Canada Moves to Strengthen Anti-Bribery Legislation

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On February 5, 2013, the government of Canada announced important amendments to the Corruption of Foreign Public Officials Act (CFPOA). It is expected that the amendments, which are being introduced in the Senate, will be enacted by Parliament in a relatively short time with all-Party support.

The proposed amendments include the following key elements:

  • Nationality jurisdiction for CFPOA offences, thus relieving the prosecution of the burden of proving a “real and substantial connection” with Canada;
  • Elimination of the facilitation payments exception;
  • Creation of a books and records offence;
  • Increasing the maximum penalty for individuals from five years to 14 years;
  • Exclusive authority for the RCMP to lay charges under the CFPOA; and
  • Clarifying the definition of “business” for the purposes of the bribery offence.

Nationality Jurisdiction

Criminal law enforcement in Canada, including the foreign bribery provisions of the CFPOA, is based on territorial jurisdiction. In order to convict, a court has to find that the offence had a “real and substantial connection” with Canada as established by the Supreme Court of Canada in R. v. Libman [1985] 2 S.C.R. 178. The amendments will make the CFPOA bribery offence one of the few Canadian criminal offences to depart from the territoriality principle and establish jurisdiction strictly on the basis of nationality. The nationality amendment will greatly facilitate the investigation and prosecution of CFPOA offences by relieving the Crown of the burden of proving a "real and substantial connection" between the offence and Canada and will also eliminate a source of considerable uncertainty in the potential application of the Act.

The practical effect of the nationality amendment will be that Canadian companies and individuals who become involved in the bribery of foreign public officials will be subject to Canadian law regardless of where the acts constituting the offence took place, and even if there is no connection with Canada other than their nationality. The amendment may also allow the RCMP to charge Canadian parent companies with CFPOA offences committed by their foreign subsidiaries.

Facilitation Payments

The CFPOA currently provides an exception for “facilitation payments”, namely, small payments made to a foreign public official for the purpose of securing the performance of administrative acts of a “routine nature” that are part of the official’s duties or functions. Examples given by the legislation include the issuance of permits and licences, processing of official documents like visas and work permits, provision of services provided by government like mail delivery, telecommunications, power and water supply and other similar activities. It is proposed that this exception will be eliminated at a future date to be set by Cabinet in order to give companies time to adapt their policies to the new rules.

While this is a significant amendment to the present legislation, it will be of limited impact for many companies who have implemented robust anti-corruption compliance policies. As a general rule, best practice dictates that facilitation payments be prohibited regardless of any available exceptions under the home country law since they are nevertheless bribes in the home country where they occur. By formally allowing facilitation payments in their compliance policies, companies are effectively admitting that they condone unlawful acts, thereby exposing themselves to increased penalties in the host jurisdiction should specific matters be discovered and prosecuted by the authorities in that country. The elimination of the exception from the CFPOA will provoke consistency in the implementation of compliance procedures.

It is noteworthy that the United States Foreign Corrupt Practices Act (FCPA) will continue to have a facilitation payments exception, thus applying different standards for many Canadian companies that are listed on U.S. stock exchanges or that have operations in the U.S. and therefore subject to the FCPA. As a practical matter, companies subject to both jurisdictions' laws will have to comply with the stricter jurisdiction in the relevant respects.

Books & Records Offence

The amendments will make it a separate offence for companies to conceal the bribery of foreign public officials in their record-keeping. The "books and records" offence is one of the most powerful enforcement tools available under the U.S. FCPA since it is applied as a matter of administrative law by the Securities and Exchange Commission and requires proof on a civil "balance of probabilities" evidentiary standard. It remains to be seen whether a criminal books and records offence requiring proof beyond a reasonable doubt will lead to more effective deterrence. Nevertheless, companies will be well served by strengthening their financial reporting procedures and internal controls.

Increased Penalties for Individual Offenders

The maximum penalty for individuals convicted of a bribery offence under the CFPOA will increase from five to 14 years imprisonment. This is a clear signal to courts that Parliament considers bribery of foreign public officials to be a serious matter requiring severe sanctions. It is to be expected that Canadian authorities will increase their resolve to pursue individual offenders in order to increase the stakes for corporate directors, officers and employees and thereby promote stronger commitments to compliance by boards and management.

Exclusive RCMP Authority to Lay CFPOA Charges

At the present time, charges under the CFPOA may be laid by any police force in Canada, including the RCMP, provincial and municipal police. Similarly, prosecutions can be pursued by federal or provincial Crowns. As a historical matter, recent prosecutions have been led by both provincial (Griffiths, Niko and Hydro Kleen) and federal Crowns (Karigar). The current overlapping jurisdiction greatly complicates strategies for disclosure and plea negotiations. As a result of recent administrative developments, the RCMP refers the prosecution of a vast majority of its cases to the federal Public Prosecution Service of Canada (PPSC). Conferring exclusive jurisdiction on the RCMP to lay CFPOA charges will facilitate a more streamlined enforcement process and will also lead to the establishment of expertise and institutional memory in anti-corruption matters at the RCMP and the PPSC.

Clarifying the Definition of Business

The CFPOA makes it an offence to offer, promise or pay anything of value to a foreign public official in order to obtain an advantage "in the course of business". The word "business" is defined in section 2 of the Act as meaning "any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere for profit" (emphasis added). The amendments will delete the words "for profit" thus making it clear that even business transactions that do not generate profit will still be caught by the CFPOA. This amendment is a direct result of criticisms of the CFPOA made by the OECD Anti-Bribery Working Group in its 2012 report on Canada's compliance with the 1997 OECD Convention on Combatting Bribery of Foreign Public Officials. The concern may well have been unfounded, since the legislation would likely have been interpreted by the courts to cover all business activities that are "for profit" in the longer term, even if a particular transaction is not profitable or pursued as a loss-leader or for promotional purposes.

One potential consequence of the amendment, perhaps unintended, is that the activities of not-for-profit entities like charities and development organizations may now be caught by the CFPOA. This is a particular concern with regard to the solicitation of facilitation payments by security forces and government officials in war zones and other crisis relief contexts. With the eventual elimination of the "facilitation payments" exception and the deletion of "for profit" in the definition of business, relief agencies may consequently be required to divert scarce resources to regulatory compliance rather than their core mission and may also be obstructed from carrying out urgent humanitarian relief. The government of Canada may wish to consider further clarification before this amendment is adopted by Parliament.

Conclusion

The proposed CFPOA amendments are one of the most substantial developments in Canadian anti-corruption enforcement since the passage of the Act in 1998. The establishment of the RCMP International Anti-Corruption Unit in 2007 and the rapid increase in investigations and prosecutions in the past three years (more than 35 matters according to the government's Backgrounder to the amendments) reinforces the need for Canadian companies carrying on business internationally to devote effort and resources to compliance with the CFPOA. The fines imposed in the Niko ($9.5 million) and Griffiths ($10.35 million) cases underscore the corporate risk of non-compliance. The increased individual penalties introduced by the amendments will further increase the stakes for individual directors, officers and employees.