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$16 Million in Penalties for Bribery of Costa Rican Insurance Officials

Thursday, December 22, 2011
Sandler, Travis & Rosenberg Trade Report

The Department of Justice announced Dec. 20 that one of the largest insurance brokerage firms in the world has entered into a non-prosecution agreement under which it will pay a $1.76 million penalty and adhere to rigorous compliance, bookkeeping and internal controls standards to resolve violations of the Foreign Corrupt Practices Act. The company has also reached a settlement with the Securities and Exchange Commission concerning these violations and agreed to pay approximately $14.5 million in disgorgement and prejudgment interest.

According to a DOJ press release, the company’s United Kingdom subsidiary administered certain training and education funds in connection with its reinsurance business with Costa Rica’s state-owned insurance company (INS). The supposed purpose of the funds was to provide education and training for INS officials. However, between 1997 and 2005 the subsidiary used a significant portion of the funds to reimburse INS officials for non-training related activity, including travel with spouses to overseas tourist destinations, or for uses that could not be determined from the company’s books and records. Many of the invoices and other records for trips taken by INS officials did not provide any business purpose for the expenditures or showed that the expenses were clearly not related to a legitimate business purpose.

The parent company admitted that its subsidiary’s accounting books and records related to the funds, which were consolidated into the parent company’s books and records, did not accurately and fairly reflect the purpose for which the expenses were incurred. The company also admitted that it failed to devise and maintain an adequate system of internal accounting controls with respect to foreign sales activities sufficient to ensure compliance with the FCPA.

However, DOJ states that it entered into a non-prosecution agreement due to the company’s extraordinary cooperation, its timely and complete disclosure of improper payments in Costa Rica and other countries that it discovered during a thorough investigation of its global operations, its early and extensive remedial efforts, the prior financial penalty of £5.25 million that the company paid to the United Kingdom’s Financial Services Authority, and the FSA’s close and continuous supervisory oversight over the company. These factors also led to a substantially reduced monetary penalty.

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