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to eliminate those practices as the government has served notice that the existing exception for such payments will be repealed.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. 

Is a Major Bribery Prosecution Coming in Canada Under the CFPOA?

“What did the President know and when did he know it?” That is the iconic question from the Watergate Hearings asked by Senator Howard Baker of various witnesses. In the case of the Canadian engineering company SNC-Lavalin Group Inc. (SNC), it appears that its chief executive knew something was amiss and had known so for quite some time.

In an article in the March 27, 2012 edition of the Wall Street Journal (WSJ), entitled “Big Builder’s Chief Resigns”, reporters Caroline Van Hasselt and Satish Sarangarajan detailed the ongoing turmoil at SNC. In an article in the New York Times (NYT), entitled “Chief of Canadian Firm Steps Down After the Inquiry”, reporter Ian Austen reported that the chief executive of the firm, Pierre Dunhaime, resigned on Monday, March 26, after the “release of a report indicating that he had authorized that $56 million in improperly documented payments to unidentified agents.” The WSJ reported that the company “still had unanswered questions about the payments and had referred the matter to the Royal Canadian Mounted Police [RCMP]…”

Both newspaper articles reported on the release Monday of a copy of the company’s internal investigation, although the NYT article stated that it “appeared to raise more questions than it answered.” It appeared from the WSJ articles that Dunhamie had personally approved these payments to unknown agents to secure work for SNC projects. Apparently these agents were hired without any formal vetting process. Further the company reported that it was taking a charge to earnings for separate amounts of $33.5 million and $22.5 million, which had been incorrectly recorded on the company’s books and records. These payments had been made from 2009 until 2011.

Interestingly the company’s Chief Financial Officer (CFO) had objected to these payments because, as reported by the WSJ, “the agents identities weren’t properly disclosed and their fees would be charged to other projects.” The NYT reported that the payments to “agents who broker and manage contracts with foreign governments.”

So what does all this mean under relevant Canadian law? It could mean quite a bit. Canada has its own law prohibiting bribery and corruption of foreign governmental officials, the Canadian Corruption of Foreign Public Officials Act (CFPOA) which was enacted in 1999. The criminal provisions of the CFPOA are almost identical to those found in the US Foreign Corrupt Practices Act (FCPA) but it has no equivalent to the books and records component and there is no civil component which is enforced by the US Securities and Exchange Commission (SEC). The CFPOA only contains a criminal component, similar to that which is enforced by the US Department of Justice (DOJ). The FCPA has a longer jurisdictional reach than the CFPOA, where the test for jurisdiction requires that the cases involved have a “real and substantial” link to Canada. This means that a portion of the illegal activities must have been committed in Canada or have a real impact on Canadians.

Under CFPOA, there are clearly questions raised that would be similar to those raised under a FCPA analysis. What due diligence, if any, was done on the agents? What services, once again if any, were performed by the agents? The fact that the agents are still not known to the company or what the $56 million payment was for, or where it went, are problematic as well? Why did the company executive approve these payments over the objections of the CFO? While there is no books and records equivalent under CFPOA, mis-characterizing payments and expenses would seem to indicate a desire to hide the true nature of the payments.

SNC had strong relationships with members of the former ruling family in Libya, the Qaddafi’s, and had done ongoing work for the country before the regime fell. A consultant for the company was reported by the NYT to have traveled to Libya during the allied forces bombing and “produced a five-page report that was critical of the NATO-led bombing campaign in support of Libyan rebels.” In view of these relationships, could some of this $56 million have been paid as bribes in Libya?

As noted, the matter has been turned over to the RCMP for further action. In a guest post on this blog, entitled “Why Does It Appear Anti-Bribery Enforcement Is Lacking in Canada?” our colleague Cyndee Todgham Cherniak wrote that 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. When there is a Canadian investigation, the RCMP is not inclined to talk about it. Appropriately, they declined comment for both articles.

Many questions are left unanswered by the company report. But as we might say down here south of the border, it is time for several people to “lawyer up”.

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. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

Canada and the Corruption of Foreign Public Officials Act

Last Friday, on the weekly Compliance Week podcast, Compliance Week Editor Matt Kelly interviewed Michael Morrison, partner in the Calgary law firm of Blake, Cassels and Graydon on the Canadian Corruption of Foreign Public Officials Act. The CFPOA was passed in back in 1999. However, up until this year, there was only one enforcement action under the legislation involving a Canadian company and no prior enforcement actions against individuals. The Canadian government, as a signatory to the OECD Treaty Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, felt an obligation to actively enforce its foreign anti-corruption and anti-bribery statute. This led to the funding for and creation of two RCMP units dedicated to enforcing the act, in 2008.
Mr. Morrison termed this increased enforcement thrust by the Canadian government as “Canada holding Canadians accountable for their actions overseas” which may lead to bribery and corruption. He cited a very recent example of the arrest of Nazir Karigar, 63, who was charged with one count of corruption. His company, a Canadian firm, allegedly bribed an Indian government official to win a multi-million dollar contract for the supply of a security system. To date the Canadian government has not identified the Indian or Canadian company involved in the alleged bribery scheme. This lack of information led Mr. Morrison to speculate that one or more companies may also be indicted under the CFOPA before all the dust is settlement.
Mr. Morrison was asked to compare and contrast the CFPOA with the US Foreign Corrupt Practices Act (FCPA). He started by noting that the criminal provisions of anti-corruption and anti-bribery were almost identical in the two laws. However, the CFPOA has no equivalent to the books and records component and there is no civil component which is enforced by the US Securities and Exchange Commission (SEC). The CFPOA only contains a criminal component, similar to that which is enforced by the US Department of Justice (DOJ).
Additionally, the FCPA has a longer jurisdictional reach than the CFPOA, applying to issuers in the United States, domestic concerns and any person pursuing a bribery arrangement with a foreign official while within the territory of the US. This is contrasted with the Canadian test for jurisdiction which requires that the cases involved have a “real and substantial” link to Canada. This was interpreted to mean that a portion of the illegal activities must have been committed in Canada or have a real impact on Canadians. It would seem somewhat anomalous that a law intended to enforce bribery and corruption outside of Canada would require that the illegal activities occur inside the country. The RCMP said it would provide no further information about the case against Nazir Karigar so at this point it is unclear which of these nexii the RCMP was relying in its arrest. Mr. Karigar was arraigned this week in Ottawa and will appear in court again on July 28.
While it is unclear whether a US subsidiary of a Canadian corporation can be held liable for the actions of one of its Canadian employees, it does appear clear that a Canadian subsidiary of a US corporation would be liable under the CFPOA. Once again, as there are no civil charges, only criminal charges which can be brought so the consequences for a Canadian subsidiary of a US company could be quite severe. So the CFPOA is one more international regulation US companies need to be aware of in the growing list of international laws in the field of anti-corruption and anti-bribery.

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. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010