Cross-Border Caution: 5 Anti-Corruption Law Compliance Program Tips
August 16, 2017
By Gary Scales, Partner at McInnes Cooper,
Sean Corcoran, Articled Clerk at McInnes Cooper
In the not-so-distant past, Canadian enforcement of its anti-corruption and anti-bribery legal regime has been relatively laid-back. But the last few years signals Canadian companies that the Canadian government has gotten serious about anti-corruption enforcement. June 2013 amendments to the Corruption of Foreign Public Officials Act (CPFOA) expanding its scope and reach and June 2015 implementation of the Extractive Sector Transparency Measures Act (ESTMA), have joined the existing Criminal Code of Canada’s anti-corruption provisions to form Canada’s anti-corruption legal regime. If they haven’t already done so, it’s time for Canadian companies, particularly those doing business internationally, to get equally serious about the legal exposure that anti-corruption laws pose and to implement an anti-corruption compliance program to manage those risks.
Here’s an overview of Canada’s anti-corruption legal regime, three reasons why corporations should take anti-corruption compliance seriously, and how to implement an anti-corruption compliance program to manage the legal risks.
CANADA’S ANTI-CORRUPTION LEGAL REGIME
Canada’s anti-corruption legal regime is comprised primarily of three laws dealing directly with domestic and foreign bribery and corruption.
- The Corruption of Foreign Public Officials Act (CFPOA).
The CPFOA is the centerpiece of Canada’s anti-corruption legal regime in the international context.
OECD Anti-bribery Convention. For many years, international institutions such as the United Nations and the Organisation for Economic Co-operation and Development (OECD), an inter-governmental body with the mission to promote policies that improve the economic and social well-being of people around the world, have encouraged developed countries to heighten supply-side anti-corruption enforcement. In 1997, Canada signed onto the OECD’s Anti-bribery Convention in a move to join other G8 members in combating corruption and widespread bribery known to occur in international transactions. The OECD Convention serves as a template for countries to establish their own anti-corruption laws. Countries that have enacted anti-corruption legislation include the United States (Foreign Corrupt Practices Act), the United Kingdom (Bribery Act 2010) as well as the People’s Republic of China, Mexico, Japan, Germany, South Korea, Hong Kong, the Netherlands and France.
CFPOA. In February 1999, the Canadian government implemented the OECD Anti-bribery Convention by enacting the Corruption of Foreign Public Officials Act (CFPOA). The CFPOA is meant to prevent Canadian entities and their agents from bribing foreign officials, and as a tool to strengthen the Canadian government’s objective of anti-corruption enforcement. Before the CFPOA took effect, it wasn’t illegal for Canadian citizens or entities to offer bribes to foreign public officials; the CFPOA changed that: it became an indictable offence to:
- Offer or agree to give any benefit to a “foreign public official” as consideration for any act or omission related to government business (CFPOA section 3(1)).
- Commit any fraudulent accounting practices for the purpose of bribing a “foreign public official” (CFPOA section 4(1)).
In 2004, the OECD’s Phase 2 Report on the Application of the OECD’s Anti-bribery Convention identified a number of perceived legislative deficiencies on Canada’s implementation of its obligations under the Convention via the CFPOA. In response, the Canadian government drafted Bill C-31, which died in the committee stage. In 2013 the Canadian government introduced Bill S-14, in another attempt to address the criticisms in the OECD’s Report. On June 19, 2013, Bill S-14 and its amendments to the CFPOA took effect, with one exception, the key amendments being:
Expanding Canada’s jurisdiction for prosecution of offences. One of the key amendments to the CFPOA, section 5 greatly expands the law’s reach, strengthening Canada’s ability to further its anti-corruption objective: any corporation formed under the laws of Canada is now exposed to prosecution for their activities regarding the corruption of foreign officials in foreign jurisdictions. Before section 5, the CFPOA limited the law’s reach to conduct with a “significant and real” connection to Canada. Section 5 of the CFPOA now makes it clear that the CFPOA applies to all Canadian citizens, permanent residents and Canadian entities (public body, corporation, association, company, firm or partnership incorporated, formed or organized under federal or provincial Canadian law) – and their agents – whether the offence is committed in Canada or in a foreign jurisdiction.
- “Business”. The amendments broadened the definition of “business” to include any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere.
- “Shady Accounting”. They also create a ‘books and records’ offence to deal with ‘shady accounting’.
- Penalties. The maximum term of imprisonment for violations of the CFPOA increased from five to 14 years.
- Enforcement. The RCMP is granted exclusive jurisdiction over enforcement of the CFPOA.
- Facilitation Payments (Date to be Determined). Bill S-14 will also phase out the “facilitation payment” exemption, but this amendment has not yet taken effect. “Facilitation payments” are those made to expedite or secure any act of a routine nature that’s part of that public officials normal duties, common in many countries. For now, “facilitation payments” are still permitted under the CFPOA, but this is expected to be repealed in the near future. The delayed effective date allows the government, in consultation with industry and law enforcement officials, to repeal the facilitation payments exemption when enough notice has been provided. When the provision is repealed, “facilitation payments” will be in contravention of the CFPOA.
As in all criminal matters, the prosecution must prove all essential elements of the alleged offences under the CFPOA beyond a reasonable doubt. But unlike most criminal matters, there’s no limitation period by which the Crown must lay a charge for a CFPOA violation.
- Criminal Code of Canada.
Three key Criminal Code of Canada provisions are intended to combat domestic bribery and corruption – and just like CFPOA offences, there’s no limitation period on these Criminal Code offences either:
Bribery of judicial officers, etc. Section 119(1)(b) makes it an indictable criminal offence for an individual to give or offer any money, valuable consideration, office, or place of employment to a member of the judiciary, Parliament, or legislature of a province, in respect of anything done or omitted to be done by that person in connection with any government business.
Frauds on the government. Section 121 makes it an offence to give or offer any “official” a benefit of any kind as consideration for cooperation, assistance, exercise of influence, or act or omission in connection with any government business. Section 118 of the Code defines “official” as any person who holds an office or is appointed or elected to discharge a public duty.
Fraudulent concealment. Section 341 of the Code is essentially a “cook the books” provision: it makes it an indictable offence for anyone to fraudulently take, obtain, remove or conceal anything.
The Code’s language extends these offences to capture indirect benefits or offers, as well as benefits or offers to family members of “officials” or other office holders.
- Extractive Sector Transparency Measures Act (ESTMA).
In 2013, the Canadian government announced to G8 members Canada’s commitment to establishing a mandatory disclosure regime for the resource extraction industry. The Resource Revenue Transparency Working Group’s 2014 report recommended all public companies listed on Canadian stock exchanges disclose all payments made to foreign governments during all stages of the project life cycle. On June 1, 2015, in furtherance of this report, the Extractive Sector Transparency Measures Act (ESTMA) took effect. ESTMA serves as both a detection and a deterrence mechanism aimed at fighting corruption in the extractive resource sector through increased financial transparency.
- Mandatory Reporting. To achieve this transparency, ESTMA creates a mandatory disclosure regime aimed at fighting corruption in the extractive resource sector by requiring certain commercial developers of oil, gas or minerals, whether domestically or abroad, to report specified payments to both foreign and domestic government bodies (including Indigenous or Aboriginal governments).
- Offences. Under ESTMA, non-compliance with the reporting requirements, knowingly providing false or misleading information in regard to a payment made, or structuring payments to avoid the disclosure requirements are offences punishable on summary conviction.
3 REASONS WHY ANTI-CORRUPTION LAW COMPLIANCE IS CRITICAL
Non-compliance with laws is, of course, always a source of liability exposure, though the risk and the extent of that exposure varies. In the case of anti-corruption law compliance, the risk is high and the liability exposure substantial:
- Criminal enforcement is on the up and up.
In 2008, the RCMP established its International Anti-Corruption Unit dedicated to raising awareness about and enforcing the CFPOA. The Unit is a member of the International Foreign Bribery Taskforce (IFBT), an international taskforce assembled to fight foreign bribery, and includes the FBI, the Australian Federal Police, the United Kingdom National Crime Agency (NCA) and the RCMP. The 2013 Bill S-14 amendments to CFPOA gave the RCMP exclusive jurisdiction to investigate and lay charges under the CFPOA. This enforcement authority, combined with the section 5 amendments extending CFPOA’s geographic jurisdiction, considerably extends the RCMP’s reach. In 2011, the RCMP’s Anti-Corruption Unit had zero ongoing investigations under CFPOA; on July 11, 2017, the Financial Post’s “Appellate court ruling shows Canada’s anti-bullying law has teeth”, reported that the Unit had 40 ongoing investigations.
- So is the corporate (and personal) criminal liability exposure.
The consequences to which violating Canada’s anti-corruption/anti-bribery legal regime exposes an organization – and its members – are significant.
Imprisonment. Both the CFPOA and the Criminal Code provide for imprisonment of guilty individuals:
- CFPOA’s section 3(1) makes it an indictable offence to offer or agree to give any benefit to a foreign public official as consideration for any act or omission related to government business; section 4(1) makes it an indictable offence to commit any fraudulent accounting practices for the purpose of bribing a foreign public official. Individuals guilty of either offence risk imprisonment for a term not exceeding 14 years.
- Criminal Code section 119 (Bribery of judicial officers, etc.) offences are punishable by imprisonment for a term not exceeding 14 years.
- Criminal Code section 121 (Frauds on the government) offences are punishable by imprisonment for a term not exceeding five years.
- Criminal Code section 341 (Fraudulent concealment) offences are punishable by imprisonment for a term not exceeding two years.
Courts are willing to impose imprisonment for violations. For example, in R. v. Karigar, a case the Ontario Court of Appeal confirmed in July 2017, Mr. Karigar was convicted of conspiring with several individuals associated with a Canadian corporation to offer bribes to government officials and businessmen in India to win a multi-million dollar contract contrary to CFPOA section 3(1)(b). The court sentenced him to imprisonment for three years after weighing the mitigating factors (the accused cooperated with the prosecution, had no prior criminal involvement, and the bribery scheme was a complete failure i.e., no benefits were obtained) and the aggravating factors (the scheme was sophisticated and well-planned, $450,000 was advanced during Karigar’s involvement, Karigar’s sense of entitlement, and he led the conspiracy). At the time, the maximum prison sentence under the CFPOA was five years; since the Bill S-14 amendments, the maximum is now 14 years.
Fines. Since corporations can’t be imprisoned, both CFPOA and ESTMA also empower courts to issue fines on both corporations and on individuals:
- No CFPOA Maximum. At least there are legal maximums on prison terms for breaches of CFPOA: there is no such limit on fines for CFPOA violations. The CFPOA specifies maximum imprisonment terms for individuals, but it’s silent on penalties for corporations. This means the Criminal Code’s default provisions dealing with monitoring penalties for organizations apply. But there’s no maximum penalty for an indictable offence under the Criminal Code, so there’s no maximum fine for an offence under CFPOA. The quantum of fines is, ultimately, in the court’s discretion (though they must exercise that discretion in a judicial manner). And courts seem equally willing to impose fines – big ones – for violations; their consideration of multiple factors also suggests a willingness to impose even higher ones. For example, in R. v. Griffiths Energy International, a 2013 Alberta case, a Canadian corporation pleaded guilty to violating CFPOA section 3(1) by paying a $2 million bribe and shares to a corporation owned by the wife of a foreign ambassador. A new management team discovered its predecessors had paid the bribe, then acted quickly to fully investigate and self-reported the crime. The corporation then fully cooperated with the authorities, saving the cost of a lengthy and complex prosecution. The court imposed a $10.35 million fine (jointly submitted by the Crown and defence), balancing the aggravating and mitigating factors and placing considerable emphasis on Griffiths’ cooperation with the prosecution, counterbalanced by the seriousness of the offence.
- Multiply the ESTMA Maximum. The prescribed punishment for a violation of ESTMA is a fine not exceeding $250,000. At first blush this is significantly lower than the liability under CFPOA – but under ESTMA, an offence committed or continued on more than one day constitutes a new offence each day – and potential liability of up to $250,000 for each day a person or entity remains in contravention of ESTMA. For example, if a resource extraction company is guilty of making a false accounting entry about a payment to government that goes undiscovered for weeks or months, the liability exposure will just keep accumulating.
- ESTMA Personal Liability. Officers and directors who authorize the commission of an offence under ESTMA become a party to the offence and personally liable to a fine not exceeding $250,000 – even if the individual or entity on whose behalf that director or officer was acting has not been convicted of an offence under ESTMA.
- Don’t forget about civil (contractual) liability exposure.
As anti-corruption enforcement gains momentum, so too do efforts to avoid related liability. There are two main sources of such contractual liability.
Agency Relationships. More and more companies are incorporating an “anti-corruption” clause in their agreements to protect them when they retain contractors or third parties, particularly in foreign jurisdictions. An anti-corruption clause is intended to shield each party from liability if the other engages in “corrupt” conduct: generally, each party gives a legally binding contractual promise (a representation and/or warranty) that they have not and will not in the future be involved in corrupt activities in relation to the contract. If one does so, the clause typically allows the other party to suspend or terminate the contract or claim monetary compensation from the other. A company retaining an agent or a third party can (and should) use an anti-corruption clause in its contracts to shield it from the potentially significant corruption liability as a result of an agent’s activities. But such clauses can equally be a sword against that same company: it will also have obligations – and potential liability – under the contract if it breaches the anti-corruption clause. Similarly, companies that act as an agent or third party contractor should expect to see an anti-corruption clause in their agreements with their clients, and be prepared to comply or risk contractual, as well as criminal, liability.
Predecessors. An entity that acquires or joins a target entity, such as via a merger and acquisition deal or a joint venture, might be acquiring more than it bargained for: that target entity’s liability for prior corrupt activities in which it – or its agent – was involved. Due diligence into not just the target of the deal but also into any of its agents, both current and past, as well as contractual clauses to deal with any such successor liability, are critical to avoid the potentially significant liabilities it could bring into the deal.
5 ANTI-CORRUPTION COMPLIANCE PROGRAM TIPS
Anti-corruption and anti-bribery law compliance starts just as all compliance programs do: with due diligence and a systematic approach. Here’s a five-step plan to help companies get started with an anti-corruption compliance plan.
- Make it a (priority) corporate governance matter.
The liability exposure for legal risks is generally high and getting higher; take, for example, cyber security risks, oppression risks and occupational health and safety risks (to name a few). Some are sufficiently significant to warrant high-level attention; this is one of them. The risks of criminal, financial and civil liability are high for certain businesses – and don’t discount the impact of negative media scrutiny if there is an alleged violation of anti-corruption laws. The exercise of due diligence in complying with anti-corruption laws will go far in preventing any violations from occurring in the first place, and to mitigating the exposure to the attendant risks if one does occur. If you’re in a business with any exposure, assign this to a board member or committee as an important and a priority project, allocate the necessary resources to do the job and visibly support (and follow) it. And document every step you take, starting now.
- Get a good handle on your legal compliance obligations.
A general appreciation that bribery is illegal isn’t enough. A relatively deep understanding of what specific conduct the law considers to be corrupt is necessary: what acts breach the laws, by whom, and where. And don’t forget that you might also be subject to the laws of other countries, so this process should include an understanding of what “foreign” laws apply to your operations and the legal obligations those laws impose on you. Without this knowledge, it will be impossible to accurately assess your current situation and to identify and address any gaps – and mitigate your potential liability.
- Assess your current situation.
Once you know your obligations, conduct a detailed risk assessment to figure out what you have and what you need, and consider whether to retain legal counsel to help to process, potentially protecting it with legal privilege. This includes:
- Identification of the people, positions and operations most susceptible to corruption (for example, individuals and/or positions in contact with foreign officials, international projects, particularly in countries known to be corrupt), and review of their contractual obligations, including employment contracts and agreements. In this context, it’s critical to include any third party “agents” and their contracts in this review, since many countries require foreign organizations to conduct business via such agents.
- Identification and review of existing, relevant policies & practices (or noting the lack thereof), whether “official” or not. Some key areas include those regarding gift giving (and receiving), entertaining, travel, submission and processing and related accounting practices for expense claims, a whistleblower policy and codes of conduct.
- Identification and review of internal reporting systems and current controls in place and their effectiveness to flag potentially corrupt activities. In this respect, an external audit may be helpful to this assessment – and could also add credibility to the process.
- Identification and review of due diligence procedures and contractual processes for mergers and acquisitions, joint ventures, and so on, for inclusion of anti-corruption liability inquiries and provisions.
- Fill in the gaps.
When you know what’s missing, take steps to fill in any of the gaps your assessment identified, including:
- Revise any existing policy, or implement a new one if there isn’t already one in place, on anti-corruption and legal compliance. And put it in writing, ensuring it’s robust and includes: a strong message of top-level support for anti-corruption; clarity around what conduct or behavior does and doesn’t comply; it has a clear-cut process and requirement that those to whom it applies report and disclose; applicability to everyone from directors to senior management to employees to third party contractors; the consequences for breaching the policy; and a crisis management protocol that includes mechanisms to shelter any issues with legal privilege.
- Revise or implement related policies (for example, gift giving and receiving, entertaining, travel, submission and processing and related accounting practices for expense claims, a whistleblower policy and codes of conduct).
- Revise or implement internal reporting systems and controls.
- Add or beef up due diligence procedures and contractual processes for mergers and acquisitions, joint ventures, and so on.
5. Implement the Program.
Once the Program components are ready, roll it out:
- Communicate the Program to employees (including senior management and directors), agents & third party contractors, train them on it thoroughly, give them a copy and ensure it’s readily available to all (for example, via a company intranet).
- Implement a regular schedule of Program audit, review and reporting to ensure the Program remains current and to address any deficiencies that crop up, and regular board communication respecting the Program.
- Deal with any breaches or crises that arise in accordance with the Program.
There’s no shortage of resources on anti-corruption compliance programs, including the list of “key elements” of an anti-corruption program on the RCMP’s website.
Please contact your McInnes Cooper lawyer or any member of the Corporate Governance & Compliance Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
© McInnes Cooper, 2017. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Email us at firstname.lastname@example.org to request our consent.
- Share with others
- Stay informed with our legal updates by subscribing.