Archive for the ‘Canada’ Category

Year End Review Of Anti-Corruption Law North Of The 49th Parallel

Monday, January 19th, 2015

CanadaA guest post  from Mark Morrison (Blake, Cassels & Graydon), the Canada Expert for FCPA Professor, and Blakes attorneys Michael Dixon and James Reid.

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This past year has been one of mixed results for Canadian authorities under Canada’s Corruption of Foreign Public Officials Act (CFPOA), Canada’s equivalent to the FCPA. On the one hand, Canada increased its rating on Transparency International’s well known Exporting Corruption: Progress Report 2014: Assessing Enforcement of the OECD Convention on Combating Foreign Bribery to a “Moderate Enforcement” rating from 2013’s classification of  a “Limited Enforcement” rating. In addition, 2014 saw precedent setting court decisions and sentencing of individuals.

Despite these developments, it has now been two full years since the last penalty was imposed on a corporate defendant under the CFPOA, that being Griffith’s Energy who was sentenced to a $10.35 million dollar fine in January 2013.  The lack of proceedings against corporations in 2014 may be reflective of the considerable resources being dedicated by the Royal Canadian Mounted Police (RCMP) to the ongoing, high profile investigation of Canada’s largest construction and engineering company, the resolution of which is widely anticipated to make headlines in 2015.  This post discusses some of the developments in Canada’s anti-corruption efforts in 2014 and what can be expected in the year ahead.

Enforcement Proceedings

In 2014, Canadian authorities appear to have focused their attention on pursuing individuals who had violated the provisions of the CFPOA. Noteworthy for corporate officers, 2014 marked the first jail sentence for an individual, and several other individuals are being pursued by authorities in Canada. Notable enforcement proceedings are discussed below.

Karigar – On May 23, 2014, Nazir Karigar was sentenced to three years in prison for offering to bribe foreign officials.  This sentence was the most significant development in Canadian anti-corruption enforcement proceedings in 2014, as it marks the first time a jail term has been handed out to an individual convicted under the CFPOA. This case will likely stand as a precedent for sentencing in future corruption cases.

Karigar was convicted on August 15, 2013.  The case concerned an agreement to pay approximately US $450,000 in cash as well as certain shares to Air India officials and the Indian Minister of Civil Aviation to secure a contract.  At the time, Karigar was acting for Cryptometrics Canada.  Karigar was convicted despite Cryptometrics not being awarded the contract or there being any evidence the bribe was actually offered or paid to Indian officials, as the internal agreement amongst Karigar and Cryptometrics management to offer a bribe was held to be an offence.

In sentencing, Justice Hackland of the Ontario Superior Court took Karigar’s age (67) and other circumstances into account as mitigating factors.  However, the bribery scheme was viewed as a serious crime.  Accordingly, principles of denunciation and deterrence were placed at the forefront in administering the three year sentence.

It is also important to note, that at the time Karigar was charged, the maximum prison sentence for a CFPOA violation was only five years. Since then, the 2013 amendments to the CFPOA raised the maximum penalty from five years to 14 years.

Chowdhury – Five individuals were jointly charged with bribing a foreign public official to obtain a contract to provide consulting services for building the World Bank funded Padma Bridge Project in Bangladesh.  One of the individuals charged, Abdul Hasan Chowdhury, was a Bangladeshi citizen and resident who had never been to Canada.  On this basis, and without submitting to the jurisdiction of the Canadian Court, Chowdhury applied to prohibit the Crown from proceeding in Canada with the charge against him under the CFPOA.

Ultimately, the Court found that Canada did have jurisdiction over the offence since many of the acts making up the offence took place in Canada, the investigation was conducted in Canada and the bulk of the evidence was gathered in Canada. However, Justice Nordheimer held that the CFPOA does not give the Court jurisdiction over foreign nationals who do not reside, or are not otherwise present (such as through extradition or otherwise) in Canada.  The Court held that the mere fact Chowdhury was a party to the offence was not sufficient to give the Canadian courts personal jurisdiction over him unless he either physically came to Canada or Bangladesh offers to surrender him to Canada. Notably, Canada does not have an extradition treaty in place with Bangladesh.  In result, the charges against Chowdhury were stayed.

The allegations in question in this case pre-dated the 2013 amendments to the CFPOA which expanded the jurisdictional reach of the CFPOA from territoriality to nationality based jurisdiction.  Notwithstanding this expanded jurisdictional scope of the CFPOA, however, the key point to be taken from this case is that a Canadian court needs to have jurisdiction over both the offence and the person before it may exert jurisdiction.

Ongoing Cryptometrics Investigations – Following the Karigar sentencing in May, on June 4, 2014, the RCMP charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) for bribery offences under CFPOA.  UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged with bribery under CFPOA and with one count of fraud contrary to the Criminal Code of Canada.  Canada-wide warrants have been issued for all three accused.  These charges go to show that Canadian authorities will continue to pursue enforcement proceedings, even against foreign nationals, despite being unsuccessful in the Chowdhury case discussed above.  One key difference between these charges and Chowdhury, however, is that Canada does have extradition treaties in place with the US and UK, creating a potential avenue by which Canadian authorities could assume personal jurisdiction over these individuals.

Ongoing Investigations – The most significant Canadian anti-corruption enforcement action is the ongoing, high profile corruption investigation relating to allegations that Canada’s largest construction and engineering company (the Company) bribed foreign public officials to secure contracts in a number of foreign countries, including Libya, Bangladesh and Algeria (the Engineering Investigation).  Canadian authorities have been carrying out the Engineering Investigation since 2011 with the cooperation of others, including the World Bank and Swiss authorities.  It is reported that the Company is providing its full cooperation with authorities.

To date, at least three former executives of the Company and two others connected with the Padma Bridge Project in Bangladesh have been charged under the CFPOA and are awaiting trial. On the domestic front, the Company has also faced corruption allegations related to the construction of a $1.3 billion hospital in Montreal, regarding which several former executives are facing charges, including, fraud, conspiracy and breach of trust.

The allegations currently subject to the Engineering Investigation are the most serious to involve a Canadian company to date and onlookers are intently watching what will unravel in 2015, when it is expected that a resolution of this high profile case will likely occur.

New Legislation and Government Policy

Extractive Sector Transparency Measures Act – In October 2014, the Canadian Government introduced the Extractive Sector Transparency Measures Act (ESTMA) which will create mandatory public reporting of payments to governments and government officials by the extractive sector.  The reporting obligations in ESTMA will apply to companies that are engaged in the commercial development of oil, gas or minerals in Canada or abroad and are either listed on a stock exchange in Canada or have a place of business in Canada, do business in Canada or have assets in Canada, and meet certain size thresholds.

ESTMA, which is expected to come into force in the spring of 2015,  is designed to further Canada’s fight against corruption by enacting reporting obligations with respect to payments made to foreign and domestic governments (and government officials), and will eventually include aboriginal governments.  These proposed mandatory reporting requirements are in line with other countries implementing similar requirements, including the European Union and the United States.

Amendments to the Federal Government Integrity Provisions – In March 2014, the Federal Government announced it had made significant changes to its Integrity Provisions, which are incorporated in all solicitations administered by Public Works and Government Services Canada (PWGSC).  PWGSC handles the majority of Federal Government procurement transactions.  By adding a requirement that bidders certify that neither the bidder, nor any of the bidder’s affiliates, has been convicted of (or received an absolute or conditional discharge) under any foreign offense that PWGSC regards as having “similar constitutive elements” to listed Canadian offenses (including fraud, money laundering and bribing a foreign public official), the new Integrity Provisions establish rules for debarring corporations and individuals where they or their affiliates have committed an integrity offence.

The integrity provisions impose rigorous certification provisions, which, if not complied with can result in significant consequences including debarment from participating in Government procurements for 10 years from the date of conviction and the right for the Government to terminate a contract for default.  The Canadian Government also maintains the right to pursue other remedies available, including the ability to sue for damages that may occur as a result of termination.

Conclusion

The introduction of ESTMA and the new Integrity Provisions continue the trend towards a stronger legislative commitment to anti-corruption enforcement in Canada, which began with the 2013 amendments that strengthened the CFPOA.  Given this clear legislative direction and the likely freeing up of enforcement resources, expected after the imminent resolution of the Engineering Investigation, our forecast is that 2015 will be an active year for Canadian anti-corruption enforcement.

Mid-Year Review of Anti-Corruption Law North of the 49th Parallel

Wednesday, August 20th, 2014

A guest post  from Mark Morrison (Blake, Cassels & Graydon) the Canada expert for FCPA Professor, and Blake attorneys Michael Dixon and James Reid.

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Canadian authorities have not slowed down since 2013, which marked the most active year to date in Canada’s anti-corruption law enforcement history. This post discusses law enforcement proceedings in Canada so far this year under Canada’s equivalent to the FCPA, the Corruption of Foreign Public Officials Act (CFPOA).

Recent Enforcement Proceedings

Canadian authorities continue to demonstrate their willingness to enforce Canadian anti-corruption laws. While we do not expect enforcement activity to reach the level of our good neighbor to the south, Canadian enforcement continues at a moderate pace, which is a significant change from the historic total lack of enforcement.

This year has seen authorities focus on pursuing individuals under the CFPOA, which included the first jail sentence being handed out. The current trend of increased sanctions and enforcement against individuals is worth noting for corporate officers.

Notable enforcement proceedings are discussed below.

Chowdhury – Five individuals were jointly charged with one count of bribing a foreign public official. The alleged purpose of the bribes were to obtain a contract to provide consultancy services for the building of the World Bank funded Padma Bridge Project in Bangladesh. One of the individuals charged, Abdul Hasan Chowdhury, was a Bangladeshi citizen and resident. Chowdhury was formerly the Minister of State in Bangladesh and had never been to Canada. The allegations against Chowdhury were that he had exerted influence over the selection committee for the Padma Bridge Project.

All of the conduct in relation to the alleged bribery scheme was said to have occurred in Bangladesh.

Justice Nordheimer of the Ontario Superior Court conducted an analysis on the different bases on which states exercise jurisdiction over offences with transnational or international aspects. In doing so, Justice Nordheimer distinguished jurisdiction over an accused from jurisdiction over an offence and held that the CFPOA does not give the Court jurisdiction over foreign nationals who do not reside, or are not otherwise present (such as through extradition or otherwise), in Canada. The court held that the mere fact Chowdhury was a party to the offence was not sufficient to give Canada personal jurisdiction over him unless he either physically came to Canada or Bangladesh offers to surrender him to Canada.

Karigar – On May 23, 2014, Nazir Karigar was sentenced to three years in prison for offering to bribe foreign officials. This is the first time that a jail term has been handed out to an individual convicted under the CFPOA. This case will likely stand as a precedent for sentencing in future corruption cases.

Karigar was convicted on August 15, 2013 for his role in a plan to bribe Indian officials, including a government minister. The case concerned an agreement to pay approximately US $450,000 in cash as well as certain shares to Air India officials and the Indian Minister of Civil Aviation to secure a contract for the provision of facial recognition software and related equipment. At the time, Karigar was acting for Cryptometrics Canada. Karigar was convicted despite Cryptometrics not being successfully awarded the contract or there being any evidence the bribe was actually paid to Indian officials.

In sentencing, Justice Hackland of the Ontario Superior Court took Karigar’s age, his cooperation and the fact the scheme was unsuccessful into account as mitigating factors. However, since the bribery scheme was viewed as a serious crime, the principles of denunciation and deterrence were placed at the forefront in administering the sentence.

It is also important to note, that at the time Karigar was charged, the maximum prison sentence was only five years. Since then however, the CFPOA has raised the maximum penalty from five years to 14 years. This sentencing reflects the continuing trend of significant judicial denunciation when it comes to offences under the CFPOA.

Ongoing RCMP Investigations –Following the Karigar sentencing in May, on June 4, the Royal Canadian Mounted Police (RCMP) charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) for bribery offences under CFPOA. UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged with bribery under CFPOA and with one count of fraud contrary to the Criminal Code of Canada.  Canada-wide warrants have been issued for all three accused.

Conclusion

Canada has continued to focus on anti-corruption compliance and enforcement in the first half of 2014. A notable trend in enforcement from last year is the RCMP’s current focus on individuals involved in corruption schemes. Canadian courts have also made it clear that offences under the CFPOA are unlikely to receive leniency.

Friday Roundup

Friday, June 6th, 2014

Up north, David Cameron gets it, scrutiny update, octogenarian, and quotable.  It’s all here in the Friday roundup.

Up North

Earlier this week, the Royal Canadian Mounted Police announced:

“The RCMP’s National Division has charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) under Section 3.1 of the Corruption of Foreign Public Officials Act (CFPOA). UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged under Section 3.1 of the CFPOA and with one count of fraud contrary to Section 380 Criminal Code. The charges were laid at the Ottawa Courthouse on Elgin Street.  These charges were laid as a result of an international investigation into allegations of bribery involving executives of Cryptometrics Canada Inc.  In 2006, Cryptometrics Canada tendered a contract with Air India for a Biometric Passenger Security System valued at approximately $100 million USD. Evidence gathered and later presented at trial revealed an agreement by Mr. Nazir Karigar, an agent working for Cryptometrics, to pay millions of dollars in bribes to Indian public officials for the purpose of securing a contract with Air India.  ”We have a mandate to investigate domestic and international allegations of corruption of foreign public officials.  This investigation demonstrates the RCMP’s commitment to combating international corruption.  Leaving these crimes unchallenged can jeopardize Canada’s reputation as a fair and transparent society”, said Assistant Commissioner, Gilles Michaud, Commanding Officer of National Division.  The initial investigation led to a conviction for Mr. Nazir Karigar who received a three year sentence. The second phase of the investigation focused on the activities of the former CEO and COO of the company.  Canada-wide warrants have been issued for all three accused.”

See here for previous posts regarding the Karigar enforcement action.  For additional coverage of the recent charges, see here and here.

The charges against the foreign national defendants will be most interesting to follow, particularly in light of this April 2014 decision by a judge in Toronto who stayed a bribery charge under the CFPOA against foreign national defendant Abul Hasan Chowdhury.  The judge ruled that the CFPOA provided no jurisdiction over the foreign national defendant based on the alleged conduct.

David Cameron Gets It

In this opinion piece in the Wall Street Journal, the U.K. Prime Minister writes “the best way to fight corruption and drive growth is through what I call the three Ts: greater transparency, fair tax systems and freer trade.”

As to the later, Cameron writes:

“On trade, the World Trade Organization in December delivered a massive breakthrough, with the first global trade deal in a generation. Every country in the WTO committed to sweep away red tape and bureaucracy at ports and borders. This alone could add £70 billion to the world economy each year, including £7 billion for sub-Saharan Africa and £1 billion for the U.K. We must build on this momentum and press ahead with global negotiations on services and green goods, and we must take a bold and ambitious approach to bilateral trade deals. That means signing the EU-Canada deal and continuing the progress toward an EU-Japan agreement. Above all it means seizing the historic opportunity to conclude a deal like no other: the Trans-Atlantic Trade and Investment Partnership between the U.S. and EU begun at Lough Erne. This deal has the potential to deliver a turbo-boost to growth and jobs, helping to secure our economic future for the long-term. And by making global supply chains more efficient, it will also have benefits for the global economy. We must have the political courage to be radical in seeing this through. I certainly intend to be. And we must be just as ambitious in offering strong support for market access for the least developed countries.”

As previously highlighted (see here) trade barriers and distortions create bureaucracy. Bureaucracy creates points of contact with foreign officials. Points of contact with foreign officials create discretion. Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.  A reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Scrutiny Update

Key Energy Services

The company which previously disclosed FCPA scrutiny in Russia (see here) disclosed earlier this week as follows.

“In April 2014, the Company became aware of an allegation involving Key’s Mexico operations that, if true, could potentially constitute a violation of certain Company policies, including our Code of Business Conduct, the U.S. Foreign Corrupt Practices Act (FCPA) and other applicable laws. The Company conducted an initial investigation of this matter and the Board of Directors of the Company has formed a special committee of independent directors to oversee the investigation of this matter as well as the investigation of previously disclosed possible violations of the FCPA involving business activities of our operations in Russia, and any other resulting matters. The special committee has retained external independent legal counsel to continue these investigations. On May 30, 2014, the Company voluntarily disclosed the allegation and information from this initial investigation to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). The Company and its management are fully cooperating with the SEC and DOJ; however, at this time the Company is unable to predict the ultimate resolution of these matters with these agencies.”

Octogenarian

The SEC turns 80 today.  See here for an informative overview.  With the SEC currently having an FCPA Unit, it is interesting to note that the SEC originally never wanted any part in enforcing the FCPA’s anti-bribery provisions.  See here for “The Story of the Foreign Corrupt Practices Act.”

Quotable

I’ve never before visited the blog “The Campaign for Boring Development” but am glad my daily FCPA search landed me on this post because it contains perhaps the best comment under 25 words ever written about the word “corruption.”

“[C]orruption isn’t an analytical category, it’s a moral judgment. It’s a word that tends to close minds and end debates, rather than open them.”

I agree (see here for the prior post “Lots of Talk .. But What Is It?” and  here for my article “Corruption Is Bad … But What Is It, and What Should Be Done?”).

This post earlier this week focused on the DOJ’s and SEC’s apparent obsession with enforcement statistics.  In this retirement speech, long-time SEC enforcement attorney James Kidney calls this mindset a “cancer.”  He states:

“The only other item I want to be serious about, besides some personal observations in a minute, is the metric of the division of enforcement: number of cases brought. It is a cancer. It should be changed. I have suggested to our higher ups on several occasions starting a discussion about factors we – after Monday, you — should weigh in evaluating investigations to be sure our resources are being well-spent and properly distributed. It has gone nowhere. One argument against change is that the press and congress are welded to our own anvil. But I submit that there are not more than a dozen reporters who matter covering the Commission, and about the same number of Hill staffers. I imagine they would welcome coming to an educational event about the Division’s new metric, one which focuses on quality, not quantity. Who could be against it? Goodness knows we spend millions promoting even our emptiest achievements. Why not promote a new metric that will be sensible and helpful. Current management of the Division would either adjust or leave.

Please don’t tell me we account for other factors in our management of cases. We think about them, of course, but we all see cases frequently to which we offer a head scratching response. Really? The SEC spent time and money on that? These cases have no significant impact and the conduct is of minimal or no harm to the investing public. But the investigation has been intense and expensive. Could no one in management exercise judgment and call the investigation to a halt? Of course not! Bringing the case is a stat!

The metric we have now is built into the soul of the Division. It has to be removed root and branch.”

 

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A good weekend to all.

Friday Roundup

Friday, May 30th, 2014

Attend the FCPA Institute,  Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup.  It’s all here in the Friday roundup.

FCPA Institute

Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

Wal-Mart Fires Back

This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues.  As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

Wal-Mart has fired back in this proxy filing which states, in pertinent part:

The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation

As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.

We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”

As hinted at in the previous post, I agree with Wal-Mart’s position.

Up North

This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar.  Karigar was recently sentenced to three years in prison.

As noted here from Baker & McKenzie’s Canadian Fraud Law:

“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.

In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”

As noted in this Osler alert:

“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.

Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”

For more, see here from Blakes.

The Race is On

This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities.    The U.K. has unique double jeopardy provisions and former U.K.  Serious Fraud Office Director Richard Alderman has stated (see here):

“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”

The race is on as GSK recently disclosed:

“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”

In this release, the SFO states:

“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.

For additional reporting, see here

Deserving Part 2

Earlier this week, the African Development Bank (“AfDB”) announced:

“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”

The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.

As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.

My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Quotable

In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:

“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.

The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]

A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.

[....]

What do you tell companies about self-reporting allegations to the authorities?

I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?

I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.

You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure.  The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”

Revised Roundup

Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling.  The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.

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A good weekend to all.

 

Alleged Bribes For Buses, However A Bumpy Road For The DOJ

Thursday, May 8th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

This post highlights related Foreign Corrupt Practices Act enforcement actions brought by the DOJ in the early 1990s concerning an alleged scheme to sell buses to the Saskatchewan, Canada Transportation Company (STC), an alleged instrumentality of the Canadian government.

The enforcement action was a bumpy road for the DOJ.  Among other things, both the trial court and appellate court rebuked the DOJ’s position that the alleged “foreign officials” could be charged with conspiracy to violate the FCPA and both decisions contain an extensive review of the FCPA’s legislative history.  As to the alleged bribe payors, two defendants put the DOJ to its burden of proof at trial and were acquitted.

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In March 1990, the DOJ charged George Morton in this criminal information with conspiracy to violate the FCPA’s anti-bribery provisions. Morton is described as a Canadian national agent who represented Texas-based Eagle Bus Manufacturing Inc. (a subsidiary of issuer Greyhound Lines, Inc.) in connection with the sale of buses in Canada.  According to the information, Morton conspired with others in paying $50,000 to alleged Canadian “foreign officials” to obtain or retain business for Eagle Bus in violation of the FCPA.

The foreign officials were Darrell Lowry and Donald Castle, both Canadian nationals, and the Vice-President and President, respectively, of Saskatchewan Transportation Company (STC), an alleged instrumentality of the government of the Province of Saskatchewan.

The information specifically alleged that Morton requested “that Eagle pay money, in the sum of approximately two percent of the purchase price of 11 buses to be purchased by STC from Eagle, to officials of STC in order to ensure that Eagle received a contract for the sale of the buses.”  The information also alleged that Morton and others “offered, promised and agreed to pay, and authorized the payment of money to officials of the government of the Province of Saskatchewan in order for Eagle to obtain and retain a contract to sell buses to STC.”

According to the information, Morton and his conspirators used “various methods to conceal the conspiracy in order to insure the continuing existence and success of the conspiracy, including but not limited to: preparing and using false invoices and other documentation; and arranging to have an STC check drawn payable to a corporation owned and controlled by Morton and converting the proceeds into Canadian currency.”

The information alleges, as to overt acts among other things, that Morton traveled from Canada to Texas “to discuss the payment of money to officials of STC in order to obtain and retain a contract to sell the 11 buses.”

In this plea agreement, Morton pleaded guilty and agreed to cooperate with the DOJ.

This “Factual Resume” in the Morton case suggests that the purchase price of the buses was approximately $2.77 million.  It further suggests that Lowry told Morton “that a payment of Canadian $50,000 would be necessary in order for Eagle to ensure that the bus contract would be approved by STC’s Board of Directors” and that “Morton, whose compensation from Eagle was dependent upon the transaction being completed, agreed to attempt to obtain Eagle’s agreement to make the requested payment.” The Factual Resume further suggested that, while in Texas, “Morton met with Eagle’s President, John Blondek, and with Vernon Tull, a Vice-President of Eagle” and that “at the meeting, it was agreed that the requested payment would be made.”

A few days after Morton pleaded guilty, the DOJ filed this criminal indictment against Blondek and Tull (the Eagle executives) and Castle and Lowry (the alleged “foreign officials”).

The allegations were based on the same core conduct alleged in the Morton information and the indictment charged all defendants with conspiracy to violate the FCPA’s anti-bribery provisions.  Original source media reports suggest that videotaped evidence existed in which Tull told an official at Greyhound (who helped the FBI arrange the videotaped exchange) that Lowry was accepting the money for “political purposes.”

Castle and Lowry moved to dismiss the charge against them on the basis that “as Canadian officials, they cannot be convicted of the offense charged against them.”  In this June 1990 Memorandum Opinion and Order (741 F.Supp. 116), the trial court granted the motion.  The issues, as framed by the court, were as follows.

“[It is undisputed] that Defendants Castle and Lowry could not be charged with violating the FCPA itself, since the Act does not criminalize the receipt of a bribe by a foreign official.  The issue here is whether the government may prosecute Castle and Lowry under the general conspiracy statute, 18 USC 371, for conspiring to violate the FCPA.  Put more simply, the question is whether foreign officials, whom the government concedes it cannot prosecute under the FCPA itself, may be prosecuted under the general conspiracy statute for conspiring to violate the Act.”

By analogizing to a prior Supreme Court [Gebardi v. U.S.] which addressed a similar issue, the court stated:

“Congress intended in both the FCPA [and the statute at issue in Gebardi] to deter and punish certain activities which necessarily involved the agreement of at least two people, but Congress chose in both statute to punish only one party to the agreement.  In Gebardi the Supreme Court refused to disregard Congress’ intention to exempt one party by allowing the Executive to prosecute that party under the general conspiracy statute for precisely the same conduct.  Congress made the same choice in drafting the FCPA, and by the same analysis, this Court may not allow the Executive to override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts.”

The court next reviewed the FCPA’s legislative history and concluded that “Congress had absolutely no intention of prosecuting the foreign officials involved, but was concerned solely with regulating the conduct of U.S. entities and citizens.”

In rejecting the DOJ’s position, the court stated, among other things as follows.

“… Congress knew it had the power to reach foreign officials in many cases, and yet declined to exercise that power.  Congress’s awareness of the extent of its own power reveals the fallacy in the government’s position that only those classes of persons deemed by Congress to need protection are exempted from prosecution under the conspiracy statute.  The question is not whether Congress could have included foreign officials within the Act’s proscriptions, but rather whether Congress intended to do so, or more specifically, whether Congress intended the general conspiracy statute, passed many years before the FCPA, to reach foreign officials.”  (emphasis in original).

The court then stated:

“The drafters of the statute knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the “inherent jurisdictional, enforcement, and diplomatic difficulties” raised by the application of the bill to non-citizens of the United States. See H.R.Conf.Rep. No. 831, 95th Cong., 1st Sess. 14, reprinted in 1977 U.S. Cong. & Admin.News 4121, 4126. In the conference report, the conferees indicated that the bill would reach as far as possible, and listed all the persons or entities who could be prosecuted. The list includes virtually every person or entity involved, including foreign nationals who participated in the payment of the bribe when the U.S. courts had jurisdiction over them. Id. But foreign officials were not included.

It is important to remember that Congress intended that these persons would be covered by the Act itself, without resort to the conspiracy statute. Yet the very individuals whose participation was required in every case—the foreign officials accepting the bribe—were excluded from prosecution for the substantive offense. Given that Congress included virtually every possible person connected to the payments except foreign officials, it is only logical to conclude that Congress affirmatively chose to exempt this small class of persons from prosecution.

Most likely Congress made this choice because U.S. businesses were perceived to be the aggressors, and the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions. Further minimizing the deterrent value of a U.S. prosecution was the fact that many foreign nations already prohibited the receipt of a bribe by an official. See S.Rep. No. 114 at 4, 1977 U.S. Cong. & Admin.News at 4104 (testimony of Treasury Secretary Blumenthal that in many nations such payments are illegal). In fact, whenever a nation permitted such payments, Congress allowed them as well.

Based upon the language of the statute and the legislative history, this Court finds in the FCPA what the Supreme Court in Gebardi found in the Mann Act: an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law. The Government has presented no reason why the prosecution of Defendants Castle and Lowry should go forward in the face of the congressional intent not to prosecute foreign officials. If anything, the facts of this case support Congress’ decision to forego such prosecutions since foreign nations could and should prosecute their own officials for accepting bribes. Under the revised statutes of Canada the receipt of bribes by officials is a crime, with a prison term not to exceed five years, see Criminal Code, R.S.C. c. C–46, s. 121 (pp. 81–84) (1985), and the Royal Canadian Mounted Police have been actively investigating the case, apparently even before any arrests by U.S. officials. Defendant Castle’s and Lowry’s Supplemental Memorandum In Support of Motion to Dismiss, filed May 14, 1990, at 10. In fact, the Canadian police have informed Defendant Castle’s counsel that charges will likely be brought against Defendants Castle and Lowry in Canada. Id. at 10 & nn. 3–4. Thus, prosecution and punishment will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.

As in Gebardi, it would be absurd to take away with the earlier and more general conspiracy statute the exemption from prosecution granted to foreign officials by the later and more specific FCPA. Following the Supreme Court’s admonition in an analogous criminal case that “[a]ll laws are to be given a sensible construction; and a literal application of a statute, which would lead to absurd consequences, should be avoided whenever a reasonable application can be given to it, consistent with the legislative purpose,” [...] the Court declines to extend the reach of the FCPA through the application of the conspiracy statute.”

Accordingly, Defendants Castle and Lowry may not be prosecuted for conspiring to violate the Foreign Corrupt Practices Act, and the indictment against them is Dismissed.”

It is also interesting to note that the trial court observed as follows regarding the FCPA’s legislative history.

“The legislative history repeatedly cited the negative effects the revelations of such bribes had wrought upon friendly foreign governments and officials.  [...]  Yet the drafters acknowledged, and the final law reflects this, that some payments that would be unethical or even illegal within the United States might not be perceived similarly in foreign countries, and those payments should not be criminalized.”

The DOJ appealed the trial court’s dismissal of the conspiracy charge against Castle and Lowry. In this March 1991 5th Circuit opinion (925 F.2d 831) the court stated:

“We hold that foreign officials may not be prosecuted under 18 USC 371 for conspiring to violate the FCPA.  The scope of our holding, as well as the rationale that undergirds it, is fully set out in [the trial court opinion] which we adopt and attach as an appendix hereto.”

In this July 1991 superseding indictment, the DOJ charged Blondek and Tull with conspiracy to violate the FCPA’s anti-bribery provisions, Blondek with two substantive FCPA anti-bribery violations and Tull with three substantive FCPA anti-bribery violations.  In addition, the superseding indictment charged Blondek, Tull, Castle and Lowry with violating 18 USC 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises – also known as the Travel Act).

In October 1991, the DOJ filed this Civil Complaint for Permanent Injunction against Eagle Bus based on the same core conduct. Without admitting or denying the allegations in the complaint, in this Consent and Undertaking Eagle Bus agreed to a Final Judgment of Permanent Injunction enjoining the company from future FCPA violations.  Of note, the Consent and Undertaking states:

“[Eagle Bus] has cooperated completely with the Department of Justice in a criminal investigation arising from the circumstances described in the complaint [...] and will continue to cooperate.  The DOJ has agreed that, in the event neither Eagle Bus, nor its parent corporation Greyhound Lines shall violate the FCPA during the period of the following three years, the DOJ will not object to the defendant’s subsequent motion to dissolve the permanent injunction.”

This February 1992 DOJ Motion for Downward Departure in Morton’s case states as follows.

“Morton cooperated with the United States in the investigation and indictment of defendants John Blondek, Donald Castle, Darrell Lowry and Vernon Tull.  Blondek and Tull were tried and acquitted of all charges on October 12, 1991.  Castle and Lowry have not been been apprehended and remain fugitives.  Morton rendered substantial assistance to the United States in the preparation and prosecution of the case against Blondek and Tull.  [...]  Morton also appeared as a witness for the Crown in criminal proceedings in Regina, Saskatchewan, Canada, against Castle and Lowry.  The United States is informed that Morton was of substantial assistance in that case.  In the Canadian case, Castle was acquitted of all charges, while Lowry was convicted of all charges.  Lowery has been sentenced to approximately 16 months incarceration.”

Morton was sentenced to three years probation.

According to docket entries, in April 1996, the DOJ moved to dismiss the charges against Castle and Lowry.

Other than a single sentence in the above mentioned DOJ motion for a downward departure in the Morton case, I was unable to find any public reporting or reference to the Blondek and Tull trial in which they were acquitted of all charges.  There is no reference to the trial on the DOJ’s FCPA website and efforts to learn more about the trial from former DOJ enforcement attorneys or those representing Eagle Bus were either not fruitful or unsuccessful.

FCPA trials are rare.  Thus if anyone has any information about the Blondek and Tull trial, please contact me at fcpaprofessor@gmail.com.

*****

One final note about the “buses for bribery” enforcement action.  In an original source media article, George McLeod, the provincial cabinet minister responsible for STC, said “he has seen no information that Saskatchewan paid an inflated price for the luxury buses.”  He is quoted as follows.  ”I don’t think the product is on trial.  As far as I’m aware, we received an excellent product for the price.”