Latin American Insurance And Reinsurance Trends: Anti-Corruption Enforcement

Author:Mr M. Millett
Profession:Edwards Angell Palmer & Dodge LLP
 
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A recurrent issue for foreign insurance and reinsurance companies active in Latin American in the last few years has been anti-corruption compliance, both as a compliance issue and an underwriting tisk.

Federal Corrupt Practices Act

On July 31, 2009, the SEC filed a civil enforcement action against Nature's Sunshine Products, NSP's CEO Douglas Faggioli, and NSP's former CFO, Craig D. Huff, arising out of alleged bribes that NSP made to Brazilian customs officials in violation of the Foreign Corrupt Practices Act. The SEC brought only one cause of action against Messrs. Faggioli and Huff: for a violation of Sections 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 for failing to keep accurate books and records. In connection with a settlement of this enforcement action, NSP paid a penalty of $600,000, and Faggioli and Huff each paid $25,000 penalties. A number of industry commentators have noted that the SEC's decision to bring this action against Messrs. Faggioli and Huff, who are not alleged to have been aware of the alleged bribes, imposed a de facto strict liability standard on these corporate executives.

The NSP case represents only one example of the risk posed to insurance companies doing business in Latin America, both as a direct compliance risk and as a potentially covered loss for insureds. Indeed, Latin America has consistently been a hot spot for FCPA compliance issues, with six of the top twelve problem jurisdiction coming from the region in 2008 (Ecuador, Argentina, Venezuela, Bolivia, Brazil and Mexico).

The United States Foreign Corrupt Practices Act was enacted in 1977 as a response to findings that certain companies were making illegal payments to foreign government officials, politicians and political parties to obtain business advantages. The law came to greater prominence between 2001 and 2006, however, as the average number of new Department of Justice prosecutions quadrupled compared to the previous five year period.

The law is designed to prevent companies and individuals with any connection to the United States from obtaining or retaining a competitive advantage by giving gifts or bribes to officials of countries other than the U.S. The Act applies to foreign employees and agents of any company that is a U.S. "issuer" (any corporation that has issued securities that have been registered in the U.S. or who is required to file periodic reports with the SEC) and of any domestic concern (a citizen, national or resident of...

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