What The US Enforcement Action Against Tysers And H.W. Wood Limited Teaches Us About How Bribery And Corruption Works (Part I)

On 23 November 2023, the United States Department of Justice unsealed the deferred prosecution agreements (‘DPA’) of the cases from the United States v. Tysers Insurance Brokers Limited and H.W. Wood Limited. Tysers and Wood, two UK reinsurance companies, were accused of bribing Ecuadorian government officials. The DPA’s provide valuable insights in how bribe paying works, the damages corruption causes and what regulatory enforcement looks like. We have analysed the agreements for you and summarised the lessons that can be learned form these cases.

Background

The information sheet published alongside the DPA’s provide more insight into the wrongdoing: “The purpose of the conspiracy was for the co-conspirators, including the defendants TYSERS and H.W. WOOD, to enrich themselves by, among other things, corruptly offering bribes to, and for the benefit of, [foreign government officials], in Ecuador, within the meaning of the FCPA, Title 15, United States Code, Section 78dd-3(f)(2)(A), to influence the foreign officials and to secure improper advantages in order to obtain or retain reinsurance business from Seguros Sucre and Rocafuerte”. In short, Tysers and H.W. Wood participated in a bribery scheme to win business at Ecuador state owned entities Seguros Sucre S.A. and Seguros Rocafuerte S.A. 

The DPA’s set out the fines awarded to Tysers H.W. Wood. Tysers shall pay a penalty of USD 36 million and forfeiture of USD 10,59 million. Wood is unable to pay the penalty of USD 22,5 million and forfeiture of USD 2,3 million. Therefore, the penalty for Wood was lowered to (only) USD 508.000.

If we continue reading the settlements we find that the bribe payments were routed through a third party intermediary (as with most bribery schemes, also read our blog “How They Do It blog on bribery and corruption through agents and intermediaries” if you want to learn more about this risk). The objective of the scheme was to win business with Sucre and Rocafuerte. To achieve this, Tysers and H.W. Wood respectively paid USD 20,3 and USD 7,9 million in commissions to two intermediaries.

Unwrapping the bribery method

Let’s have look how the scheme was set up and what we can learn from it. Note that, when assessing bribery schemes, we use a layering approach similar to understanding money laundering. This approach consists of three steps. First, is selecting the method via which bribes are paid, followed by the second step: creation of funding and execution of payments. Finally, the payments are covered up to keep the bribery scheme going.

Step 1: Agree method of paying bribes

The first step in any bribes scheme is to select the methods of payment. The Tysers and H.W. Wood scheme involved the use of agents to route the payments to Ecuador government officials. Using an agent creates a layer of separation between the organisation and the actual act of bribery. I.e., an intermediary is typically used to distance the organisation from illegal activities and make it more challenging to trace the corruption back to the organisation. Because of this, the US Foreign Corrupt Practices Act (‘FCPA’) does not only include bribery offences, but also provisions concerning books and records. Although highly interesting, this is a story for another time.

Back to the Tysers and H.W. Wood scheme – It is not unusual to use multiple or a chain of intermediaries, this was also the case for Tysers and H.W. Wood. Furthermore, sometimes the intermediaries or some links in a chain of intermediaries, are professionals such as lawyers, accountants, bankers or parties that appear to be part of regular business operations. This helps to conceal the true role of the intermediary and creates the impression that the transactions are legitimate.

In the case of Tysers and H.W. Wood, the intermediary companies acted as ‘agents’ with the task to identify and win opportunities in Ecuador. The settlements note that the intermediary companies were presented to “have worked in the reinsurance brokerage business with the chairman of both Seguros Sucre and Rocafuerte and as an advisor to a then-high ranking executive branch official in the Ecuadorian government“.

Organisations typically manage the risk of bribery and corruption by performing due diligence on third parties they do business with. This especially includes due diligence on agents and intermediaries given the risky nature of such third parties. A common ‘misstep’ in bribery schemes were intermediaries are used is the lack of due diligence. Or the use of agents in situations where their presence is unexpected or unnecessary.

The DPA’s do not describe whether or to what extent Tysers and H.W. Wood performed risk assessments and due diligence procedures with respect to their use of agents. However, most likely it is not done properly because if so, they would have found that “local intermediaries of any kind had been banned completely in Ecuador and is now against the rules to use any kind of intermediary for government business“.

Step 2: Create funding and execute payments

The amounts paid to the intermediary companies by Tysers and H.W. Wood were presented as ‘commissions’. A common tactic in the scheme used by Tysers and H.W. Wood is having agents issue fictitious or inflated invoices, acting as a covert conduit for directing funds to the agents. In the figure above it can be observed that the intermediary companies kept a part of the commission. The other part was onward paid to bank accounts that were held in Ecuadorian government officials’ names and in the names of third parties and nominee account holders for the government officials’ benefit. These bank accounts were held in the US, Panama and Switzerland.

It remains unclear whether Tysers and H.W. Wood had limits on commission payments/percentages or internal controls that scrutinised payments to agents. However, the size (percentage) of the commission payments alone should have raised suspicions. Also, the scheme itself does not appear to be very complex and would have raised questions if Tysers and H.W. Wood would have had an effective anti-bribery and corruption program.

Step 3: Cover up the payments

Not much is being mentioned on how the payments were uncovered, or what the responsible Tysers and H.W. Wood employees did to cover up the true nature of the payments to the intermediaries. The second part of the bribe scheme, i.e., payments from the intermediaries to the government officials, were justified as: “…purported investments to be made in [government officials] company…“. This was done by creation of fictitious contracts.

The DPA’s set out the Tysers and H.W. Wood engaged in remedial measures such as: “comprehensively reviewing and enhancing its compliance program, including engaging additional resources with appropriate expertise to assist in evaluating and strengthening its compliance program, making enhancements to the governance and oversight of its compliance program, adding new compliance resources and personnel, updating and enhancing its antibribery and anticorruption policies, enhancing procedures related to onboarding and making payments to third-parties, and enhancing training program“. Based on these remedial measures Tysers and H.W. Wood received cooporation credit.

The agreements also set out the investments that Tysers and H.W. Wood still need to make to address the deficiencies in its internal controls, compliance code, policies, and procedures regarding compliance with the FCPA. The above demonstrates the importance regulators place on having an effective compliance program. I.e., it is not about the bribe itself but on what organisations do to prevent and detect it. The importance of effective compliance is also highlighted in the latest guidance of the DOJ.

In part II we will focus on the regulatory enforcement side of this case. The deferred prosecution agreements shows that both Tysers and H.W. Wood received cooperation credits of approximately 25% of the penalty. We will zoom in on the reasons why they received this discount on the imposed penalties.

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