Canada: Anti-Foreign Corruption Legislation Has More Bite: Are You Ready?

Among OECD countries, Canada has historically had a reputation of being soft on fighting foreign corruption. In response, Canada ratified the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions on December 17, 1998. Shortly thereafter, on February 14, 1999, Canada passed the Corruption of Foreign Public Officials Act (the "Act"), thereby implementing Canada's treaty obligations with respect to foreign corruption. The centrepiece of the Act is section 3 which contains the prohibition against bribing foreign public officials.

There is a practical and very real difference between making law and enforcing it. Although Canada had a foreign corrupt practice law on its books, there was a perception for the decade following passage of the Act that there were no real efforts made to enforce it. In response to this criticism, in 2008 the RCMP opened a branch dedicated to prosecutions under the Act.

The recent increase in enforcement activity in Canada has garnered significant media attention. In addition to the recent charges laid against two former SNC Lavalin executives, 2011 saw the most significant prosecution to date under the Act in the case of Niko Resources. In that case, Niko Resources ultimately plea bargained for a $9.5 million fine for paying and delivering a Toyota Land Cruiser to the Minister for Energy and Mineral Resources of Bangladesh.

The law in Canada on foreign corrupt practices is bound to be clarified in the next few months as an Ottawa court is hearing the matter of R. v. Karigar, an Indian-born Canadian citizen who has pleaded not-guilty to charges that he violated the Act. The Crown alleges that Mr. Karigar funnelled a $250,000 bribe to Praful Patel, India's Minister of Heavy Industries and former Minister of Aviation. According to a Globe and Mail article, the charge relates to Mr. Karigar's work on behalf of a high-tech security company that was pursuing a $100 million contract with Air India for a facial recognition security system. The company went bankrupt shortly after Mr. Karigar was charged.

Recently, international foreign anti-corruption watch-dog Transparency International issued a report that Canada had improved its foreign anti-corruption enforcement and the Vancouver Sun published this headline: "Canada among 'most improved' in anti-bribery enforcement: Report" (September 5, 2012). But, the consensus still appears to be that Canada can and should do more to combat foreign corruption, as this Globe and Mail headline attests to: "Canada must do more to fight bribery" (September 12, 2012).

The risk of prosecution under the Act is more real than ever. According to Transparency International, there are currently about 40 ongoing investigations in Canada under the Act. Companies need to be aware of the Act and implement procedures to decrease the risk of investigation and prosecution, here and abroad.

THE ACT

There are a few particularly noteworthy elements to the Act:

  • there is no maximum fine under the Act;
  • there is no limitation period to a prosecution under Section 3 of the Act. (in the Niko Resources case, it took a six year investigation before the charges were brought);
  • authorities can obtain wire-tap warrants to investigate into a matter;
  • a bribe is defined broadly as obtaining or retaining an advantage in the course of business. This wording is intended to cover bribes to secure business or an improper advantage in the course of business;
  • the Act applies to both corporations and individuals;
  • when prosecuting a corporation, the general principles of corporate criminal liability including those in s. 22.1 and 22.2 of the Criminal Code
  • will likely apply, which means the activities of the senior officers of a company will become crucial to the prosecution and defence of charges under the Act;
  • the Act also refers to a situation where a person directly or indirectly gives, offers, or agrees to give or offer a loan, reward, advantage or benefit of any kind. This wording is critical, and in particular the use of the word: indirectly. Indeed, this means that bribes can be deemed to be made through an agent. It is quite common for corporations operating abroad to hire local agents to help them in acquiring business in that foreign country. It is extremely important that these agents be properly vetted before they are asked to intervene with foreign public officials on your behalf; and
  • the Act also contains built-in defences: Facilitation payments, which are small token payments to low level officials to secure performance of a routine administrative task, such as processing documents, mail pick-up, securing power or water, or police protection, are permitted under the Act. Such payments are not however permitted under the UK Bribery Act and caution should be used when making such payments since it can be difficult to distinguish a bribe under the Act from a facilitation payment. Proportionate and bona fide hospitality or "reasonable business expenses" for promotion, demonstration, explanation of a product are not bribes under the Act, and neither are payments which are lawful in the foreign jurisdiction. Proof of legality should be demanded in these cases.

PRACTICAL IMPLICATIONS (AN EXAMPLE)

A company might want to hire a local consultant to help prepare a bid on a public works project overseas. The arrangement with the consultant might consist of the consultant getting a percentage of the value of the contract. Such arrangements are rife for corruption. In these situations it is important that the consultant be made aware of the company's anti-corruption policy, that he or she sign a document acknowledging that he or she read and understood the policy and agrees to abide by it. In addition, reasonable steps should be taken to vet the consultant. The vetting process could reveal, for example, that the consultant has close ties with the Government or the ruling party.

These precautions are critical because they 1) can prevent corruption and 2) if a company is investigated or charged, a due diligence defence may be available to the company if it took the necessary steps to investigate the consultant prior and during the consultant's business relationship with the company. The UK Bribery Act has a unique offence of a commercial organization failing to prevent a bribe from occurring (i.e., essentially an offence of negligence). It is, however, a defence if a commercial organization can show that it had adequate procedures in place to prevent persons associated with it from bribing. Although the Canadian Act does not have an express due diligence defence built in, bribery under the Act requires the Crown to prove intent (mens rea) and so the due diligence of a company might be critical evidence to counter the Crown's contention that a company, through the actions of an agent or rogue employee, had the requisite intent to bribe a public official.

JURISDICTION, CONCURRENT JURISDICTION AND EXTRA-TERRITORIALITY

There is also an important multi-jurisdictional component to anti-foreign corruption laws.

Most countries in the world and every OECD country have enacted anti-foreign corruption legislation. For example, the US has the Foreign Corrupt Practices Act ("FCPA"), the UK has the Bribery Act, and France has Article 113.6 of the Penal Code. Whereas the Canadian Act has been criticized for having a narrow jurisdictional reach, the UK Bribery Act and the FCPA have comparably broad jurisdiction.

Generally speaking, Canada operates under the territoriality principle. This means that an offence must have a real and substantial connection to Canada before Canada will take jurisdiction. Note that in R. v. Karigar, the accused brought a motion to dismiss the charge for lack of jurisdiction on the basis that the matter does not have a "real and substantial connection with Canada". The motion was dismissed by the court on 4 May 2012, while preserving the right of the accused to bring this matter up again at a later date.

In addition, to the territoriality principle, the American and British legislation permit courts to take jurisdiction under the nationality principle. This means that regardless where the offence was committed, if the accused is American or British (or, if a corporation, incorporated in America or Britain or is a reporting issuer or carries on part of its business in these countries), then American or British courts, as the case may be, have jurisdiction. Under the FCPA, non-US companies may find themselves subject to the FCPA because some business activity that relates to the misconduct has a US connection, even though this connection is not otherwise substantial, for example, using US mail.

The extra-territorial reach of the FCPA is impressive. Many of the most high profile prosecutions under the FCPA have been against non-US companies. In 2011, 72% of the financial penalties in FCPA cases were assessed by US authorities against non-US companies (http://www.justice.gov/criminal/fraud/fcpa/cases/2011.html). Many of the largest penalties imposed by US authorities for alleged FCPA violations were levied against foreign companies. For example, US $800 million against Seimens, a German company (Seimens also paid an $800 million fine to German authorities), US $400 million against BAE, a British company, US $365 million against Snamprogetti, a Dutch/Italian company, US $218.8 million against Daimler, a German company, and $185 million US against Alcatel–Lucent, a French company.

Similarly, the UK Bribery Act also has broad extra-territorial reach. British citizens, citizens of British overseas territories, and bodies incorporated under the law of any part of the UK, are deemed to have a "close connection" with the UK, and they may be prosecuted whether the offence takes place outside of the UK. The UK Bribery Act also applies to foreign nationals who commit bribery offences abroad while domiciled or habitually resident in the UK.

The most novel part of the UK Bribery Act is its criminalization of a commercial organization's failure to prevent bribery. Once it is established that a commercial organization carries on a business or part of a business in the UK, regardless of where it is incorporated, if an employee, an agent or a subsidiary bribes another person or foreign public official for its benefit, the organization may be guilty of the offence unless it can demonstrate that it had adequate procedures in place to prevent such conduct. This means if an "associated person" of a Canadian that carries on only a part of its business in the UK pays a bribe to a third party, the parent Canadian company can be guilty of failing to prevent the bribe under the UK Bribery Act, unless it can show that it had adequate procedures (due diligence) in place to prevent the bribe.

The various anti-corruption laws around the world and various approaches to jurisdiction make concurrent jurisdiction a reality to be mindful of. For example, a French citizen working for a Canadian company incorporated in Delaware, listed on the London Stock Exchange who bribes a government official in Nigeria can potentially be prosecuted in France, Canada, the United States, Great Britain and Nigeria. In fact, the phenomenon of what is termed "carbon copy" prosecutions has recently been extensively commented on in the American context (see publications by Andrew Boutros and T. Markus Funk).

INTERNATIONAL DOUBLE JEOPARDY

The concurrent jurisdictional issue is particularly important in relation to the different approaches countries take to international double jeopardy. The rule against double jeopardy means that an individual cannot be prosecuted and tried for the same crime twice. In Canada and the UK, the rule against double jeopardy also applies internationally so that if an individual is tried and convicted (or acquitted) of foreign corruption in one country, there is a general bar against re-prosecution in Canada or the UK.

However, this is not the case in other countries, most notably the United States and Germany. In the case of the United States v. Jeong, 624 F. 3d 706 (2010), a South Korean national was convicted in South Korea for paying bribes to American public officials. He was convicted and served 58 days in jail in addition to having to pay a fine of approximately $21,000. Pursuant to a mutual legal assistance treaty between the two countries, the United States sought evidence from South Korean officials in relation to Mr. Jeong. The Americans specifically noted in their request for information from the South Korean government that "the Government [US] understands that Jeong was convicted earlier this year of the offence of interference with foreign trade in the...Republic of Korea, and therefore, it is not seeking to further prosecute Jeong". Despite this "assurance", Mr. Jeong then travelled to the United States, was arrested, indicted for bribery and conspiracy and sentenced to five years imprisonment and to a $50,000 fine for the exact same conduct.

Therefore, any settlement must take into account all countries that enjoy potential concurrent jurisdiction over the same conduct. In global settlements for corruption and bribery charges, it is important that primary negotiations be conducted with the nation(s) that do not recognize international double jeopardy such as the United States and Germany.

CONCLUSION

As Canada's efforts to combat foreign corruption escalate, companies that operate internationally must take the necessary steps to prevent investigations and prosecutions in Canada, and abroad. This involves establishing robust compliance policies and procedures that will assist in establishing that a company acted in a duly diligent fashion, should a company ever find itself under investigation for a violation of foreign corrupt practices.

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