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Focus: Anti-corruption law getting some bite

|Written By Judy Van Rhijn

Recent arrests under the Corruption of Foreign Public Officials Act have confirmed a new get-serious attitude by law enforcers towards bribery and corruption.

Corrupt practices often come to light when businesses are changing hands, says Andrew Faith.

With legislation proliferating around the globe and increased enforcement of existing laws, more and more Canadian companies are seeking guidance on how to wend their way through an increasingly complex international environment.

Although the act had been in force since December 1998, it has taken more than a decade for any real expectation of enforcement to permeate the business community.

It was only as recently as 2008 that the RCMP established its international anti-corruption unit comprised of two seven-member teams based in Ottawa and Calgary.

The Public Prosecution Service of Canada has also established a subject-matter expert position located in Ottawa that liaises with other key organizations. Although investigations take a very long time, these measures have started to show results.

In 2005, Hydro-Kleen Group Inc. pleaded guilty to bribing a U.S. immigration officer who worked at the Calgary International Airport and was ordered to pay a fine of $25,000.

On July 24, 2011, Niko Resources Ltd. pleaded guilty in relation to payments and benefits forwarded to the Bangladesh state minister for energy and mineral resources. The company received a fine of $9,499,000 and a probation order for three years.

Since then, authorities have laid charges against Nazir Karigar, the first individual charged under the act, for allegedly making a payment to an Indian government official to obtain a multimillion-dollar contract for a Canadian technology firm.

This matter is due to come before the Ontario Superior Court of Justice in September. In late April 2012, two former SNC-Lavalin Group Inc. employees were charged with corruption in relation to a bridge project in Bangladesh.

More charges may well be in the works as the RCMP currently has more than 20 investigations underway.

Susan Hutton, a partner at Stikeman Elliott LLP, warns companies that if anti-corruption wasn’t on their radar screen before, it certainly should be now.

“The Canadian legislation is part of a web of similar legislation, but the scope of each country’s legislation is different.

If a Canadian company has connections to the U.S. or the U.K., they must ensure that they are instructing their employees to be on the lookout for transgressions under those acts as well.

They must keep as tight control of their foreign employees as they do of their domestic employees. They must keep their eyes and ears open.”

Andrew Faith of Polley Faith LLP in Toronto began his career doing investigations under the U.S. Foreign Corrupt Practices Act that came into force in the 1970s.

“You see a lot of this behaviour in places where it’s part of the business fabric,” he says. “It’s a long-standing practice that goes on in countries like Africa, eastern Europe, Russia, and Asia where there is ingrained corruption.

There are so many Canadian mining and energy companies operating around the world which have limited oversight of those things. They are hiring people locally and are not aware of what local offices are doing.

Those people are part of the culture and want to succeed in their business.”

In Faith’s experience, corrupt practices often come to light when businesses are changing hands.

“You often see, through the due-diligence process, sums of money paid inexplicably. There may be transfers of funds or benefits to people in government in a foreign country.

That’s what the legislation is designed to address: North American companies assisting in the corruption of public officials abroad and benefiting from that.

Now the government is getting better and smarter at enforcing the [act]. They are combating that very effectively.”

The penalties, Hutton notes, can be severe. “One reason companies should be very concerned that they are not contravening the act is that one of the potential penalties is jail,” she warns.

“They should be taking proactive steps to ensure that they are not operating in defensive mode where they are left trying to mitigate damages.”

In fact, the maximum penalty laid out in the law is five years of prison, which makes it an extraditable offence. Judges have the discretion to impose any fines with no maximum.

There are also the commercial ramifications. In the SNC-Lavalin matter, the accusations of bribery prompted the World Bank to suspend a US$1.2-billion loan and temporarily barred a company subsidiary from bidding on other contracts in the country.

For this reason, lawyers should be advising their clients to put anti-corruption programs and policies in place. “Do you need a formal program explicit to employees abroad? Absolutely,” says Hutton.

“It need not be expensive to create. It’s a simple piece of legislation. Senior management must be aware of it and make it clear they won’t tolerate any violations of the law and make sure nobody does violate.”

Faith agrees. “Organizations need to audit corporate governance and their headquarters’ oversight of field officers and put policies in place so they can detect any non-compliance.”

An anti-corruption policy also needs to address the company’s attitude to facilitation payments. “The act excludes facilitation payments to government officials that help to speed up the thing they are already supposed to be doing,” says Faith.

“It is not meant to influence them to do something they shouldn’t. Nor should it influence a government decision to award new business or to continue to do business with the company.

That’s clearly not a facilitation payment. The government realized companies find it hard to compete if they can’t do that. In some countries, it’s essential to getting routine government acts done.”

Faith gives the examples of arranging delivery of mail, getting a visa or securing water service or electricity. “It’s an acknowledgment that not to exempt it would completely handcuff Canadian business.”

“There is a basic understanding in Canadian law that facilitation payments are small payments to officials who aren’t otherwise paid enough,” says Hutton.

“For example, when you’ve filled out all the forms to get furniture out of customs when moving to another country, the customs officials are used to being paid a small sum in order to process the paperwork and release your furniture.”

She recommends several points to keep in mind regarding facilitation payments. First, they may not always be exempt from every country’s law.

For instance, they’re not exempt from British legislation that applies extraterritorially. Second, they may be illegal under the foreign country’s law just as bribery of a Canadian official is illegal.

Third, the definition of facilitation is subject to interpretation. “Obviously, the Canadian police take a fairly strict view,” says Hutton.

Faith notes it can be a very fine line between facilitation and a bribe, and Hutton believes that more and more employers are telling their employees they won’t tolerate facilitation payments either.

“They consider that the rewards of patience and diligence and not cutting corners is better in the long run. It’s frustrating but it doesn’t break anybody’s law.”

To date, 38 countries have ratified the Organisation for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The British Bribery Act, enacted on July 1, 2011, is the strictest regime so far. Hutton has observed that as this type of legislation is proliferating, more and more companies are behaving properly.

“This legislation is meant to change the status quo. Eventually, it will put pressure on the host country.

Considering the U.S. passed their legislation in 1977, it’s been a slow, gradual process, but there has definitely been an upswing lately.”

  • Laura
    A good recent article, forthcoming in the Criminal Law Quarterly, that critically examines Canada's restrictive and ineffective approach to enforcing only territorial jurisdiction under the CFPOA in contrast with the United States and United Kingdom, and questions whether Canada had jurisdiction in Niko, can be found online at:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2026442
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