Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on White Collar Crime, September 2009
Legislatures around the world have passed laws prohibiting the bribing of foreign public officials in order to obtain or retain business opportunities. The American Foreign Corrupt Practices Act (FCPA) has received significant public attention due to a number of high-profile prosecutions. However, the Canadian equivalent to the FCPA – the Corruption of Foreign Public Officials Act (CFPOA) – has not yet been a significant concern for most businesses that fall within its jurisdiction. But this is changing. As a result of significant international pressure, the Royal Canadian Mounted Police (RCMP) have established a special unit dedicated to investigating international bribery and enforcing the CFPOA. This bulletin provides an introduction to the CFPOA, contrasts it with the anti-bribery provisions of the FCPA, and provides a brief update on recent developments in Canada.
The CFPOA was passed in 1999, more than 20 years after the U.S. passed the FCPA in 1977. The CFPOA was written in ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This Convention was motivated by the view that bribery hinders both economic and political progress in a number of ways: it decreases the quality of goods, discourages fair competitive practices and impedes economic development. While the CFPOA has been in force for a decade, it is only recently that it has been the subject of minimal enforcement efforts by Canadian authorities. This, however, is changing.
Both Acts give authorities jurisdiction to charge individuals as well as corporations; however, the FCPA has a longer jurisdictional reach than the CFPOA, applying to issuers in the United States, domestic concerns and any person pursuing a bribery arrangement with a foreign official while within the territory of the U.S.
The Canadian test for jurisdiction, determined by case law, is different. Canada will only try cases with a "real and substantial" link to Canada. This means that a portion of the illegal activities will have to have been committed in Canada or have a real impact on Canadians. While this issue has not been litigated, the involvement of a Canadian company or wholly owned subsidiary of a Canadian company may be sufficient to trigger the application of the CFPOA. Canadian companies may also be held liable for the acts of agents or contractors if the agent or contractor plays an important role in managing the company's activities, or if an officer of the company knows about the agent or contractor's conduct and does not take all reasonable measures to stop them.
It should be noted that the jurisdiction of CFPOA may be broadened in the future. The Canadian Minister of Justice recently introduced a bill which proposes to amend the CFPOA by clarifying that it applies to Canadian individuals acting outside of Canada (comparable to domestic concerns under the FCPA). The bill was read to the House of Commons for the first time during its most recent session.
The CFPOA and FCPA are analogous but not identical – while both have anti-bribery provisions, only the FCPA has accounting and record-keeping provisions.
The CFPOA provides that:
3. (1) 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
(a) as consideration for an act or omission by the official in connection with the performance of the official's duties or functions; or
(b) 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.
The Canadian and American anti-bribery offences are similar, making compliance less complex for corporations that fall within both jurisdictions. Both Acts forbid transferring or offering to transfer any type of benefit for the purpose of influencing a foreign official to misuse his or her power or influence. Neither Act requires that the conveyance be direct; bribes given through an agent or received by a party other than an official are still prohibited if the ultimate goal is to influence an official by conferring a benefit. Both Acts require that the purpose of the bribery be to obtain or retain a business advantage but neither requires that the business arrangement in question includes the recipient of the bribe or that the bribe be successful. Finally, both Acts incorporate very similar definitions of "foreign public official", which includes members of government bodies and public international organizations. One difference is that the CFPOA explicitly includes the judiciary.
Companies charged under the CFPOA may also be charged under the Criminal Code with fraud, secret commissions and conspiracy. Provisions of the Criminal Code also prohibit the laundering or possession of the proceeds of other criminal acts. There is also a risk of sanctions by securities regulators.
The CFPOA and the FCPA offer the same three defences to alleged violators with slight variances.
The first defence allows payments that are lawful under the laws and regulations of the foreign nation where they were received. One key difference is that the CFPOA defence does not require that the payment be lawful under the "written" laws of the foreign nation, as does the FCPA. In Canada, the defence applies when the payment was either "permitted or required under the laws of the foreign state or public international organization". Because of the lack of Canadian case law interpreting this provision, the ambit of the word "permitted" is ambiguous and potentially broader.
The second defence allows reasonable expenditures made in order to develop a business relationship. This may include payments made for the purpose of demonstrating, promoting or explaining products or executing or performing obligations of a contract formed with a foreign government, but may not include entertainment or other, softer, expenses.
The third defence exempts facilitation payments from the bribery prohibitions. Facilitation payments are defined as bribe-type payments made for the purpose of facilitating or expediting the performance of routine governmental actions. Examples of routine governmental actions include obtaining permits, processing government documents (including visas and work orders) and providing police protection, mail service, phone service, power and water. Both Acts expressly provide that any payments made to influence a decision by a foreign official to "award new business or to continue business with a particular party" are not facilitation payments.
Unlike the FCPA which can be enforced through civil or criminal sanctions, the CFPOA can only be enforced through criminal prosecution. Conviction for a CFPOA violation is an indictable offence and can result in imprisonment for up to five years. There is no legal limit to fines that can be imposed; the quantum is left to the discretion of the court. There is also no Canadian statute of limitations for indictable offences. The Criminal Code also prohibits the retention of the proceeds of crime; therefore a convicted company may also be ordered to forfeit all proceeds – not just profits – obtained from the act of bribery. Concerned parties should also be aware that bribes are not tax deductible in Canada. Therefore, even before considering the possible negative effects of conviction upon stock prices and corporate image, it is clear that violation of the CFPOA could be very costly.
High-profile American enforcement actions, such as those against Baker Hughes and Siemens, have reminded the world of the potential severity of facing charges for violation of the FCPA. It is clear that these are not isolated incidents. According to the U.S. Department of Justice, it has laid more charges in the past five years than in the 26 years beforehand. Canadian authorities have not yet followed suit but this situation is likely to change in the near future. The RCMP have established a special unit solely dedicated to investigating international bribery. The unit has been active and several investigations are underway, the most public of which involves allegations of bribery on the part of a Calgary-based oil company in Bangladesh. In its annual report on the implementation of the Convention, Foreign Affairs and International Trade Canada reported a long list of efforts being conducted by numerous government departments within Canada to raise awareness and ensure compliance with Canadian anti-bribery law. As discussed above, another important development is the proposed amendments to the CFPOA, which would clarify that the CFPOA applies to Canadian nationals acting outside of Canada.
In light of increasing Canadian enforcement of the CFPOA, proactive business strategies for compliance are increasingly important. Developing, implementing and enforcing internal policies for not just employees, but agents and contractors is key. The pre-screening of overseas agents is also important in high-risk countries.
Corporations around the world have learned the importance of complying with the FCPA. Although the CFPOA has not presented an imminent threat to date, this is likely to change in the future. For organizations doing business with government, compliance with the CFPOA should be a priority.
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