequate anti-financial crime training for employees

Has adequate financial crime systems & controls in operation

All of the above

What UK principles should brokers be aware of when implementing risk based measures to counter bribery? Select all that apply.

You are a member of a team negotiating a high value contract with a new producer. Which of the following might give rise to a suspicion of bribery?

The producer offers to fly your team overseas for the weekend for a big sports event

The producer offers a cash payment in return for the promise tat negotiations will not be undertaken with any other producers

The producer promises an all expenses weekend of entertainment for both teams upon successful completion of negotiations

All of the above

You are in negotiations with a current supplier to renew their contract. Which of the following situations might seem suspicious?

The supplier states that they have raised the prices of their services but that increase is to be paid directly to an un-named third party

The supplier states that they have increased their prices due to an increase in costs and bills are to be paid via normal channels

The supplier states that the company is trying to cut down on printing and requests permission to send bills via email in the future (instead of by post)

The supplier requests that future payments are made electronically only to the same bank account

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