RISKY BUSINESS
A Primer on Canada’s Foreign
Anti-Corruption Enforcement Regime
A Primer on Canada’s Foreign
Anti-Corruption Enforcement Regime
Wendy Berman wberman@casselsbrock.com
Jonathan Wansbrough jwansbrough@casselsbrock.com
The authors have benefited from the helpful assistance of Jennifer Bates, summer law student
Table Of ContentS
I. Introduction
II. The CFPOA Framework
III. Recent Cases
IV. Jurisdictional Issues: How to Cope with Multi-jurisdictional Liability
V. The Self-Reporting Calculus
VI. Transactional Issues and Due Diligence
VII. Third Parties and Red Flags VIII. An Effective Compliance Program About the Authors
1
3
18
21
24
28
31
32
34
© 2014 Cassels Brock & Blackwell LLP. All rights reserved.
This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes
in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult
legal counsel for advice regarding the matters discussed herein.
Cassels Brock & Blackwell LLP
CFPOA Primer
I. Introduction
The Corruption of Foreign Public
Officials Act1 (the “CFPOA” or the
“Act”) is the principal Canadian
statute designed to combat
corruption and bribery of foreign
public officials in international
business transactions. The Canadian
federal government enacted the CFPOA more than
15 years ago as part of its commitment to combat
foreign corrupt practices
and to engender confidence
An investigation or
in the integrity of Canadian
prosecution against a
businesses. However, only very
business entity…can
recently has there been any
be very costly
significant activity in connection
and cause significant
with the CFPOA. There have
business disruption
been four prosecutions and
and reputational
approximately 35 active
damage.
investigations under the CFPOA
to date.
In 2013, the Canadian government passed
legislative amendments (the “2013 Amendments”)
to strengthen Canada’s foreign corrupt practices
regime, which included the creation of a books
and records offence, increasing the maximum
length of imprisonment to 14 years, eliminating
1 SC 1998, c 34 [CFPOA].
the facilitation payment exemption and
expanding jurisdictional reach. These
legislative amendments together with a
number of recent high-profile corruption
investigations and prosecutions and
recent public statements by the Canadian
government affirming its commitment to
combat foreign corrupt practices, raise
the spectre of a significant increase in
corruption enforcement activity.
Canadian-based corporations operating
abroad or foreign and domestic entities
operating in Canada, and their directors,
officers and advisors need to pay attention
to these developments and ensure they
have robust anti-corruption compliance
measures and risk mitigation strategies
in place to prevent and detect foreign
corrupt practices. An investigation or
prosecution against a business entity, or
a single individual within or associated
with that entity can be very costly and
cause significant business disruption and
reputational damage.
CFPOA Primer
Cassels Brock & Blackwell LLP
1
…I. Introduction
Recent high-profile investigations illustrate the significant costs associated
with investigations of potential non-compliance with foreign corrupt practices
regimes and the importance of avoiding even allegations of misconduct.
In Canada, Griffiths Energy International, a private oil and gas exploration
company, spent over $5 million2 to investigate suspected bribes in connection
with the award of oil concession rights in the Republic of Chad and SNC-Lavalin
has spent over $50 million3 in the ongoing investigation into allegations of
foreign and domestic bribery. In the United States, Wal-Mart Stores Inc. has
spent $439 million during the past two years to investigate allegations of
bribery in Mexico, China, India and Brazil4 and Avon Products Inc. has spent at
least $344 million in connection with an internal investigation into allegations
of bribery in China.5
To assist corporations and individuals in better understanding the nature of the
risk they face in Canada, this paper provides an overview of Canada’s foreign
corrupt practices regime, highlights recent cases and developments and
outlines risk mitigation strategies, including a robust compliance program and
anti-corruption due diligence in certain corporate transactions.
2 HMQ v Griffiths Energy International Inc., Agreed Statement of Facts at para 46.
3 SNC-Lavalin, 2013 Financial Report, online: http://investors.snclavalin.com/en/investors-briefcase/
doc/2013_annual_financial-report_none.pdf/.
4 David Voreacos and Renee Dudley, “Wal-Mart Says Bribe Probe Cost $439 Million in Two Years”,
Bloomberg (March 26, 2014), online: www.bloomberg.com.
5 Tom Schoenberg and David Voreacos, “Avon Bribe-Probe Clean-Up Neared $500 Million as Sales
Fell”, The Washington Post (May 2, 2014), online: washpost.bloomberg.com.
2
Cassels Brock & Blackwell LLP
CFPOA Primer
II. The CFPOA Framework
A. Offences
The CFPOA creates two primary
offences: (1) directly or indirectly, giving, offering
or agreeing to give a loan, reward, advantage
or benefit of any kind to a foreign public official
to obtain or retain a business advantage and as
consideration for an act or
omission by the foreign official;
…even charitable
and (2) making, falsifying
endeavours may
or concealing records and
be subject to
payments related to the bribery
the CFPOA .
of a foreign public official.
(i) The Bribery Offence
The main bribery offence in the CFPOA is found
in section 3(1) and makes it an offence to, in order
to obtain or retain an advantage in the course of
business:
which the official performs duties or
functions.6
The term “business” is broadly defined and
means “any business, profession, trade,
calling, manufacture or undertaking of any
kind carried on in Canada or elsewhere.”
Under the CFPOA, “business” is not limited
to “for profit” or profitable enterprises or
business ventures. As such, even charitable
endeavours may be subject to the CFPOA.
The term “Foreign Public Official” is also
broadly defined and means:
»» 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
a) a person who holds a legislative,
administrative or judicial position of a
foreign state;
b) 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
»» 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
6 Supra note 1 at s 3(1).
CFPOA Primer
Cassels Brock & Blackwell LLP
3
…II. The CFPOA Framework
perform a duty or function on behalf of the foreign state, or is performing
such a duty or function; and
c) 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 organization.
Officials of state-owned, controlled or financed corporations are captured
within the meaning of “Foreign Public Official” under the CFPOA. In R v Karigar7
(Karigar), for example, the court found that Air India officials satisfied the
definition of “Foreign Public Official” because Air India is a corporation owned
and controlled by the Government of India.8
The term “Foreign State” means a country other than Canada and includes:
a) any political subdivision of that country;
b) the government, and any department or brand, of that country or of a
political subdivision of that country; and
c) any agency of that country or of a political subdivision of that country.
To date there have been comparatively few prosecutions under the CFPOA and,
as such, little judicial guidance on the interpretation and scope of each of the
elements of these offences. There is also no comprehensive guidance from the
Canadian government on the scope and application of the CFPOA.
7 2013 ONSC 5199 [Karigar].
8 Ibid at para 3; Under the US Foreign Corrupt Practices Act, the term “foreign official” is defined as
“any officer or employee of a foreign government or any department, agency or instrumentality
thereof.” The United States v Esquenazi, No 11-15331 (11th Cir May 16, 2014), the meaning of the
term “instrumentality” in the definition of “foreign official” under the FCPA. In particular, the
court considered whether Telecommunications D’Haiti, S.A.M., a privatized telecommunications
company with ties to the Haitian government constituted an “instrumentality” within the
meaning of the FCPA. The court defined the term “instrumentality” as “an entity controlled by
the government of a foreign country that performs a function the controlling government treats
as its own.” To assist in the determination whether a entity is an “instrumentality” of a foreign
government, the court developed a two-part test. To determine whether an entity is “controlled”
by a foreign government, the following factors should be considered: (a) the foreign government’s
formal designation of the entity; (b) whether the government owns a majority interest in the
entity; (c) the government’s ability to hire and fire the entity’s principals; (d) the extent to which
the government profits from, or subsidizes, the entity; and (e) the length of time these indicia
have existed. To determine whether an entity “performs a function the government treats as its
own”, the following factors should be considered: (a) whether the entity has a monopoly over the
function it exists to carry out; (b) whether the government subsidizes the costs associated with
the entity providing services; (c) whether the entity provides services to the public at large in the
foreign country; and (d) whether the public and the government of that foreign country generally
perceive the entity to be performing a governmental function.
4
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
The meaning of the term “loan, reward, advantage or benefit of any kind” and
the scope of advantages or benefits that would constitute an illegal bribe under
the CFPOA is relatively undeveloped. The handful of completed prosecutions
indicate a relatively broad scope which leaves open the possibility of a large
variety of monetary and nonmonetary benefits of varying
…forms of monetary benefits… within
amounts being offside the CFPOA.
the scope of the CFPOA could include
Courts have found that transfers
making charitable or political contributions
of securities in start up companies,
and the payment of improper expenses such
payment of travel expenses,
country club fees, housing expenses and
provision of lodging and lavish or
limousine services.
expensive gifts to be illegal bribes.9
Other forms of monetary benefits
that may fall within the scope of the CFPOA could include making charitable or
political contributions and the payment of improper expenses such country
club fees, housing expenses and limousine services.
The term “give, offer or agree to give or offer” is fairly broad in scope. It is not
only an offence to offer or give a bribe, but also an agreement to offer a bribe
will constitute an offence. Further, the court in a recent prosecution broadly
interpreted the term “agrees” to mean that conspiracy to commit a bribe will
also constitute a violation of the Act. This means that “agrees” is not restricted
to an agreement between two individuals: one who offers the bribe and one
who receives the bribe.10 Broadening the elements of the offence to include
conspiracy circumvents some practical considerations, such as the difficulty in
obtaining evidence from foreign jurisdictions.11
(ii) The Books and Records Offence
In addition to the bribery offence, the CFPOA contains a books and records
offence for concealing bribery in the accounting records of the company,
including by keeping secret accounts, falsely recording or inadequately
identifying transactions, entering liabilities with incorrect identification of their
object, using false documents or destroying documents or accounting books and
records. Under section 4(1) of the CFPOA every person commits an offence who:
»» for the purpose of bribing a foreign public official
9In R v Niko Resources Ltd., the benefits that were given to the foreign public officials included a
Toyota Land Cruiser and a trip to New York and Chicago, worth about $5000, for the Bangladeshi
State Minister for Energy and Mineral Resources to visit his family. In R v Griffiths Energy
International Inc., the benefit constituted consulting fees worth about $2 million; in the US.
10 Karigar, supra note 7 at para 29.
11 Karigar, supra note 7 at para 29.
CFPOA Primer
Cassels Brock & Blackwell LLP
5
…II. The CFPOA Framework
»» 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.
The books and records
criminal offence
increases the
risk of criminal
exposure for a
corporation and its
directors and senior
officers…
Payments for bribes are often made possible as a result
of weak internal controls over financial reporting as
such payments are typically inaccurately recorded in
the books and records of a corporation. The books and
records criminal offence increases the risk of criminal
exposure for a corporation and its directors and senior
officers as a result of inadequate internal controls and
compliance programs or the false or inaccurate recording
of payments of bribes in the corporation’s financial
records.
To date, there has been no jurisprudence in Canada considering the books and
records provisions of the CFPOA.
B. Exceptions
The CFPOA contains the following three main exemptions to the bribery
offence:
i) the local law exemption;
ii) the reasonable expenses exemption; and
iii)the facilitation payments exemption.
6
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
Of significant note for corporations, the 2013 Amendments to the CFPOA
provide for the elimination of the facilitation payment exemption once this
amendment is proclaimed in force.
(i) The Local Law Exemption
Under section 3(3)(a) of the CFPOA, a person is not guilty of an offence of
bribing a foreign public official if the benefit or payment would be “permitted or
required under the laws of the foreign state or public international organization
for which the foreign public official performs duties or functions.”12
There is no Canadian jurisprudence interpreting what would constitute a valid
exemption under local law; however, regimes in other jurisdictions may provide
some guidance.
Under the US Foreign Corrupt Practices Act13 (FCPA), for instance, the local law
defence may only be used if the country has actively sanctioned the payment
as being lawful under the foreign country’s written laws and regulations at the
time of the offence.14 Merely proving that bribery would not be prosecuted
under local law is not a defence.15
(ii) The Reasonable Expenses Exemption
Section 3(3)(b) of the CFPOA sets out the reasonable expenses exemption.
Under the reasonable expenses exemption, a payment would not be
considered bribery if it:
»» 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.16
12 Supra note 1 at s 3(a).
13 The Foreign Corrupt Practices Act, 15 USC §§ 78dd-1, 78dd-2, 78dd-3, 78m, 78ff [FCPA].
14 Criminal Division of the US Department of Justice and Enforcement Division of the US Securities
and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act, (Washington:
2012) [FCPA Resource Guide] at 23.
15 Ibid.
16 Supra note 1 at s 3(3)(b).
CFPOA Primer
Cassels Brock & Blackwell LLP
7
…II. The CFPOA Framework
Like the local law exemption, there is no Canadian jurisprudence interpreting
this exemption.
In the US, reasonable expenses are considered to be “items of nominal value,
such as cab fare, reasonable meals and entertainment expenses, or company
promotional items, [which] are unlikely to improperly influence an official, and,
as a result, are not, without more, items that have resulted
in enforcement action”.17 Large gifts such as sports cars, fur
Large gifts such
coats, country club memberships, household maintenance
as sports cars,
expenses, and extravagant trips have been found to be
fur coats, country
bribes under the FCPA.18 However, several smaller gifts
club memberships,
taken together have also been found to amount to a bribe.19
household
maintenance expenses,
and extravagant trips
have been found to
be bribes… several
smaller gifts
taken together
have also been found
to amount to a bribe.
Not every jurisdiction has codified a reasonable expenses
exemption. The United Kingdom’s Bribery Act 2010 20 (the
“Bribery Act”), does not contain a written exemption
for reasonable and bona fide expenses or corporate
hospitality. Although this was not meant to be a blanket
prohibition of reasonable and proportionate hospitality
expenses, the effect is that in the UK what constitutes
a reasonable expense is a matter for prosecutorial
discretion.21
Expenses unrelated to the legitimate business purpose of a trip have resulted in
prosecution under the CFPOA and the FCPA. For instance, in R. v. Niko Resources
Ltd. (discussed in more detail below), Niko Resources Ltd. (“Niko”) paid for a
foreign public official to attend an oil and gas exposition in Calgary, Alberta;
however, the company also paid for that public official to visit family in New York.
As part of the Agreed Statement of Facts in its guilty plea, Niko admitted that
the non-business related portion of the travel and expenses of the public official
constituted a bribe.
Similarly, in the US Securities and Exchange Commission (the “SEC”) prosecution
of Lucent Technologies (“Lucent”), the company paid $2.5 million in fines and
civil penalties to resolve allegations that it violated the FCPA. Lucent admitted
that, from 2000 to 2003, the company spent more than $10 million to take
17 FCPA Resource Guide, supra note 14 at 15.
18 Ibid. at 115.
19 Ibid.
20 Bribery Act 2010 (UK), 2010, c 23 [Bribery Act].
21 Open letter from Lord Tunnicliffe to Lord Henley (14 January 2010) in Colin Nicholls et al, Corruption
and Misuse of Public Office, (Oxford: Oxford University Press, 2011) at 4.135; UK, HL, Parliamentary
Debates, vol 716, no 21 (7 January 2010) (Lord Lyell of Markyate).
8
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
approximately 1,000 foreign officials on more than three hundred trips to the
United States and elsewhere. The majority of the trips were ostensibly designed
to allow for the inspection of Lucent’s factories by the foreign officials and to train
the officials in the use of Lucent equipment. However, during many of the trips,
the officials spent little or no time visiting Lucent’s facilities. Instead, they visited
US tourist destinations. In addition to paying for all lodging, transportation, food
and entertainment expenses, in many instances,
Lucent provided sightseeing, entertainment
…expenses that… are unrelated to
and leisure activities, as well as per diems, in
a legitimate business purpose may
relation to the time and expense spent on
trigger prosecution for breach of
legitimate training. Accordingly, the SEC took the
the CFPOA (or FCPA)
position that the trips had a disproportionate
amount of leisure and sightseeing activities in
relation to time spent on legitimate training and site inspections and that “Lucent
lacked the internal controls to detect and prevent trips intended for sightseeing,
entertainment, and leisure, rather than business purposes.”22
These cases illustrate the risk that expenses that, in whole or part, are
unrelated to a legitimate business purpose may trigger prosecution for breach
of the CFPOA (or FCPA), and underscore the importance of care and diligence
on the part of the company financing trips (or other expenses) of a foreign
public official.
(iii) The Facilitation Payment Exception
The facilitation payment exemption (and its eventual elimination) is of most
practical significance to corporations operating in certain foreign jurisdictions
either directly or indirectly through local agents.
Facilitation payments are made to foreign public officials to expedite or secure
the performance of a routine act that is part of the official’s ordinary duties,
such as the issuance of a permit, the processing of documents such as visas
and work permits, or the provision of services normally provided, such as police
services. Such payments are a routine cost of business in certain countries.
Notwithstanding this reality, there is a growing international trend to eliminate
facilitation or “grease” payments from international business dealings.
Section 3(4) of the CFPOA currently carves out facilitation payments from the
offence of bribery under the CFPOA:
22 SEC Litigation Release No. 20414 / December 21, 2007, online: http://www.sec.gov/litigation/
litreleases/2007/lr20414.htm.
CFPOA Primer
Cassels Brock & Blackwell LLP
9
…II. The CFPOA Framework
»» a payment is not a loan, reward, advantage or benefit to obtain or retain an
advantage in the course of business
»» if it is 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, including:
»» the issuance of a permit, licence or other document to qualify a person to
do business;
»» the processing of official documents, such as visas and work permits;
»» the provisions of services normally offered to the public, such as mail
pick-up and delivery, telecommunication services and power and water
supply; and
»» the provision of services normally provided as required, such as police
protection, loading and unloading of cargo, the protection of perishable
products or commodities from deterioration or the scheduling of
inspections related to contract performance or transit of goods.
An “act of a routine nature” does not include any decision to award new
business or to continue business with a particular party.23
Section 3(2) of the 2013 Amendments eliminates the facilitation payment
exemption from the CFPOA and will come into force on a day to be fixed by
the Governor in Council (the federal cabinet). To date,
this provision has not yet been declared in force.
…corporations should be
The Canadian government has stated that it delayed
prepared for the federal
proclaiming this amendment in force to allow Canadian
cabinet to eliminate
corporations a period of time to adjust their operations
the facilitation
to the new requirements of the CFPOA. Given that over
payment exemption
one year has passed since the 2013 Amendments were
without any further notice
implemented, corporations should be prepared for the
period.
federal cabinet to eliminate the facilitation payment
exemption without any further notice period.
The most notable exception to the global trend against facilitation payments is
the United States. The FCPA continues to provide an exception for “facilitating
or expediting payments to a foreign official... to expedite or to secure the
performance of a routine governmental action.” 24
23CFPOA, supra note 1 at s 3(5).
24FCPA, supra note 13 at § 78dd(1)(b).
10
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
C. Penalties
Contravention of the CFPOA carries the risk of significant liability in addition
to the reputational damage and business disruption that an investigation
and prosecution would cause. In particular, the CFPOA imposes the following
penalties:
»» Individuals: A maximum term of imprisonment of 14 years25
»» Organizations: A fine with no proscribed upper limit 26
Sentences imposed for breaches of the Act are subject to the sentencing
guidelines set out in the Criminal Code
of Canada (the “Criminal Code”) and the
Contravention of the CFPOA carries
discretion of the Court. Section 718.2 of
the risk of significant liability in
the Code lists several aggravating and
addition to the reputational
mitigating factors that should be taken into
damage and business
consideration by the Court when imposing
disruption that an investigation
a sentence. Section 718.21 of the Criminal
and prosecution would cause.
Code enumerates factors to be considered
when sentencing an organization, including:
»» Any advantage realized by the organization as a result of the offence;
»» The degree of planning involved in carrying out the offence and the
duration and complexity of the offence;
»» The impact that the sentence would have on the economic viability of the
organization and the continued employment of its employees;
»» The cost to public authorities of the investigation and prosecution of the
offence; and
»» Any measures that the organization has taken to reduce the likelihood of
it committing a subsequent offence.
In assessing the financial penalty to impose on a corporation for breaches
of the CFPOA (or other criminal misconduct, including fraud), the court will
consider the above factors (among others). The willingness of a corporation
to proactively implement, or improve, a compliance and training program
following an investigation or charges under the CFPOA will likely mitigate the
corporation’s exposure.
25CFPOA, supra note 1 at s 3(2), 4(2).
26 RSC 1985, c C-46 at s 735(1)(a) [Criminal Code].
CFPOA Primer
Cassels Brock & Blackwell LLP
11
…II. The CFPOA Framework
Since there have been few prosecutions in Canada, there is little judicial
guidance on the application of the sentencing guidelines to CFPOA violations;
however, these guidelines were considered by the Court in Karigar, in its
decision to impose a 3 year prison sentence on the first individual tried,
convicted and sentenced under the CFPOA. 27 As aggravating
factors, the Court considered the sophistication of the
The willingness of
scheme, the quantum of the proposed bribe, and other
a corporation to
circumstances of dishonesty.28 As mitigating factors, the
proactively
Court considered the level of cooperation of the accused,
implement,
the age of the accused, lack of a prior criminal record and
or improve, a
the harm resulting from the offence (in that case, the
compliance
bribery scheme was a failure). 29
and training
program following
In R. v. Griffiths Energy International30 (Griffiths Energy),
the Court also considered the applicable Criminal Code
an investigation
sentencing provisions in its decision to accept a joint
or charges under
sentencing submission that the financial penalty imposed
the CFPOA will
on the corporate defendant for violating the CFPOA should
likely mitigate
total $10.35 million. In the sentencing decision, the Court
the corporation’s
weighed the chief aggravating factor, namely the size of
exposure.
the bribe, against the significant number of mitigating
factors, including a change in the management team of the
company, the swift and decisive internal investigation and that the company
self-reported the crime. The court also recognized that Griffiths’ sharing of
information, including privileged documents, from the investigation (which cost
in the range of $5 million) saved the prosecution a significant amount of money
and time in investigation and that the guilty plea avoided the cost of a full trial.
Finally, “and very importantly, Griffiths entire course of conduct since discovery
the bribe demonstrate[d] a complete and genuine remorse for the illegal
conduct manifested by its former officers.” 31
D. Jurisdiction
Canada has broad jurisdiction to prosecute violations of the CFPOA, and may
assert jurisdiction where:
27 Karigar, supra note 7.
28 Ibid. at para 11.
29 Ibid. at para 12.
30 R. v. Griffiths Energy International, [2013] AJ No 412 (ABQB) [Griffiths Energy].
31 Ibid. at para 20.
12
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
a) a significant portion of the actions or omissions constituting a corruption
offence are committed in or connected to Canada - in other words, where
the transaction has “a real and substantial connection” to Canada; and
b) over the actions of Canadian companies, citizens and residents regardless
of where such actions occur pursuant to section 5 of the CFPOA.
(i) Territorial Jurisdiction
Where a significant portion of the actions or omissions constituting a
corruption offence are committed in or connected to Canada, Canadian
prosecutors and courts will assert jurisdiction. 32
While there is limited case law under the CFPOA, according to general
criminal law principles, a sufficient territorial link to attract liability under the
CFPOA could include communications, directions or meetings relating to the
negotiation, authorization or implementation of the bribe or the failure to
prevent the bribe (through inadequate review, implementation or monitoring of
anti-bribery policies) which occur in Canada or circumstances where the funds
relating directly or indirectly to the bribe flow through Canada.
In R. v. Karigar, the first trial, conviction and sentencing of an individual under
the CFPOA, the Ontario Superior Court of Justice rejected Karigar’s submission
that, in the context of bribing a foreign public official, the financial element of
the offence (i.e. the approving or funding of the bribe) must occur in Canada
in order to satisfy the “real and substantial connection” test. The court found
that it had jurisdiction over Karigar since, among other reasons, he was acting
for the benefit of a Canadian company and, had the scheme been successful,
an unfair advantage would have flowed to that company. Karigar was charged
prior to the 2013 Amendments, which expanded jurisdiction beyond the
territorial connection to Canada. Accordingly, the jurisdictional findings in the
Karigar decision are of most relevance to foreign nationals.
Immediately following Karigar’s sentencing, the RCMP charged three
foreign nationals, one British agent and two American former executives
of Cryptometics with bribery under the CFPOA.33 This recent development
32 According to the Supreme Court of Canada decision in R. v. Libman, [1985] 2 SCR 178, a case which
arose in the context of a “boiler room” fraud, “all that is necessary to make an offence subject to
the jurisdiction of [Canadian] courts is that a significant portion of the activities constituting the
offence took place in Canada. As it is put by modern academics, it is sufficient that there be a “real
and substantial link” between the offence and this country.” See also R. v. Karigar, 2013 ONSC2199
at paras 34 to 41.
33 See “RCMP Charge Individuals with Foreign Corruption” ( June 4, 2014), online:RCMP,www.rcmp-grc.
gc.ca/Ottawa/ne-no/pr-cp/2014/0604-corruption-eng.htm.
CFPOA Primer
Cassels Brock & Blackwell LLP
13
…II. The CFPOA Framework
may demonstrate an increased willingness by Canadian authorities to assert
jurisdiction over individuals, irrespective of their nationality or location, who
conspire to bribe foreign officials where such
conduct has a connection with Canada.
…increased willingness
by Canadian authorities
to assert jurisdiction over
individuals, irrespective
The CFPOA’s reach is not without limit. Recently,
a Canadian court in the case of Chowdhury v
HMQ 34 held that it did not have jurisdiction over
of their nationality
a Bangladeshi citizen and resident charged
or location, who conspire
in connection with the ongoing corruption
to bribe foreign officials where
investigation involving SNC-Lavalin Group Inc.
such conduct has a connection
(“SNC-Lavalin”) who had never been in Canada
with Canada.
and all of his alleged conduct took place outside
of Canada. The court stayed the prosecution but
confirmed that the stay may be lifted should the individual travel to Canada or
to another country with which Canada has an extradition treaty.
(ii) Nationality-Based Jurisdiction
To bring the CFPOA in line with its international counterparts, including
the FCPA and the Bribery Act, the 2013 Amendments broadened Canada’s
jurisdiction beyond the territorial link requirement of a “real and substantial
connection” by explicitly deeming any act in contravention of the CFPOA
committed abroad by a Canadian company, citizen or permanent resident to
have been committed in Canada.
This nationality-based jurisdiction exposes a corporation to criminal liability for
any acts or omissions of its Canadian subsidiaries and its Canadian directors,
officers or senior managers related to any contravention of the CFPOA,
regardless of where such acts occur or their connection to Canada. The mere
fact of nationality is sufficient to attract liability under the CFPOA. Accordingly,
a corporation risks criminal exposure under the CFPOA if a Canadian director,
officer or employee with a sufficiently important role has knowledge of,
involvement in or permits or authorizes the bribery of a foreign public official.
A company or a person would not have to operate or be in Canada and the act
would not have to occur in Canada or be connected to Canada for such person
or company to be tried and convicted under the CFPOA. While it remains to be
seen how this new jurisdictional scope will be asserted by Canadian authorities,
it has the effect of greatly expanding the reach of the CFPOA to cover activities
of Canadian corporations, citizens and permanent residents wherever they
34 2014 ONSC 2635.
14
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
occur and without regard to the relationship those activities have to Canada.
For instance, Canadian prosecutors could aggressively assert jurisdiction over
corporations with Canadian directors or officers
where the only action by such Canadian citizens or
The mere fact of nationality
residents is the indirect facilitation of the bribe by
is sufficient to attract
failing to exercise proper oversight to prevent the
liability under the CFPOA.
foreign corrupt practices. On a comparative note,
US prosecutors have taken an aggressive view of
nationality jurisdiction to commence several high profile prosecutions against
corporations, directors and officers under the FCPA for acts which have little or
no connection to the US.
Canada’s federal police agency, the Royal Canadian Mounted Police (RCMP), has
exclusive authority to investigate and lay charges for foreign corruption and antibribery offences. This eliminates the potential for jurisdictional conflicts between
federal and provincial law enforcement agencies. The RCMP has two specialized
investigation units, based in Ottawa and Calgary, responsible for the investigation
of potential breaches of the CFPOA. From a prosecution perspective, federal and
provincial prosecutors share jurisdiction under the CFPOA.
E. Corporate Liability
Corporations may be held criminally liable for true criminal mens rea offences
(offences requiring guilty intent), such as breaches of the CFPOA. For such
offences, corporations may attract criminal liability for the actions or omissions
of a range of individuals. Pursuant to section 22.2 of the Criminal Code,
corporations will be held criminally liable for the actions or omissions of “senior
officers” including directors, officers, senior managers and any individual,
partner, employee, member, agent or contractor having an important role in
the establishment of the organization’s policies or responsible for managing
an important aspect of the organization’s activities. Liability for such actions
or omissions is also limited to circumstances where such individuals act or
fail to act with the intent, at least in part, to benefit the corporation. While
section 22.2 of the Criminal Code has not been interpreted in the context of
the CFPOA, Canadian courts have confirmed a broad approach to corporate
criminal liability. For instance, in R. v Global Fuels Inc., 35 the Court of Quebec
interpreted the term “senior officer” as extending beyond senior management
to encompass lower-level employees that meet certain criteria. Relevant
factors include the individual’s title, duties, the extent of his or her authority
and the importance of the activities that the individual manages on behalf
35 2012 QCCQ 5749.
CFPOA Primer
Cassels Brock & Blackwell LLP
15
…II. The CFPOA Framework
of the corporation. More recently, and in the context of corporate liability for
criminal negligence, the Ontario Court of Appeal in R. v. Metron Construction
Corp. 36 confirmed that a mid-level manager, in that case a
construction site supervisor, may qualify as a “senior officer”
…corporations will be
under the Criminal Code, where that individual manages an
held criminally
important aspect of the corporation’s business.
liable for the
actions or omissions
of “senior officers”…
In the CFPOA context, corporations may also face liability
for the conduct of third party agents, consultants or
intermediaries. The principal CFPOA bribery offence
prohibits anyone from directly or indirectly giving, offering or
agreeing to an illegal bribe. Accordingly, a prohibited payment or benefit made
through a third party could amount to giving an illegal bribe indirectly.
F. Risk of Regulatory and Civil Liability
In Canada, breaches of the CFPOA are prosecuted criminally by either federal or
provincial prosecution authorities. Securities regulatory authorities do not have
any authority to prosecute breaches of the CFPOA and to date have not brought
administrative enforcement proceedings relating to any foreign corrupt
practices or conduct. This differs from the FCPA, which permits both the US
Department of Justice (the “DOJ”) and the SEC to pursue enforcement action for
FCPA violations.
Illegal bribes under the CFPOA would likely result in a disclosure violation or
trigger a disclosure obligation for public companies under Canadian securities
laws. For instance, the company’s financial disclosure or its disclosure regarding
internal controls and compliance with its own policies prohibiting bribery may
be inaccurate or misleading. As well, the internal investigation or its results
may have also trigger a requirement for further disclosure and any failure to
make such disclosure would violate securities laws. While Canadian securities
regulators have not shown an interest in pursuing such disclosure violations to
date, it nevertheless remains a risk should their focus shift.
In addition to criminal prosecution, a corporation and its directors and officers
may also face civil actions, including class actions, relating to the foreign
corrupt practices. In the high profile corruption investigation involving SNCLavalin, a Canadian engineering and construction company, a securities
class action was commenced against SNC-Lavalin and certain of its officers
and directors immediately following the company’s disclosure of its internal
36 2013 ONCA 531.
16
Cassels Brock & Blackwell LLP
CFPOA Primer
…II. The CFPOA Framework
investigation relating to allegations of bribery associated with projects in
Bangladesh and elsewhere. The action alleges that SNC-Lavalin’s disclosure
documents contained material misrepresentations relating to, among other
things, the sufficiency of the company’s internal controls and compliance with
the company’s Code of Ethics and Business Conduct.
Finally, corporations convicted under the CFPOA may also face debarment
under the procurement policy of Public Works and Government Services
Canada (PWGSC), the federal department primarily responsible for the
purchase of goods and services. The policy restricts the PWGSC from accepting
bids from a company convicted of certain
offences, including various fraud, bribery and
…a corporation… may also face
corruption offences.37 Corporations suspected
civil actions, including class
of engaging in foreign corrupt practices may also
actions, relating to the foreign
face debarment from foreign governments and
corrupt practices.
entities, such as the World Bank. 38
37 ‘PWGSC’s Integrity Framework’, online: Public Works and Government Services Canada, www.
tpsgc-pwgsc.gc.ca/ci-if/ci-if-eng.html.
38 On April 17, 2013, the World Bank announced that SNC-Lavalin Inc. (and over 100 affiliates) was
debarred from World Bank funded projects for 10 years. The debarment can be reduced to eight
years if the company complies with the conditions of a Negotiated Resolution Agreement. It is also
important to note that under the resolution agreement, the remainder of the SNC-Lavalin Group
that that is not subject to debarment will face debarment if it fails to comply with the terms of the
resolution agreement. See ‘World Bank Debars SNC-Lavalin Inc. and its Affiliates for 10 years” (April
17, 2013), online: The World Bank, http://www.worldbank.org/en/news/press-release/2013/04/17/
world-bank-debars-snc-lavalin-inc-and-its-affiliates-for-ten-years.
CFPOA Primer
Cassels Brock & Blackwell LLP
17
III. Recent Cases
There have been few prosecutions
under the CFPOA and only one
conviction of an individual. The following
is a summary of the completed prosecution cases
under the CFPOA in Canada:
1. R v Watts (also known as Hydro-Kleen)
(2005)39
R v Watts, which was released seven years after the
enactment of the CFPOA, was the first successful
prosecution under the Act. In that case, Hydro
Kleen Services Inc, (“Hydro Kleen”) as well as its
president and majority shareholder Robert Watts
and Operations Coordinator Paulette Francis Bakke,
were charged with making payments totalling
$28,299.88 to a United States Department of Justice,
Immigration and Naturalization Service immigration
inspector for assistance with obtaining work permits
and entrance to the United States for Hydro’s
employees and to reduce the need for immigrationrelated legal expenses.
As part of a plea agreement, the charges against the
individuals were stayed and the Crown prosecutors
recommended a fine of $25,000 (an amount which
was less than the bribe itself) against Hydro Kleen.
In accepting the recommendation, the Court
inferred that the prosecution had determined that
39 R v Watts, [1995] AJ no 568 (QL) (ABQB).
18
Cassels Brock & Blackwell LLP
CFPOA Primer
the amount of the fine was significant for
Hydro Kleen and further recognized that
the individuals involved did “not escape
with their integrity intact”, even though
they avoided the “stigma attached to a
criminal record”.40
2. R v Niko Resources Ltd. (2011)41
Niko Resources was the second case
successfully prosecuted under the CFPOA
and set a new benchmark for financial
penalties. Niko Resources Ltd. (“Niko”), an
Alberta-based oil and gas company, pled
guilty to charges under section 3(1)(b) of
the CFPOA in connection with providing
improper benefits to the Bangladeshi
State Minister for Energy and Mineral
Resources. The benefits included a car
worth CDN$190,984 and travel and
accommodation expenses. Following a
guilty plea and joint submission from the
Crown and Niko, the Court imposed a fine
totalling $9,499,000, and a three year term
40 Ibid at paras 184 and 185.
41 R v Niko Resources Ltd, 101 WCB (2d) 118, 2011
CarswellAlta 2521 (WL Can) (ABQB) [Niko
Resources].
…III. Recent Cases
of probation. As a term of Niko’s probation, it was required to implement an
anti-corruption compliance program.
In determining the sanction, the Court cited aggravating factors including
the severity of the crime, the reputational damage to Canada and Alberta,
particularly in light of Calgary’s “proud reputation as the energy capital of
Canada,”42 and the “objectives of demonstrating the court’s strong denunciation
of such conduct and providing meaningful deterrence for others who might be
tempted to commit the same offence.”43 The Court also cited mitigating factors
such as the company’s lack of similar offences,
the company’s cooperation with the investigation
…serves as an example
and a plea agreement made before charges were
of the mitigating
formally laid.44
benefits of self-reporting,
complete cooperation and
implementation of a robust
compliance regime
3. R v Griffiths Energy International
(2013)45
In 2012, an investigation was conducted into
allegations that the previous management of
Griffiths Energy International (“Griffiths”) violated Canada’s foreign corrupt
practices regime in connection with business dealings in the Republic of Chad.
The new board and management team discovered that the company made
“consulting” payments in excess of $2 million and provided certain securities to
a company controlled by the wife of a foreign public official while the company
was negotiating with the foreign government for the grant of oil concession
rights. The company commenced an independent internal investigation,
self-reported and shared the results of their internal investigation with the
police and the federal prosecutors and implemented a robust anti-corruption
compliance program. Griffiths paid a fine of $10.35 million to settle the matter
with Canadian authorities.
Griffiths Energy serves as an example of the mitigating benefits of self-reporting,
complete cooperation and implementation of a robust compliance regime,
since the $10.35 million fine was only slightly more than the fine paid by Niko,
even though the value of the bribe was more than 10 times greater than the
bribe paid by Niko.
42 Ibid at para 16.
43 Ibid at para 17.
44 Ibid paras 63-65.
45 Griffiths Energy, supra note 30.
CFPOA Primer
Cassels Brock & Blackwell LLP
19
…III. Recent Cases
4. R v Karigar (2013)46
Karigar was the first trial, conviction and sentencing of an individual under the
CFPOA. In August 2013, following a lengthy trial, Nazim Karigar was convicted
on a single count indictment of offering to bribe a foreign public official contrary
to section 3 of the CFPOA. Karigar was found to have played a leading role in
a conspiracy to bribe officials of Air India, a corporation owned and controlled
by the Government of India, and the Indian Minister of Civil Aviation, for the
purpose of securing a multi-million dollar Air India contract
for a biometric security system on behalf of Ottawa-based
…individuals [upon
Cryptometrics Canada Limited.
conviction] “must
appreciate that
they will face a
Karigar was sentenced to three years in prison for his role
in the scheme. In delivering the three year sentence, the
significant
court identified various aggravating and mitigating factors.
sentence of
In terms of aggravating factors, the court considered the
incarceration
quantum of the contemplated bribe, which would have
in a federal
involved the payment of millions of dollars in bribes and
penitentiary.”
stock benefits over time, as well as other circumstances of
dishonesty, including anti-competitive behaviour. In terms
of mitigating factors, the Court referred to Karigar’s highlevel of cooperation, including that he self-reported the bribery scheme after a
fall out with his co-conspirators, his age, lack of prior criminal record, and the
fact that the bribery scheme was a complete failure.
The Karigar case highlights the significant risks for individuals engaged in
foreign corruption and, according to the Court in that case, such individuals
“must appreciate that they will face a significant sentence of incarceration in a
federal penitentiary.” It is important to note that had Mr. Karigar been convicted
under the current Act, the term of imprisonment may have been significantly
longer.47
46 Karigar, supra note 7.
47 Karigar faced a statutory maximum of five years imprisonment as he was charged prior to the
2013 Amendments, which increased the maximum length of imprisonment to 14 years.
20
Cassels Brock & Blackwell LLP
CFPOA Primer
IV. Jurisdictional Issues: How to Cope with
Multi-jurisdictional Liability
A. Multi-jurisdictional
liability
Given the broadening jurisdictional
scope of the international regimes
that prohibit foreign corrupt
nations.48 A notable example of multijurisdictional liability is the Siemens case,
in which Siemens paid $1.6 billion to settle
parallel proceedings in the United States
and Germany.49
practices and the inherent
international nature of corruption,
organizations and individuals
engaged in alleged misconduct
(i) Autrefois convict and
Autrefois acquit
face potential liability in multiple
jurisdictions. There is also a trend towards
increased cooperation and information sharing
between domestic and foreign law enforcement
and regulatory authorities, which will continue to
increase the risk of
multi-jurisdictional
…organizations and
liability.
individuals engaged in alleged
misconduct face potential
Although different
countries may
collaborate and
coordinate multijurisdictional prosecutions, there is no requirement
to do so or established protocol. In some instances,
criminal liability has been triggered in up to twelve
liability in multiple
jurisdictions.
The CFPOA contains a provision
that addresses the circumstances of
prosecution in multiple jurisdictions. In
particular, section 5(4) of the CFPOA allows
certain persons to plead autrefois convict or
autrefois acquit if they have been tried and
dealt with outside of Canada for certain
acts or omissions that would otherwise
have constituted an offence under the
Act.50
48 Elizabeth Spahn, “Multijurisdictional Bribery Law
Enforcement: The OECD Anti-Bribery Convention”
(2012) 53:1 Virg J Int Law 1 at 27.
49 “The Siemens Scandal: Bavarian baksheesh”, The
Economist (17 December 2008) online: <http://www.
economist.com/node/12800474>.
50 Supra note 1 at s 5(4-5).
CFPOA Primer
Cassels Brock & Blackwell LLP
21
…IV. Jurisdictional Issues: How to Cope with Multi-jurisdictional Liability
The autrefois pleas embody the principle that “no person shall be placed in
jeopardy twice for the same matter”51 (“double jeopardy”). Although often narrow
in their application, the autrefois pleas are applicable “when a court of competent
jurisdiction has acquitted or convicted an accused of the same or substantially
the same offence charged in Canada.”52
The autrefois convict plea is not available where:
»» The person was not present and was not represented by counsel acting under
the person’s instructions at the trial outside Canada; and
»» The person was not punished in accordance with the sentence imposed on
conviction in respect of the act or omission.53
(ii) Double jeopardy
Although protection against multiple liability for the same offence, even
offences dealt with in foreign nations, is contemplated under Canadian law and
enshrined in section 11(h) of the Canadian Charter of Rights
…risk is further
and Freedoms,54 other jurisdictions may take a different
enhanced by the
approach.
high level of
coordination
In the US, for instance, the principle of double jeopardy
is entrenched in the Fifth Amendment of the US
among international
Constitution.55 Nevertheless, under the long-standing “dual
law enforcement
sovereignty doctrine”, double jeopardy does not to apply
agencies.
to “successive prosecutions by different sovereigns.”56 As a
result, a person that has been prosecuted and sanctioned
for foreign bribery offences in one jurisdiction may not be able to invoke a double
jeopardy defence in the US.
B. A coordinated global resolution
As stated above, given that foreign corruption is an inherently international
issue, corporations facing allegations of suspected wrongdoing must consider the
risk of liability in multiple jurisdictions. This risk is further enhanced by the high
51 R v L(P), 1998 CarswellNWT 140 (NWT SC) at para 7.
52 Canadian Abridgement Digest Section V6(b)(vii)§332.
53 Supra note 1 at section 5(5).
54 Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the
Canada Act 1982 (UK), 1982, c 11 at s 11(h).
55 Michael Van Alstine, “Treaty Double Jeopardy: The OECD Anti-Bribery Convention and the FCPA”
(2012), Ohio State Law Journal, 73:5 at p 13.
56 Ibid.
22
Cassels Brock & Blackwell LLP
CFPOA Primer
…IV. Jurisdictional Issues: How to Cope
with Multi-jurisdictional Liability
level of collaboration and coordination among international law enforcement
agencies. As an example of such cooperation, courts in the US and the UK
cooperated in the prosecution of Innospec Ltd., a Delaware-based company,
and certain of its former executives.57 US and UK authorities worked closely,
even announcing the sentences on the same day to avoid a disorderly market
for Innospec shares. The US assumed primary responsibility for the aspect
of the case involving misconduct in Iraq (as well as Cuba Trade Embargo
violations), whereas the UK assumed primary responsibility for bribery in
Indonesia.58
In the Canadian context, SNC-Lavalin remains the subject of an ongoing
investigation in Canada and certain other countries, including Switzerland, over
allegations that it bribed foreign public officials to secure contracts in a number
of countries, including Bangladesh and Cambodia. To date, at least three
individuals from SNC-Lavalin and two others connected with an impugned
bridge project in Bangladesh have been charged under the CFPOA and are
awaiting trial. These prosecutions involve significant international collaboration.
Should SNC-Lavalin itself face prosecution for breach of the CFPOA or its
international counterparts,59 it may have to weigh its liability across multiple
jurisdictions.
57 Spahn, supra note 48 at 32.
58 Ibid at 33.
59 An SNC-Lavalin company and its affiliates have already been debarred by the World Bank for up to
10 years as a result of the alleged misconduct.
CFPOA Primer
Cassels Brock & Blackwell LLP
23
V. The Self-Reporting Calculus
Although encouraged under
Canada’s foreign corrupt practices
regime, there are no formal
programs, protocols or guidelines for
self-reporting, leniency or immunity.
This is in contrast to other acts, such as the
Canadian Environment Protection Act, 1999, which
imposes a requirement to report violations
to enforcement officers and members of the
public under certain circumstances,60 and the
Competition Act,61 under which immunity and
leniency selfreporting programs
…corporations are
are available.
faced with uncertainty
as to whether their
cooperation will be
appropriately or fairly
recognized.
Apart from selfreporting, a public
company may
otherwise be
required to disclose
a violation of the CFPOA or its internal anti-bribery
policies or the fact of an internal investigation as
part of its continuous disclosure obligations under
Canadian securities law.
With no specific guidance, guidelines or protocols
for self-reporting under the CFPOA, there is
little or no assurance for corporations and their
60 SC 1999, c 33 at s 95(1)(a)(b).
61 RSC 1985, c C-34.
24
Cassels Brock & Blackwell LLP
CFPOA Primer
directors and officers as to the likely
benefit from self-reporting, such as the
amount of reduction to any sanction or
the circumstances that would warrant
no enforcement action. As a result,
corporations are faced with uncertainty
as to whether their cooperation will
be appropriately or fairly recognized.
In addition to this uncertainty as to
the likelihood or extent of leniency,
corporations must consider the costs
and impact of voluntary disclosure,
including reputational damage and
the consequences of such admission
on potential lawsuits, including class
actions, or other potential investigations
or proceeding in other jurisdictions in
determining whether, when and how to
voluntarily disclose.
Notwithstanding the absence of a
formal leniency program, the limited
jurisprudence under the CFPOA provides
some indication of the benefits of selfreporting. The benefits can be inferred
…V. The Self-Reporting Calculus
by contrasting the sanctions imposed in Niko Resources and Griffiths Energy.
In Niko Resources, Niko was fined $9.5 million for providing gifts to a foreign
public official worth approximately $200,000. Niko cooperated with the
police investigation but did not self-report. In contrast, in Griffiths Energy the
company commenced an independent internal investigation, self-reported
and implemented a robust anti-corruption compliance program. Griffiths
Energy was fined $10.35 million, an amount just slightly more than the fine
paid by Niko, even though the value of the bribe was more than 10 times
greater than the bribe made by Niko.
In Griffiths Energy, the court relied on the company’s decision to self-report
the CFPOA violation as a significant mitigating factor, noting that the company
chose to share the results of their investigation with authorities, including
privileged documents.62 However, the company’s contribution to the cost of the
investigation may also have acted as a mitigating factor. As stated by the court:
“the cost of this investigation is said to be in the range of $5 million and thus
sharing this information with the RCMP has obviously saved the prosecution a
significant amount of money.”63
Notwithstanding the emphasis Canadian courts have placed on self-reporting,
the benefit obtained from self-reporting will be tempered if there are
outweighing aggravating factors. In Karigar, the court pointed to Karigar’s high
level of cooperation during the prosecution and his decision to expose the
bribery scheme as mitigating factors.64 However, the court also noted that
the bribery scheme was highly sophisticated and largely conceived of and
orchestrated by Karigar.65 Ultimately, while there may be significant benefits to
self-reporting, these benefits are circumscribed by the facts of each particular
case in context.
In the US, the regime for self-reporting breaches of the FCPA is more
developed. The DOJ has provided guidance on the benefits of self-reporting
of foreign corrupt practices and made it clear that corporations which choose
to report violations of the FCPA will receive more leniency, while corporations
which try to cover up or not report incidences of bribery will not receive as
favourable treatment.66 US sentencing guidelines also provide corporations
with a clearer understanding of the specific benefits of self-reporting.
62 Griffiths Energy, supra note 30 at paras 15-16.
63 Griffiths Energy, supra note 30 at para 18.
64 Karigar, supra note 7 at para 12.
65 Ibid at para 11.
66 Warren Feldman & Benjamin Rankin, “The Voluntary Disclosure Calculus: When Corporations
Should Disclose Violations of the U.S. Anti-Corruption Laws in Multi-Jurisdictional Investigations.”
CFPOA Primer
Cassels Brock & Blackwell LLP
25
…V. The Self-Reporting Calculus
The leniency shown by the US DOJ or SEC often manifests in the decision to
resolve matters by way of: (1) deferred or non-prosecution agreements; or (2)
the decision to decline to bring an enforcement action.67 For example, on April
22, 2013, the SEC announced that it had entered into a
non-prosecution agreement with Ralph Lauren in which
…corporations should
the company would disgorge approximately $700,000
weigh the likelihood
as a penalty for bribe payments made by Ralph Lauren
of prosecution against
Corporation Argentina’s general manager to Argentine
the benefits and
customs officials and for improper gifts made to Argentine
risks of selfgovernment officials. According to public statements, “the
reporting .
SEC determined not to charge Ralph Lauren Corporation...
due to the company’s prompt reporting of the violations
on its own initiative, the completeness of the information it provided, and its
extensive, thorough, and real-time cooperation with the SEC’s investigation.”68
In addition, in 2012, the DOJ charged a managing director at Morgan Stanley
for conspiring to circumvent the company’s internal controls under the FCPA.69
The DOJ declined to prosecute the company as a result of its rigorous internal
controls, the fact that it voluntarily disclosed the wrongdoing and cooperated
fully with the investigation.
Although the decision to self-report may lead to leniency with respect to the
commencement or continuation of a prosecution, such leniency does not
necessarily translate into reduced monetary sanctions. Some academics
have found that once market capitalization and the amount of the bribe are
controlled for, the decision to voluntarily disclose a violation has no effect on
the ultimate monetary penalty.70 In fact, the sanction is significantly determined
by the “size of the bribe, the profit related to the bribe, and the amount of
business affected by the bribe.” 71 Notwithstanding the modest reduction in
monetary penalties in terms of sanctions, a price can often not be placed
on the cost and reputational damage avoided from entering into deferred
or non-prosecution agreements and the avoidance of a full-blown criminal
investigation.
67FCPA Resource Guide, supra note 14 at 74-75.
68 U.S. Securities and Exchange Commission, “SEC Announces Non-Prosecution Agreement With
Ralph Lauren Corporation Involving FCPA Misconduct” (22 April 2013), online: http://www.sec.
gov/News/PressRelease/Detail/PressRelease/1365171514780. The U.S. Department of Justice also
entered into a non-prosecution agreement with Ralph Lauren Corporation.
69 The United States Department of Justice, ‘Former Morgan Stanley Managing Director Pleads Guilty
for Role in Evading Internal Controls Required by FCPA’, (25 April 2012), online: http://www.justice.
gov/opa/pr/2012/April/12-crm-534.html.
70 Stephen Choi and Kevin Davis, “Foreign Affairs and Enforcement of the Foreign Corrupt Practices
Act” (2012) NYU Law and Economics Research Paper No 12-15 (Working Paper Series) at p 21.
71 Ibid.
26
Cassels Brock & Blackwell LLP
CFPOA Primer
…V. The Self-Reporting Calculus
Notwithstanding the apparent benefits of self-reporting, there are obvious
risks involved. Although there is evidence that sanctions will be mitigated in
Canada if a person decides to self-report, as discussed above, such benefits are
speculative as the government has provided limited formal guidance.
In order to evaluate whether self-reporting is the prudent choice, corporations
should weigh the likelihood of prosecution against the benefits and risks of selfreporting. Certain considerations may include:
»» whether the CFPOA violation is a clear-cut case or whether it is ambiguous
whether a violation has occurred;72
»» whether the case is an isolated incident involving non-senior officers and
small sums of money or whether the case involves repeated infractions by
senior personnel involving large sums;73
»» the reputational risk loss of business, debarment or a decline in share
price;74
»» the consequences, including litigation, that may arise from waiving
privilege, which is typically required when self-reporting;75
»» the potential for forward sharing of information between regulatory and
law enforcement agencies, particularly between jurisdictions;
»» the potential for liability in multiple jurisdictions;76 and
»» whether there are any business or legal requirements for disclosure,
for example a pending merger or other business arrangement or public
company disclosure requirements.77
72 Low et al, “The Uncertain Calculus of FCPA Voluntary Disclosures” (Paper delivered at the American
Conference Institute, 27 & 28 March 2007), [unpublished] at p 9.
73 Ibid.
74 Ibid at p 10.
75 Ibid.
76 Ibid.
77 Ibid at p 9.
CFPOA Primer
Cassels Brock & Blackwell LLP
27
VI. Transactional Issues and Due Diligence
Corporations considering a potential
merger, acquisition, investment,
joint venture or other corporate
transaction involving business or
operations abroad may be liable
under the CFPOA, directly or as a
successor corporation, depending
on the nature of the transaction.
Accordingly, corporations must include the
vetting of the risk of non-compliance with foreign
corrupt practices regimes in their assessment
of the risk associated with the transaction. The
metrics of a transaction may change significantly
with the identification of bribery or compliance
issues by a possible target or business partner
(including a joint
venture partner), as
The metrics of
a result of potential
a transaction
business disruption,
may change
reputational damage
significantly with
and the costs
the identification of
associated with an
bribery…
external and internal
investigation.
Effective due diligence is critical to identifying
the risks associated with a particular transaction
and should be standard practice for corporations
with foreign operations (including manufacturing,
28
Cassels Brock & Blackwell LLP
CFPOA Primer
sales and supply arrangements) or those
seeking to expand internationally. Where
necessary, corporations should engage
reputable legal counsel and investigators in
those high risk jurisdictions to assist with
due diligence at the local level.
While corruption and bribery can occur
anywhere, the risk that a potential
transaction may trigger anti-corruption
compliance considerations is heightened
where the transaction involves business
in regions and countries identified
as having a higher risk of corruption.
Transparency International publishes an
annual Corruption Perceptions Index that
identifies high risk countries and regions.78
These regions include Central America,
Africa, the Middle East, Eastern Europe and
Southeast Asia.
It is important to recognize that, as with
compliance programs (described below),
there is no “one size fits all” approach to
78 Transparency International, “2013 Corruption
Perceptions Index” (2013), online: http://cpi.
transparency.org/cpi2013/.
…VI. Transactional Issues and
Due Diligence
due diligence; however, the following considerations should be within the scope
of any due diligence:79
»» Geographical and Sector Risks
»» Does the transaction involve operations in countries at a high risk for
corruption?
»» Does the transaction concern sectors perceived as having a high risk for
corruption? These industries include: 80
»» Public works contracts and construction
»» Utilities
»» Real estate, property, legal and business services
»Oil
» and gas
…there is no
“one size
fits all”
approach to
due diligence…
»Mining
»
»Are
»
competitors suspected to be engaged in bribery of public
officials?
»Business
»
Model Risks
»Does
»
the proposed target or partner conduct business through
third parties and intermediaries (discussed below)?
»» Does the proposed target or partner engage third parties or
intermediaries to manage relations with foreign governments?
»» Are governments, state-owned or financed enterprises clients, suppliers
or partners of the proposed target or partner?
»» Is the proposed target or partner engaged in any joint-ventures with
state-owned or financed enterprises, government officials or companies
owned by government officials?
»» Does the business of the proposed target or partner depend on
government approval for permits or licenses in order to conduct its
business or operations in a foreign country?
»» Organizational Risks
»» Does the ownership structure of the proposed target or partner include
foreign public officials or state-owned or financed enterprises?
79 See also Transparency International UK “Anti-Bribery Due Diligence for Transactions” (May 2012),
online: http://www.transparency.org.uk/publications/15-publications/227-anti-bribery-duediligence-for-transactions/.
80 Transparency International, “Transparency International Bribe Payers Index 2011” (2011), online: http://
bpi.transparency.org/bpi2011/results/.
CFPOA Primer
Cassels Brock & Blackwell LLP
29
…VI. Transactional Issues and Due Diligence
»» Does the ownership structure of the proposed target or partner include
persons with close relationships to foreign public officials?
»» Does the proposed target or partner have an anti-corruption policy? Is it
comprehensive?
»» Does the proposed target or partner have an anti-corruption compliance
program? Is it robust and well-implemented?
»» Does the proposed target or partner have senior officers or managers
responsible for anti-corruption compliance?
»» Does the proposed target or partner require agents and intermediaries to
comply with anti-corruption best practices?
»» Does the proposed target or partner have internal controls in place to
monitor expenses and payments to third parties?
»» Does the company maintain complete records of payments and
expenses?
»» Are the books and records of the company audited and monitored for
anti-corruption compliance?
»» Has the proposed target or partner been accused or suspected of
bribery?
»» Does a review of expenses or payments to third parties reveal payments
made in connection with transactions involving public officials associated
with:
»» Gifts and entertainment
»» Travel and expenses
»» Charitable contributions
»» Political contributions
»» Sponsorships
Upon completion of the due diligence process, the company should carefully
consider the results and any red flags that may have been raised. Depending
on the nature of the compliance issues identified (if any), the company should
re-evaluate the transaction and consider whether it is prudent to proceed.
Corporations electing to proceed with a transaction notwithstanding the
identification of red flags should consider implementing a strategy to mitigate
any post-closing risks. This strategy could include approaching law enforcement
officials to self-report suspected misconduct and attempt to reach a negotiated
resolution.
30
Cassels Brock & Blackwell LLP
CFPOA Primer
VII. Third Parties and Red Flags
Increasingly, anti-bribery investigations
and prosecutions involve the conduct
of third parties and intermediaries
retained by a company. As discussed in
more detail above, a company may be liable under
the CFPOA and its international counterparts
for the conduct of its third party agents/
intermediaries.
As with a corporate transaction, corporations
should exercise caution and be diligent in their
selection of third party agents/intermediaries.
Third party agents/intermediaries commonly
retained by a company may include customs
agents and brokers, advisers, government
relations experts, legal
counsel, contractors,
…corporations should
distributors and suppliers.
exercise caution
and be diligent
In addition to geographical
and sector risks, the following
are examples of red flags that
a corporation may encounter
in its selection of a third party
or during the course of its
relationship with that third party:
in their selection of
third party agents/
intermediaries.
»» Background and Identity of Third Party: The
credibility and reputation of the third party,
and the third party’s experience in the sector,
as well as any past episodes of misconduct.
»» Connection with Government Officials:
Close connections with government
officials represent a high risk for
potential incidences of bribery.
»» Compensation: Unusual terms or fees
with respect to compensation may
raise red flags. For example, if the
fee is larger than necessary, or there
are unusual terms with respect to the
manner of payment, this could indicate
a high risk for bribery.
»» Expenses are Unusual or Lack
Transparency: Agents should provide
detailed records of all expenses
incurred in relation to the services
provided. Ambiguous expenses may
disguise improper payments.
»» Lack of Necessary Qualifications: The
qualifications of an agent should be
known and rationally connected to
duties provided.
»» Undisclosed affiliations and subagents: The failure of an agent to
disclose, or the inability of a company
to discern, all those individuals and
corporate entities affiliated with
the third party creates significant
additional risk.
CFPOA Primer
Cassels Brock & Blackwell LLP
31
VIII. An Effective Compliance Program
In order to avoid non-compliance
with the CFPOA and other foreign
corrupt practices regimes,
corporations with international
operations are well advised to
maintain a code of conduct or antibribery policy as well as a robust
compliance program. The existence
of such a program will assist a corporation in
demonstrating its compliance with the CFPOA
in order to mitigate potential liability and may,
in certain circumstances, serve as a defence to
allegations of wrongdoing where the misconduct
is limited to the actions of a rogue actor.
A properly designed and implemented compliance
program can assist the corporation and its
employees and agents in complying with their
anti-corruption obligations. Corporations should
take care to ensure that they have designed a
customized compliance program that is suited to
the particular industry, size and geographic reach
of the corporation.
Elements of an effective compliance program
include:
»» Leadership and Communication: It is critical
that the board of directors and senior
32
Cassels Brock & Blackwell LLP
CFPOA Primer
management set the right “tone
from the top” and demonstrate and
communicate the organization’s
commitment to anti-corruption
compliance.
»» Policies and Procedures: The company
should design and implement a
practical written anti-corruption
policy and ensure that appropriate
procedures and structures are in
place for ensuring compliance with the
policy (such as approving gifts or other
expenses to or for a foreign public
official).
»» Designation of Responsible Persons:
Delegating responsibility for the day to
day management of the organization’s
anti-corruption compliance program to
specific in-house counsel or compliance
personnel increases the effectiveness
of the program and demonstrates
organizational commitment.
»» Regular Training and Annual
Certification: In order for a compliance
…VIII. An Effective Compliance Program
program to work it must be communicated to employees and agents.
Comprehensive training should be provided to new personnel. Annual
updates will keep personnel apprised of any new developments or changes
to the policy.
»» Whistleblower Program: Organizations should implement protections
against retribution for individuals that report suspected contraventions of
the anti-corruption policy.
»» Regular Monitoring and Auditing: The organization should monitor
compliance with the anti-corruption compliance program and responsible
personnel should periodically audit the effectiveness of the internal
controls created by the program.
»» Currency: The organization should ensure that the anti-corruption
compliance program is updated as necessary to reflect legal developments
or to address changing corporate circumstances or deficiencies identified
by the regular auditing of the program.
CFPOA Primer
Cassels Brock & Blackwell LLP
33
Cassels Brock & Blackwell LLP
Suite 2100, Scotia Plaza
40 King Street West
Toronto, ON Canada M5H 3C2
Tel: 416 869 5300
Fax: 416 360 8877
Suite 2200, HSBC Building
885 West Georgia Street
Vancouver, BC Canada V6C 3E8
Tel: 604 691 6100
Fax: 604 691 6120