Canada Cleans Up

For the last six years, Canada has ranked among the 10 least corrupt nations, according to Transparency International's Corruption Perceptions Index. So it came as a surprise to many when, in a March 2011 report, the Organization of Economic Development's Working Group on Bribery censured Canada for lackluster enforcement of its foreign anti-corruption law, the Corruption of Foreign Public Officials Act R.S.C. 1998, c. 34 (Can.) at SEC. 3(1) (hereinafter CFPOA). The report also cited four major weaknesses in the law itself. OECD Working Group on Bribery, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Canada at 5 (2011), http://tinyurl.com/lw9vtv7%20(hereinafter Canada Phase 3 Report).

Just two months later, Transparency International ranked Canada's anti-bribery enforcement in the bottom tier of all countries surveyed ' the worst of the G7 nations. See Transparency International, Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention at 6-7 (2011). Since then, the Canadian government has proposed amendments to the CFPOA to extend its reach and stiffen its penalties, handed down the largest monetary penalty to date in the history of Canadian anti-corruption enforcement, and increased the number of such investigations. Particularly given Canada's role as the United States' largest overall trading partner, and the potential for cross-border law enforcement cooperation, this new era of heightened Canadian anti-corruption enforcement is worth review.

The Impetus for Change: The March 2011 OECD Report & 2011 Transparency
International Progress Report

The CFPOA makes it a Canadian federal crime to bribe, directly or through a third party, a foreign public official “in order to obtain or retain an advantage in the course of business.” As currently enacted and interpreted, the CFPOA applies only to for-profit corporations or entities, and only when the transaction itself is for-profit. Department of Justice Canada, The Corruption of Foreign Public Officials Act ' A Guide at 5, 7-8 (May 1999), www.justice.gc.ca/eng/dept-min/pub/cfpoa-lcape/guide.pdf. Unlike its U.S. counterpart, the FCPA, the CFPOA does not contain a books and records offense, and its jurisdiction is limited to offenses in which “a significant portion of the activities constituting the offence … take place in Canada,” such that there is a “real and substantial link” with Canada. Id. at 7. The law also contains an exception to liability for facilitation payments. CFPOA at Sec. 3(4).

In its 2011 Report, the OECD identified five major flaws in Canada's existing anti-corruption legislation and enforcement: 1) the limited jurisdictional reach of the CFPOA left Canada unable to prosecute its nationals for violations that took place abroad; 2) in practice, the maximum penalty imposed to date had been too low to be “effective, proportionate, or dissuasive”; 3) the law is unclear as to whether nonprofit entities are covered; 4) considerations of comity, national economic interest, and the identity of the individuals involved could be considered in the decision whether to prosecute entities under the CFPOA; and 5) Canada had yet to commit sufficient resources to enforcement. Transparency International's 2011 Report echoed these themes and noted that, among signatories to the OECD Anti-Bribery Convention, Canada was the only one whose anti-bribery legislation did not provide for nationality jurisdiction. TI Progress Report 2011, note 2, supra at 6.

Recent Activity

In criticizing Canada's anti-corruption efforts, both the OECD and Transparency International reports cited the fact of only one conviction in the 12 years since the enactment of the CFPOA (Canada Phase 3 Report, note 1, supra at 5; R. v. Watts (2005) Aj. No. 568), with only one additional prosecution working its way through the courts. These criticisms did not fall on deaf ears. Since 2011, Canada has both proposed amendments to the CFPOA and beefed up its enforcement efforts.

Proposed Amendments to The CFPOA

On Feb. 5, 2013, the Canadian Government introduced a bill, S-14, to amend the CFPOA in significant respects. See Senate of Canada, Bill S-14, “An Act to amend the Corruption of Foreign Public Officials Act,” 1st Session, 41st Parliament, 60-61 Elizabeth II (2013). As presented to the Senate, these amendments include:

• Creation of a books and records offense punishable by a maximum of 14 years' imprisonment and unlimited fines;
• Expansion of the scope of the CFPOA to reach conduct committed by nationals abroad (nationality jurisdiction), regardless of where the misconduct took place;
• Eventual elimination of the exception for facilitation payments;
• Centralization of enforcement activity with the Royal Canadian Mounted Police (RCMP); and
• Expansion of the application of the CFPOA to nonprofit entities and transactions (in addition to for-profit entities and transactions).

The Bill has already been approved by the Canadian Senate and has now been presented for debate and amendment in the House of Commons, where its prospects for passage look bright.

Recent Cases and Investigations

Even before these potential amendments to the CFPOA were proposed, the RCMP, Canada's principal federal law enforcement agency, had already ramped up its enforcement activity.

Griffiths International Inc. ' Most significantly, on Jan. 22, Griffiths Energy International Inc., a Calgary-based junior oil and gas exploration firm, pleaded guilty to paying bribes in order to secure an oil and gas contract in Chad. Foreign Affairs and International Trade Canada Press Rel., Strengthening Canada's Fight Against Foreign Bribery (Feb. 5, 2013). Griffiths admitted that, in 2009, it offered to pay CDN$2 million to an entity wholly owned by the wife of the Chadian Ambassador to Canada, in the event Chad awarded Griffiths certain production sharing contracts in Chad. Jen Gerson, “Judge approves $10.35M fine for Griffiths Energy in Chad bribery case,” Financial Post (Jan. 25, 2013). Simultaneously with the offer, Griffiths also granted the Ambassador's wife and her nominees four million of Griffiths' shares. Griffiths was subsequently awarded the contracts, and the CDN$2 million in cash was paid.

As a result of its guilty plea, Griffiths will pay a penalty of CDN$10.35 million, the largest to date in a CFPOA case. Although this penalty is just 8% greater than the penalty imposed on Niko Resources (discussed below) for a bribe payment 10 times as large, Crown prosecutors credited Griffiths with conducting its own internal investigation into the matter and voluntarily bringing the bribery to the attention of the RCMP, despite no clear reward for doing so. This may signal the government's willingness to offer reduced punishment for companies that self-report and cooperate.

SNC-Lavalin Group Inc. ' In April 2012, the RCMP brought charges under the CFPOA against two former employees of engineering company SNC-Lavalin Group Inc., the culmination of an investigation into alleged payments by the company to a Bangladeshi official regarding a World Bank-funded bridge construction project in Bangladesh. Foreign Affairs and International Trade Canada, Thirteenth Annual Report to Parliament, Canada's Fight Against Foreign Bribery (Dec. 17, 2012); Samuel Rubenfeld, “Mounties Raid SNC-Lavalin Offices Again,” The Wall Street Journal (Apr. 13, 2012).

These charges followed the RCMP's March 2012 raid of the company's Montreal headquarters and its September 2011 raid on the company's Oakville, Ontario office. This past February, the investigation of the company expanded to include a probe of SNC's operations in Algeria, where SNC agents are suspected of paying more than CDN$200 million in potential bribes to help secure over CDN$1 billion in contracts. Greg MacArthur & Claudio Gatti, “SNC bribery probe widens to Algeria,” The Globe and Mail (Feb. 21, 2013). This past March, the company's difficulties mounted when Swiss authorities revealed an investigation into a former SNC executive suspected of bribing members of Moammar Ghadafi's regime in Libya. “Former SNC-Lavalin exec investigated for alleged bribery,” CBC News (Mar. 13, 2013).

Niko Resources ' In June 2011, Calgary-based oil and natural gas exploration company Niko Resources pleaded guilty to a CFPOA bribery charge. TI Progress Report 2012, note 11, supra at 40. The company admitted that it gave gifts totaling CDN$205,000 to Mosharraf Hossain, Bangladesh's Minister for Energy and Mineral Resources, after an explosion at a Niko drilling site in Bangladesh was determined to be the result of negligence. R. v. Niko Resources Ltd., [2012] A.W.L.D. 4565, ”23-26., 35-37, 55. The government imposed a CDN$9.5 million fine and ordered Niko to adopt a detailed anti-corruption compliance program that would be reviewed annually by an independent auditor who would report to the court, the RCMP, and the Governor General of Alberta.

As of 2012, Transparency International reported that the RCMP had in progress 34 investigations under the CFPOA, a number likely to increase if the amendments to the CFPOA pass. Between January 2011 and March 2012, the RCMP initiated at least 11 investigations, and possibly more.

Conclusion

If the proposed amendments to the CFPOA are enacted, Canada will have brought its foreign anti-bribery laws closer in line with those of the United States and the United Kingdom (though there are also meaningful differences between these laws). To the extent that a company subject to the Canadian regime, as it exists today or as it may exist in the future, already has in place an appropriate compliance program to address risks under U.S. and UK law, enhancement of the CFPOA should not be a major cause for concern. Companies can take further comfort from the fact that Canadian authorities, much like their neighbors to the south, appear receptive to and inclined to reward self-reporting by companies that do uncover and report possible CFPOA violations.

Nevertheless, the regulatory landscape in Canada is shifting. At the very least, companies should expect greater scrutiny from Canadian regulators.

Sean Hecker and Andrew Levine are partners and Jilan J. Kamal and Jia Wang are associates in the New York office of Debevoise & Plimpton LLP. They are members of the Litigation Department and White Collar Litigation Practice Group. The authors may be reached at [email protected], [email protected], [email protected], and [email protected].

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For the last six years, Canada has ranked among the 10 least corrupt nations, according to Transparency International's Corruption Perceptions Index. So it came as a surprise to many when, in a March 2011 report, the Organization of Economic Development's Working Group on Bribery censured Canada for lackluster enforcement of its foreign anti-corruption law, the Corruption of Foreign Public Officials Act R.S.C. 1998, c. 34 (Can.) at SEC. 3(1) (hereinafter CFPOA). The report also cited four major weaknesses in the law itself. OECD Working Group on Bribery, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Canada at 5 (2011), http://tinyurl.com/lw9vtv7%20(hereinafter Canada Phase 3 Report).

Just two months later, Transparency International ranked Canada's anti-bribery enforcement in the bottom tier of all countries surveyed ' the worst of the G7 nations. See Transparency International, Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention at 6-7 (2011). Since then, the Canadian government has proposed amendments to the CFPOA to extend its reach and stiffen its penalties, handed down the largest monetary penalty to date in the history of Canadian anti-corruption enforcement, and increased the number of such investigations. Particularly given Canada's role as the United States' largest overall trading partner, and the potential for cross-border law enforcement cooperation, this new era of heightened Canadian anti-corruption enforcement is worth review.

The Impetus for Change: The March 2011 OECD Report & 2011 Transparency
International Progress Report

The CFPOA makes it a Canadian federal crime to bribe, directly or through a third party, a foreign public official “in order to obtain or retain an advantage in the course of business.” As currently enacted and interpreted, the CFPOA applies only to for-profit corporations or entities, and only when the transaction itself is for-profit. Department of Justice Canada, The Corruption of Foreign Public Officials Act ' A Guide at 5, 7-8 (May 1999), www.justice.gc.ca/eng/dept-min/pub/cfpoa-lcape/guide.pdf. Unlike its U.S. counterpart, the FCPA, the CFPOA does not contain a books and records offense, and its jurisdiction is limited to offenses in which “a significant portion of the activities constituting the offence … take place in Canada,” such that there is a “real and substantial link” with Canada. Id. at 7. The law also contains an exception to liability for facilitation payments. CFPOA at Sec. 3(4).

In its 2011 Report, the OECD identified five major flaws in Canada's existing anti-corruption legislation and enforcement: 1) the limited jurisdictional reach of the CFPOA left Canada unable to prosecute its nationals for violations that took place abroad; 2) in practice, the maximum penalty imposed to date had been too low to be “effective, proportionate, or dissuasive”; 3) the law is unclear as to whether nonprofit entities are covered; 4) considerations of comity, national economic interest, and the identity of the individuals involved could be considered in the decision whether to prosecute entities under the CFPOA; and 5) Canada had yet to commit sufficient resources to enforcement. Transparency International's 2011 Report echoed these themes and noted that, among signatories to the OECD Anti-Bribery Convention, Canada was the only one whose anti-bribery legislation did not provide for nationality jurisdiction. TI Progress Report 2011, note 2, supra at 6.

Recent Activity

In criticizing Canada's anti-corruption efforts, both the OECD and Transparency International reports cited the fact of only one conviction in the 12 years since the enactment of the CFPOA (Canada Phase 3 Report, note 1, supra at 5; R. v. Watts (2005) Aj. No. 568), with only one additional prosecution working its way through the courts. These criticisms did not fall on deaf ears. Since 2011, Canada has both proposed amendments to the CFPOA and beefed up its enforcement efforts.

Proposed Amendments to The CFPOA

On Feb. 5, 2013, the Canadian Government introduced a bill, S-14, to amend the CFPOA in significant respects. See Senate of Canada, Bill S-14, “An Act to amend the Corruption of Foreign Public Officials Act,” 1st Session, 41st Parliament, 60-61 Elizabeth II (2013). As presented to the Senate, these amendments include:

• Creation of a books and records offense punishable by a maximum of 14 years' imprisonment and unlimited fines;
• Expansion of the scope of the CFPOA to reach conduct committed by nationals abroad (nationality jurisdiction), regardless of where the misconduct took place;
• Eventual elimination of the exception for facilitation payments;
• Centralization of enforcement activity with the Royal Canadian Mounted Police (RCMP); and
• Expansion of the application of the CFPOA to nonprofit entities and transactions (in addition to for-profit entities and transactions).

The Bill has already been approved by the Canadian Senate and has now been presented for debate and amendment in the House of Commons, where its prospects for passage look bright.

Recent Cases and Investigations

Even before these potential amendments to the CFPOA were proposed, the RCMP, Canada's principal federal law enforcement agency, had already ramped up its enforcement activity.

Griffiths International Inc. ' Most significantly, on Jan. 22, Griffiths Energy International Inc., a Calgary-based junior oil and gas exploration firm, pleaded guilty to paying bribes in order to secure an oil and gas contract in Chad. Foreign Affairs and International Trade Canada Press Rel., Strengthening Canada's Fight Against Foreign Bribery (Feb. 5, 2013). Griffiths admitted that, in 2009, it offered to pay CDN$2 million to an entity wholly owned by the wife of the Chadian Ambassador to Canada, in the event Chad awarded Griffiths certain production sharing contracts in Chad. Jen Gerson, “Judge approves $10.35M fine for Griffiths Energy in Chad bribery case,” Financial Post (Jan. 25, 2013). Simultaneously with the offer, Griffiths also granted the Ambassador's wife and her nominees four million of Griffiths' shares. Griffiths was subsequently awarded the contracts, and the CDN$2 million in cash was paid.

As a result of its guilty plea, Griffiths will pay a penalty of CDN$10.35 million, the largest to date in a CFPOA case. Although this penalty is just 8% greater than the penalty imposed on Niko Resources (discussed below) for a bribe payment 10 times as large, Crown prosecutors credited Griffiths with conducting its own internal investigation into the matter and voluntarily bringing the bribery to the attention of the RCMP, despite no clear reward for doing so. This may signal the government's willingness to offer reduced punishment for companies that self-report and cooperate.

SNC-Lavalin Group Inc. ' In April 2012, the RCMP brought charges under the CFPOA against two former employees of engineering company SNC-Lavalin Group Inc., the culmination of an investigation into alleged payments by the company to a Bangladeshi official regarding a World Bank-funded bridge construction project in Bangladesh. Foreign Affairs and International Trade Canada, Thirteenth Annual Report to Parliament, Canada's Fight Against Foreign Bribery (Dec. 17, 2012); Samuel Rubenfeld, “Mounties Raid SNC-Lavalin Offices Again,” The Wall Street Journal (Apr. 13, 2012).

These charges followed the RCMP's March 2012 raid of the company's Montreal headquarters and its September 2011 raid on the company's Oakville, Ontario office. This past February, the investigation of the company expanded to include a probe of SNC's operations in Algeria, where SNC agents are suspected of paying more than CDN$200 million in potential bribes to help secure over CDN$1 billion in contracts. Greg MacArthur & Claudio Gatti, “SNC bribery probe widens to Algeria,” The Globe and Mail (Feb. 21, 2013). This past March, the company's difficulties mounted when Swiss authorities revealed an investigation into a former SNC executive suspected of bribing members of Moammar Ghadafi's regime in Libya. “Former SNC-Lavalin exec investigated for alleged bribery,” CBC News (Mar. 13, 2013).

Niko Resources ' In June 2011, Calgary-based oil and natural gas exploration company Niko Resources pleaded guilty to a CFPOA bribery charge. TI Progress Report 2012, note 11, supra at 40. The company admitted that it gave gifts totaling CDN$205,000 to Mosharraf Hossain, Bangladesh's Minister for Energy and Mineral Resources, after an explosion at a Niko drilling site in Bangladesh was determined to be the result of negligence. R. v. Niko Resources Ltd., [2012] A.W.L.D. 4565, ”23-26., 35-37, 55. The government imposed a CDN$9.5 million fine and ordered Niko to adopt a detailed anti-corruption compliance program that would be reviewed annually by an independent auditor who would report to the court, the RCMP, and the Governor General of Alberta.

As of 2012, Transparency International reported that the RCMP had in progress 34 investigations under the CFPOA, a number likely to increase if the amendments to the CFPOA pass. Between January 2011 and March 2012, the RCMP initiated at least 11 investigations, and possibly more.

Conclusion

If the proposed amendments to the CFPOA are enacted, Canada will have brought its foreign anti-bribery laws closer in line with those of the United States and the United Kingdom (though there are also meaningful differences between these laws). To the extent that a company subject to the Canadian regime, as it exists today or as it may exist in the future, already has in place an appropriate compliance program to address risks under U.S. and UK law, enhancement of the CFPOA should not be a major cause for concern. Companies can take further comfort from the fact that Canadian authorities, much like their neighbors to the south, appear receptive to and inclined to reward self-reporting by companies that do uncover and report possible CFPOA violations.

Nevertheless, the regulatory landscape in Canada is shifting. At the very least, companies should expect greater scrutiny from Canadian regulators.

Sean Hecker and Andrew Levine are partners and Jilan J. Kamal and Jia Wang are associates in the New York office of Debevoise & Plimpton LLP. They are members of the Litigation Department and White Collar Litigation Practice Group. The authors may be reached at [email protected], [email protected], [email protected], and [email protected].

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