Over the past decade, Canada has joined a growing coalition of governments from around the world in toughening its stance against the improper influencing of foreign and domestic government officials. Two recent Government of Canada initiatives encourage acquirers involved in extractive resource industries, or with service contracts with the federal government, to enhance their diligence efforts to account for new susceptibilities related to corruption and bribery.
Extractive resources industries
On March 1, 2016, the Department of Natural Resources issued finalized implementation tools that provide more precise guidance on the underlying disclosure obligations of companies required to comply with the Extractive Sector Transparency Measures Act (the ESTMA). The stated purpose of this recently enacted legislation is to increase transparency and ensure Canadian businesses involved in resource extraction industries are supporting the proper development of the countries hosting their operations.
Companies subject to the ESTMA will be required to publicly report any payments made to foreign and domestic government officials and, soon, the Indigenous governments in Canada. Failure to comply with the ESTMA would leave a company and its officers and directors susceptible to a wide variety of discretionary corrective orders, additional disclosure requirements, summary convictions and fines of up to $250,000. With an internally established limitation period of 5 years, potential purchasers will need to enhance their diligence efforts regarding their targets' relationships with governments and officials.
Federal government contracts
Receiving less media attention than the ESTMA, the Canadian government's newly revised Integrity Regime (the Regime) has recently taken effect and applies to all federal procurements and real property transactions. Under the Regime, any "suppliers" (individuals or companies seeking to do business with the Government of Canada) that have been convicted in the last 3 years of a wide variety of integrity related offences will be disqualified from contracting with the federal government for a period of 5-10 years. The Regime has the same effect on any supplier if a member of its board of directors has been similarly convicted.
The Canadian government has now begun notifying companies they suspect may face debarment. This has included suppliers whose affiliates have been subject to similar foreign convictions. In such cases, the supplier would be required to retain the services of qualified and approved independent third parties to perform an assessment and determine whether the supplier was involved in the actions that led to the affiliate's conviction. If they were, the supplier will be rendered ineligible. This potential loss of present and future contracts with the federal government will require keen acquirer's to consider the susceptibility of foreign and local targets, and their affiliates, to convictions of a broad range of integrity related offences.
The author would like to thank James Parker, articling student, for his assistance in preparing this legal update.
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