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Cracking down on corruption

|Written By Jim Middlemiss
Cracking down on corruption

Primero Mining Corp. is a young Canadian company cashing in on the global demand for precious metals by digging for gold and silver in Mexico. “We’re going through a growth period,” says Maura Lendon, vice president and chief general counsel at the company, which was launched in 2007.

Like any company that’s growing internationally, Lendon faces the challenge of ensuring Primero complies with the expanding regime of anti-corruption laws that governments around the world are rolling out. “Growing from a smaller company to a bigger company, that in itself is a trigger to review policies and processes to ensure they support continuing compliance,” explains Lendon. “Naturally, legislative change also factors into our initiatives to update and enhance our compliance processes.”

The latest federal government legislative change she has to contend with includes amendments to the Corruption of Foreign Public Officials Act. The amendments include:

• Create a new books and offences record to prevent companies from trying to hide bribes.

• Stiffen penalties to a maximum of 14 years from five and eliminate conditional sentences or discharges.

• Make it easier for police to prosecute bribes that happen outside of Canada.

• Make facilitation payments illegal (that part of the legislation isn’t in force yet).

• Extend the act to cover non-profit organizations.

Canada tightens anti-corruption laws

Lawyers say the amendments bring Canada in line with similar U.S. and U.K. laws and address criticisms Canada faced from the Organisation for Economic Co-Operation and Development that it was soft on corruption.

John Keefe, a litigator at Goodmans LLP, says “the amendments serve to update the legislation and bring it more in line with what the international community is expecting of Canada.”

Corruption has been headline news in Canada of late with a number of high-profile cases taking centre stage. The one that shook Bay Street the most and sent shivers through corporate boardrooms involves SNC-Lavalin. The global engineering giant saw its former CEO, Pierre Duhaime, arrested by Quebec’s anti-corruption squad on fraud charges related to hospital construction in that province. Its former head of construction, Riadh Ben Aissa, was arrested in Switzerland on charges related to money laundering and corruption in dealings within North Africa. He has also been caught up in the Quebec probe.

In a recent column in The Globe and Mail, noted businessman Gwyn Morgan, who was SNC’s chairman during the time, said the 16 months after the company “learned of two large payments made by SNC-Lavalin under so-called ‘agency agreements’ whose documentation was tied to construction projects that did not exist” were the “most disturbing and challenging of my four-decade career in business.”

But SNC is not the only Canadian poster child for allegedly corrupt practices. During the lead up to Griffiths Energy International Inc.’s initial public offering, management learned about a $2-million bribe paid to the wife of an ambassador to land, oil, and gas concessions in Chad. The Calgary company, now renamed Caracal Energy Inc., reported the incident and pleaded guilty to charges under CFPOA. In January of this year, it paid a $10.35-million fine, the highest ever

under Canadian bribery law.

In 2011, Niko Resources Ltd., also of Calgary, paid a $9.5-million fine for bribing a Bangladeshi government minister with free trips and a luxury vehicle after a blowout at one of its wells in that country.

More recently, in August this year, the Ontario Superior Court convicted Nazir Karigar, an agent for Cryptometrics Canada, an Ottawa-based technology company, for agreeing to bribe a foreign official under the CFPOA. It’s the first prosecution to have proceeded to trial involving an individual.

With more than 30 active investigations underway by the RCMP team tasked with rooting out corruption by Canadian companies, lawyers expect more cases will be hitting the courts. Goodman’s Keefe says general counsel need to have a compliance and education program in place “and if they do not they should be taking steps immediately to do so because there are going to be a lot more investigations in Canada.”

Attitudes changing

Kristine Robidoux, a lawyer at Gowlings LLP who began specializing in corruption and business ethics in 2005 when she saw enforcement in the U.S. step up and expected that to “trickle north,” says directors initially looked at her like she had “three heads.”

“I can’t tell you how different that is now,” says Robidoux, who led the team that marshaled Griffiths through its investigation and disclosure.  She also defended Niko. “It really has changed,” she says, noting directors at private and public companies are taking corruption seriously.

Primero’s Lendon notes “when people on boards see potential jail term for 14 years, it gets their attention.” 

While Canada’s law has been in place since 1999, Robidoux says “historically Canada has not prosecuted this kind of activity.” That is quickly changing due to a number of factors, such as the OECD focus on anti-corruption and the increasingly global nature of the economy.

The RCMP now have exclusive jurisdiction for laying charges and Robidoux says the division responsible is “well funded,” becoming “increasingly specialized,” and is developing “expertise, knowledge, and investigative techniques” to address corruption.

For companies that already operate globally or are inter-listed on U.S. exchanges, the heightened focus on anti-corruption won’t change much, since they have already been dealing with foreign bribery laws, often under the U.S. Foreign Corrupt Practices Act or the U.K. Bribery Act, which is considered the gold standard among bribery laws.

“Those of us who are in global organizations have been ahead of the game. We have been dealing with corruption legislation in other jurisdictions,” notes Christa Wessel, chief human resources and legal officer with McCain Foods Ltd. in Toronto.

However, for privately held companies and those expanding globally, it’s putting pressure on them to develop more comprehensive anti-corruption policies and programs and forcing general counsel to more closely examine company practices and develop an understanding of what constitutes corruption.

For example, one of the interesting points about the CFPOA amendments is Canada has elected to follow the U.K. and eventually eliminate facilitation payments; however, our largest trading partner, the U.S., has not.

That worries John Boscariol, head of the international trade and investment law group at McCarthy Tétrault LLP. “It is causing a lot of concern among Canadian companies that do business in jurisdictions where facilitation payments are normally required to do business.” He said in some countries, such as Africa, facilitation payments “happen all the time.” It could be something as innocuous as paying to exit a country or get a passport back or to speed up the clearance of goods across a border. “I hope the government will not eliminate this exception, while the U.S. companies can still benefit.”

However, a number of Canadian companies already ban facilitation payments. Daniel Desjardins, senior vice president and general counsel at Bombardier Inc., says Canada is catching up to what the U.K. does. Desjardins, who has a 175-lawyer department spread across 17 jurisdictions, said the focus by governments on anti-corruption laws is good for businesses and “levels the playing field for everybody.”

“It’s a fact of life. You have to conduct your business in the proper way. The U.K. Bribery Act raised the bar for all of us.”

Diane Pettie, vice president and general counsel at Canexus Corp., which has a plant in Brazil, says “when you have foreign operations, you need to be aware of these issues and that everyone understands what the laws are and the proper behaviours.”

Building a compliance program

There is no shortage of information for in-house lawyers looking to create a new anti-corruption compliance program or tinker with an existing one. Legal and business advisory firms have swamped the Internet with information on how to build compliance programs.

First, it starts with a proper risk assessment. Each company will be different, says McCain’s Wessel. “It depends on your business model.”

Some companies, like food or financial services, will have more regulatory risk while others, such as construction or engineering, will be more involved in bids trying to win business, as opposed to winning over consumers.

“My philosophy is to keep it as simple and straightforward as possible and raise the bar to the highest common denominator,” Wessel says.

Tone at the top

Lawyers who have implemented anti-corruption compliance programs say to be successful management must be fully on board. “You have to have a clear and

consistent tone from the top on what you will and won’t tolerate,” says Wessel.

Desjardins agrees. “It’s about culture and the tone from the top more than anything else.”

He likens today’s focus on anti-corruption to the Sarbanes-Oxley reforms following the corporate and accounting scandals of the late 1990s involving Enron Corp. and WorldCom, among others. “It makes us a better and more efficient company.”

Education and training

But developing a corruption compliance plan is only half of the solution. Ensuring training and education among staff, suppliers, and contractors is critical to avoiding trouble.

Robert Rooney, executive vice president and general counsel of Talisman Energy Inc., says “hands down, the most important thing for general counsel is to get out there and talk about this. So often the focus of the company is on enacting a policy.

“It’s not enough to have a policy buried on the corporate extranet. You have to make sure they understand it.”

Manage cultural issues

Managing cultural issues is also key to implementation. In jurisdictions where bribery has been an accepted part of doing business, educating staff is crucial.

Lendon says, “I think carrying on business in other jurisdictions compels you not to just pay attention to applicable laws, but the culture. You need to take that into consideration in your compliance program. There is a cultural aspect you really have to pay attention to in training.”

Beware of agents

When it comes to corruption, one of the biggest danger zones involves agents. Robidoux notes companies hire agents to help them open new markets, get licences, and understand the political environment. “They know the right people, that’s why you need them. That’s what makes them dangerous. How are they getting you that meeting with a minister?” 

Rooney says “getting out there and training your people, including your agents, is where the real smart money is.”

It means making sure your contracts and policies with agents make it clear your company does not condone bribes. Pettie says her firm has a supplier code of conduct for vendors and agents that sets out “what they are expected to do,” and there are standard clauses in contracts that require them to comply with anti-corruption laws.

She also receives regular reports about things like political donations. If an agent or vendor is making a big payment on behalf of the company, “you need to make sure you know what the money is going to be spent on.”

Pettie encourages general counsel to build “due diligence defences that will protect your company” if it is charged, which includes proper monitoring, audits, and the ability to track who has been trained.

A recent U.S. case involving a Morgan Stanley employee charged under the U.S. FCPA with conspiring to evade the company’s internal accounting controls in order to enrich himself and a Chinese public official stresses the importance of a proper compliance program.

The Department of Justice declined to charge Morgan Stanley, which voluntarily disclosed the incident upon learning about it. The firm was able to show that it regularly updated its anti-corruption policies, had trained the employee seven times and reminded him 35 times about FCPA, and had regular monitoring and auditing.

McCain’s Wessel warns, “It doesn’t matter how tight your compliance is, a rogue employee who wants to participate in corruption will find a way. The key is for you to find out about it and stop it.”

Lawyers say anti-corruption compliance programs are necessary not only to avoid charges, but because the lack of one could impact future business deals. Anti-corruption audits are becoming standard fare in the due diligence process during mergers and acquisitions Keefe says successor liability for the past transgressions means suitors want to know a company is complying with anti-corruption laws. Lack of a program will hold up deals or even prevent a bank from financing an acquisition. “One of these little time bombs inside your organization” can kill a deal, he says.

Even with proper programs in place lawyers still worry.

Wessel says “what keeps me awake at night is always questioning whether we are responding appropriately to concerns that have been raised. Corporations have many ways that things get flagged or are drawn to management’s attention. It’s rarely black and white. Initial information is always limited. So you have to make a decision what you do with that information. You have to ask, have we assessed the risk appropriately?”

Lendon adds, “What keeps me awake is making sure that people understand what corruption is. It’s not simple. In a lot of situations that come up, it is not immediately evident that it could be an offensive situation. It is sometimes hard to recognize and that’s why training is important.”

Bribery: A Growing Problem

Bribery is a growing problem, according to Transparency International, a global organization that tracks corruption.

The 2013 Global Corruption Barometer, a survey of 104,000 people from 107 countries, found 27 per cent of people reported paying a bribe and 53 per cent say corruption has increased in the past two years. Only 18 per cent believe it has decreased.

The police and judiciary were cited as the two services most bribe prone; utilities and taxes were least.

According to its 2011 Bribery Index, companies from the Netherlands, Switzerland, and Belgium were least likely to engage in bribery, while companies from Russia, China, and Mexico were most likely to offer bribes, according to executives it surveyed.

The organization noted the Bribery Index scores have remained relatively the same since it started the survey in 1999. Canada currently ranks sixth as the country where its corporations are least likely to bribe; however, its score declined from 2008, where it ranked first.

According to Transparency International’s 2012 Corruptions Perception Index, which examined 176 countries, Afghanistan, Korea, and Somalia were perceived to have the most corrupt public sector. However, many countries where Canadian companies do business scored poorly, including many South American countries where mining firms operate, most African countries, and Russia and the surrounding regions.

Denmark, Finland, and New Zealand were perceived as having the least corrupt public sector. Canada ranked 9th, tied with Netherlands, but ranked higher than the U.K. or U.S. — JM


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