Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on White Collar Crime, June 2011
In the face of mounting international pressure, Canadian authorities have sent a strong message that they will enforce Canadian anti-corruption laws and pursue significant U.S.-style penalties against Canadian companies found to have provided bribes or improper hospitality to government officials.
On June 24, 2011, Niko Resources Ltd. (Niko) pleaded guilty to an offence under s.3(1)(b) of the Corruption of Foreign Public Officials Act (the CFPOA) for bribing a public official in Bangladesh. A particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko. Niko and the Crown put forward a joint submission for a fine of C$8,200,000, plus a 15% victim surcharge, for a total penalty of C$9,499,000. In addition, Niko's sentence also provided for three years' probation with extensive monitoring conditions.
Ironically, the Niko sentencing came exactly one month from the date Transparency International had issued a report criticizing Canada as the only G7 country to provide "little or no enforcement" of its international anti-corruption laws.
The CFPOA makes it a criminal offence for Canadian companies or individuals to engage in bribery of foreign officials (see our September 2009 Blakes Bulletin: Canada's Corruption of Foreign Public Officials Act–What You Need to Know and Why). In Niko, the bribery involved provision of the use of a $190,000 vehicle, and a trip valued at $5,000.
The sentence imposed upon Niko dwarfed the only prior conviction under the CFPOA, the $25,000 fine paid by Hydro Kleen in 2005. Notably, the sentencing precedents submitted by the Prosecutor were U.S. Foreign Corrupt Practices Act (FCPA) cases. The court's willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada. In its submissions, the prosecution also specifically noted that it was unable to prove the amount of any benefit to the company arising from the bribery, raising the prospect of even more significant fines in future cases where the gains of a company arising from bribery may be quantified.
Also of particular significance were the probationary terms imposed upon Niko for three years. The Probation Order places a proactive obligation upon Niko to undertake a number of steps including:
- broad ongoing documentary disclosure obligations to the RCMP;
- broad obligations to self-report any potential further criminal conduct it becomes aware of;
- implementing detailed compliance, record-keeping and monitoring standards;
- providing regular reporting to the RCMP on its implementation of its anti-corruption compliance, record-keeping and monitoring standards; and
- at its own cost, to retain an independent auditor to prepare an initial review and written report documenting Niko's remediation efforts and compliance with anti-corruption laws, as well as two follow-up reports. Copies of each of these three written reports are to be provided to the court and to the RCMP.
The extensive proactive monitoring and reporting obligations placed upon Niko are reflective of the kinds of sentences more typically seen under the U.S. FCPA and again signify a clear message from Canadian authorities that violations of the CFPOA will be met with significant penalties.
Movement Towards Increased CFPOA Enforcement
The Niko conviction and sentencing is the latest, and by far most significant, indication that Canada is attempting to move towards the much more active enforcement of anti-corruption laws undertaken by countries such as the United States, Germany and the United Kingdom (see our May 2011 Blakes Bulletin: Update on U.K. Bribery Act 2010). Other indicators which should provide notice to Canadian companies of the need to ensure compliance with Canadian anti-corruption laws include:
- the establishment of specialized RCMP anti-corruption units in Calgary and Ottawa in 2007;
- the May 2010 arrest of a Canadian charged with bribing a foreign official in India; and
- the March 2011 announcement by the RCMP that it has 23 active CFPOA investigations ongoing.
As matters currently stand, however, Canadian authorities continue to face challenges in enforcing the CFPOA arising from the fact that jurisdiction under the CFPOA derives from territorial rather than nationality based jurisdiction. What this means is that the authorities must prove a real and substantial connection between the bribe and Canada before the Canadian authorities can assert jurisdiction. This is a more stringent standard than that applied in the U.S. or U.K., which makes it more difficult for Canadian authorities to successfully pursue a CFPOA prosecution. In the Niko case, it is notable that the company made specific admissions with respect to jurisdiction which allowed the Canadian authorities to assume jurisdiction.
In the past, the Canadian government has shown an interest in expanding its jurisdictional reach. In May 2009, Parliament introduced Bill C-31 which would have provided for nationality-based jurisdiction, allowing for the prosecution of Canadian companies or individuals engaged in bribery of government officials abroad without the need to prove any nexus or real and substantial connection between the bribe and Canada. Bill C-31 died when Parliament prorogued in December 2009.
On June 24, 2011, Transparency International issued a press release urging the government to "act swiftly" to re-introduce and pass the CFPOA provisions of Bill C-31.
If Bill-C-31 is re-introduced, then the level of CFPOA enforcement is likely to further increase.
Importance of Anti-Corruption Compliance Programs
The Niko sentencing, and the increasing likelihood of CFPOA enforcement which it signifies, reiterates the importance of an effective anti-corruption compliance program for Canadian companies with international operations.
As set out in detail in our March 2010 Blakes Bulletin: The Long Reach of the Law: Practical Tips for Compliance with Anti-Corruption Legislation, we recommend that Canadian companies with international operations undertake proactive steps to ensure compliance with anti-corruption laws. Best practices include:
- conduct a risk assessment of potential corruption risks faced by your company;
- develop an Internal Anti-Corruption Policy;
- train personnel and enforce your Anti-Corruption Policy;
- utilize internal controls to identify and correct issues; and
- enact specific practices and procedures for dealing with foreign agents and joint venture partners.
Implementing an active and effective anti-corruption compliance program can save significant expense and business costs associated with a prosecution under the CFPOA.
For companies considering a transaction involving companies with international operations, we also recommend undertaking anti-corruption due diligence (see our July 2010 Blakes Bulletin: Importance of Anti-Corruption Due Diligence for International Transactions).
The Niko case sends a clear signal that Canadian authorities will enforce the CFPOA, and will impose significant penalties upon Canadian companies found to have violated it. Implementing an effective anti-corruption compliance program is an important safeguard to protect Canadian companies against the kind of financial, business and reputational cost arising from a CFPOA conviction.
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