Canada: Corruption Of Foreign Public Officials Act: Overview

Last Updated: December 6 2017
Article by Kenneth Jull

The CFPOA: Mandatory Risk Assessment

The Corruption of Foreign Public Officials Act, S.C. 1998, c. 34 (CFPOA) has been in force since 1999. In June of 2011, the CFPOA streaked across the radar screens of compliance officers when Niko Resources Ltd. (Niko), a Canadian energy company, plead guilty and paid a fine of almost $10 million as a result of bribes paid to a Bangladeshi official. The bribes included a luxury SUV (Toyota Land Cruiser) and trips to New York and Calgary.

Niko and its subsidiaries were placed on probation requiring that the companies develop compliance procedures based on a risk assessment. The following paragraph from the Probation Order demonstrates the extent to which a risk assessment is now a mandatory element of compliance in the anti-corruption arena:

The company will develop these compliance standards and procedures, including internal controls, ethics and compliance programs on the basis of a risk assessment addressing the individual circumstances of the company, in particular foreign bribery risks facing the company, including but not limited to, its geographical organization, interactions with various types and levels of government officials, industrial sectors of operation, involvement in joint venture agreements, importance of licences and permits in the company's operations, degree of governmental oversight and inspection, and volume and importance of goods and personnel clearing through customs and immigration.

In this note, we survey the essentials of the CFPOA and develop the concept of a risk management matrix which has been applied on a global scale. The matrix will assist an organization in identifying the appropriate level of auditing and training that will be necessary in a given situation. The methodology of this matrix is also discussed.

Centerpiece of the CFPOA

The "centerpiece" of the CFPOA is the offence of bribing a foreign public official:

Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official

  • as consideration for an act or omission by the official in connection with the performance of the official's duties or functions; or
  • to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Every person who commits this offence is guilty of an indictable offence and liable to imprisonment for a term of not more than 14 years.

(sections 3(1) and (2), CFPOA)

The CFPOA contains a number of definitions which are important to consider.

"Foreign public official" means:

  • A person who holds a legislative, administrative or judicial position of a foreign state.
  • A person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function.
  • An official or agent of a public international organization that is formed by two or more states or governments, or by two or more such public international organizations.

Note that the definition does not include members of political parties that are in opposition, but caution should be exercised in this scenario.

"Foreign state" means a country other than Canada, and includes:

  • Any political subdivision of that country.
  • The government, and any department or branch, of that country or of a political subdivision of that country.
  • Any agency of that country or of a political subdivision of that country.

The First Litigated Case: Karigar

The case of R. v. Karigar, 2013 CarswellOnt 11325 (Ont. S.C.J.) (Karigar) was decided on August 15, 2013. This case is important on a number of levels:

  • Whistleblowing backfired, relevant only to sentence. A very unusual aspect of the case is that Mr. Karigar described the scheme in an e-mail sent under a pseudonym "Buddy" to the Fraud Section (FCPA) of the US Department of Justice stating he had information about US citizens paying bribes to foreign officers and inquired about reporting the matter. Mr. Karigar admitted that he is "Buddy". The statement described the scheme as follows:

There was a tender put out by Air India (Government of India enterprise) for a biometric security system, Cryptometrics bid on the system.

  1. Cryptometrics Paid USD 200,000 to make sure that only 2 companies were technically qualified.
  2. They paid $250,000 for the minister to 'bless' the system. There are documents executed to return the funds if the contract is not awarded. There are recordings asking for the money back.
  3. The People involved are Mr. Robert Barra, US citizen, CEO of Cryptometrics and Dario Berini, COO of Cryptometrics, also US Citizen.
  4. Canadian Citizen on contract with the Canadian subsidiary of Cryptometrics.
  5. What about my immunity?

Ultimately Karigar did not receive immunity. To the contrary, he was charged and convicted in Canada under the CFPOA. The court decision does not discuss why Karigar's immunity request was denied.

  • Conspiracy. The decision in Karigar demonstrates that the word "agrees" in section 3 of the CFPOA imports the concept of conspiracy. Moreover, where there is a conspiracy, the prosecution need not prove the identity of the recipient of a proposed bribe as this could put foreign nationals at risk. In Karigar, the purpose of the conspiracy to bribe was to win a tender for a multi-million dollar contract to sell facial recognition software to Air India, a state enterprise.
  • No actual bribe, but belief in a bribe. It is not necessary for the prosecution to prove that a bribe was actually paid to a foreign official to establish a violation of section 3 of the CFPOA. It is sufficient for the party to believe that a bribe was being paid to such an official. The court found that Karigar believed that bribes needed to be paid as a cost of doing business in India and he agreed with others to pay such bribes. He believed bribes were in fact paid and he said as much to the Deputy Trade Commissioner in Mumbai and to US authorities and to the RCMP.

The decision in Karigar was affirmed on appeal, 2017 CarswellOnt 10393 (Ont C.A.). Justice Feldman affirmed that the offence is clearly committed when a person agrees with a foreign public official to give that official a benefit. But equally clearly, the offence is not limited to that scenario. It includes both a direct and an indirect agreement to give or to offer an advantage. There is no limiting language on who must "agree", prescribing the parties to the agreement. Justice Feldman rejected the defence position that the agreement must be with the foreign official. The offence only requires that the loan, reward, advantage or benefit that is the subject of the agreement must be a loan, reward, advantage or benefit to (or for the benefit of) a public official.

Level of Intent Required: Includes Willful Blindness

With respect to the mens rea (intent to commit) of the offence set out in section 3 of the CFPOA, the Department of Justice Guide to the CFPOA states:

No particular mental element (mens rea) is expressly set out in the offence since it is intended that the offence will be interpreted in accordance with common law principles of criminal culpability. The courts will be expected to read in the mens rea of intention and knowledge.

The concept of mens rea includes the doctrine of willful blindness, which has been reviewed by the Supreme Court of Canada in R. v. Briscoe, 2010 CarswellAlta 589 (S.C.C.). Justice Charron for the Court observed that:

The doctrine of willful blindness imputes knowledge to an accused whose suspicion is aroused to the point where he or she sees the need for further inquiries, but deliberately chooses not to make those inquiries.

The existence of a robust compliance system will assist organizations in refuting any suggestion that they were willfully blind.

Exemption for Reasonable Promotional Expenses

Promotional expenses on behalf of government officials: when is this necessary? The CFPOA contains an exemption for reasonable promotional expenses. This concept may cause some initial confusion, as one does not normally think about payments to government officials as promotional in nature, unless the government is a prospective customer. However, in order to obtain government approvals, it is often necessary to explain the nature of the proposed project and this may require that foreign officials take action such as travel to the location of the proposed project or take time away from their office. The officials may require that travel be provided or that expenses are reimbursed.

Exact wording of promotional exemption. The exemption reads as follows:

No person is guilty of an offence under subsection (1) if the loan, reward, advantage or benefit:

  • is permitted or required under the laws of the foreign state or public international organization for which the foreign public official performs duties or functions; or
  • was made to pay the reasonable expenses incurred in good faith by or on behalf of the foreign public official that are directly related to:

    • the promotion, demonstration or explanation of the person's products and services, or
    • the execution or performance of a contract between the person and the foreign state for which the official performs duties or functions.

(section 3(3), CFPOA)

Facilitation Payments

The CFPOA previously had an exception for facilitation payments, for example, payments made for acts of a routine nature such as the issuance of a permit or the processing of official documents.

Facilitation payments are outside government fee schedules. Facilitation payments are best described by first contrasting them to official government programmes for expedited payments. For example, if applying for a passport, one can pay a fee to the government to expedite the processing of the passport. A facilitation payment, by way of contrast, is a payment made to individual government officials who indicate that approvals may be expedited by a payment to them individually, outside of an official framework (section 3(4), CFPOA).

Elimination of facilitation payments. The CFPOA was amended in June 2013. These amendments provided for the elimination of the exception for facilitation payments on a later date to be decided by Cabinet. The amendments are in force as of October 31, 2017 so facilitation payments are no longer permitted under the CFPOA.

Books and Records

A new criminal offence. As part of the June 2013 amendments, there is a new books and records offence: all transactions and expenditures must be adequately and accurately identified in the books and records of the company. While the offence does not explicitly outline a mental element, it is expected that the courts will read in the requirement of intention and knowledge, which flows from the preamble wording "for the purpose of bribing". In contrast to the law in the United States, there is no parallel civil enforcement mechanism relating to proper books and records.

Books kept for the purpose of bribing or hiding a bribe. The new provision reads as follows:

Every person commits an offence who, for the purpose of bribing a foreign public official in order to obtain or retain an advantage in the course of business or for the purpose of hiding that bribery,

  • establishes or maintains 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;
  • makes transactions that are not recorded in those books and records or that are inadequately identified in them;
  • records non-existent expenditures in those books and records;
  • enters liabilities with incorrect identification of their object in those books and records;
  • knowingly uses false documents; or
  • intentionally destroys accounting books and records earlier than permitted by law.

Every person who contravenes subsection (1) is guilty of an indictable offence and liable to imprisonment for a term of not more than 14 years.

(section 4, CFPOA)

Six Categories of Books and Records Offences. From a practical view, the books and records categories can be labelled as follows:

  • The "offsheet books" offence: Maintaining accounts which do not appear in any of the required books and records (section 4(a), CFPOA).
  • The "invisible transactions" offence: Making transactions that are not reported or are inadequately recorded and identified. What constitutes "inadequate" will be a source of considerable litigation (section 4(b), CFPOA).
  • The "fake expenditures" offence: Recording non-existent expenditures in the books and records (section 4(c), CFPOA).
  • The "incorrect liabilities" offence: Entering liabilities with incorrect identification of their object in those books (section 4(d), CFPOA).
  • The "false documents" offence: Knowingly using false documents (section 4(e), CFPOA).
  • The "destruction of documents" offence: Intentionally destroying accounting books and records earlier than permitted by law (section 4(f), CFPOA).

Transparency in books and records. Businesses should ensure that they have complete and continually updated books and records with respect to all third-party consultants in foreign jurisdictions. These books and records must be sufficiently transparent and have enough independence to withstand potential audits. Where possible, companies should demand audit rights from third-party agents. It would be wise to have a forensic accounting firm retained by counsel to review and test the books and records systems against the potential six categories of offences listed above and to remediate where necessary.

The Canadian government has not followed the U.S. route of also having a civil regime to enforce books and records requirements. Canadian companies that are cross listed in the United States must comply with U.S. books and records law. In the matter of Nordion (Canada) Inc. the U.S. Securities and Exchange Commission (SEC) imposed a civil money penalty in the amount of $375,000 on March 3, 2016. Nordion did not have adequate policies and procedures in place to detect corruption risks. Nordion mischaracterized fees paid to its Agent as legitimate business expenses when some or all of the fees may have been used to make corrupt payments to Russian government officials. In assessing the amount of the penalty, the SEC "considered remedial acts promptly undertaken by Nordion, Nordion's self-reporting, and their cooperation afforded the Commission staff. Nordion self-reported the conduct to authorities in both the U.S. and Canada, conducted a thorough internal review, identified the illegal conduct, voluntarily produced witnesses from Canada for interviews in the U.S. and translated documents, and implemented substantial remedial measures to prevent future violations."

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