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The payoff of the internal investigation

Regulator and RCMP sniffing at your door? Find out what’s going on inside before the authorities do.
|Written By Jennifer Brown
The payoff of the internal investigation
: ‘I can’t speak highly enough of the value of an internal investigation,’ says Kristine Robidoux.

Conducting an internal investigation before the RCMP or regulators land on your doorstep could save your company big bucks even if it is guilty of foreign corruption practices.

“Transnational crime issues are becoming a bigger threat for Canadian companies as a tighter market means competitors are getting more vocal about the business practices of their competitors,” said Kristine Robidoux, a foreign corruption specialist with Gowling Lafleur Henderson LLP in Calgary. That means Canadian companies could be at a greater risk of being accused of foreign corruption practices, said Robidoux, who was speaking as part of a panel called “Government and Internal Investigations” at the Canadian Bar Association conference in Halifax Aug. 15.

In Canada, the Corruption of Foreign Public Officials Act has been around since 1998, but there’s only been one significant prosecution under the act — the case against Niko Resources Ltd., which this past June was hit with a $9.5-million fine for its actions in Bangladesh. The company admitted to providing a junior energy minister in Bangladesh with a luxury SUV and trips to New York and Calgary.

Robidoux acted as external counsel for Calgary-based Niko in 2009 when the company learned it was the subject of an RCMP investigation into their activities in Bangladesh. “The company could have chosen to sit back and wait for the regulators to come to the door and Mounties to come with a search warrant. In the area of international crime the Mounties don’t have a stellar reputation for really getting the job done; they have been criticized in the past and it was temping to say, ‘this isn’t going to go anywhere, it’s Bangladesh,’” said Robidoux.

Instead, after learning about the possible RCMP investigation, Niko’s audit committee authorized Gowlings to carry out an investigation so they could know in advance anything the RCMP was learning.

“It was definitely a distraction for the company for a period of time, and expensive, but everybody throughout the company, as well as the Crown prosecutor and the authorities we dealt with on the guilty plea, agree that but for the fact Niko went through the process they did, they wouldn’t have been dealt with as leniently as they were. It was a significant mitigating factor in their favour,” she said.

It still ended up costing Niko $9.5 million in penalties and three years corporate probation, but it was assured by the authorities it could have been considerably worse.

The investigation involved seizing computers with 10 terabytes of data that Robidoux said was “freeze dried” and kept in a secure data facility in Ontario. As the information from the investigation came to light, they were able to go back and trace what were potential improper payments.

“When we were faced with the Crown’s disclosure we were able to respond to it very quickly and ended up making a very good deal for the company. I can’t speak highly enough of the value of an internal investigation,” she said.

So what advice would Robidoux give to other companies in the same situation? Mobilize quickly to conduct an investigation and have protocols in place. “Start by classifying the types of violations you might see. Assess the risk, look at the types of violation that could occur in your industry.”

Once risk levels are assessed, you can determine how your company would deal with allegations of wrongdoing.

Investigation of foreign corruption brings multiple challenges, she noted. “You’re often dealing with different jurisdictions, languages, and statutes as well as cultural traditions. Often these kinds of payments are seen as the norm and the way to conduct business.

“We’ve conducted investigations where the bribe was literally the envelope of cash, but in contrast to that we spent a good part of last year in Russia on an investigation and it’s extremely sophisticated there. Everything is papered once, twice, three times, and there are contracts for the contract and invoices coming out of their ears,” she says. “The trick is to get in behind some of that seemingly legitimate paperwork.”

In addition to the Corruption of Foreign Public Officials Act, there are other concerns for Canadian companies doing business abroad. The Foreign Corrupt Practices Act in the United States is better known and enforcement under that act “can only be called aggressive if not rabid,” according to Robidoux.

“You don’t have to be U.S.-listed, you don’t have to have a U.S. office, or Americans employed by your company to potentially trigger the application of that statute. That tends to scare the pants off a lot of our clients when we explain the very tenuous jurisdictional nexus that is at times necessary,” she said.

Add to that the United Kingdom’s Bribery Act passed July 1, 2011, which is even broader in jurisdiction than the FCPA.

During the panel discussion Robidoux was asked about the concept of “facilitating payments” as a defence.

Facilitating payments, she said, are permitted in Canada but cautions they are “fraught with danger.” They differ from a bribe in that a bribe is used to win influence where facilitating payments are used to “grease” or expedite a routine administrative function.

An example is getting a visa processed upon arrival in a foreign country. “It can happen in seven hours or for US$50 they could do it right now. It’s permitted in Canada, the U.S., and three other countries including South Korea, Australia, and New Zealand. In every other country facilitating payments are not legal.

“Companies in Canada and the U.S. have a real dilemma because if as a matter of corporate policy you are making facilitating payments then you’re condoning the violation of local law. In Mexico it is not legal,” she said.

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