Archive for the ‘Canada’ Category

Canada 2013 Year In Review

Tuesday, January 14th, 2014

Several recent posts have highlighted various 2013 Foreign Corrupt Practices Act enforcement statistics.  Future posts will continue the number crunching on individual FCPA enforcement statistics.

Today however, we pause and look north to Canada for a year in review by the Canada Expert for FCPA Professor, Mark Morrison (Blake, Cassels & Graydon), and Blake attorneys Matthew Huys and Michael Dixon.

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2013 was a bellwether year for Canadian anti-corruption law and enforcement. On June 19, 2013 the Canadian government passed into law amendments to the Corruption of Foreign Public Officials Act (CFPOA) that significantly strengthen Canada’s primary foreign anti-corruption legislation. Additionally, 2013 has seen a number of prominent enforcement proceedings, including Canada’s largest fine for a CFPOA conviction to date, as well as the first trial and conviction of an individual under the CFPOA.

This post discusses recent enforcement proceedings and amendments to the CFPOA in turn.

Recent Enforcement Proceedings

Canadian authorities continue to focus on enforcing the CFPOA. As noted above, 2013 has seen the largest fine to date for a conviction under the CFPOA, the first trial and conviction of an individual under the CFPOA, the ongoing investigations into SNC-Lavalin Group Inc. (SNC-Lavalin) and its affiliates, and the corruption allegations against a large number of municipal officials and members of the construction industry in Quebec. Notable enforcement proceedings are discussed below.

Griffiths Energy - The Griffiths Energy case is the second major conviction under the CFPOA.   In January 2013, Griffiths pled guilty to the bribery offence under section 3(1)(b) of the CFPOA and agreed to pay a fine of $9M, plus a 15% victim surcharge, for a total of $10.35M. This fine was in relation to consulting agreements that provided for payments in the amount of $2M to two entities owned and controlled by Chad’s ambassador to Canada and his spouse. In assessing the fine, the Court noted as mitigating factors that Griffiths had self-reported, taken the extraordinary step of sharing privileged materials, spent $5M conducting an internal investigation into the bribery, and had to postpone its planned IPO at a cost of $1.8M.

Karigar Conviction- On August 15, 2013 the Ontario Supreme Court released its decision in the trial of Nazir Karigar, the first individual charged under the CFPOA. Mr. Karigar was a former employee of Cryptometrics, a company developing facial recognition software for airports and governments. The RCMP laid charges against Mr. Karigar individually, alleging that he violated the CFPOA by paying bribes totalling $450,000 to an Indian minister and Air India officials in relation to a security system contract. Notably, the trial judge convicted Mr. Karigar notwithstanding that there was no evidence that bribes were actually offered or paid, holding that section 3 of the CFPOA also prohibits any conspiracy or agreement to bribe foreign public officials. A sentencing hearing in Mr. Karigar’s case is expected to be scheduled in the near future. A more detailed summary of the Karigar decision can be found here.

Investigation into SNC-Lavalin -The investigation into SNC-Lavalin and its subsidiaries remains ongoing. On September 1, 2011 the RCMP raided its offices in connection with a corruption probe into the bidding process for the World Bank funded Padma Bridge Project in Bangladesh.  On April 11, 2012, Ramesh Shah and Mohammad Ismail, two former executives of SNC-Lavalin, were charged with one count each of corruption under the CFPOA.  Another former executive of SNC-Lavalin, Kevin Wallace, was charged on September 18, 2013. In addition, two former executives, including a former CEO, are facing fraud charges relating to a contract for a multi-billion dollar health facility in Montreal.

Corruption Inquiry in Quebec - The Charbonneau Commission inquiry into corruption in the management of public construction contracts in Quebec is ongoing. While the final report of the Charbonneau Commission Inquiry is not expected until Spring 2015, the inquiry has heard testimony of rampant corruption in municipal contracting in Quebec. There have been wide-ranging allegations against a large number of municipal officials, suggesting that they accepted bribes to award municipal construction contracts. Notably, allegations of corruption have resulted in the resignation of the former mayors of Montreal, Michael Applebaum and Gerald Tremblay, in addition to the resignation of the Mayor of Laval, Gilles Vaillancourt. Additionally, there have been allegations of collusion on the part of engineering and construction firms in bidding on municipal contracts.

Ongoing RCMP Investigations -In addition to the foregoing matters, the RCMP has also made it known that it has 34 active and ongoing CFPOA investigations.

Amendments to the CFPOA

The amendments to the CFPOA close significant loopholes, create new offences, and increase penalties for violating its provisions.  They include:

Nationality Jurisdiction – Prior to the amendments, the CFPOA contained a significant loophole with the application of territorial jurisdiction. Territorial jurisdiction created enforcement difficulties as there had to be a territorial nexus between Canada and the offence for the CFPOA to apply, meaning that some part of the formulation, initiation, or commission of the offence must have taken place within Canada. Considering that the CFPOA is directed at transactions that predominantly occur abroad, territorial jurisdiction hampered the ability of Canadian authorities to enforce the CFPOA in cases where the entire transaction occurs abroad.

The amendments closed the territorial jurisdiction loophole by employing nationality jurisdiction in a similar manner as other global anti-corruption legislation, such as the United States Foreign Corrupt Practices Act (FCPA). The relevant provision deems acts of Canadian citizens, permanent residents, corporations, societies, firms or partnerships on a worldwide basis to be acts within Canada for the purposes of the CFPOA. This provision essentially subjects all Canadian citizens and companies to global regulation by Canadian authorities under the CFPOA.

Increased Penalties – The amendments significantly increased the penalties for violations of the CFPOA. Maximum imprisonment for violation of the CFPOA is now 14 years, as opposed to five years prior to the amendments.

Books and Records Offence – New offences now exist for concealing bribery in accounting records. Pursuant to the new books and records provisions, it is an offence to keep secret accounts, falsely record, not record or inadequately identify transactions, enter liabilities with incorrect identification of their object, use false documents, or destroy accounting books and records earlier than permitted by law for the purpose of concealing bribery of a public official. Similar to the bribery offence under the CFPOA, the new books and records provisions carry a maximum sentence of 14 years’ imprisonment.

While this new offence has some similarity to the books and records provisions of the FCPA, it is not likely to have the same impact in Canada as it has had in the United States, as in Canada the new books and records provisions are criminal, meaning both that the authorities must prove an offence to the higher standard of proof, and also that there is no civil resolution option provided under the CFPOA.

No Facilitation Payments –Under the amendments, the current exception in the CFPOA for facilitation payments will be removed. The timing for removal of such exception is subject to a further order of the Governor in Council.

No For-Profit Requirement – Prior to the amendments, application of the CFPOA was restricted to for-profit transactions. This allowed for potential arguments that any particular payment did not violate the CFPOA because it was not directly tied to a for-profit purpose. Under the amendments, this potential argument is no longer available as the for-profit restriction has been removed.

Double Jeopardy – Previously, the CFPOA did not specifically address the potential availability of double jeopardy protection in circumstances involving prosecutions for the same conduct in different jurisdictions (for instance, in the United States under the FCPA). While common law arguments for such protection did exist, the availability of a double jeopardy defence based on the principles of autrefois acquit or autrefois convict was by no means certain. The amendments now clarify this uncertainty and ensure that Canadian companies and individuals tried in another jurisdiction cannot be convicted for the same conduct in Canada.

For a further summary of the amendments to the CFPOA, please see here.

Conclusion

The trend of increased focus on anti-corruption compliance and enforcement in Canada has continued in 2013. This trend will likely continue with the recent amendments to the CFPOA, active investigations by the RCMP, and the continued emphasis on anti-corruption compliance in the media and in Canadian board rooms.

Friday Roundup

Friday, October 4th, 2013

Scrutiny alerts, coming clean, coming off a monitor, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

Hyperdynamics

This previous post, regarding the arrest and charging of Frederic Cilins for obstruction of justice in connection with an ongoing  investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea, highlighted that while Cillins has been associated with BSG Resources, the charging documents make clear that BSG is not the sole focus of the U.S. investigation.

Earlier this week, Houston-based Hyperdynamics Corporation issued this release.  It states:

“[On] September 2013 [the company] received a subpoena from the United States Department of Justice (DOJ) requesting that the Company produce documents relating to its business in Guinea.  In 2006, a Production Sharing Contract was signed by the Company and the government of Guinea granting rights to an oil and gas concession offshore Guinea.  The Company understands that the DOJ is investigating whether Hyperdynamics’ activities in obtaining and retaining the concession rights and its relationships with charitable organizations potentially violate the U.S. Foreign Corrupt Practices Act or U.S. anti-money laundering statutes.  The Company has retained legal counsel to represent it in this matter and is cooperating fully with the government.  The Company is unable to predict when the investigation will be completed, what outcome may result and what costs the Company will incur in the course of the investigation.”

On the day of Hyperdynamics disclosure, the company’s stock fell approximately 15%.  As sure as the sun rises, a few days later, not one but two, plaintiffs firm issued releases (here and here) announcing an “investigation.”

Vinci

As noted in this article, “French prosecutors have opened a preliminary enquiry into allegations that a subsidiary of construction firm Vinci bribed officials in Russia [...] to win the contract for a toll motorway linking Moscow to Saint Petersburg.”  Vinci has American Depository Receipts that are traded on a U.S. exchange.

Coming Clean

This previous post highlighted the employee amnesty program created by SNC-Lavalin (a Canada-based engineering and construction company
mired in a bribery and corruption scandal concerning projects in Bangladesh and certain countries in Africa).  The company recently announced as follows.

“A total of 32 employees made amnesty requests. While no new information of a material nature was revealed, the information the Company received did confirm its previous assessment of corruption risks.”

The release also highlights other compliance enhancements and policies and procedures the company has implemented.

Coming Off a Monitor

In August 2010, Alliance One International resolved an FCPA enforcement concerning conduct in Kyrgyzstan and Thailand by agreeing to pay approximately $9.5 million (see here for the prior post).  Even though Alliance One’s entire exposure was based, not on anything it did, but rather successor liability theories and even though the enforcement action was the product of a voluntary disclosure, the non-prosecution agreement required the company to engage a corporate monitor for a three-year period.

In this recent release Alliance One stated:

“On September 30, 2013, the Company fulfilled its obligations under its settlement agreements, including the successful and on-time completion of its compliance monitorship. On May 7, 2013, the Monitor filed his third and final of his required reports with the DOJ and the SEC. In the third report, the Monitor evaluated the long-term sustainability of the Company’s compliance program, in addition to risk-based themes and the implementation of recommendations from previous years.  The Monitor concluded the third report by certifying that the Company’s Compliance Program, including its policies and procedures, is reasonably designed and implemented to detect and prevent violations of anti-corruption laws within the Company. The final report also states that all recommendations of the Monitor have been fully implemented by the Company.  As per the schedule set forth in the aforementioned settlement agreements, the monitorship formally ended on time on September 30, 2013, and without any extensions of that date by the Monitor, the DOJ or the SEC.”

In the release, Alliance One President and CEO J. Pieter Sikkel stated:

“Over the past three years we have built a world-class compliance program supported by strengthened systems, policies, procedures and controls that address a variety of compliance areas.  While the completion of the monitorship is an important milestone, our strong commitment to operating ethically and compliantly will continue indefinitely.”

Joe Warin (Gibson, Dunn & Crutcher) was the monitor.  See here for a previous post concerning an article Warin and his colleagues wrote titled ““Somebody’s Watching Me: FCPA Monitorships and How They Can Work Better.”

Reading Stack

Much has been written in connection with GlaxoSmithKline in China about the arrest and detention of Peter Humphrey and his wife based on accusations in the course of background checks performed by their Shanghai-based firm ChinaWhys.

In a similar instance, this recent article in Barron’s profiles the plight of Canadian stock analyst Kun Huang has been locked up in China for more than a year for exposing alleged improper conduct concerning Silvercorp Metals.  According to the article, “Canadian authorities have opened a bribery probe based on [Huang's]  allegations.”

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A good weekend to all.

Worth Noting From Canada’s First CFPOA Decision

Thursday, August 29th, 2013

This previous guest 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.

Given the general dearth of Foreign Corrupt Practices Act case law, you ought to have the urge to digest any form of judicial scrutiny of “FCPA-like” cases and the judicial opinion in the Nazir Karigar case makes for an interesting and worthwhile read.

For starters, the judge found that Air India officials were “foreign public officials” under the CFPOA.

This is hardly surprising.

Why?

Because the CFPOA, unlike the FCPA, defines the targeted recipient category, in pertinent part, as follows.

“a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function”

As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal in the Joel Esquenazi and Carlos Rodriguez action), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.

Back to the Karigar decision.

The first take-away point is that the bribery attempt was unsuccessful in that the contract at issue was never awarded.  There have been FCPA enforcement actions consistent with this theory as well.  (See, among other actions, the 2005 FCPA enforcement action against Monsanto – here and here).

A disputed legal issue in Karigar was whether the prosecution needed to prove that the actual bribes were paid and the specific identity of the foreign public officials allegedly bribed.  Summarizing the argument of defense counsel, the opinion states:

“[I]n the submission of counsel for the accused, [counsel argues] that the court cannot know whether any foreign public official was actually offered or received a bribe or other inducement, whether any such official was induced to use his or her position to influence any act or decision and whether any such official had any duties or functions which could be influenced by any such inducement.  In short, in the absence of any evidence that a bribe was actually offered or paid to any official, how can the Crown have proven the requisites of the offense charged beyond a reasonable doubt?”

The opinion then states:

“I agree that there was no evidence as to what became of the two payments … after the amounts were transferred from the bank account of Cryptometrics Inc. in New York to the accused’s account in India.  It is correct so say that there was no evidence as to what subsequently became of those two sums of money and in particular whether these funds were offered or paid to anyone who qualified as a foreign public official under the Act.”

“The position of the Crown is that no evidence of what actually became of the money is necessary to establish a violation of the CFPOA.  The Crown argues that incoate offenses, in particular a conspiracy to pay bribes, as exists here, constitutes a violation of the Act.  [...]

[...]

“There would appear to be no jurisprudence interpreting the CFPOA.  This is the first prosecution under this Act which has proceeded to trial.”

“In any event, I am satisfied that a conspiracy or agreement to bribe foreign public officials is a violation of the Act.  The actus reus of this offense is the agreement to pursue an unlawful object.  [...]

[...]

“I also reject the accused’s submission on a policy basis.  In my opinion if the word ‘agrees’ in the Act is restricted to the act of essentially two parties, ‘one to pay the bribe and one to receive the bribe,’ the scope of the Act would be unduly restricted and its objectives defeated.  Moreover, to require proof of the offer of or receipt of a bribe and the identity of a particular recipient would require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk and would the legislation difficult if not impossible to enforce and possibly offend international comity.”

If the above sounds familiar to you, it should.  Similar issues have been contested in recent FCPA enforcement actions.

In U.S. v. O’Shea, the DOJ alleged that the defendant violated the FCPA by making payments to officials at a Mexican utility allegedly owned or controlled by the Mexican government.  The judge granted a motion for acquittal after the DOJ’s evidence.  In doing so, and as relevant to the identity of a “foreign official” issue, the judge stated:

“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up [somebody] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”

However, the notion that the specific identity of a “foreign official” must be proven by the enforcement agencies has been rejected by two other trial courts in individual FCPA enforcement actions.  In SEC v. Jackson, the court concluded, in ruling on a pre-trial motion to dismiss, that the “government does not have to connect the payment to a particular official.”  The court stated:

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. […] Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. […] It would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe.”

Likewise in SEC v. Straub, the court agreed with the above Jackson decision in the context of a pre-trial motion to dismiss and stated that “the language of the [FCPA] does not appear to require that the identity of the foreign official involved be pled with specificity.”  The court stated:

“Such a requirement would be at odds with the statutory scheme, which targets actions (such as making an ‘offer’ or ‘promise’) without requiring that the ‘foreign official’ accept the offer or reveal his specific identity to the payer.  Indeed, the fact that the FCPA prohibits using ‘any person’ or an intermediary to facilitate the bribe to any ‘foreign official’ or ‘any foreign political party’ suggests that the statute contemplates situations in which the payer knows that a ‘foreign official’ will ultimately receive a bribe but only the intermediary knows the foreign official’s specific identity.”

Another interesting aspect of the Karigar is asking the obvious question – will there be a related FCPA enforcement action(s)?

Karigar was a paid agent for Cryptometrics Canada and acted on behalf of related entities including Cryptometrics USA.  According to the opinion, $200,000, was transferred from Cryptometrics USA to Karigar’s bank account in furtherance of the bribery scheme.  The opinion further references a relevant letter agreement between Kairgar and the CEO of Cryptometrics USA as well as specific conduct in furtherance of the bribery scheme that took place at Cryptometrics’s office in New York.  In addition, the opinion references an additional $650,000 that was transferred from Crytometrics USA’s bank account in furtherance of the scheme.

Moreover, as noted in the opinion, Karigar corresponded with the DOJ regarding the conduct at issue.  Specifically, the opinion states “that on August 13, 2007, Karigar  – using an alias – “sent an e-mail to the Fraud Section (FCPA) of the U.S. Department of Justice stating that he had information about U.S. citizens paying bribes to foreign officers and inquired about reporting the matter.”  The opinion also references two other e-mails Karigar sent to the DOJ.

Canada’s First Foreign Bribery Trial Results In First Conviction Of An Individual

Tuesday, August 20th, 2013

A guest post today from Mark Morrison (Blake, Cassels & Graydon) the Canada Expert for FCPA Professor, and Blake attorneys Matthew Huys and Michael Dixon.

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Introduction

On August 15, 2013, the Ontario Superior  Court of Justice convicted  Nazir Karigar of offering bribes contrary to section 3(1)(b) of the Corruption of Foreign Public Officials Act (CFPOA). This is the first trial decision of a charge under the CFPOA, and the  first conviction against an individual. In the course of convicting Mr.  Karigar, the Court affirmed a number of interesting and potentially important points that are discussed further below.

Facts

This case concerns 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 material time, Mr. Karigar was acting as a paid agent for Cryptometrics Canada (Cryptometrics), a Kanata-based technology company.

The evidence at trial disclosed that in 2005 Mr. Karigar contacted an executive of Cryptometrics. Mr. Karigar held out that he had contacts at Air India, and that he could assist Cryptometrics in obtaining work from Air India for its biometric facial recognition technology. An agreement was subsequently entered into whereby Mr. Karigar and others would help the company obtain work from Air India in exchange for 30% of the expected revenue stream from the work generated.

On February 24, 2006, Air India released an official Request for Proposal and shortly after, under the direction of Mr. Karigar, the company submitted a bid. A separate bid was also submitted by another company controlled by Mr. Karigar, to create the appearance of a competitive tendering process. In conjunction with submitting the bid, US$200,000  was transferred from Cryptometrics U.S.A. to Mr. Karigar, purportedly for the purpose of bribing Air India officials, though the Court noted there was no evidence that the money was actually paid to Indian officials. This first payment was to make sure only two companies would be deemed to have submitted  technically qualified bids in response to the Request for Proposal.

As the process continued, further funds in the amount of US$250,000 were transferred from the company to Mr. Karigar that were purportedly destined to be paid to the Indian Minister of Civil Aviation. The evidence indicated that the purpose of this payment was for the Minister to  support Cryptometrics’ bid and have the contract awarded, though ultimately the company was never successful in obtaining the award of the contract.

Based on these circumstances, the Court found that Mr. Karigar had agreed with others to offer bribes to foreign government officials contrary to s. 3(1)(b) of the CFPOA, and convicted him accordingly. Mr.  Karigar has not yet been sentenced for this offence.

Key Points

In the course of its decision, the Court made a number of points that are worth noting:

  • The Court accepted that officials from Air India constituted “foreign public officials” for the  purposes of the CFPOA as Air India was a corporation owned and controlled by  the Government of India. This case reinforces the potential breadth of persons  who may be treated as government officials for the purposes of foreign corrupt practices legislation. In particular, the class of persons to whom bribery is  prohibited under the CFPOA is not limited to government officials in the  traditional sense, but also includes directors, officers and employees of  state-owned/controlled corporations.
  • The case notes that Mr. Karigar was initially not an employee of the company, but rather was engaged as an agent and was to be compensated on a success fee basis. In addition, the case disclosed the use of further sub-agents, which the evidence suggested were used  potentially for the purposes of transferring funds to government officials. The use of agents, particularly in countries where there is a higher incidence of corruption, remains a higher-risk practice and is at the heart of the majority of enforcement actions to date in Canada and a number of proceedings under the U.S. Foreign Corrupt Practices Act.
  • The Court held that the CFPOA offence includes a conspiracy offence such that an agreement to pay a bribe is enough to constitute an offence, even without proof that the bribe was actually offered or paid to a foreign official. The Court convicted Mr. Karigar on the basis that there was evidence of an agreement between him and his business associates to pay bribes to Indian officials, and that he believed that such bribes would be paid. The Court was clear that the agreement to pay a bribe does not need to be between the individual paying the bribe and the foreign official. Rather, the agreement to pay a bribe to a foreign official between business associates constituted an offence. Moreover, the Court explicitly rejected that any evidence of proof of the offer or receipt of a bribe, or the  identity of the recipient of the bribe, was required for a conviction.
  • While the CFPOA has recently been amended to extend the jurisdiction of Canada to prosecute offences involving Canadian corporations or citizens worldwide, this case was tried prior to those amendments coming into effect. Of note, the Court confirmed that the current amendments did not apply retroactively, and only applied to offences committed after June 19, 2013. The Court also confirmed that for offences occurring prior to June 19, 2013, a connection to the physical territory of Canada was required. The Court found that there was a connection in this case because at the material times Mr. Karigar was employed or acting as an agent of a Canadian company, the purpose of the scheme was to obtain an unfair advantage for a Canadian company, and had the contract been awarded, a significant amount of work would have been done by Cryptometrics’ employees in Ottawa.
  • It is important to note the role that co-operation with government authorities played in securing the conviction of Mr. Karigar. Notably, the key witness at trial for the Crown was a company executive who was also involved in the bribery scheme, although was granted immunity in this matter, in exchange for his testimony.
  • This case demonstrates the potential benefit of co-operation with authorities, although it also demonstrates its potential pitfalls, as some of the evidence used to convict Mr. Karigar was his own. Mr. Karigar was actually his own “whistle blower”; he was the anonymous informant who tipped off the U.S. Department of Justice to  allegations against Cryptometrics. Consistent with what we have seen in  practice, the U.S. authorities then shared the information with Canadian  enforcement authorities. Accordingly, while there can be benefits to self-disclosure and co-operation, it should be carefully considered and managed, and pursued only in appropriate circumstances and based on all  available information.

Conclusion

Nazir Karigar’s conviction demonstrates the continued dedication of Canadian enforcement authorities to pursue charges under the CFPOA. It also demonstrates the ability of Canadian authorities to secure convictions, not only by guilty plea, but through the more rigorous trial process. This case underscores the need for a robust compliance program, including conducting a risk assessment, implementing appropriate policies,  training employees and agents, implementing a governance structure aimed at preventing anti-corruption violations, using protective contractual terms,  engaging in due diligence, and engaging in ongoing monitoring to guard against  these types of matters.

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

Thursday, July 18th, 2013

A guest post today from Mark Morrison (Blake, Cassels & Graydon) the Canada Expert for FCPA Professor, and Blake attorneys Matthew Huys and Michael Dixon.

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Recent developments in anti-corruption law north of the 49th parallel have demonstrated that Canadian authorities are serious about combating bribery worldwide. In addition to a number of recent prominent enforcement proceedings, on June 19, 2013 the Canadian government passed into law amendments to the Corruption of Foreign Public Officials Act (CFPOA).  This post discusses the amendments to the CFPOA and recent enforcement proceedings in turn.

Amendments to the CFPOA

The recent amendments to the CFPOA strengthen Canada’s anti-corruption legislation. The amendments to the CFPOA close significant loopholes, create new offences, and increase penalties for violating its provisions.  They include:

Nationality Jurisdiction – Prior to the amendments, the CFPOA contained a significant loophole with the application of territorial jurisdiction. Territorial jurisdiction created enforcement difficulties as there must be a territorial nexus between Canada and the offence for the CFPOA to apply, meaning that some part of the formulation, initiation or commission of the offence must have taken place within Canada. Considering that the CFPOA is directed at transactions that predominantly occur abroad, territorial jurisdiction hampered the ability of Canadian authorities to enforce the CFPOA in cases where the entire transaction occurs abroad.

The proposed amendments have closed the territorial jurisdiction loophole by employing nationality jurisdiction in a similar manner as other global anti-corruption legislation, such as the United States Foreign Corrupt Practices Act (FCPA). The relevant provision deems acts of Canadian citizens, permanent residents, corporations, societies, firms or partnerships on a worldwide basis to be acts within Canada for the purposes of the CFPOA. This provision essentially subjects all Canadian citizens and companies to global regulation by Canadian authorities under the CFPOA.

Increased Penalties – The amendments have significantly increased the penalties for violations of the CFPOA. Maximum imprisonment for violation of the CFPOA is now 14 years, as opposed to five years prior to the amendments.

Books and Records Offence – New offences now exist for concealing bribery in accounting records. Pursuant to the new books and records provisions, it is an offence to keep secret accounts, falsely record, not record or inadequately identify transactions, enter liabilities with incorrect identification of their object, use false documents, or destroy accounting books and records earlier than permitted by law for the purpose of concealing bribery of a public official. Similar to the bribery offence under the CFPOA, the new books and records provisions carry a maximum sentence of 14 years’ imprisonment.

While this new offence has some similarity to the books and records provisions of the FCPA, it is not likely to have the same impact in Canada as it has had in the United States, as in Canada the new books and records provisions are criminal, meaning both that the authorities must prove an offence to the higher standard of proof, and also that there is no civil resolution option provided under the CFPOA.

No Facilitation Payments –Under the amendments, the current exception in the CFPOA for facilitation payments will eventually be removed. The timing for removal of such exception is subject to a further order of the Governor in Council. Companies that conduct business in Canada whose anti-corruption policies currently allow for facilitation payments should consider modifying their policy accordingly.

No For-Profit Requirement – Prior to the amendments, application of the CFPOA was restricted to for-profit transactions. This allowed for potential arguments that any particular payment did not violate the CFPOA because it was not directly tied to a for-profit purpose. Under the amendments, this potential argument is no longer available as the for-profit restriction has been removed.

Double Jeopardy – Previously, the CFPOA did not specifically address the potential availability of double jeopardy protection in circumstances involving prosecutions for the same conduct in different jurisdictions (for instance, in the United States under the FCPA). While common law arguments for such protection did exist, the availability of a double jeopardy defence based on the principles of autrefois acquit or autrefois convict was by no means certain. The amendments now clarify this uncertainty and ensure that Canadian companies and individuals tried in another jurisdiction cannot be convicted for the same conduct in Canada.

Recent Enforcement Proceedings

Canadian authorities continue to demonstrate their willingness to enforce Canadian anti-corruption laws. This year has seen a significant conviction under the CFPOA, ongoing investigations into a Canadian corporation and its affiliates worldwide relating to corruption allegations, and the explosive corruption allegations against a large number of municipal officials in Quebec. The notable enforcement proceedings are discussed below.

Griffiths Energy - The Griffiths Energy case earlier this year is the second major conviction under the CFPOA.   In January 2013, Griffiths pled guilty to an offence under section 3(1)(b) of the CFPOA and agreed to pay a fine of $9M, plus a 15% victim surcharge, for a total of $10.35M. This fine was in relation to consulting agreements that provided for payments in the amount of $2M to two entities owned and controlled by Chad’s ambassador to Canada and his spouse. In assessing the fine, the Court noted that Griffiths had self-reported, taken the extraordinary step of sharing privileged materials, spent $5M conducting an internal investigation into the bribery, and had to postpone its planned IPO at a cost of $1.8M. In the absence of these factors, the fine imposed on Griffiths could have been significantly greater.

Decision in Karigar Trial Expected This Year- The decision in the trial of the first individual charged under the CFPOA is currently outstanding and expected to be released in the second half of this year. The trial, which was held in September, 2012 involved a former employee of Cryptometrics, Nazir Karigar. Cryptometrics was a company developing facial recognition software for airports and governments. The RCMP laid charges against Mr. Karigar individually, alleging that he violated the CFPOA by paying bribes to Indian officials in relation to a security system contract.

Investigation into SNC-Lavalin -The investigation into SNC-Lavalin Group Inc. (SNC-Lavalin) and its subsidiaries remains ongoing. On September 1, 2011 the RCMP raided its offices in connection with a corruption probe into the bidding process for the World Bank funded Padma Bridge Project in Bangladesh.  On April 11, 2012, two former executives of SNC-Lavalin were charged with one count each of corruption under the CFPOA.  In addition, two former executives, including a former CEO, are facing fraud charges relating to a contract for a multi-billion dollar health facility in Montreal.

Corruption Inquiry in Quebec - The Charbonneau Commission inquiry into corruption in the management of public construction contracts in Quebec took a break for the summer in June and is expected to resume this September. While the final report of the Charbonneau Commission Inquiry is not expected until Spring 2015, the inquiry has heard testimony of rampant corruption in municipal contracting in Quebec. There have been wide ranging allegations against a large number of municipal officials, suggesting that they accepted bribes to award municipal construction contracts. Notably, allegations of corruption have resulted in the resignation of the former mayors of Montreal, Michael Applebaum and Gerald Tremblay, in addition to the resignation of the Mayor of Laval, Gilles Vaillancourt. Additionally, there have been allegations of collusion on the part of engineering and construction firms in bidding on municipal contracts.

Ongoing RCMP Investigations -In addition to the foregoing matters, the RCMP has also made it known that it has 34 active and ongoing CFPOA investigations.

Conclusion

The recent trend of increased focus on anti-corruption compliance and enforcement in Canada has increased exponentially over the first half of 2013. This trend will continue to intensify with the recent amendments to the CFPOA, the active investigations by the RCMP, and the continued emphasis on anti-corruption compliance in the media and in Canadian board rooms.