Brave new world or emperor’s new clothes?

Brave new world or emperor’s new clothes?

There is no shortage of voices telling corporations in Canada that a new dawn of anti-bribery enforcement has arrived. In support of this claim, many cite a fairly recent flurry of activity from the two RCMP international anti-corruption teams set up in 2008 to lead Canada’s international anti- bribery efforts (one in Calgary, the other in Ottawa). But are Canadian businesses really facing a brave new world of anti-bribery enforcement, or is there nothing of substance covering an embarrassing reality for Canada’s law-enforcers?

The state of enforcement in Canada

In March 2011, a working group appointed by the Organization for Economic Co-operation and Development reported on the state of Canada’s compliance with OECD anti-bribery standards. It was hardly fulsome in its praise for Canada’s efforts, and identified a number of deficiencies in Canada’s anti-bribery regime. However, the working group did note the RCMP’s international anti-corruption teams reported having over 20 active investigations (the most recent reports suggest the current total is around 23), and Canada boldly assured the working group it now “stands by to vigorously enforce the Corruption of Foreign Public Officials Act.” So, despite the deficiencies in Canada’s regime, should Canadian companies expect a tide of activity on the enforcement front?

The CFPOA, which makes bribery of foreign public officials a criminal offence in Canada, has been in force since 1999. It stood largely unused, collecting dust on the shelves, for the first 10 years of its life. However, recent efforts by the RCMP anti-corruption teams lend some weight to the claims Canada is now ready to root out and punish bribery. An opening salvo was fired by the RCMP in 2011, when Calgary-based Niko Resources Inc. plead guilty to CFPOA charges and was handed a $9,499,000 fine (including a “victim surcharge”) and an order requiring it to submit to a robust ongoing compliance monitoring regime.

Other CFPOA cases are proceeding: Canadian businessman Nazir Karigar is currently standing trial in Ottawa on CFPOA charges; earlier this year, two former SNC Lavalin executives were charged under the act; and the RCMP have executed high-profile raids on the offices of a few major corporations.

Yet it is possible to argue these cases are not the opening salvos in a war on corruption, but instead are the rather deflating sum total of Canada’s efforts to tackle bribery of foreign officials. Indeed, it is noteworthy that the OECD working group expressed doubts in its report as to whether Canada had allocated sufficient resources in the form of investigators and prosecutors to handle its apparent case load.

In fairness to the RCMP, the investigation of foreign corruption cases takes time, and cases are typically complex. As such, increased efforts to tackle foreign bribery cases may not be felt for another year or two, and criticism should perhaps be tempered for now. However, foreign corruption cases require more than just time; they require substantial resources too. As such, it may very well be that we do not see the wave of foreign corruption cases predicted by many until greater resources are allocated to anti-bribery initiatives. Yet even if resources are strained under the sheer weight of the task, there are ways to make the limited existing resources count.

Room for improvement: how more can be done under Canada’s existing laws

An obvious strategy is for the RCMP and prosecution agencies to establish a comprehensive regime for self-reporting bribery, with the aim of resolving matters quickly by plea agreement. The U.S. and U.K. authorities have put self-reporting schemes in place to give corporations a degree of confidence that confessing their sins will usually result in leniency (though the comfort in the U.K. has been tempered recently by revised guidance issued by the U.K.’s Serious Fraud Office).

Canadian authorities are yet to provide the same “carrot” to businesses operating within their jurisdiction, so Canadian companies that uncover a potential CFPOA violation may feel they have less of an incentive to self-report than their counterparts who may face prosecution in the U.S. or the U.K.

In addition to the “carrot,” the “stick” can also be used. In particular, self-reporting might be encouraged by a clear statement of intent from the RCMP and prosecutors that, wherever possible, they will deploy Criminal Code money laundering offences in cases where executives find out about bribery within their businesses after the fact, but choose not to disclose it and fail to take proper steps to deal with the fruits of the bribe. The prospect of money laundering charges could prove a powerful incentive for directors and senior officers to report any discoveries of corruption, especially where they were not personally involved in the apparently corrupt aspect of a transaction. Thus far, however, the strategic value of money laundering charges in an anti-corruption regime appears underutilized by Canada’s law enforcers.

There is a great deal more that can be done without fundamentally altering the CFPOA. Continued international pressure will likely be applied to Canada to take anti-bribery enforcement further, and it will be interesting to see whether that pressure results in substantial reform of the existing framework, or instead simply a more creative use of the current regime — or perhaps neither.

The application of foreign anti-corruption laws

It is important to bear in mind that Canadian companies may have to consider more than just the law of Canada when addressing corruption issues.

Clearly, companies dealing in other parts of the world need to know the legal regime in which they are operating. Despite the oft-quoted claims of “cultural norms” in foreign lands, bribery is illegal almost everywhere, and it pays to do your homework on the legal and social environment in which you operate.

There are two foreign regimes that, above all others, receive significant attention in the anti-corruption landscape: the U.K., with its brand new and incredibly broad Bribery Act; and the U.S., with its vigorous enforcement of the Foreign Corrupt Practices Act.

The U.K.

The U.K. Bribery Act, in effect as of July 2011, prohibits both public and private sector bribery. It also includes a strict liability corporate offence of “failing to prevent” bribery. Most significantly, at least for Canadian companies, the act captures conduct by non-U.K. entities, by giving U.K. authorities jurisdiction over acts by an alleged offender who has a “relevant commercial organization” with the U.K., regardless of where the impugned act takes place. The term ““relevant commercial organization” is open to potentially wide interpretation by the courts, so caution is the best approach until case law specifically addresses this question.

The U.K. authorities have also shown an appetite to use relatively stringent U.K. money laundering laws as a powerful adjunct to the “pure” anti-bribery laws. Indeed, most of the successful foreign bribery cases run by the U.K. Serious Fraud Office have relied on these money laundering laws, including their civil recovery provisions, rather than direct reliance on the Bribery Act or its predecessor legislation. That said, it is likely the SFO will be keen to demonstrate the effectiveness of the Bribery Act in first few years of its life: businesses should expect concerted efforts by the SFO to deploy the new corporate “failing to prevent” offence at the first available opportunity.

The U.S.

The American Foreign Corrupt Practices Act continues to be vigorously enforced by the Department of Justice and by the Securities Exchange Commission. The interest of these enforcement bodies has been captured even where the connection to the U.S. might appear to some as tenuous. The fines handed out to corporations prosecuted under the FCPA have been, at times, eye-watering, and the resources of the DOJ and SEC have been applied extremely effectively towards producing substantial — and often dramatic — results.

In addition, to compound the fears of Canadian companies that might be exposed to bribery risks, certain newly implemented provisions of the Dodd-Frank Act provide vast incentives to individuals to act as whistleblowers on potential corruption matters.

Other newly -introduced provisions of the Dodd-Frank Act have added another weapon into the U.S. anti-corruption armoury: robust, mandatory, and wide-ranging “revenue transparency” rules. The thrust of these rules is to require extractive sector businesses to disclose details of any payments they make to the U.S. or foreign governments. Notably, considerable momentum is gathering in Canada and the European Union for the adoption of similar rules.

Perhaps the advent of powerful, mandatory “revenue transparency” rules provide an appropriate conclusion to this discussion. It is quite possible that such rules may well represent a cornerstone of anti-corruption efforts in the future. Indeed, if one accepts the view of the renowned U.S. Supreme Court Justice Louis Brandeis that “sunlight is the best disinfectant,” mandatory revenue transparency rules may ultimately achieve what limited enforcement of the Canadian legislation has failed to: providing a powerful disincentive to those who might be prone to over-enthusiasm in “greasing the wheels” to secure business advantages overseas.

Anthony J. Cole is an Alberta lawyer and solicitor of the senior courts of England and Wales, experienced in civil fraud litigation and asset recovery, as well as matters involving bribery and corruption of foreign public officials. Christine E. Silverberg, an accomplished chief executive and lawyer whose career in policing and public safety spanned 30 years in both eastern and western Canada, retired in the fall of 2000 after a five-year term as Chief of the Calgary Police Service. Silverberg & Cole are litigators together in Calgary, Alberta.

Correction: A date and the words “close connection” have now been changed to “relevant commercial organization.”

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