The revised legislation makes a more concerted approach to reflect and enforce current international best practices, namely those set by the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions(OECD Anti-Bribery Convention). The OECD Anti-Bribery Convention was originally aimed at prompting governments to combat the corrupt practices of their entities abroad by giving their respective authorities resources and jurisdictional power. Despite enacting the anti-bribery legislation specified in the OECD Anti-Bribery Convention back in 1999, Canada has been criticised for only successfully prosecuting a handful of entities. For that reason, the new amendments to the CFPOA not only widen the scope of Canada’s jurisdiction, but also increase the number of investigators and the severity of penalties.
Every Canadian entity doing business abroad should know about these changes and commit to implementing an effective, comprehensive and robust anti-corruption programme as means of mitigating risk in an organisation.
Background of the CFPOA
In terms of domestic corruption, Canada has long held the status of being ranked as one of the world’s cleanest countries. Despite this reputation at home, prior to 1999 (under the old Canada Tax Act), bribes paid to public officials in foreign countries were considered to be legal “tax deductible business expenses”. This stands in contrast to legislation in the United States which has prohibited this practice since the Foreign Corrupt Practices Act came into effectin 1977.
Prior to the changes in June 2013, Canadian anti-bribery legislation was criticised by the OECD and Transparency International for failing to curtail the bribing of foreign officials by Canadian entities.
The 1999 law was widely ridiculed for not being wide reaching enough to adequately prosecute alleged acts of corruption by Canadians abroad. Critics have pointed to the fact that since the CFPOA came into force in Canada there have been a total of 23 investigations, resulting in only three convictions – an extremely small number for a country of 35 million people with a strong international business profile. In light of this, it is not surprising that in 2011 Canada only received a “moderate” rating for its enforcement of the OECD Anti-Bribery Convention – a treaty for which the nation is a signatory. This record stands in stark contrast to the United States, which has seen well over 200 anti-bribery convictions since its signing of the OECD Anti-Bribery Convention.
It is important to note that in the wake of the amendments, the CFPOA now applies to any organisation with “real and substantial” links to Canada, including charities, not-for-profit organisations and non-governmental organisations. In addition to the legislation, recent cases demonstrate the approach that Canadian authorities have adopted and what all Canadian entities abroad need be aware of.
Convictions under the CFPOA
Hydro Kleen Systems Inc. (January 2005)
The first conviction under the CFPOA came after the president and a company employee of Hydro Kleen Systems Inc. pleaded guilty to bribing a United States immigration official at the Calgary International Airport. Hydro Kleen was sentenced in the Court of Queen’s Bench in Red Deer, Alberta to pay a fine of US$25,000, while the United States officer who accepted the bribe received a six-month sentence for accepting secret commissions and was subsequently deported.
Niko Resources Ltd. (June 2011)
The next conviction came in June 2011, when Niko Resources Ltd., a Canadian natural gas company, pleaded guilty to one count of bribery after its Bangladeshi subsidiary was found to have provided for the use of a vehicle and travel expenses to the then Bangladeshi State Minister for Energy and Mineral Resources. The travel expenses included trips to Canada (to attend an oil and gas exposition in Calgary) and New York (to visit family). It was established that Niko offered these incentives in order to win influence and favourable treatment for a government tender. The Court of Queen’s Bench of Alberta fined Niko US$9.5 million and placed it under a probation order for three years.
Griffiths Energy International Inc.(January 2013)
The most recent conviction was that of Griffiths Energy International Inc. in January 2013. The company admitted to illegally securing an oil and gas contract with a United States–registered company owned by the wife of Chad’s Ambassador to Canada. The facts of the case showed that in 2009, Griffiths entered into a campaign to develop contracts with high-level officials that included Chad’s Ambassador to Canada and the Chadian Minister of Petroleum and Energy.
Records show that an original business agreement between the parties included a US$2 million fee to a United States–registered company fully owned by the Chadian Ambassador, to be paid if Griffiths was awarded the desired contracts. After consulting its legal counsel, Griffiths wisely moved to terminate the original agreement as the contract was unlawful in offering “a benefit to a foreign public official”. However, a few months later a new team of independent management hired by Griffiths entered into an identical agreement with another entity, owned by the wife of Chad’s Ambassador.
Soon after, prior to issuing an initial public offering (IPO), Griffiths discovered this new set of agreements and quickly moved to take corrective action, including internal investigations, establishing special committees and procuring external legal counsel.
Once under investigation by Canadian and United States authorities, Griffiths fully cooperated and moved to mitigate the penalties by voluntarily assisting the prosecution. The Canadian court also took into account the fact that Griffiths had no previous conviction for a similar offence and had incurred significant costs in professional fees for its internal investigation, extra employee costs and the withdrawal of its IPO.
The court ordered Griffiths to pay a total penalty of US$10.35 million. The implementation of an “effective, comprehensive and robust anti-corruption program” helped Griffiths to avoid a probation order, which would have been much more prejudicial for the company – a factor which sets Griffiths apart from Niko.
Amendments to the CFPOA (Bill S-14 amendments)
Amid international pressure, Canada expanded its anti-corruption law on 19 June 2013. Compliance officers and legal teams should pay close attention to the new amendments listed below, which stiffen penalties and cover more entities with ties to Canada. The most significant amendments are:
- an increase of prison penalties from five to fourteen years, with no maximum penalty for organisations and corporations
- the ability for the Royal Canadian Mounted Police to prosecute all offenders of the CFPOA that have a “real and substantial link” to Canada
- prosecution of not-for-profit organisations, charities, non-government organisations and organisations that act outside of Canada and deal with foreign public officials
- introduction of “books and records offenses” which criminalise the concealing, falsifying or destroying of books and records for the purpose of bribing a foreign public official or hiding an act of bribery
- removal of “facilitation payments” from the exclusion list (previously, payments made to expedite or secure the performance of a foreign public official’s duties or functions were tolerated).
What do you need to know?
Compliance leaders with connections to Canada need to be aware of the recent changes to the Canadian anti-corruption legislation, enforcement strategies and recent court decisions. To mitigate the risk of any illegal and unethical behaviour it is vital to ensure effective measures are in place, including:
- commitment to developing and implementing ethics and compliance standards throughout your organisation
- conducting monitoring and measuring exercises to ensure not only that your existing anti-corruption programme is in line with the new Canadian amendments, but also that it adopts the features of a best-in-class programme
- develop communication strategies to generate awareness of the legislative requirements, the consequences and what they mean to different parts of your organisation
- implement enhanced third-party engagement strategies which, amongst other things, are aimed at screening and evaluating the bona fides of prospective business partners abroad.
Practical measures to ensure compliance
In order for an entity covered by the CFPOA to ensure its anti-bribery and corruption measures are of the highest standard, there are six key practical measures that can be taken.
- Any organisation should have procedures that work to prevent bribery and are proportionate and commensurate with the scope of existing operations. Policies need to be clear, practical, accessible, effectively implemented and enforced.
- Without commitment from the top levels of an organisation, attempts to confront bribery will not be effective. It is the responsibility of management to foster a culture in which bribery is never acceptable.
- In any venture – past, present or future – a proper assessment of both internal and external risks should be conducted. In addition, periodic risk assessments should be performed and the results documented for all existing ventures.
- A partner screening and assessment programme should be established which is proportionate to the risks faced by the company. Proper partner assessment, including conducting due diligence where required, should always be carried out on parties performing services on behalf of or for the organisation.
- Effective communication and training is paramount. Any organisation needs to devise methods of entrenching the key themes and core elements of the programme to ensure they are understood and adhered to.
- Any measures taken need to be monitored and reviewed to evaluate their effectiveness. Once the level of effectiveness of the existing measures has been established, changes and adaptations should be made to improve the programme.
Canadian entities now, more than ever, need to commit to compliance frameworks which are integrated into their business operations and part of their culture. This is no easy feat, and requires dedication, commitment and perseverance to implement, particularly on a global scale.
The regulatory standards are now in effect and touch any Canadian organisation that directly or indirectly does business with corrupt foreign officials. Therefore, conducting comprehensive background checks on partners and contractors cannot be taken lightly.
The revamped CPFOA is aimed at targeting bribery and corrupt behaviour, and Canadian entities that are not committed to dispelling corrupt behaviour from their organisation will no doubt be targeted by the authorities.