global insurance management

Financial Crime (Jan '14)


Jan 29 2014

Financial Crime - Update (3)

Reason for issue: Update and reminder.

Action required:  Read and ensure your CPD record in your Training Log is updated.

This is the third paper in a series that is intended to support the ongoing training and competence of all staff in relation to their knowledge and understanding of how we look to combat financial crime.

The first paper was a general overview whereas subsequent ones are more topic-specific.

The Financial Conduct Authority (FCA) defines Financial Crime as any kind of criminal conduct relating to money or to financial services or markets, including any offence involving:

  1. fraud or dishonesty; or
  2. misconduct in, or misuse of information relating to, a financial market; or
  3. handling the proceeds of crime; or
  4. the financing of terrorism;

In accordance with FCA Rules, we are required to ensure that we have policies and procedures in place that shows how our Directors, managers and staff understand what is required of them to prevent the firm being used for any aspect of financial crime. 

So the areas covered by our obligations to prevent Financial Crime are as follows:

  • Fraud;
  • Bribery and Corruption;
  • Money Laundering;
  • Data Security;
  • Financial Sanctions;
  • Market Abuse; Suspicious Transaction reporting.

We covered Market Abuse and Financial Sanctions in “Financial Crime 2”, so this paper involves Fraud and Bribery and Corruption.

Please be aware that these briefings are designed to support the firm’s programme of maintaining competence and are not a substitute for more in-depth training.

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Fraud

The term “fraud” is used to describe such acts as theft, deception, bribery, forgery, corruption, false accounting and conspiracy to commit these offences.  For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to another party.

A recent estimate from Experian suggests that insurance fraud could be costing in the region of £1 billion per year; something like 3,000 fraudulent claims totalling £19 million per week.

Left undetected, this is a real cost to the industry and, ultimately, the consumer through the pricing of insurance products.

Three types of fraudster have been identified as being prevalent within the insurance industry and are typified as follows:

Ad-hoc opportunist:

  • fraudsters who seek to misrepresent themselves in the hope of extracting money from the insurer.  In some cases the individual may not even believe they are committing a fraud, simply seeking to offset the cost of their premium by making a little extra cash from their insurer.  Alternatively, it may be low-level one-off ‘fronting’ by mum and dad who knowingly opt to take out car insurance on behalf of a teenage son or daughter.

Organised networks:

  • ‘professional’ or career fraudsters that overtly and indiscriminately target organisations including via large-scale cash-for-crash scams.  For them fraud is simply an opportunity to make money at every turn, across any number of financial products and across international boundaries.

‘Ghost-brokers’:

  • criminals operating as unauthorised insurance intermediaries, who offer to arrange cheap motor insurance policies for the general public for their own financial gain.  A ghost-broker will sell a motorist forged motor insurance certificates and false proof of no claims bonus.  Alternatively, they will take out car insurance policies on-line on the motorist’s behalf and use false details to secure cheaper premiums.  The ghost-brokers often insist that the motorist pays them directly, rather than the insurance company; then they pocket the money or pay the insurance company with a stolen credit card.  The ghost-broker may be an individual or part of a more organised network of criminals.

Potential insurance fraud may be:

  • suspicious or exaggerated claims;
  • invoicing personal insurances to a corporate body;
  • payment of premiums in cash.

Staff fraud occurs when an individual:

  • dishonestly makes a false representation,
  • wrongfully fails to disclose information, or
  • abuses a position of trust, with the intent to make a gain or to cause a loss.

In addition to the insurance aspect of our business, fraud can also occur in recruitment.  Common types of pre-employment fraud might be where the applicant:

  • uses a false identity;
  • impersonates an innocent party;
  • uses a false immigration status;
  • provides false education and/or professional qualifications;
  • uses false references;
  • conceals his or her employment history;
  • conceals his or her employment record;
  • conceals unspent criminal conviction(s);
  • conceals adverse financial and/or credit history.

At all times, Directors and staff are required to act honestly and with integrity and to safeguard the resources for which they are responsible.  Therefore, where we consider it to be significant, we will notify the FCA and other appropriate authorities immediately if:

  • we become aware that an employee may have committed a fraud against one of our customers; or
  • we become aware that a person, whether or not employed by us, may have committed a fraud against us; or
  • we consider that any person, whether or not employed by us, is acting with intent to commit a fraud against us; or
  • we identify irregularities in our accounting or other records, whether or not there is evidence of fraud; or
  • we suspect that one of our employees may be guilty of serious misconduct concerning his honesty or integrity and which is connected with our regulated activities or our ancillary activities.

This staff briefing supports our statement on fraud prevention and is part of the firm’s overall activity that will make it difficult for our firm to be used to further financial crime.

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Bribery and Corruption

Bribery and corruption has a range of definitions in law, but the fundamental principles apply universally:

  • Bribery is the offer, promise, giving, demanding or acceptance of an advantage as an inducement for an action which is illegal, unethical or a breach of trust.
  • Corruption is the misuse of public office or power for private gain; or misuse of private power in relation to business outside the realm of government.

The Bribery Act 2010 was created to replace existing law, which was a complicated and confusing combination of statutory and common law offences that was the result of piecemeal development over more than 100 years and has been effective from 01 July 2011.

Under this Act it is an offence:

  • to offer, promise or give a bribe in the public or private sectors;
  • to request, agree to receive, or accept a bribe in the public or private sectors;
  • to bribe a foreign public official in order to obtain or retain business, and
  • for a commercial organisation, to fail to prevent bribery.

The FCA does not enforce or give guidance on the Bribery Act but FCA-regulated firms have a separate, regulatory obligation to establish and maintain effective systems and controls to mitigate financial crime risk, which includes the risk of corruption as well as bribery, and so is wider than the Bribery Act’s scope.

It has also been indicated that a firm can avoid prosecution for breaches of the Act if it can demonstrate that it has something referred to as “adequate procedures” to prevent bribery and corruption and these are in 6 broad categories:

  • Proportionality, Top Level Commitment, Risk Assessment, Due Diligence, Communication, and Monitoring and Review

As a result, we have:

  • Developed a clear corporate policy that helps senior officers and employees to recognise corrupt practices and makes it clear that they are unacceptable to the company and are illegal.
  • Ensured that members of senior management are familiar with the policy and that it is understood and supported at all levels of the company and where applicable, throughout the company’s international subsidiaries and trading partners.
  • Communicated a uniform corporate culture that stresses the policy as a core value.
  • Warned our senior officers and employees that violating the policy is a disciplinary offence.
  • Put in place positive measures to educate senior officers and employees and not simply circulate the policy.
  • Briefed staff in periodic training sessions to reinforce awareness.
  • Ensured that there are clear, confidential channels of communication for reporting abuse and/or queries, making sure that we comply with any national legislation for whistleblowers.

Finally, what do we expect from our management and staff?

All employees are expected to conduct themselves with integrity, impartiality and honesty at all times and must maintain a high standard of professionalism that will not open themselves up to suspicion of dishonesty or put them in a position of conflict between their work and their private interests.

This means:

  • Not to offer or make any bribe, unorthodox or unauthorised payment or inducement of any kind to anyone;
  • Not to solicit business by offering any bribe, unorthodox or unofficial payment to customers or potential customers;
  • Not to accept any kind of bribe, unorthodox or unusual payment or inducement that would not be authorised by the firm in the ordinary course of business;
  • To refuse any bribe or unorthodox payment and to do so in a manner that is not open to misunderstanding or giving rise to false expectation; and to report any such offers;
  • Not to make facilitation payments;
  • To report any breaches of the policy, related principles or standards or of any associated legislation; where necessary using our Whistleblowing policy and procedures.
  • To understand that any identified breach of our anti-bribery and corruption procedures will be dealt with under our disciplinary procedures.

Therefore, if you become aware, or have any indication, that someone within the firm, or in a client organisation, or at a third party (including those who are self-employed) who provides services to or on behalf of this firm, is offering or receiving an improper payment, or you have been requested to pay or receive an improper payment, you must immediately report all the facts as you know them using our whistleblowing procedure.

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