The United States-Mexico-Canada Agreement (“USMCA”) went into effect on July 1 of 2020[1] Unlike its predecessor the North American Free Trade Agreement (“NAFTA”), the USMCA includes an article on anti-corruption, contained in Chapter 27. However, although novel, Chapter 27 is expected to have a minimal impact on the status quo. The United States, Canada, and Mexico already have anti-corruption statutes in effect that cover most, if not all, of the provisions in Chapter 27. Moreover, Chapter 27 largely mirrors the anti-corruption measures in the Trans-Pacific Partnership (“TPP”),[2] to which Canada and Mexico are members, and the Organization for Economic Cooperation and Development’s 1997 Anti-Bribery Convention,[3] which the United States, Canada, and Mexico have adopted.
Nevertheless, private industry should familiarize itself with the terms of Chapter 27. President Biden has stated that “combating corruption” is a “core national security interest.”[4] Moreover, Foreign Corrupt Practices Act (“FCPA”) enforcement actions increased after the great recession 2008.[5] A similar enforcement spike may occur in the midst of the coronavirus economic downturn.
Chapter 27 can be broken down into three parts: legislative proposals, non-legislative measures designed to promote anti-corruption, and dispute resolution mechanisms.
Proposed Legislative Measures
In Chapter 27.3, each Party promises to “adopt or maintain” three pieces of legislation related to anti-corruption:
- Criminal offenses prohibiting offering a bribe to a public official or a foreign public official; public officials from accepting or soliciting a bribe; and aiding or abetting such activity. Chapter 27.3.1.
- Criminal offenses prohibiting public officials from embezzling public or private funds entrusted to them by virtue of their positions. Chapter. 27.3.2.
- “Bookkeeping measures designed to prevent the bribery and embezzlement offenses described in 27.3.1 and 27.3.2. These bookkeeping measures must prohibit: “the establishment of off the books accounts;” “the making of off-the-books or inadequately identified transactions;” “the recording of non-existent expenditure[s];” “the entry of liability’s with incorrect identification of their objects;” “the use of false documents;” and “the intentional destruction of bookkeeping documents earlier than foreseen by law.” Chapter 27.3.6.
For the most part, the behavior described in 27.3.1, 27.3.2, and 27.3.6 are already covered by existing law. The FCPA, Canadian Corruption of Foreign Public Officials Act (“CFPOA”) and the Mexican Federal Penal Code all prohibit bribing foreign public officials.[6] Similarly, U.S., Canadian, and Mexican law all prohibit embezzlement and bribery of domestic officials.[7] And both the FCPA and the CFPOA contain bookkeeping provisions designed to prohibit corrupt payments to foreign officials.[8] In fact, the USMCA’s bookkeeping provision is seemingly tailored to fit with the bookkeeping provisions in the FCPA, because “for the United States” the USMCA’s provisions apply only to “issuers that have a class of securities registered pursuant to 15 U.S.C. § 781” or are required to file reports under 15 U.S.C. § 78o(d).[9]
That said, there are some potential differences between the USMCA and the FCPA, which may require Congress to slightly revise the FCPA. First, the USMCA does not contain an exception for facilitating or expediting payments made to foreign officials for routine government action, which are permitted under the FCPA in certain situations.[10] Second, the USMCA does not contain a carve out for bribes permitted under foreign law, unlike the FCPA and the TPP.[11]
In addition, the USMCA provides several factors that a government should consider when determining if a business qualifies as a “public enterprise”[12] —i.e., an “enterprise over which a government. . . may directly or indirectly, exercise a dominant influence.”[13] For example, the USMCA explains that a business may be a public enterprise if the government “hold[s] the majority of the enterprise’s subscribed capital, control[s] the majority of votes attaching to shares issued by the enterprise, or can appoint a majority of the members of the enterprises administrative or managerial body or supervisory board.”[14] These factors, which are non-exhaustive, may give additional insight into what constitutes an “instrumentality” of a foreign government under the FCPA.
Non-Legislative Measures to Promote Anti-Corruption
The USMCA also sets forth provisions designed to promote anti-corruption in both the public and private sectors. As to the public sector, each Party promised to adopt training and procedural measures designed to reduce corruption.[15] These include, for example, requirements that senior public officials disclose outside activities and investments that may constitute a conflict of interest,[16] and the adoption of “codes or standards of conduct for the correct . . . performance of public functions.”[17] The Parties also agreed, to the extent consistent with their legal systems, to establish punishments for public officials accused of violating the bribery provisions in 27.3.1.[18]
As to the private sector, among other things, the Parties made the non-binding promise to “endeavor” to “encourage” private entities to: (1) enact or maintain “sufficient internal auditing controls to assist in preventing” the offenses described in 27.3.1 and 27.3.6; and (2) “ensure their accounts and required financial statements” are subject to auditing and certification procedures.[19] The Parties also agreed to take appropriate measures to promote “active participation of individuals and groups outside the public sector” “in preventing and combatting corruption,” by for example, undertaking public information campaigns related to anti-corruption.[20]
Enforcement and Dispute Settlement Provisions:
Under Chapter 27.6, each Party promises to enforce its anti-corruption measures adopted or maintained under the chapter, but also retained the rights to “exercise discretion” over enforcement actions.[21] In a notable departure from other anti-corruption agreements, Chapter 27 also provides that the Parties may bring a claim, subject to the USMCA’s dispute resolution procedures, against another party for failing to carry out their obligations under Chapter 27.[22] However, “[n]o Party shall have recourse to dispute settlement . . . for a matter arising under [Chapter 27.6] . . .”[23] Thus, the dispute resolution procedure seems limited to situations where a Party has failed to “adopt or maintain” the bribery, embezzlement, and bookkeeping provision in 27.3.
Finally, Chapter 27 is unlikely to have any major impact on current American anti-corruption laws. However, the mere existence of an anti-corruption chapter in the USMCA—including a specific provision encouraging private enterprise to adopt “internal auditing controls”—should be a warning sign to private industry. If your business does not already have FCPA compliance program, it should consider putting one together.
Note:
[1] United States – Mexico – Canada Agreement, Office of the U.S. Trade Rep., https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement. [back]
[2]See Trans-Pacific Partnership, Ch. 26;[back]
[3]See Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, art. 1, 8.[back]
[4]Joseph R. Biden, Why America Must Lead Again, Foreign Affairs (March 2020) (“As a summit commitment of the United States, I will issue a presidential policy directive that establishes combating corruption as a core national security interest and democratic responsibility, and I will lead efforts internationally to bring transparency to the global financial system. . . .”), https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again. [back]
[5]Foreign Corrupt Practices Act Clearinghouse, Stanford Law School, http://fcpa.stanford.edu/statistics-analytics.html[back]
[6]15 U.S.C. §§ 78dd-1(a), 78dd-2(a); Corruption of Foreign Public Officials Act, S.C. 1998, c. 34, § 3 (Can.); CPF art. 222 bis (Mex.). [back]
[7]18 U.S.C. § 201; 18 U.S.C. § 666(a)(1)(A); Criminal Code, R.S.C., 1985, c. C-46, §§ 120, 322 (Can.); CPF art. 222, 223 (Mex.). [back]
[8]15 U.S.C. § 78m(b)(2)(A); Corruption of Foreign Public Officials Act, S.C. 1998, c. 34, § 4 (Can.). [back]
[9]USMCA Ch. 27.3.6 n. 4. [back]
[10]Cf. 15 U.S.C. §§ 78dd-1(b), 78dd-2(b) with USMCA Ch. 27.3. [back]
[11]Cf. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and Trans-Pacific Partnership, Ch. 26.7.1(c) n.5 with USMCA Ch. 27.3[back]
[12]USMCA Ch. 27.1 n.1[back]
[13]USMCA Ch. 27.1.[back]
[14]Id. [back]
[15]Id. Ch. 27.4. [back]
[16]Id. Ch. 27.4.1(d). [back]
[17]Id. Ch. 27.4.2. [back]
[18]Id. Ch. 27.4.3[back]
[19]Id. Ch.27.5.2. [back]
[20]Id. Ch. 27.5.1.[back]
[21]Id. Ch. 27.6. [back]
[22]Id. Ch. 27.8. [back]
[23]Id .Ch. 27.8.2. [back]
