North of the 49th: Recent Developments in Canadian Anti-Corruption Enforcement

Ed. Note-I recently ask John Boscariol a partner at McCarthy Tétrault LLP if he could provide an update of anti-corruption comings and goings from North of the Border. John graciously responded with information which is today’s post. 

In Transparency International’s recent report, Exporting Corruption: Progress Report 2014: Assessing Enforcement of the OECD Convention on Combating Foreign Bribery, Canada was bumped up from the “Limited Enforcement” category to “Moderate Enforcement”, joining Australia, Austria, Finland and Italy. Although still ranked below the “Active Enforcement” countries – Germany, Switzerland, the United Kingdom, and the United States – it’s positive news for Canadian authorities as the report highlights Canada as one of only two countries to improve its standing as a result of their enforcement efforts during 2013.

However, as we approach 2015, some may observe that there has not been a corporate penalty imposed under Canada’s Corruption of Foreign Public Officials Act (CFPOA) for almost two years now – the last one being the fine of $10.35 million levied against Griffiths Energy’s as a result of its guilty plea in January of 2013. That being said, all has not been quiet on the enforcement front as a number of developments during 2014 are worthy of note. These are my top five:

1. CFPOA Prosecution Stayed

On April 28, 2014, Mr. Justice Ian Nordheimer of the Ontario Superior Court stayed a CFPOA prosecution against Abul Hasan Chowdhury (Chowdhury v. H.M.Q., 2014 ONSC 2635). Chowdhury was one of five individuals, including three former employees of SNC Lavalin Group, jointly charged with bribing a foreign public official in connection with alleged attempts to exert influence over the selection committee for the Bangladesh Padma Bridge project in favour of SNC Lavalin.

Chowdhury, a Bangladeshi citizen and resident and the former Bangladesh Interior Minister and Minister of State, was alleged to have acted as agent for SNC Lavalin in offering bribes to Bangladeshi government officials. The Court agreed that Canada had jurisdiction over the offence at issue, however, because Chowdhury was neither a citizen nor resident of Canada, was not and had not been in Canada, and his acts in furtherance of the alleged bribery occurred entirely in Bangladesh, it determined that Canada did not have jurisdiction over him and granted an order staying the prosecution. Notably, Canada does not have an extradition treaty in place with Bangladesh.

2. First Jail Sentence Under the CFPOA

On May 23, 2014, Mr. Justice Charles Hackland of the Ontario Superior Court sentenced business executive Nazir Karigar to three years in prison for conspiracy to bribe foreign public officials in India (R. v. Karigar, Sentencing Decision, 2014 ONSC 3093). This was the first jail sentence handed down under the CFPOA since it came into force in 1999. All previous prosecutions had been against corporations and were disposed of with guilty pleas and fines.

Karigar’s case arose prior to the CFPOA amendments in 2013 which increased the period of imprisonment from five to 14 years. Karigar was convicted on August 15, 2013 for his leading role in a conspiracy to offer bribes to officials of Air India and an Indian Cabinet Minister. The scheme was intended to make Cryptometrics the successful bidder in a multi‑million dollar contract to supply facial recognition software to Air India. For more detail on this case, see First Trial Under Canada’s Corruption of Foreign Public Officials Act Results in Conviction and First Prison Sentence Under Canada’s Corruption of Foreign Public Officials Act Sends Strong Message to Business Community.

3. RCMP Charge Foreign Nationals

Despite the Crown’s lack of success against a foreign national in the Chowdhury case discussed above, on June 4, 2014 the Royal Canadian Mounted Police (RCMP) charged three foreign nationals in connection with the Cryptometrics case – US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) and UK national Shailesh Govindia, an agent of Cryptometrics in connection with their roles in the conspiracy to bribe Indian government officials.

The RCMP’s press release is here. All three have been charged under the CFPOA and Govindia faces an additional fraud charge under the Criminal Code. Canada‑wide warrants were issued for all three and it is expected that extradition requests will also be pursued as necessary with the United States and United Kingdom.

4. New Legislation and Policies Targeting the Extractive Sector

One legislative development is of particular significance for companies in the extractive sector. On October 23, 2014, the Extractive Sector Transparency Measures Act (ESTMA) was introduced into Canada’s Parliament. It contains broad reporting obligations with respect to payments to governments made by oil and gas and mining companies and is intended to supplement the anti‑corruption measures contained in the CFPOA and Canada’s Criminal Code.

Expected to be in force by April 1, 2015, the ESTMA applies (i) to firms listed on a Canadian stock exchanges and (ii) private companies that have a plce of business in Canada, do business in Canada or have assets in Canada and meet certain asset, revenue and employee thresholds. The ESTMA is intended align with similar measures set out in the EU Transparency Directive and the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, although its full impact will not be known until its regulations are released. More detail on the ESTMA can be found at Canada Introduces New Payment Disclosure Regime: The Extractive Sector Transparency Measures Act.

Extractive companies should also be carefully reviewing Canada’s “enhanced” corporate social responsibility (“CSR”) strategy, Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad, announced on November 14, 2014. In addition to setting out key initiatives and international CSR standards, including those related to anti‑corruption, the Policy provides that extractive companies that do not comply with CSR best practices or fail to participate in the CSR strategy dispute resolution processes will face the loss of trade commissioner and government advocacy support abroad as well as financing or other support from Export Development Canada.

5. Waiting on Facilitation Payments

Although last on the list, it’s certainly not least. The impending removal of the facilitation payments exception from the CFPOA continues to cause significant concern for a number of Canadian firms operating in jurisdictions where these payments can be demanded on a daily basis.

As a result of amendments to the CFPOA made on June 19, 2013, the exception for facilitation payments is now subject to elimination by an order of the federal Cabinet. In doing so, the Canadian government put companies on notice that the exception for payments made to expedite or secure the performance of acts of a routine nature will be eliminated at a future date, allowing time for changes in compliance policies. This is of concern to a number of Canadian firms that are cognizant of the competitive disadvantage this may create vis-à-vis the small group of other countries (such as the United States) whose anti-corruption laws continue to allow their companies to make such payments.

Forecast for 2015?

Although the RCMP no longer appears to be publicly announcing the number of ongoing CFPOA investigations, it is generally understood that there are three dozen or so in the pipe – some very public, but the vast majority still undisclosed. Depending on how those investigations play out, 2015 could be the most active year yet for Canadian anti-corruption enforcement.

John Boscariol leads the International Trade and Investment Law Group at McCarthy Tétrault LLP and specializes in enforcement and compliance matters involving anti-corruption law and policy, economic sanctions, export and technology transfer controls and other laws governing cross-border trade in goods, services and technology. He can reached via email at jboscariol@mccarthy.ca 

First Jail Sentence Under Canada’s Corruption of Foreign Public Officials Act Sends Strong Message to Business Community

Ed. Note-recently it was announced that Canada had made its first Canadian anti-corruption law, the Corruptions of Public Officials Act. I ask John Boscariol, a partner at McCarthy Tétrault LLP if he could explain  the case in a blog post he graciously agreed to do in this guest post. 

On May 23, 2014, Mr. Justice Charles Hackland of the Ontario Superior Court in Ottawa sentenced business executive Nazir Karigar to three years in prison for conspiracy to bribe foreign public officials. This is the first jail sentence handed down under Canada’s Corruption of Foreign Public Officials Act (CFPOA) since it came into force in 1999. All previous prosecutions have been against corporations and were disposed of with guilty pleas and fines.

Karigar was convicted on August 15, 2013 for his leading role in a conspiracy to offer bribes to officials of Air India and an Indian Cabinet Minister. The scheme was intended to make Cryptometrics Canada the successful bidder in a multi-million dollar contract to supply facial recognition software to Air India. Our previous analysis of this significant conviction can be found in First Trial Under Canada’s Corruption of Foreign Public Officials Act Results in Conviction.

This is an important sentencing decision as it provides a first glimpse of how courts will determine sentencing under the CFPOA. It also indicates that Canadian courts are closely aligned with efforts of the RCMP and Canadian prosecutors to punish international bribery more stringently than in the past. Businesses and individuals should take careful notice of the decision and ensure that they are acting in compliance with CFPOA in all of their dealings abroad.

Reasons for the Sentence

The CFPOA was enacted by Parliament in 1998 reflecting Canada’s obligations under the Convention on Combating Bribery in International Business Transactions of the Organization for Economic Co-operation and Development. In his sentencing decision, Justice Hackland made reference to Article 3 of the Convention which outlines that bribery of foreign officials should be punishable to the same extent as bribery of domestic officials.

In his decision, Justice Hackland outlined four aggravating factors and three mitigating factors in support of Karigar’s three year sentence.

Aggravating Factors:

• The sophistication and planning involved in the bribery scheme.
• Other acts of dishonesty by Mr. Karigar, including entering fake competitive bids to create the illusion of a competitive process and the use of confidential insider information in preparing his bid.
• Mr. Karigar’s attitude of entitlement throughout the bidding process, including his admission to the Canadian trade commissioner regarding bribery.
• The fact that Mr. Karigar personally conceived of and orchestrated the bribery.

Mitigating Factors:

• Karigar confessed to authorities and co-operated throughout the proceedings which helped save trial time.
• Karigar has no prior convictions, his respectable business past and his older age and health issues.
• The bribery scheme failed and any harm was restricted to the promotion of corruption among a limited group of foreign public officials.

Based on these factors, Justice Hackland sentenced Karigar to three years in prison. The maximum penalty for a CFPOA violation was five years. The maximum penalty period was increased to fourteen years in Bill S-14, Fighting Foreign Corruption Act (received Royal Assent on June 19, 2013), however the offence in Karigar’s case occurred before that amendment came into force. This increased maximum penalty reflects the current trend towards punishing the bribery of foreign officials more stringently in Canada.

Focus on Stiff Sentencing

Prevailing throughout Justice Hackland’s sentencing decision was his emphasis on the seriousness of the crime that Karigar committed. He noted that “…a substantial penalty is to be imposed by the courts even in circumstances where a guilty plea was entered and the accused has cooperated with authorities”.

Justice Hackland relied on cases of fraud under the Criminal Code in order to determine what a reasonable sentence should be for bribing foreign officials. Based on this jurisprudence, he concluded that cases of serious fraud require penitentiary sentences in the range of three to five years, and that usual mitigating factors, such as prior good character, health problems, contributions to the community and the absence of criminal records should not be used to depart from this range.

Justice Hackland also referenced domestic bribery and corruption cases under the Criminal Code. Most importantly, he noted that an overriding consideration in sentencing for bribery should be the deterrence and denunciation of bribery. He concluded his decision by stating that “any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary.”

With this sentence, Canadian authorities are sending a strong message to companies and executives doing business abroad that individuals, not just entities, will be held responsible and pay a significant price for their involvement in the bribery of foreign officials. The development and documented implementation of a comprehensive compliance program for the detection and prevention of bribery is a critical tool to ensure that a company and its executives stay on the right side of Canadian law.

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John W. Boscariol is head of the firm’s International Trade & Investment Law Group and a partner in the Litigation Group. He can be reached via email at jboscariol@mccarthy.ca.

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Shifting Sands In Canadian Anti-bribery And Trade Control Laws Raise The Stakes In M&A Due Diligence

Ed. Note-I recently saw an article on M&A compliance due diligence, from the Canadian perspective, by John Boscariol. I asked John if I could repost his article, which he graciously allowed me to do. 

Recent developments in Canadian anti-corruption, economic sanctions, and export control laws are having a significant impact on the due diligence that should be conducted on potential targets in the context of mergers and acquisitions as well as other business combinations such as joint ventures. 

New and expanding measures along with increased enforcement, particularly in the resource extraction industries such as energy and mining, have raised the stakes for those investing in Canadian companies. Today, it is becoming more common for potential acquirers or investors to delay, re-price or even walk away from transactions because of actual or perceived compliance failures in the target’s operations.

A misstep in this area can have significant ramifications – in addition to criminal prosecution and penalties, compliance failures can also result in significant expenditure on internal investigations, the inability to move product or transfer technology cross-border, delayed or cancelled customer orders, debarment from doing business with government, and substantial reputational costs in relationships with business partners, including banks, investors, customers, suppliers and other stakeholders. Further, the now well-established pattern in the United States of shareholder class action suits being launched following allegations of management failure to implement proper internal controls is beginning to take hold in Canada.

Canadian authorities becoming more aggressive

In recent years, Canadian authorities responsible for implementation and enforcement of trade controls and anti-corruption laws – including the Royal Canadian Mounted Police (RCMP), the Canada Border Services Agency, Foreign Affairs and International Trade Canada, and Crown prosecutors – have stepped up their game.

Canada’s experience in the anti-corruption sphere is a good example. After many years without any significant enforcement, in 2008 the RCMP formed a special unit responsible for the enforcement of the Corruption of Foreign Public Officials Act (CFPOA). In June of 2011, Nike Resources was convicted of violating the CFPOA and penalised $9.5m. In January of this year, Griffiths Energy was also convicted and fined $10.35m. At the present time, it is understood that the RCMP is conducting over 35 investigations of Canadian companies and individuals suspected of CFPOA violations.

Five areas deserving special attention for due diligence

Although not intended to be exhaustive, the following are five areas where you should at least initially focus before drilling down into any specific matters of concern:

Where is the target doing business? Identifying countries with which the target does business is critical to assessing risk exposure from both the anti-corruption and trade control perspective. Where are their customers, suppliers, licensees/licensors creditors and other business partners located?

Canada currently maintains trade controls of varying degrees of aggressiveness in respect of activities involving Belarus, Burma, Côte d’Ivoire, the Democratic Republic of the Congo, Cuba, Egypt, Eritrea, Guinea-Bissau, Iran, Iraq, Lebanon, Liberia, Libya, North Korea, Pakistan, Sierra Leone, Somalia, Sudan, Syria, Tunisia and Zimbabwe. Activities in these countries with entities based in these countries should be carefully reviewed to ensure compliance with economic sanctions and export controls.

Location also plays a significant role in assessing anti-corruption compliance risk. Developing or newly industrialised countries in Africa, the Middle East, Asia, and areas of Latin America are particularly vulnerable to corruption. Independent country rankings of corruption risk, including Transparency International’s Corruption Perceptions Index, are a helpful starting point.

What are the target’s ‘government touch-points’?Understanding how your target deals with government on a daily basis helps assess the exposure to potential opportunities for government corruption. This includes dealings with government owned entities, including commercial enterprises. Getting a list of the target’s government customers and suppliers is an obvious and important starting point.

It is also necessary to determine what licences or permits are required for the target’s operations and review its dealing in the negotiation of concessions, production sharing agreements or investment agreements with government. The extent to which the target imports or exports product, and therefore its dealings with customs authorities, is important but often ignored government touch-point. This is especially the case for oil, gas and mining companies that need to move heavy, high-value equipment in and out of the host country.

What is the nature of their products, services and technology?Canada controls the export and transfer of goods services and technology, under both export control laws and economic sanctions. These measures are not restricted to military or nuclear items but include many commercial dual-use items used in industry every day, including goods, software and technology for relatively low-level encryption and decryption. Goods and technology controlled for export or transfer from Canada are set out on the Export Control List. Economic sanctions measures also impose similar requirements based on the nature of the goods and technology being supplied – for example, Canada’s sanctions against Iran prohibit the transfer to Iran of any items, including technical data, used in the petrochemical, oil or natural gas industry.

In addition to understanding what product and services your target ultimately provides to its customers, you should consider what inputs are used in the process, how product research and development occurs, and what, if any, after sales service and support is provided. Keep in mind that these controls are not limited to physical export shipments, but include cross-border transfers of information that occur via email transmissions and server upload/download activity or during technical discussions with persons outside of Canada.

What is the target’s exposure to similar measures of other jurisdictions?Depending on the circumstances, Canadian companies can be subject to anti-corruption and trade control laws of other jurisdictions. The US Foreign Corrupt Practices Act (FCPA) is notoriously enforced on a broad, extraterritorial basis often ensnaring Canadian companies that had considered themselves to have little connection to the United States. For example, a Canadian company that causes, directly or through agents, acts in furtherance of a corrupt payment to take place within the territory of the United States is subject to the jurisdiction of the FCPA.

The FCPA obligations are in large part similar to those in the CFPOA. However, the United Kingdom’s Bribery Act 2010 contains some important differences, including the prohibition of private commercial bribery and no exclusion for facilitation payments.

A number of US sanctions and export control measures are also applied on an extraterritorial basis, especially in dealings with Iran or Cuba. In the latter case, Canada has implemented blocking legislation designed to address issues such as US extraterritorial measures. Canadian law prohibits a Canadian company or individual from complying with the US sanctions and export controls on Cuba. This presents a challenging conflict of laws when the target is or will be US-owned or controlled – on the one hand, the company is required to comply with the US trade embargo while on the other hand, to do so will constitute an offence under Canadian law and expose the Canadian company and its officers to potential liability.

What compliance measures does the target have in place? Although there is seldom enough time in the heat of an M&A transaction to conduct a thorough audit of the target’s compliance with anti-corruption and trade controls, there are basic minimum steps that can be taken to get a good sense of the target’s compliance profile and potential exposure. Basic elements we expect to see in any anti-bribery, economic sanctions and export control compliance programs include the following: a written compliance manual and procedures, screening of transactions and all involved parties against lists of sanctioned or designated entities and individuals, appointment of compliance officers, internal compliance auditing, non-compliance reporting, correction and voluntary disclosure, training programs, contract and project review, and procedures for dealing with inconsistent or conflicting laws.

Obtaining a description of the target’s anti-bribery and trade control procedures and a copy of the compliance policy manuals is an obvious start, but it is not enough.

It is also critical to review evidence of implementation of these measures across the operation. For example, how often are employees and executives trained on these policies? When are internal audits conducted and what are the results? How often are potential non-compliance events being reported internally? Is an employee hotline being used and what kind of reports are being made? What voluntary disclosures have they submitted to government authorities? Have they been subject to government investigations or audits and with what results? What is their process for reviewing and determining the control status of their goods, services and technology and what rulings have they obtained in respect of the same? In what circumstances have they terminated or refused to retain agents because of bribery concerns? What specific provisions has the target included in their contracts to address anti-bribery and trade controls compliance? What compliance certifications do they have from business partners? How do they use third parties to assist in implementation of compliance measures – e.g., screening transactions, due diligence of agents, internal review and audit, legal opinions?

What next?

Responses to these initial inquiries inevitably beget more questions in this process and the back and forth continues as you drill down into areas of concern and potential exposure for the target and, ultimately, the acquirer. Risks may be so high that the deal is scrapped or at least delayed until they can be addressed through the implementation of enhanced compliance measures or disclosures to the authorities if necessary. In other cases, representations and warranties as well as appropriate indemnities may be sufficient to address any concerns. Once the transaction closes, however, it is important to immediately begin conducting a more thorough review of the target’s compliance based on potential areas of vulnerability identified during the pre-acquisition due diligence phase and addressing any potential non-compliance.

John W. Boscariol is Leader of the International Trade and Investment Law Group at McCarthy Tétrault LLP. He can be contacted on +1 (416) 601 7835 or by email: jboscariol@mccarthy.ca.          

Are You at Risk? The 5 Pillars of a Solid Compliance Program

ED. Note-today we have a guest post from our colleague John Boscariol, a partner at McCarthy Tétrault LLP.

The recent conviction of Canadian businessman Nazir Karigar, who conspired to bribe officials with the Indian government to help win a contract for Ontario-based Cryptometrics, is an important reminder of Canada’s stepped up anti-corruption enforcement, particularly against individual business executives (see First Canadian Convicted Under Bribery Law). By now, exporters should have received the message loud and clear: ignoring anti-corruption and trade control laws—laws governing the transfer of sensitive goods and technologies as well as where and with whom you can do business—can damage reputation and the bottom line.

Businesses with operations outside Canada must be proactive about educating themselves about compliance legislation and implementing anti-corruption and trade control compliance policies for internal use. Those policies should be supported with training sessions for staff and senior management.

Through a Google search, you can easily find numerous examples of policies and training programs that appear to cover all the right bases. However, simply dropping a pro forma compliance plan into your company won’t work.  In fact, it could do more damage than good.

First things first: conduct a risk assessment

Enforcement authorities in Canada, the U.S., and elsewhere, expect companies to undertake a thorough risk assessment before crafting a compliance program.  This means taking into account any risks arising from the countries where you do business, the industry you’re in and your company’s business practices and culture. A software company that only sells to small businesses in Canada and the U.S. will have a very different risk profile—and compliance program—than a defense company selling weapons to governments around the world.

When you’re doing a risk assessment, consider whether the goods or services you provide could be used for unintended purposes (for example, military activities); check if your product or technology is listed on Canada’s Export Control List or subject to sanctions measures because of the destination. If so, you’ll need a permit before exporting the goods or transferring the technology.

Consider, too, the kinds of customers you sell to—governments and state-owned or controlled enterprises are a higher risk for anti-corruption compliance; Canada also maintains many sanctions blacklists that your customers, suppliers and other business partners should be screened against. Finally, think carefully about the extent to which you rely on agents and other third parties acting on your behalf. Their actions in other countries could cause major compliance headaches for you at home.

The five pillars of a solid compliance program

Now that you’ve completed a risk assessment of your business, you’re ready to draft a compliance and anti-corruption policy for the office along with devising supporting activities.  For the sake of efficiency and effectiveness, I recommend that a compliance officer be appointed, who would report directly to the CEO, or even better, the board of directors.

Your program should include these critical elements:

Clear statements from the CEO and board of directors that compliance is a priority for the company; failure to adhere to the policies will have consequences, up to and including termination.

Guidelines regarding anti-corruption and trade control policies and procedures that are readily accessible by staff and provide clear direction. This will include an outline of the process for screening (e.g., against sanctions blacklists or for bribery concerns) and ongoing monitoring of customers, suppliers, third parties acting on behalf of your firm, and other business partners. The screening process can include background and criminal checks. Moreover, screening should include consulting the “designated persons” lists established under Canadian economic sanctions laws.

An internal auditing system to regularly review and test the compliance regime and correct any errors or weaknesses. The system should include processes for internal reporting and voluntary disclosure to government authorities where appropriate.

A combination of positive incentives and disciplinary measures to encourage employee and executive compliance.

Contractual clauses, end-use certificates (which document the intended use of your product or service), and other due diligence tools, to ensure compliance.

I can recommend several helpful online resources that will assist you in building a solid compliance program, including:

Transparency International Canada’s Anti-Corruption Compliance Checklist

Transparency International’s Business Principles for Countering Bribery SME Edition

U.S. Department of Commerce Export Compliance Management Program

The end goal

Ultimately, your policy should ensure that employees, particularly those dealing with outside parties and approving projects and expenditures, understand the requirements and know that they must raise any concerns with the compliance officer. Ongoing executive and employee training, especially for those on the front lines—e.g., sales and business development—will help ensure that this happens.

Keep in mind that no compliance policy can guarantee that your company will have a perfect compliance record.  It is inevitable that businesses operating abroad will trip up from time to time.  The key is how companies deal with the situation when it arises.

An effective compliance program will demonstrate to authorities that the company did what it could reasonably be expected to do under the circumstances and ought to be given credit for its efforts.

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John W. Boscariol is head of the firm’s International Trade & Investment Law Group and a partner in the Litigation Group. He can be reached via email at jboscariol@mccarthy.ca.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

Changes to the Canadian Anti-Corruption Regime Are Now in Force

Ed. Note-this has been a-buzz from North of the Border, where it was announced that Canada was amending its Canadian anti-corruption law, the Corruptions of Public Officials Act. I ask John Boscariol, a partner at McCarthy Tétrault LLP if he could explain these changes for us. So together with his colleague Brenda Swick they have prepared this guest post. 

On June 19, 2013, Bill S-14: The Fighting Foreign Corruption Act, received Royal Assent, thereby bringing into force the most significant changes to Canada’s anti-corruption legislation, the Corruption of Foreign Public Officials Act (CFPOA), since its inception.

Bill S-14, which passed through both the Senate and House of Commons without amendment, significantly increases the scope of the CFPOA’s prohibitions and enhances the ability of Canadian authorities to prosecute and penalize offenders.

Canadians companies should now be carefully reviewing their anti-bribery policies and procedures to ensure they are in full compliance with these new laws. Further, those companies whose policies currently allow for facilitation payments should now be taking steps to eliminate those practices as the government has served notice that the existing exception for such payments will be repealed.

The Key Changes

There are six key changes to Canada’s anti-bribery regime, each of which are summarized in detail in Significant Amendments Proposed to Strengthen Canada’s Anti-Corruption Regime. In brief, they are as follows:

the exception for facilitation payments is now subject to elimination by an order of the federal Cabinet; the government has put Canadian companies on notice that the exception for payments made to expedite or secure the performance of acts of a routine nature will be eliminated at a future date, allowing time for companies to adjust their policies and being cognizant of the competitive disadvantage this may create vis-à-vis other countries (such as the United States) that continue to allow their companies to make such payments;

there are new prohibitions against engaging in a wide range of activities regarding books and records when undertaken for the purposes of bribing a foreign public official or disguising such bribery;

the jurisdiction of the CFPOA is significantly expanded from a territorial to a nationality basis; regardless of where the alleged bribery has occurred, the CFPOA now applies to all Canadian companies and citizens as well as permanent residents present in Canada after they commit the offence;

the maximum term of imprisonment for individual offenders has been increased from five to 14 years; in addition to sending a signal regarding the seriousness with which the government views CFPOA violations, this eliminates the availability of discharges and conditional sentences;

the definition of business activity subject to the CFPOA has been expanded with the removal of the “for profit” requirement; and

the Royal Canadian Mounted Police (RCMP) has been accorded exclusive authority to lay charges for CFPOA and related offences.

Continued Developments

These changes should be viewed in the wider context of recent policy initiatives and increased anti-corruption enforcement in Canada. On June 13, 2013, the Canadian government announced that it will implement a mandatory reporting regime for companies in the extractive industries – see Canada Announces New Initiative for Disclosure of Payments to Governments.

Recent efforts by the RCMP to step up enforcement have led to convictions and significant multi-million dollar penalties – for example, see A Closer Look at the Griffiths Energy Case: Lessons and Insights on Canadian Anti-Corruption Enforcement and A Deeper Dive Into Canada’s First Significant Foreign Bribery Case: Niko Resources Ltd. There are currently over 35 ongoing CFPOA investigations, a few of which have been making headlines in Canadian and international media.

Companies and their boards should be reviewing their anti-corruption compliance policies and procedures to ensure they are up to date with all of these developments in Canada and in other jurisdictions that are also expanding anti-corruption obligations and enforcement efforts. In addition to preventing violations of applicable anti-corruption laws, those policies and procedures should enable management and directors to quickly detect potential violations and respond accordingly.

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John W. Boscariol is head of the firm’s International Trade & Investment Law Group and a partner in the Litigation Group. He can be reached via email at jboscariol@mccarthy.ca.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

Significant Amendments Proposed to Strengthen Canada’s Anti-Corruption Regime

Ed. Note-this week there was a-buzz from North of the Border where it was announced that Canada was considering amendments to strengthen the Canadian anti-corruption law, the Corruptions of Public Officials Act. I ask John Boscariol, a partner at McCarthy Tétrault LLP if he could explain these amendments to us. So together with his colleagues Paul Blyschak, Brenda Swick and Robert Glasgow, they have prepared this guest post. 

On February 5, 2013 Bill S-14, the Fighting Foreign Corruption Act was introduced in Canada’s Senate.  It proposes the most significant  amendments to the Corruption of Foreign Public Officials Act (CFPOA) since it came into effect in 1999. These broad ranging amendments will  increase the scope of the CFPOA’s prohibitions and the ability of enforcement authorities to prosecute or penalize alleged offenders. The ramifications of Bill S-14 should therefore be closely considered by all Canadian companies and individuals conducting business overseas.  In particular, companies should be immediately reviewing their business conduct and anti-corruption policies and procedures in light of the key changes discussed below.

Existing Exception for Facilitation Payments to be Repealed

The proposed amendments provide for the eventual elimination of the exception granted for “facilitation payments”. The existing exception in the CFPOA covers payments made to expedite or secure the performance of acts of a routine nature that are part of the foreign public official’s duties or functions – such as small payments for the processing of official documents, mail pick-up and delivery and the like. While the facilitation payment exception continues to be recognized in the United States under its Foreign Corrupt Practices Act, individual and entities subject to the CFPOA will now need to amend their policies and procedures accordingly.

This amendment would not come into force immediately on passage of Bill S-14. Rather, it would only enter into force at future date determined by the federal Cabinet. The intention is to allow  companies time to adjust their anti-corruption policies to be consistent with the amended legislation.

This prohibition would also bring Canada closer in line with anti-corruption laws in the United Kingdom where their Bribery Act 2010 bans facilitation payments.  This is also consistent with movements afoot in some international organizations, including the Organization for Economic Cooperation and Development, to eliminate the facilitation payment exception.

Criminalizing Illicit Accounting: Books and Records

The amendments  create a separate offence for concealing bribery in an entity’s books and records. They prohibit the following when undertaken for the purpose of bribing a foreign public official or for the purpose of disguising such bribery:

(i)    establishing or maintaining accounts which do not appear in any of the books and records that they are required to keep in accordance with applicable accounting and auditing standards;

(ii)   making transactions that are not recorded in those books and records or that are inadequately identified in them;

(iii)  recording non-existent expenditures in those books and records;

(iv) entering liabilities with incorrect identification of their object in those books and records;

(v)  knowingly using false documents; or

(vi) intentionally destroying accounting books and records earlier than permitted by law.

US companies (as well as any Canadian companies listed or dual-listed on a U.S. exchange) should be  familiar with this kind of “books and records” offence, as it has been rigorously enforced over the past decade by the US Securities and Exchange Commission. This may provide Canadian companies adapting to the CFPOA’s provisions the benefit of past US compliance practice, including examples of possible additions and amendments to anti-corruption policies and procedures. The lessons to be taken from such insight should, however, be considered in light of the fact that violation of the CFPOA’s “books and records” prohibition will constitute a criminal offence rather than a civil matter.

Expanding Jurisdiction on the Basis of Nationality

An ongoing critique of the CFPOA has been that its application is based on territorial rather than nationality jurisdiction.  Currently, under Canadian common law, the commission of an offence under the CFPOA requires a “real and substantial” connection to the territory of Canada. This territorial test for jurisdiction requires that a “significant portion of the activities constituting the offence took place in Canada” (R. v. Libman, [1985] 2 S.C.R. 178 (Supreme Court of Canada)). The decision in Libman also opened the door to possible objections to jurisdiction based on the principle of international comity (i.e. that where a crime has a closer nexus to another country, it may be more appropriate for the matter to be tried there).    Bill S-14 introduces provisions to expand  the  jurisdiction of the Canadian government to prosecute entities for violations of the legislation, including the bribery offence and the newly proposed accounting offences discussed above.

Under the proposed amendments, every person who commits an act or omission outside Canada that, if committed in Canada, would constitute an offence under the CFPOA is deemed to have committed that act or omission in Canada if the person is (i) a Canadian citizen, (ii) a permanent resident (who, after the commission of the act or omission, is present in Canada), or (iii) a company, partnership or other entity formed or organized under the laws of Canada.  This amendment will greatly reduce the ability of alleged offenders to mount jurisdictional challenges to prosecutions brought against them by enforcement authorities based on the location in which an offence was either planned or conducted.

Increased Sentences for Individuals

The proposed amendments include a significant increase in  penalties for violations of the CFPOA by individuals, including both the bribery and newly proposed accounting prohibitions. Specifically, while contravention of the CFPOA previously carried a maximum five year imprisonment provision., Bill S-14 proposes a new maximum term of imprisonment of not more than fourteen years. Given the recent increased focus by U.S. anti-corruption authorities on prosecuting individuals alongside companies, and that we generally expect the same policy to be pursued here in Canada, this should serve as a stark warning to business people facing pressures to engage in corrupt practices or facing other anti-corruption risks in general.

A Broader Definition of “Business”

Another common critique of Canada’s anti-corruption regime has been that the CFPOA appears only to apply to undertakings carried on “for profit”. The CFPOA  applies to corrupt acts committed “in the course of business”, which is defined to mean undertakings carried on “for profit”. The proposed amendment to the definition of “business” removes the requirement for the business or transactions to be for a profit.  This may increase the exposure of Canadian non-profit entities such as development agencies or charities to violations of the CFPOA such that, where such organizations do not already have in place anti-corruption policies or procedures, the design and implementation of same should be closely considered

RCMP to Have Exclusive Authority to Lay CFPOA Charges

Presently under the CFPOA, charges may be laid by municipal or provincial police or Canada’s federal police force, the Royal Canadian Mounted Police (RCMP).  Under the proposed amendments, the RCMP is accorded the exclusive authority to lay an information in respect of a CFPOA offence or related offences, including conspiracy, attempts, being an accessory after the fact, and counselling.

Conclusion

Over the last year or so, new and vigorous enforcement of the CFPOA by the RCMP and Crown prosecutors has garnered the attention of executives and directors across the country. The widely publicized guilty pleas of Niko Resources Ltd. in June of 2011 and Griffiths Energy International in January of 2012, along with ongoing RCMP investigations into the activities of a number of other Canadian companies, serve as stark warnings of the costs of non-compliance.

With an additional 35 or so RCMP investigations underway, Canadian companies are moving quickly to implement anti-corruption policies and procedures and mitigate the significant risk exposure in this area. Canadian companies should also be  reviewing their operations and accounting and reporting procedures to ensure compliance with these newly proposed legislative requirements

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John W. Boscariol is head of the firm’s International Trade & Investment Law Group and a partner in the Litigation Group. He can be reached via email at jboscariol@mccarthy.ca.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication.