Archive for the ‘Canada’ Category

SNC-Lavalin Should Be Grateful And Not Pout

Tuesday, February 24th, 2015

Child CryingBut Mom / Dad, when Johnny gets into trouble his parents do things a little bit differently, why can’t I benefit from that?

As I told The Globe and Mail in this article, that is my reaction to SNC-Lavalin’s unusual statement upon being criminally charged by Canadian authorities for alleged improper payments to Libyan officials.

As noted in this previous post, last week the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.

Upon being charged, SNC-Lavalin issued this release, which as relevant here, stated:

“It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.”

SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout.

For starters SNC-Lavalin can only be found guilty of the charges alleged to the extent one of its “senior officials” engaged in improper conduct.  This is a much more exacting standard than the very lenient U.S. standard of respondeat superior corporate criminal liability in which a business organization can face criminal liability to the extent any employee engaged in improper conduct within the scope of employment and intended, at least in part, to benefit the organization.

Perhaps most importantly, SNC-Lavalin should be grateful, and not pout, that Canadian authorities will have to prove the facts and legal theories alleged in the enforcement action.  In the U.S., FCPA enforcement agencies are rarely put in the position of having to prove anything in a corporate FCPA enforcement action.  Rather, the DOJ (or SEC) occupy the position of prosecutor, judge and jury all at the same time and use resolution vehicles such as non-prosecution and deferred prosecution agreements (NPAs / DPAs) or administrative settlements – all of which are not subjected to any meaningful judicial scrutiny.

In short, SNC-Lavalin should be grateful, and not pout, that Canadian law enforcement authorities have not abandoned (as U.S. authorities have) traditional legal principles in the name of ease and efficiency. Accusing a person – whether a natural person or a legal person such as SNC-Lavalin – was never meant to be easy or efficient and it is interesting that SNC-Lavalin appears to be begging for such a system.

In other portions of its recent statement, SNC-Lavalin stated that the criminal charges “are without merit.” In other words, SNC-Lavalin seems to be saying that even though the criminal charges “are without merit,” it would have gladly forked over tens of millions – or perhaps hundreds of millions of dollars – of shareholder money to make the RCMP go away.  How would that benefit SNC-Lavalin’s employees and shareholders?

It is also worth nothing that SNC-Lavalin’s statement casts several opinion statements as fact.

For instance, many would disagree that companies subject to the FCPA “benefit” from the common enforcement approach in which the DOJ (or SEC) are not put in a position to prove anything in relation to the facts and legal theories alleged.  Many would also disagree that companies subject to the FCPA “benefit” from the excessive leverage the DOJ (or SEC) have over companies in extracting corporate settlement.  Moreover, many would disagree that the U.S. approach to resolving corporate FCPA enforcement actions through NPAs and DPAs or administrative SEC actions have “been effectively used in the public interest.”

In short, SNC-Lavalin should be grateful, and not pout, that it is subject to a legal system in which law enforcement has to prove facts and legal theories to someone other than itself.

And let’s face it, the problem with SNC-Lavalin’s predicament has little to do with Canada’s legal regime for prosecuting companies, but rather Canada’s recent – and foolish – automatic debarment rules (see here and here).

Friday Roundup

Friday, February 20th, 2015

Roundup2Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.

It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.

“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”

“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $563,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past five quarters have been approximately $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $160 – $180 million (projected)

North of the Border

Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.”  As stated in the release:

“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.

The charges laid are the following:

In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad

  1. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
  2. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”

In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”

Upon being charged, SNC-Lavalin issued this release which states in full as follows.

“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.

“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”

It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.

These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.

While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.

Becoming a benchmark in ethics and compliance

Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:

  • Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
  • Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
  • Appointing compliance officers in all of the company’s business units and regional offices worldwide
  • Creating a dedicated Ethics and Compliance team
  • Further reinforcing internal controls and procedures
  • Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
  • Producing a dedicated  Anti-Corruption Manual
  • Offering annual compliance training to all employees, with a special focus on those working in strategic roles
  • Developing and distributing a world-class Business Partners Policy to employees
  • Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry

Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.

Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.

“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”

The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.

Scrutiny Alerts and Updates

Flowserve

In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq.  As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.

Earlier this week, Flowserve disclosed as follows.

“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia.  At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.

Earlier this week, Eli Lilly made this official when it disclosed:

“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”

Rolls-Royce

As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”

As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”

As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

U.K. Sentences

The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:

Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates.  Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.

Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.

Both men were disqualified from acting as company directors for six years.

Director of the SFO, David Green CB QC commented:

“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”

In passing sentence HHJ Higgins commented:

“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”

The briberyact.com published in full the Judge’s sentencing remarks.

Issue to Watch

This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action.  While outside the FCPA context, the editorial nevertheless notes:

“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”

*****

A good weekend to all.

Friday Roundup

Friday, February 6th, 2015

Roundup2Quotable, on offense, scrutiny alert, to FCPA Inc., and resource alert.  It’s all here in the Friday roundup.

Quotable

This article in The Recorder reports on a recent public event in which Assistant Attorney General Leslie Caldwell spoke.  According to the article:

“Caldwell also said the Criminal Division would cut down on its use of deferred prosecution agreements, which she said had become the ‘default’ means to resolve corporate cases. ‘Deferred prosecution agreements were a bit overused.’ Instead, Caldwell told the audience to expect more declinations from the government, which would let companies, individual targets and the public know when an investigation is being closed without charges.”

Glad to see that Caldwell agrees that DPAs have become a default means to resolve cases and overused –  central themes of my 2010 article “The Facade of FCPA Enforcement” and my 2010 Senate FCPA testimony.

On Offense

This prior post highlighted Canada’s 2013 enforcement action against Griffiths Energy International Inc. (“GEI”) under Canada’s Corruption of Foreign Public Officials Act (“CFPOA”) for allegedly bribing Chad’s Ambassador to Canada, Mahamoud Adam Bechir and his wife Ms. Nouracham Niam.

According to this recent article in the Calgary Sun Bechir and Niam are going on offense.  The article notes:

“The former Chadian ambassador to Canada and his wife have launched a $150-million lawsuit claiming “false” bribery allegations against them have sullied their reputation. Mahamoud Adam Bechir and his spouse, Nouracham Niam, are suing law firm Gowlings Lafleur Henderson LLP, partner Kristine Robidoux and the current corporate owner of Griffiths Energy International (GEI) Inc. In a statement of claim filed in Calgary Court of Queen’s Bench the couple say claims by Griffiths it paid a $2-million bribe to the wife’s company were untrue.”

Scrutiny Alert

Staying north of the border, as noted in this report,

“MagIndustries Corp., a China-backed Canadian potash company, said it has formed a special committee to look into allegations some of its officers and employees have breached the Corruption of Foreign Public Officials Act. Canadian police visited the company’s head office in Toronto with a search warrant on Jan. 22 in connection with the allegation, MagIndustries said Thursday in a statement. “No charges have been laid in connection with this investigation and MagIndustries has no knowledge of any such breach and will be cooperating fully with the authorities,” the company said. MagIndustries, controlled by Evergreen Resources Holdings Ltd. according to data compiled by Bloomberg, is developing the Mengo potash mine in Republic of Congo.”

To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

In the latest example of a DOJ FCPA enforcement attorney departing for FCPA Inc. Ropes & Gray announced that “Ryan Rohlfsen, senior trial attorney at the U.S. Department of Justice’s Criminal Division, Fraud Section” who was as “part of an elite group of federal prosecutors responsible for the global enforcement of the U.S. Foreign Corrupt Practices Act (FCPA)” has joined the firm as a partner.

Resource Alert

My former law firm, Foley & Lardner, recently announced “Foley Global Risk Solutions.”  As stated in the release:

“Foley & Lardner LLP announced today the launch of Foley Global Risk Solutions – a new cost-effective service offering designed to help companies operating overseas comply with the Foreign Corrupt Practices Act (FCPA). Foley GRS is an innovative, web-based service offering that provides businesses with a fully integrated FCPA compliance solution. The product, which relies on cutting-edge technology, will be offered for a fixed annual subscription fee. [...] Foley GRS is the first-of-its-kind integrated legal services solution using a technology-based platform that delivers a comprehensive, closed-loop program that includes risk assessments, current and periodically updated policies and procedures, training for employees, regular communications, and most importantly, access to legal advice and counseling on FCPA issues that arise during the course of business operations.”

*****

A good weekend to all.

 

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.

*****

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.

*****

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.