New regulations and aggressive enforcement by American authorities of anti-bribery regulations will increase pressure on many Canadian companies operating in North America and overseas, say securities lawyers.
The U.S. Wall Street Reform and Consumer Protection Act was signed into law on July 21, containing important provisions that could affect Canadian companies, says John Keefe, a partner at Goodmans LLP.
“The Americans take a very broad look of their jurisdiction over foreign companies, even if they are not listed on their exchanges,” says Keefe. “Any general counsel of a company that has business in foreign countries where there is some dealing with the government, whether getting licences or contracts, should be very aware of where all the money is going and have internal compliance programs in place to make sure that there is no money going to government officials.”
Canadian companies likely affected by the new provisions include public companies whose shares are listed in the U.S. and Canadian subsidiaries of American public companies. However, even Canadian companies with no ties to the U.S. can be affected if they use U.S. banks or affect American interests.
Canada has its own foreign anti-bribery laws, but the enforcement level is not as aggressive as in the U.S., which has been leading the pack in an international effort to level the playing field for all companies doing business in countries where corruption is endemic. The European Union and United Kingdom have also recently passed more aggressive regulations.
There have been only two criminal prosecutions in Canada on international anti-bribery charges under the Canadian Corruption of Foreign Public Officials Act, which has been in effect since 1999. It makes both giving and taking bribes overseas illegal.
One of these prosecutions is currently before the courts, and the RCMP says there are allegations “that company officials made a payment to an Indian government official in order to facilitate the execution of a multimillion-dollar contract.”
The RCMP arrested Cryptometrics Canada Inc. employee Nazir Karagan in late June. Cryptometrics, an Ottawa high-tech firm, has not been directly accused of any wrongdoing.
“These charges brought forward by the RCMP demonstrate that abuses of the law will not be tolerated,” said Public Safety Minister Vic Toews in a statement about the case. “We are committed to ensuring that individuals engaging in corruption are brought to justice.”
There are likely more than just two cases of Canadian companies bribing officials abroad, but Canadian firms are also among the least likely in the world to be offenders, says Transparency International, the best-known global corruption watchdog. In its 2008 report, it ranked Canadian companies in first place as the least likely in the world to give bribes when investing abroad.
The latest American act also introduces a whistleblower bounty. It provides that whistleblowers are entitled to receive a bounty of between 10 and 30 per cent of the monetary recovery obtained from companies involved in violations of the U.S. anti-bribery laws if they provide a tip to the regulators and the tip leads to successful proceedings resulting in sanctions of US$1 million or more.
“Canadian companies should be aware that the Dodd-Frank Act may increase their exposure to [Securities and Exchange Commission] investigations and prosecutions for securities fraud and anti-bribery violations,” adds Keefe. “The full impact of these sweeping reforms will be known in the coming months as the specific regulations are enacted and these new provisions are tested in the courts.”