How Businesses Can Risk Manage the USMCA: Anti-Corruption

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Bennett Jones LLPThis is the third in a three-part series on new challenges for businesses presented by the USMCA from Canadian and Mexican perspectives. Part one looked at trade and customs and part two at labour.

On July 1, 2020, the successor free trade agreement to NAFTA entered into force in Canada, Mexico and the United States. The agreement is commonly referred to internationally as the USMCA; in Canada, we call it CUSMA and in Mexico it is called T-MEC. The agreement presents new challenges for businesses, especially in trade & customs, labour and anti-corruption standards.

These three areas were a particular focus for discussion at a webinar roundtable hosted recently by Bennett Jones and the Mexican law firm, Chevez Ruiz Zamarripa, where experienced practitioners shared their perspectives.

Here is a look at new or heightened risks in anti-corruption that Canadian companies face under USMCA and suggest some practical mitigation tactics.

New Anti-Corruption Chapter in USMCA

A new anti-corruption chapter is included in the USMCA, under which the parties undertake to ensure that their domestic laws and enforcement meet certain agreed standards. Of particular note are recent legal reforms in Mexico that have introduced a sweeping new anti-corruption statutory regime. The USMCA measures seek to align anti-corruption laws in all three signatory countries, which should make it easier to develop consistent compliance programs. However, gaps remain, such as the U.S. exemption for "facilitation payments" (payments to secure or expedite non-discretionary official actions of a routine nature) that does not exist under Canadian or Mexican laws.

To mitigate corruption and bribery risk, comprehensive and effective anti-corruption policies and practices are essential. Corporate anti-corruption programs should be risk-based and tailored to the operational realities of each specific company. Common international best practices for corporate anti-corruption compliance programs include:

  • Risk analysis
    • Review company practices to identify areas of risk for public or private corruption, such as business development, procurement, permitting, business licences and any areas of material regulatory oversight by government or quasi-government bodies.
    • Due diligence and compliance should be "right sized" to actual levels of risk.
    • The jurisdictions and sectors in which the company does business are relevant to risk assessment.
  • Employee training, reporting and non-retaliation
    • Easy to understand corporate policies and codes of conduct, written in plain language.
    • Multi-lingual handbooks, checklists, and guidelines, clear assignment of responsibilities, employee training (videos or in-person seminars), and periodic re-certification.
    • Reporting mechanism for employees to report suspected misconduct, ideally anonymous and multi-lingual, such as a whistleblower hotline.
    • Policy of non-retaliation against any personnel who report suspected violations in good faith.
  • Financial Controls & Internal Audit
    • Robust oversight measures, including regular oversight by accounting departments, internal audit and the board of directors.
  • Due diligence on and oversight of third-party intermediaries
    • Many instances of corporate corruption arise as the result of actions taken by third-party intermediaries, often without the direct knowledge or involvement of management. Actions or payments by an intermediary acting as an agent (e.g., distributors, salespersons, business development representatives, joint venture partners) can engage the liability of the principal.

The unprecedented economic shock brought by the COVID-19 pandemic coupled with increasing geopolitical tensions have increased the likelihood of rigorous enforcement actions by governments (and in the case of labour measures, potentially by competitors) under the USMCA. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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