FCPA Compliance and Ethics Blog

May 6, 2015

Dodd-Frank of the North? Incentive-Based Whistleblower Program Coming to Canada

Filed under: CFPOA — tfoxlaw @ 12:01 am
Tags:

IMG_1221Ed. Note-today we have a guest post from Kristine Robidoux QC, a partner at Gowlings. She reports on the soon-to-be implemented whistleblower program in Canada by the Ontario Securities Commission.

It will be of significant interest to US corporations that make securities filings with the Ontario Securities Commissions (“OSC”), that on February 3, 2015, the OSC published “Staff Consultation Paper 15-401”, which sets out a proposed framework (“the Program”) for a whistle blowing program not dissimilar from the Dodd Frank Whistleblower Program created in 2011. The proposed Program is intended to help the OSC identify and resolve enforcement matters quickly. The OSC has identified certain specific objectives of the program, including:

  • Increasing the number and efficiency of serious securities cases handled by the OSC;
  • Motivating individuals with credible concerns to come forward with information;
  • Increasing the quality of the information available to investigative and enforcement personnel;
  • Encouraging issuers and registrants to self-report misconduct; and,
  • Encouraging continued cooperation from a whistleblower throughout the investigation.

Although no other Canadian provincial securities regulator has to date created a comparable program, the sheer number of companies listed on the Toronto Stock Exchange (“TSX”) and companies listed on other exchanges but which make filings to the OSC, will result in very broad application of this framework when and if it comes into force. The 90-day comment period will end on May 4, 2015.

The Program

As stated above, there are striking similarities between the OSC framework and the Dodd Frank Whistleblower Program.

The proposed framework comprises five key features:

  1. Whistleblower Eligibility

The OSC proposes offering an eligible whistleblower with a financial award. In order to be eligible, the whistleblower must:

  • Be an individual;
  • Provide information that is of high quality, and is original and voluntary; and,
  • Must not fall into any of the exclusionary categories set out in s. 5.2 of the program.

Specifically, a financial award would not be available to the whistleblower who:

  • Provides information that is misleading or untrue;
  • Provides information that is subject to solicitor-client privilege;
  • Provides information obtained through the course of a financial audit when engaged to provide audit services;
  • Has or had responsibilities as a Chief Compliance Officer or equivalent position or is or was a Director or Officer at the time the information was acquired, and acquired the information as a result of the organization’s internal reporting or investigation process for dealing with possible violations of securities laws;
  • Is or was employed by the OSC or other self-regulatory or law enforcement agency at the time the information was acquired; or
  • Obtains or provides the information in circumstances which would bring the administration of the OSC program into disrepute.

Importantly, the OSC has indicated that it will not automatically exclude an individual with some culpability in the matter in question from qualifying as a potential whistleblower. The OSC will consider the level of culpability in determining whether a whistleblower award is made to the individual and the amount of any such award. On this point, the OSC is specifically seeking comment.

  1. Financial Incentive

The OSC is proposing to provide whistleblowers with monetary incentives of up to CDN $1.5 million for quality information that leads to significant monetary sanctions of more than 1 million (excluding costs). Therefore, the OSC proposed program would not generate whistleblower awards as large as those seen recently in the United States. Whistleblowers may be entitled to up to 15% of the ultimate monetary sanction or agreed settlement amount imposed by the Commission. Unlike the SEC whistleblower program, the OSC whistleblower awards would not be based on monies collected, but on the amount of the sanction ordered against the wrongdoer.

  1. Whistleblower Protection

The OSC proposes to enact three new statutory provisions under the Ontario Securities Act to protect whistleblowers from retaliation from their employer. Specifically, these amendments will:

  1. Make it a violation of securities law to retaliate against a whistleblower, thereby permitting the OSC to prosecute the employer under the Act;
  2. Give a whistleblower a civil right of action against an employer who violates the anti-retaliation provisions; and,
  3. Render contractual provisions designed to silence a whistleblower unenforceable.

4.   Confidentiality

The protection of a whistleblower’s identity would be a key feature of the OSC program. The OSC proposes to adopt a policy which would provide that the OSC would use “all reasonable efforts” to keep confidential a whistleblower’s identity. This position however is subject to three important exceptions:

  1. When disclosure is required to be made to a respondent in connection with an administrative proceeding to permit a respondent to make full answer and defence;
  2. When the relevant information is necessary to make the Commission’s case against a respondent; and,
  3. When the Commission is required to provide the information to another regulatory authority, or other self-regulatory or law enforcement agency or body.

The OSC also points out that it would have the obligation to disclose the identity of a whistleblower if ordered to do so by an appropriate authority such as a hearing panel of the OSC or under applicable freedom of information legislation.

The OSC is considering whether to adopt a policy which would enable a whistleblower to remain anonymous to the OSC for a period of time. In order to remain anonymous to the OSC, a whistleblower would need to be represented by legal counsel and anonymously furnish the information to the OSC through such counsel.

  1. Program Structure

In order to administer the program, the OSC plans to create a separate intake unit within its enforcement branch to deal with whistleblower reports and other administrative aspects of the program. In this way, we anticipate that its administration would be similar to that in place at the SEC Office of the Whistleblower.

Conclusion

Since the SEC’s whistleblower program was introduced, it has resulted in over 10,000 tips and 14 financial awards, the largest of which was over USD $30 million. If the SEC’s experience is any indication, it is expected that the OSC Program will similarly generate large numbers of new securities investigations for the OSC. As noted above, the OSC is seeking written feedback on all issues raised by this proposed Program until May 4, 2015. US companies listed on the TSX or that make securities filings to the OSC may consider providing such comment.

Kristine Robidoux QC is a partner in the Calgary office of Gowling Lafleur Henderson LLP, in the White Collar Defence, Investigations and Compliance Practice Group. She practices in the area of business crime, anti-corruption, internal investigations, privacy and data security, corporate risk and compliance and has broad  experience representing corporations, boards of directors, company officers and directors facing allegations of wrongdoing. Kris was lead defence counsel on Canada’s two major prosecutions to date under the Corruption of Foreign Public Officials Act, has conducted numerous internal investigations, including hundreds of witness interviews around the globe. She specializes in the creation and implementation of corporate compliance programs in the areas of domestic and international anti-bribery and corruption laws, privacy and data protection laws, competition laws, export control laws, sanctions,  market conduct regulations, energy trading regulations and business ethics.

She can be reached at Kristine.Robidoux@gowlings.com

September 16, 2013

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

Filed under: Best Practices,compliance programs,John Boscariol — tfoxlaw @ 7:13 am
Tags:

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.

============================================================================================

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.

============================================================================================

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. 

February 7, 2013

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

============================================================================================

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.

============================================================================================

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. 

October 21, 2010

Why Does It Appear Anti-Bribery Enforcement Is Lacking in Canada?

Filed under: Corruption for Foreign Public Officials Act,FCPA — tfoxlaw @ 7:27 pm
Tags: ,

Ed. Note-this post was originally published in Trade Lawyers Blog and comes courtesy of our colleague Cyndee Todgham Cherniak 

On October 2, 2010, I gave a presentation at the University of Windsor, Center for Transnational Law and Justice concerning Canada’s anti-bribery laws. The theme of my presentation was that Canada takes a balanced approach to anti-bribery enforcement. 

As part of my presentation, I discussed why it appears that Canada’s anti-bribery enforcement is lacking. Canada is often criticized by the United States because of enforcement of the Corruption of Foreign Public Officials Act (and for the record I would like the name of Canada’s law changed to “The Prevention of Corruption of Foreign Public Officials Act) (CFPOA). There is only one decided case under the CFPOA (Hydro Kleen Group) and currently one case may public by the Royal Canadian Mounted Police, International Anti-Corruption Unit (RCMP, IACU) (being the Nazir Karigan case). In addition, Niko Resources (a publicly listed company) announced issued a press release that they were being investigated under the CFPOA and a number of NGOs have posted a letter they sent to the RCMP-IACU asking that an investigation be commenced concerning Blackfire Exploration. 

However, this does not mean there isn’t work being done and other corruption investigations are not being conducted. On the contrary, the RCMP-IACU has two busy branches in Ottawa and Calgary. So, why is it that no one knows about Canada’s anti-bribery enforcement – because the Canadian way is different than the U.S. way of enforcement. 

Canada has signed 3 international anti-bribery treaties (the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the OAS Inter-American Convention Against Corruption, and the U.N. Convention Against Corruption) and has incorporated the international obligations into Canadian law. 

That being said, Canada’s anti-bribery regime is different than the U.S. regime even though the U.S. is a signatory to the same international agreements. Canada has implemented its international obligations in a manner that is different and that is permitted. 

What are the differences? 

1. Canada’s CFPOA was enacted in 1999 and, therefore, is only 11 years old. The first 11 years of The U.S. Foreign Corrupt Practices Act (FCPA) saw a small number of prosecutions. 

2. Canada’s population is significantly less than the population in the United States. The volume of Canada’s business in foreign jurisdictions is significantly lower than the volume of U.S. business in foreign jurisdictions. As a result, the proportionate volume of cases would be significantly lower. 

3. Canada’s CFPOA does not contain the record-keeping/accounting requirements that are in the FCPA. As a result, cases do not arise from reportings to Canada’s equivalent of the Securities Exchange Commission (since there are not any equivalent FCPA reportings). A large number of U.S. cases commence under the FCPA accounting/reporting provisions. Since this mechanism does not exist in Canada’s law, the volume of cases is significantly reduced in Canada. 

4. Canada does not have any foreign whistle-blower incentives. Section 425.1 of Canada’s Criminal Code creates an offence if a company or company officials retaliates against an employee who provides information during the course of an investigation. However, there isn’t Canadian legislation that financially rewards a foreign whistle-blower. Since this mechanism does not exist in Canada’s law, the volume of cases is significantly reduced in Canada.

5. Canada does not have a voluntary disclosure program for companies and company officials to disclose their own wrong-doing or the wrong-doing of a predecessor entity. As previously mentioned, the RCMP-IACU is the enforcement authority in Canada (not the Department of Justice like in the United States). I have spoken with the RCMP-IACU and they have informed me that there is no administrative program that allows a company or company officials to make a voluntary disclosure to prevent or diffuse a potential prosecution. The role of the RCMP is to investigation crimes and hand to the Crown (Department of Justice) the facts (investigative report) so that the Crown can decide whether to pursue a criminal conviction. There isn’t a mechanism to negotiate the payment of a fine without the prosecution. 

6. When there is a Canadian investigation, the RCMP-IACU are not inclined to talk about it. When I spoke with the RCMP, they would not confirm any active investigation or the number of investigations underway. The RCMP do not undertake “perp walks” as is common in the United States. There is not significant publicity of active investigations. The Canadian authorities are less likely to commence “overzealous prosecutions” or undertake prosecutions as publicity stunts. Canadian prosecutors are not elected and do not have to “grand-stand” for the votes. 

7. Canada’s criminal justice system does not include grand juries. As a result, the job of the RCMP is to gather sufficient information to cause the Crown to lay charges. Canada does not use grand juries as an investigatory tool. 

8. Canadian law does not permit tax authorities to share information that they receive during the course of an income tax, sales tax or other tax audit. The information provided during the course of an audit to tax authorities is confidential under the law and cannot under Canadian law be used by tax authorities for purposes other than enforcement of tax laws. If the Canada Revenue Agency is involved in a criminal / special investigation, the information may be used CFPOA purposes. Most tax audits are not special investigations. As a result, if there is evidence of payment of bribes paid to foreign public officials discovered during a review of books and records during a tax audit, the information should not be conveyed by the Canada Revenue Agency to the RCMP-IACU and should not be used as evidence against the taxpayer. 

9. Canada does not have a robust advisory opinion mechanism similar to the administrative mechanism in the United States. The RCMP-IACU decide whether to investigate a crime and do not provide guidance on how to avoid prosecutions or get away with crimes. The RCMP-IACU do not make the law, they merely enforce existing laws. 

10. Canada’s CFPOA at the present time does not apply where the bribery activity does not have a “real and substantial connection” to Canada. In 2009, the Minister of Justice tabled legislation (Bill C-31) to incorporate a nationality principle in Canada’s CFPOA. However, that legislation did not proceed in the House of Commons when Parliament prorogued in December 2009. The legislation has not been re-introduced.

11. Canada does not have a mentorship program similar to the mechanism in the United States. Since Canada does not have a voluntary disclosure mechanism or a mechanism to improve compliance, Canada does not have a mechanism where a lawyer is appointed to assist Canadian companies comply better with Canada’s anti-bribery laws. 

The Canadian anti-bribery regime’s significant differences with the U.S regime makes Canada’s enforcement less visible. Less visible does not mean the Canadian enforcement regime does not exist or it is not active. You cannot look for evidence of enforcement activity in the same places that it is found in the U.S. 

Cyndee Todgham Cherniak  can be reached at 416-307-4168 or cyndee@langmichener.ca.

Blog at WordPress.com.