30 December 2014

Anti-Bribery Legislation And Enforcement Pose Increasing Risks

Gowling WLG


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Mining companies are looking beyond their domestic borders to compete in an increasingly multinational industry and, more than ever, in the most corruption- prone countries in the world.
Canada Criminal Law
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I. Introduction

Mining companies are looking beyond their domestic borders to compete in an increasingly multinational industry and, more than ever, in the most corruption- prone countries in the world.

With the ever-increasing government regulation in the sector this creates a perfect storm for mining companies not properly equipped to confront the bribery and corruption risks in those foreign jurisdictions.

Applicable foreign and domestic anti-corruption laws have increased in number and scope in the past few years, and enforcement is similarly increasing. Also of significant importance to mining companies is the fact that such laws are extraterritorial in nature, and companies that find themselves offside anti-bribery laws in one jurisdiction face the prospect of also being offside, and potentially prosecuted under, anti-bribery laws in other jurisdictions.

Bribery can be a central factor in arbitration where licences are unilaterally cancelled and awarded elsewhere.

But whenever and wherever interactions with foreign public officials occur, there exists the opportunity for a demand, or an offer, or a promise of a payment to be made. There is no one size fits all as far as how to remain outside of the governments' crosshairs in these matters.

Mining companies must be thorough in their assessment of risk before entering a market, or before a change in a relationship, when there's a change in a regulatory environment or legal framework, or when there is a change in government, etc.

And that assessment of risk is what should drive the company's approach to mitigating foreign corruption risk.

II. The legislation – overview

There are anti-bribery laws in place in most if not all of the jurisdictions where mining companies seek to operate. Of course, the degree to which those laws are enforced in their respective home jurisdictions is by no means consistent, nor predictable.

Three foreign corruption laws that are among the most stringent globally are the United States' Foreign Corrupt Practices Act (FCPA), the United Kingdom's Bribery Act 2010 (UKBA) and Canada's Corruption of Foreign Public Officials Act (CFPOA), collectively here called 'ABC Laws'.

US President Carter signed what would become the US FCPA into law on Dec. 20, 1977.1 With that, the United States became the first country to criminalise bribery of foreign public officials. It would take more than 20 years and a major international convention for Canada and the UK to follow suit.

As a result of the FCPA, US businesses began operating at a disadvantage relative to their foreign competitors. Recognising this disadvantage, the US government began encouraging trading partners to enact similar legislation in order to level the commercial playing field. Largely as a result of US pressure in 1994 the OECD began officially coordinating an effort to combat the bribery of foreign public officials.2 All 34 member countries, including Canada, would sign the 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. On Dec. 7, 1998, Canada adopted implementing legislation in the form of the CFPOA, which then came into effect on Feb. 14, 1999.3 The UKBA has been in force since July 1, 2011.

Generally speaking, the ABC Laws make it an offence to directly or indirectly give, offer or agree 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 official in order to obtain or retain an advantage in the course of business. Important characteristics of each of the ABC Laws are set out below. The FCPA applies to broad categories of persons. The FCPA anti-bribery provisions apply to all "issuers" of securities registered on US stock exchanges, as well as "domestic concerns".

In addition, any person who, while in the territory of the United States, takes such action as telephone calls, wire transfers and interstate travel, in furtherance of a corrupt payment, can also be held liable. Amendments made to the FCPA in 1998 also expanded the jurisdiction of the FCPA to include foreign companies if they cause, directly or through agents, an act in furtherance of a corrupt payment to take place within the US.

The accounting provisions of the FCPA only apply to "issuers" that are entities, and individuals acting on behalf of those entities, with securities listed on a US stock exchange.

The FCPA encompasses two different yet often intertwined aspects, which can both be the subject of enforcement action by two different enforcement agencies in the US. First, the criminal provisions prohibiting bribery apply to any of the entities and individuals described above. The US Department of Justice (DOJ) has responsibility for investigating and prosecuting violations of the (criminal) bribery provisions.

Second, the FCPA also contains (civil) accounting provisions which were designed to operate in tandem with its anti-bribery provisions. These accounting provisions apply to any company that has securities listed on a US exchange, and require corporations covered by the provisions to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. The US Securities and Exchange Commission (SEC) has enforcement responsibility for the (civil) accounting provisions.

In terms of overall enforcement, the US has long since led the way. Companies are often prosecuted simultaneously by both the DOJ and SEC for violations of both the criminal and civil aspects of the FCPA. The US routinely collects enormous fines, disgorged profits and pre-judgment interest from companies caught in the crosshairs of the FCPA. The DOJ and SEC continue to devote increasing resources to the prosecution of FCPA offences.

Canada – CFPOA

The relevant (bribery) charging section of the CFPOA provides as follows:

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.4

In 2008, the Royal Canadian Mounted Police (RCMP) established the International Anti-Corruption Unit dedicated to raising awareness about and enforcing the CFPOA.5 However, since coming into effect, the CFPOA and Canada's enforcement efforts against foreign bribery have been widely criticised. The criticisms had taken aim at weaknesses in the legislative framework as well as poor enforcement of the offence. To date only four successful convictions have been made under Canada's CFPOA. However, recent amendments to the CFPOA and an uptick in the reported number of ongoing investigations signal an increased emphasis on rooting out foreign bribery from Canadian business practices. These amendments aimed at addressing this opprobrium and strengthening Canada's ability to enforce against CFPOA violations came into effect on June 19, 2013. These include: 1) expanding the jurisdictional reach of the legislation to include nationality jurisdiction, 2) increasing the scope of the offence to include all international business and 3) increasing penalties for violations.

The 2013 amendments explicitly expanded the jurisdictional reach of the CFPOA from territorial to nationality jurisdiction. This change makes it easier for Canadian authorities to launch prosecutions regardless of where the alleged bribery took place.6 The amendment makes it clear that offences committed by Canadian citizens, permanent residents, public bodies, corporations, societies, companies, firms or partnerships organised under the laws of Canada will be deemed to be within Canada for the purposes of the CFPOA.7

Further, the original CFPOA did not contain requirements mandating that books and records accurately reflect business transactions. Such provisions in the US legislation have allowed the SEC to bring books and records charges even where no criminal bribery charges are brought.8 The amended CFPOA has created a criminal offence related to books and records kept to further or hide foreign bribery.9 Pursuant to the new books and records provisions, it is an offence to keep secret accounts, falsely record, not record or inadequately identify transactions, enter liabilities with incorrect identification of their object, use false documents, or destroy accounting books and records earlier than permitted by law for the purpose of concealing bribery of a public official.

However, undermining the usefulness of this provision, the amended CFPOA contains a specific purpose test which appears to require that the books and records be improperly maintained for the purpose of hiding bribery. Therefore in order to prove a books and records offence, authorities will likely have to first prove an underlying bribe. We expect that this will severely limit the utility of the books and records provisions.

The penalty for conviction under this offence is a maximum of 14 years imprisonment and unlimited fines.

United Kingdom – UKBA

The relevant (bribery) charging section of the UKBA provides as follows:

6 (1) A person ("P") who bribes a foreign public official ("F") is guilty of an offence if P's intention is to influence F in F's capacity as a foreign public official.

(2) P must also intend to obtain or retain—

(a) business, or

(b) an advantage in the conduct of business

(3) P bribes F if, and only if—

(a) directly or through a third party, P offers, promises or gives any financial or other advantage—

(i) to F, or

(ii) to another person at F's request or with F's assent or acquiescence, and

(b) F is neither permitted nor required by the written law applicable to F to be influenced in F's capacity as a foreign public official by the offer, promise or gift.

The UKBA, still relatively new, has established itself as the widest-ranging of the three ABC Laws. The UKBA has a near-universal jurisdiction, allowing for the prosecution of an individual or company with links to the United Kingdom, regardless of where the crime occurred. Any company that carries on business in the UK will be subject to the failure to prevent bribery offence (described below) in relation to conduct that occurs outside the UK, even where that conduct is unrelated to the UK aspect of its business. In this regard the reach of the UKBA may go beyond the FCPA.

In addition to prohibiting the bribery of public officials, the UKBA also prohibits the bribery of private commercial parties – "business-to-business" bribery.

Of significant note, under section 7, the UKBA is the first of the ABC Laws to create the offence of failing to prevent the commission of a bribery offence. Essentially, a corporation commits an offence under the UKBA if a person associated with it bribes another person with an intention of obtaining or retaining either business or a business advantage for that corporation. 'Persons associated' with the organisation are defined as any person who performs services on behalf of the organisation; they can be individuals or business entities, and include employees, agents and consultants. This broad corporate offence is one of strict liability, which means that an organisation may rebut an allegation that it failed to prevent the commission of the bribery in question with evidence that it had put in place "adequate procedures" designed to prevent persons associated with the company from engaging in the unlawful conduct. Under the UKBA's explanatory notes, it is stated that the burden of proof in this situation is on the company, with the standard of proof being on a balance of probabilities. Such "adequate procedures" are to be based on a set of six general compliance-related principles:

  1. Risk assessment;
  2. Top-level commitment;
  3. Due diligence;
  4. Clear, practical and accessible policies and procedures;
  5. Effective implementation; and
  6. Monitoring and review. For individuals convicted under the UKBA, the maximum penalty is 10 years' imprisonment and an unlimited fine. For commercial organisations the penalty is an unlimited fine.

Other noteworthy elements of the ABC Laws

1. "Foreign Official"

Each of the ABC Laws defines "foreign official" in a relatively consistent manner. A foreign public official is essentially any person who holds a legislative, administrative or judicial position for 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. It also includes an official or agent of a public international organization that is formed by two or more states or governments or by two or more public international organizations.

2. Facilitation Payments

The CFPOA, like the FCPA, presently carves out an exception for facilitation payments. This provision is commonly referred to as the "grease payment" exception. Facilitation payments are those made to expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official's duties or functions, such as the issuance of routine licenses or the provision of phone, power, and water service; providing police protection or mail delivery; or scheduling inspections associated with contract performance or the shipment of goods. As stated above, currently such payments do not constitute a violation under the CFPOA. This exception is set to be eliminated under the recent amendments. This change will come into force at a later date yet to be determined.

Quite unlike the CFPOA and FCPA, however, the UKBA does not provide any
exemption for the making of facilitation payments.

III. Comparison between CFPOA, FCPA and UKBA

The chart visible below sets out key similarities and differences in the enforcement of anti-bribery legislation in the US, UK and Canada.

IV. Mining Sector Risks

It is clear that the mining sector is particularly at risk for noncompliance with applicable anti-bribery laws. Simply, the nature of the activity and the countries where miners operate, combine to create an environment where bribery sadly becomes prevalent. We have noted below some reasons for this increased risk:

  1. The metals and mining industry is one of the most highly regulated in the world. Mining companies require permits, licenses and approvals from numerous and various government officials in order to explore, develop, construct and operate a mine. Environmental permits and compliance certifications are required. Consultation and social impact studies are also typically required. Inspections of mine sites are common. Each of these interactions with foreign government officials increases the probability of a bribe being demanded at some point in a project's life cycle.
  2. The locations where mining companies seek to operate are among the most corruption-prone in the world. Further, cultural or business norms in those jurisdictions may see the payment of bribes as an acceptable (and even expected) practice.
  3. The need for frequent dealings with customs and immigration officials to import and export products and equipment, as well as to ease the entry and departure of company personnel.
  4. The importance of corporate social responsibility, and the associated increase in local consultation, relationships with local governments and the injection of social development monies in foreign jurisdictions create opportunities for improper payments to be demanded or project monies to be diverted by foreign officials.
  5. The need for state-controlled police or military protection for mine sites.
  6. Prevalence of use of agents, "promoters", consultants and other third party intermediaries to assist in the location of properties, as well as to obtain government licenses, approvals and to build government relations in foreign countries.
  7. The extractive sector (mining, oil and gas) is an admitted enforcement priority of law enforcement agencies in the US and Canada.
  8. Corporations have always been vulnerable to whistleblowers providing information to relevant law enforcement authorities particularly when they determined that company management failed to take such whistleblower reports seriously. In the US, the Dodd-Frank Act whistleblowing regime which introduced financial incentives and related protections for individuals who blow the whistle on individual and corporate violators, will surely change the enforcement landscape for US-listed entities. Other jurisdictions, while perhaps lacking the formality and financial rewards of the Dodd-Frank Act, are exploring ways to encourage whistleblowers to come forward. 
  9. There is much increased cooperation among international enforcement agencies, making the sharing of information across borders easier. Similarly, the breadth of investigative tools available to transnational crime investigators (including, for example, physical and electronic surveillance, informants, wiretaps, mutual legal assistance treaties and cooperation from the financial services sector), is also creating new avenues for enforcement agencies. 
  10. To reinforce their movement toward greater transparency and to more fully implement their international commitments in the fight against domestic and foreign corruption, increasing numbers of jurisdictions around the world are adopting rules to require public disclosure by mining companies of amounts paid to foreign governments. Such "Publish what you pay" initiatives will certainly assist in the detection of potentially improper payments, not only by a mining company's senior management, but also by law enforcement agencies around the globe, concerned citizens and non-governmental organisations keen to scrutinise the activities of global resource players.

Having regard to all of the above, it is clear that fraud and corruption risks are among the greatest risks faced by mining sector players around the world.

V. Conclusion

Canada's foreign bribery enforcement history may represent a drop in the bucket compared to that of the FCPA but all signs point to an increase in efforts on this front. Similarly, the significant reach and breadth of the UKBA should spell a near-certain increase in enforcement activity from the UK's Serious Fraud Office.

Companies operating in the extractive sector must heed the warning and implement risk preventative and detective measures to stay safely out of the government's crosshairs.

Corruption risks can be effectively mitigated through the adoption and implementation of robust risk assessment and compliance mechanisms, including visible commitment and support from senior management (a strong and ethical "tone from the top"), thorough due diligence of partners and third parties, a clearly-worded code of conduct and related anti-bribery policies and procedures (and regular employee and partner training on such policies), internal controls and periodic monitoring of the overall program's effectiveness.

This article was originally published in Mining Journal's 2015 Dispute Resolution Guide.


1 Mike Koehler, "The Façade of FCPA Enforcement" (2010) 41 Geo J Int'l L 912.

2 Christopher K. Calberg, "A Truly Level Playing Field for International Business: Improving the OECD Convention on Combating Bribery Using Clear Standards" (2003) 26 BC Int'l & Comp L Rev 95.

3 OECD Working Group on Bribery in International Business Transactions, Canada: Review of Implementation of the Convention and 1997 Recommendation, Phase 1 Report, (Paris: OECD, 1999). 

4 Corruption of Foreign Public Officials Act, SC 1998, c 34, s 3(1).

5 Foreign Affairs, Trade and Development Canada, News Release, Strengthening Canada's Fight Against Foreign Bribery, (Feb. 5, 2013) online: FATD.

6 Kristine Robidoux & Sean Murphy, " Update – Amendments to the Corruption of Foreign Public Officials Act" (June 2013).

7 Supra note 9 at s 5(1).

8 Supra note 8.

9 Supra note 20.

10 Sean Hecker & Margot Laporte, "Should FCPA "Territorial" Jurisdiction Reach Extraterritorial Proportions", (2013) 42:1 International Law News.

11 Ibid.

12 Supra note 8.

13 Supra note 27.

14 US, Department of Justice, "A Resource Guide to the U.S. Foreign Corrupt Practices Act" at 68.

15 Ibid.

16 Ibid.

17 Ibid.

18 Ibid at 69.

19 Richard L Cassin, "Weatherford lands on our Top 10 list" The FCPA Blog (Nov. 27, 2013).

20 Mike Koehler, "Worth Noting From Canada's First CFPOA Decision", (Aug. 29, 2013).

21 Mike Koehler, FCPA 101 (2012), online: FCPA Professor.

22 Mike Koehler, Foreign Enforcement Action Roundup (Aug. 4, 2011), online: FCPA Professor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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