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Tackling corruption abroad

|Written By Andi Balla
Tackling corruption abroad

Every year, Transparency International, an anti-bribery watchdog with chapters across the world, puts out a global map of corruption based on a perceptions survey it conducts. There is corruption everywhere, says Bronwyn Best, executive director at the organization’s Canadian chapter. “It is part of the strata of every country in the world, including Canada.” But the more you look at the map, the more a general trend becomes visible: the poorer the country, the higher the corruption. Canada shows up on the clean end, placing sixth in the world for low corruption, up there with the Scandinavian countries, performing better than the United States. The problem is many Canadian companies don’t do business only in Canada. Many operate in countries where bribing officials to get an advantage is perceived as a common occurrence. How do they hold on to Canadian values in a place where the business landscape is so different?

The Bank of Nova Scotia, for example, has operations under its Scotiabank brand in about 50 countries, some of which show up as highly corrupt in the TI index. Its executive vice president, general counsel, and secretary, Deborah Alexander, says the bank’s answer has been to impose strict internal rules to meet the highest international legal standards and educate everyone who works for the bank abroad to follow the best practices. “We actually spent a lot of time on this. We have translated everything into I don’t know how many different languages. Training is a huge issue for us,” says Alexander.

How to deal with corruption abroad is a dilemma Canadian companies don’t face alone. That’s why there have been efforts at both the national and international levels to punish companies that bribe foreign officials, hurting a fair competition process and further impoverishing the countries where they are operating. There are conventions sponsored by the United Nations and the Organisation for Economic Co-operation and Development to fight bribes abroad and national laws in many countries, including Canada’s Corruption of Foreign Public Officials Act, which has been in the books since 1999. Best says since Canada has signed on to all the appropriate conventions on the matter — both at the OECD and UN — it has an obligation to fully enforce the anti-corruption laws against its own companies operating abroad.

But at least one of those organizations is saying Canada might not be doing enough. In late March, Ottawa became the target of an OECD report highly critical of Canada’s enforcement of its foreign official anti-bribery laws. The report noted Canada needs to do more to investigate and prosecute bribery of foreign public officials by Canadian companies. It also said given the size of Canada’s economy and its high-risk industries — oil, gas, and mining — Canada should review its law and approach to enforcement. Since the CFPOA passed in 1999, only a single prosecution under it has been completed in Canada, but there are currently 20 ongoing investigations and one case is in the courts.

The report acknowledged the number of investigations has increased, crediting the creation of the RCMP International Anti-Corruption Unit. It “has been making substantial efforts to investigate allegations of the bribery of foreign public officials and raise awareness of the offence,” said the report, adding “Canada’s ability to successfully prosecute these investigations will be in jeopardy unless the Public Prosecution Service of Canada is given the resources it needs to prosecute the large volume of cases that may soon follow the investigations.”

The report roused a lot of debate in Canada in late March, including an expert panel discussion at the University of Toronto Faculty of Law, where Alexander and Best made their comments. Those in attendance included the RCMP’s top man in charge of enforcing Canada’s foreign official anti-bribery legislation, Insp. Gord Drayton. He told the Toronto audience he can’t comment on ongoing investigations, but the fact that there are 20 ongoing cases is a sign the system is at work. It just takes time to investigate, so patience is required. “Take a case in Canada, that’s complex. Going through different provinces causes enough problems — take that and start crossing borders,” says Drayton, adding it can take six months to a year for authorities in other countries with which the RCMP has agreements to respond to requests for information. “Yes, we have investigations that are ongoing, there are some that are going to be rolling out and will be coming to an end where they will be going in front of the court system in the next few years. But you have to be patient with us, because it takes time to conduct these investigations.”

The OECD report noted the RCMP might not have enough resources to be aggressive, because officers of the task force are often reassigned to other duties. But Drayton says his task force has the necessary manpower to investigate, and just as the task force lends officers for other duties when they are needed, additional external RCMP teams also assist the foreign corruption task force when it requires extra help. Manpower is not an impediment, he says.

Drayton does point out the unit faces some problems. There is not a lot of reporting when it comes to this type of offence, for example, and the Canadian legislation is very short and can be hard to interpret during an investigation. “There is no jurisprudence on it, so it’s very difficult,” he says. Anita Anand, a professor at the University of Toronto Faculty of Law, agrees. “If you take a look at the [Canadian] legislation to see what its goals are you will see that the act itself is very, very short, one, maybe two pages long. There is no preamble, and there is no discussion in the statute as to what the objectives of this statute are.”

The Canadian legislation does point out the country’s commitments under the OECD convention it has ratified, which offers more details on the responsibilities for companies operating outside their home countries. But the expert panel noted that in addition to the Canadian law, which meets the country’s international obligations, many Canadian companies operating abroad are, or at least should be, mindful of U.S. and U.K. laws in this area, which affect Canadian companies in several ways.

The U.S. legislation, for example, has set the bar for quite some time, not only because it is more extensive than its Canadian counterpart, and recent amendments have made it even tougher, but because U.S. authorities have been very aggressive in enforcing it. And in addition to U.S.-based companies or foreign companies listed on U.S. exchanges, they have also enforced it on foreign companies that might have only remote ties to a U.S. jurisdiction. As such, it has become a guideline many Canadian companies simply can’t afford to ignore. “It does have an impact on us, everywhere we go,” says Scotiabank’s GC Alexander. “Around the world we go to highest common denominator, and that’s usually the U.S. legislation at the moment — what’s in the books in the U.K. will be a higher standard just in terms of its obligations. But the practical thing is you do not go around the world and ignore the U.S. legislation and its impact.” In fact, Scotiabank’s internal code on corruption and bribery of foreign officials is stricter than both the Canadian and U.S. legislation, because it prohibits “facilitation payments,” a grey area left open for small sums, goods, and services given to foreign officials to facilitate doing business overseas. That puts it in line with the recently adopted U.K. legislation. “There is a broad reach,” Anand says of the U.S. legislation. “But the U.K. legislation has an even broader reach.”

Anand is referring to the U.K. Bribery Act, which will affect Canadian companies that do business in the U.K. and beyond. It comes into force July 1 and is stricter than any other legislation of its kind in the U.S. and Canada.

Not everything is entirely clear about the U.K. legislation yet, but it will likely affect many Canadian companies. “If you have done business in the U.K. or have some connection to the EU, you need to be prepared for it,” says Gurinder J. Singh, a lawyer with Miller Canfield Paddock and Stone PLC. “Penalties are much higher in both the U.S. and U.K. acts than they are in the Canadian act.” That’s why the OECD report could have consequences for Canadian companies. It will be read in places like Washington, D.C., which takes an aggressive look at compliance with its own laws, often prosecuting companies that have only a tangential tie to the U.S., says Philip Urofsky, a partner at Shearman & Sterling LLP based in Washington, D.C., and London, England.

He says the OECD report saying Canada is not being tough enough on its own companies might mean U.S. authorities may decide to go after Canadian companies to make an example. “The U.S. is going to read the OECD report, and that’s what they are going to take out from that report,” says Urofsky, who is a former U.S. federal prosecutor. 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 apparent U.S. ties can be affected, says Urofsky. U.S. authorities have gone as far as claiming jurisdiction when there is an entirely circumstantial U.S. involvement such as the use of U.S. dollar transfers through U.S. correspondent bank accounts.

On the other hand, Anand says U.S. enforcement might be one of the reasons behind the low number of prosecutions in Canada, as this country might be getting a free ride with companies already complying out of fear of the U.S. legislation. “Canadian companies that are cross listed in the United States are likely caught up in the legislation relating to anti-bribery in that country, and so it may be the case that Canada is free riding on the legislation of other countries — the U.S. and the U.K. — and therefore not pursuing meritorious cases with vigour,” says Anand.

There are differences between the U.S. and Canada that can explain why the Americans seem to be much more active in this area. For one, they have had a law dealing with foreign bribery since the late 1970s, two decades before Canada. They also vigorously use the federal Securities and Exchange Commission to help authorities in exposing and persecuting bribery abroad.

In Canada there are problems with current regulations and the fact that there are 13 different securities commissions instead of a single national body. “You’ve got this thing in Canada called federal-provincial relations and you have a federal act — the anti-bribery law — and you have the provincial securities legislation,” says Anand. “We do have this door that might be opened, however, that is the national securities regulator — if you want to start lobbying, now is the time for what could become the federal securities act.”

The debate for the national securities regulator is still ongoing, and as this issue went to press, the Supreme Court of Canada was deliberating whether its establishment is constitutional. Courts in Alberta and Quebec had ruled it unconstitutional because it would allow the federal government to encroach on provincial powers.

At the end of the day, the golden rule for in-house counsel wanting to keep their companies safe while operating abroad is to be prepared, says John Keefe, a partner at Goodmans LLP. “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,” he says.

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