Canada’s ranking by the OECD is in sharp contrast to the US, which, along with Germany, Norway, and Switzerland, received a top ranking of “active enforcement”. This recognition of the US is supported by 37 Foreign Corrupt Practices Act (FCPA) and foreign bribery-related resolutions, with fines totalling over CA$1.5 billion in the past 6 years.1 Since 2004, 81 individuals have been charged in the US with FCPA violations and related offences.2
Why does there appear to be such as gap between Canada and its closest neighbour? It has been argued that there historically have been fewer resources dedicated to foreign corruption enforcement efforts in Canada. However, the Royal Canadian Mounted Police (RCMP) established an International Anti-Corruption Team with offices in Ottawa and Calgary dedicated to CFPOA enforcement in 2007. Now that they have had time to establish themselves, Canada may see an increased level of enforcement in coming years. It is notable that of the 81 individuals charged under the FCPA in the US, 46 have been charged since the start of 2009, which is more than the number of individuals charged in the previous 7 years combined.3 Perhaps Canada will experience the same prosecution curve?
In Canada’s defence, the Federal Minister of International Trade, Stockwell Day, has argued that fewer convictions does not necessarily mean that Canada is not enforcing the Convention.4 In an effort to eliminate one of the apparent obstacles in the current corruption law, the Canadian government introduced Bill C-31 to Parliament in May 2009. Clause 38 of this Bill would “add provisions to the Corruption of Foreign Public Officials Act based on the nationality principle so that, in certain cases, offences committed outside Canada would be deemed to have been committed in Canada”.5 This amendment would make enforcement easier, as it would eliminate the need for enforcement officials to establish a link between the offence and Canada, since the link would be effectively established by Canadian citizenship, residency, or incorporation. Clause 38 also proposes amendments to the scope of activities that could be caught under the CFPOA, and recommends that the CFPOA expand the offence of giving a bribe to include “conspiracy to commit, an attempt to commit, being an accessory after the fact in relation to, or any counseling in relation to, an offence under that section”.
Recent activities suggest that the RCMP special unit is positioning itself to become a more prominent force by becoming more plugged in to the international enforcement scene. The RCMP Anti-Corruption Team has participated in the OECD peer review process and has been directly involved in country reviews. The team has travelled to other OECD countries to participate in the evaluation of their anti-bribery laws and related enforcement, and have been represented on the panel in a review in the United Kingdom.6
It appears that the pressure on Canada to join ranks with its US counterpart may finally be coming to fruition. The RCMP revealed in June 2010 that it had charged a Canadian citizen under the CFPOA.7 (At the time of writing this article, very little information is available about the details of this case.) Although it is only the second time a charge has been laid under the Canadian act, it is a tangible indicator of what may be to come. Mark Mendelsohn, a former US Department of Justice Lawyer, who, until recently, led the enforcement of the FCPA, has commented, “… the RCMP’s creation of two dedicated teams… now appears to be bearing fruit”.8Mr. Mendelsohn has also said that, “It would not be surprising if the specialized FBI and RCMP units began collaborating given the many connections between US and Canadian commerce.”9
Although these are noteworthy developments in Canadian enforcement activity, in the absence of a more robust record it is impossible to draw conclusions as to a pattern or potential policy orientation for Canada. However, the US’s enforcement of the FCPA provides a good benchmark for Canadian companies to look to. Additionally, the FCPA is of importance to Canadian companies as the US act applies not only to US-based companies and US nationals, but also to the following:
- Any company whose securities are registered with the Securities Exchange Commission (SEC)
- Any officer, director, employee, or agent of such company
- Any person who commits an act in furtherance of a bribe while located in the US.10
In KPMG’s Winter 2009 At Risk, Suzanne Schulz and Gerhard Benade discussed the following enforcement trends:
- Increase in enforcement activities by the Department of Justice (DOJ) and SEC
- Significant magnitude of penalties
- Enforcement against foreign corporations
- Appointment of compliance monitors
- Enforcement and other actions against individuals.11
It is clear that many of these trends continue and are supported by the Obama administration, and, in May 2010, Lanny Breuer, current Chief of the US Justice Department, Criminal Division, emphasized, “I see an extraordinary level of commitment in this area,” in a presentation at the Compliance Week 2010 conference.
In early 2010, the US Department of Justice (DOJ) executed an unprecedented operation in FCPA enforcement by conducting a large-scale sting operation in the military and law enforcement supply industry. This undercover operation involved an FBI agent who posed as a foreign official and a cooperating witness who helped the enforcement team identify the defendants, many of whom were his business contacts. This aggressive strategy resulted in the indictment of 22 individuals in a single FCPA matter.12 This sting operation is also an example of how the US is focusing on industries in which they believe improper payments are rampant and there is a higher risk of non-compliance. The DOJ has announced that the pharmaceutical industry is also on their radar.
Another significant event in the past year was the SEC’s use of a “control person” liability theory in an FCPA matter. The SEC brought charges against two former executives of a company that had made improper payments to a foreign customs official. The executives were deemed to be liable not because they may have known or authorized the improper payments, but rather because they had “supervisory responsibility over the managers and policies that were involved”13. This decision, and its basis, should be enough to escalate anti-corruption and bribery compliance programs to the top of a company’s agenda.
In May 2010, the US Senate passed a financial regulation bill that includes a provision to expand a bounty program to compensate whistleblowers who report fraudulent or corrupt activity by their employer.14 The SEC Investor Protection Fund would pay out between a minimum of 10 percent and a maximum of 30 percent of the recovered money from a violation of more than US$1 million. For example, there is a recent case where a 30 percent reward would have resulted in a windfall of US$496 million if a whistleblower had tipped off the investigators.15 This definitely provides an extremely lucrative incentive for those with intimate knowledge of a company’s improper activities to come forward; it should also cause companies to carefully evaluate when self-reporting an incident may be appropriate in order to preserve voluntary disclosure credit. At the very least, companies should position themselves to respond quickly to suspected corruption or bribery activities.
In the past few years, there has been an increase in the number of prosecutions of individuals, not just corporations, making the risk of non-compliance a lot more personal. The individuals charged include CEOs, CFOs, other senior-level officials, and, in certain cases, foreign officials. Mr. Breuer explained that this is part of a deliberate enforcement strategy to deter and prevent corrupt conduct before it happens.16 This focus on individuals was made clear in the sting operation discussed above, where 22 individuals, and not corporations, were targeted.
In addition to Canada, the UK has also been criticized for lagging behind in this area; however, they have recently passed the Bribery Act, which is even broader in scope than the FCPA. The Bribery Act makes it a crime to fail to prevent bribery and provides for no exceptions for “facilitation payments.”17
There is developing and increased cooperation and coordination between foreign jurisdictions. Mr. Breuer has stated, “We are actively working with our foreign counterparts in various areas to ensure that country borders won’t limit our ability to fight fraud.”18 The new US-European Union agreements on mutual legal assistance is another tool that became effective in February 2010.
With the heightened enforcement of anti-bribery and corruption legislation, as well as an increasing general awareness, companies should bear in mind the practical implications of non-compliance. While the obvious penalties can range from fines to prison time, there are other impacts for an organization to consider:
- If a company is considering listing on the SEC, it must also consider what programs it will need to have in place to be in compliance with the legislation.
- If a company is considering doing business with the US government, it will be interested in the new Overseas Contractor Reform Act, which states that “it is the policy of the United States Government that no Government Contracts or grants should be awarded to individuals or companies who violate the [FCPA]”.19
A recent case in the telecommunications industry illustrates the risks a buyer faces when relying on a seller’s representations in a merger or acquisition. In this case, it was found that the target company had paid approximately US$2.2 million in bribes to public officials; the purchaser only discovered this information after the deal closed. Although the purchaser subsequently conducted an investigation, terminated the corruptly-obtained agreements, and made a voluntary disclosure, this discovery led to a write-off of US$22.3 million less than 2 years after the initial investment.20 This example emphasizes the need to include appropriate risk-based anti-bribery and corruption regulatory compliance in a due diligence exercise. At the very least, compliance controls should be implemented post-acquisition.
There are clear suggestions that the vigour and breadth of foreign corruption enforcement are starting to change in Canada. The US has provided a strong model of what can be accomplished with focus and a strong hand and policy. The UK shows signs of following down the path laid by the US.
Ultimately, however, the real test in Canada will likely be whether investigations, enforcements, and sanctions in this country take a direction that has been missed in the past. If this does happen, Canadian companies will receive the message that there is a very real and necessary need to be proactive and vigilant in their foreign dealings. We will then see the new dawn break in Canada with respect to the prevention and enforcement of foreign corruption.
It is increasingly important for Canadian companies to understand the impact and applicability of various international anti-bribery and corruption legislation on their organizations. An organization needs to be aware of the various risk factors it faces, and should consider the following questions:
- Does the company operate in countries where bribery and corruption are prevalent?
- Does the company operate in an industry with a reputation for corruption?
- Does the company operate in countries with significant interaction with government officials?
- Has the organization experienced previous incidents of bribery and corruption?
- Is the company considering acquiring an organization that has any of the above concerns?
While the solution should be customized for each company, there are common elements to compliance programs that should be considered:
- Setting the appropriate tone at the top. Developing a clearly articulated and well-communicated anti-bribery and corruption policy
- Delivering effective training to employees, agents, and relevant third parties,
and requiring certification that they have complied with their responsibilities
- Performing sufficient and appropriate integrity due diligence on individuals
or entities the company plans to do business with
- Using a risk-based approach to monitor compliance.
Despite a company’s best efforts, allegations of violations may arise. Every organization should have a clearly defined response plan that sets out who is responsible for the investigation, the process to be followed, and how the alleged wrongdoer is dealt with. Effective response programs will set out guidelines for the use of outside counsel and when to involve other third parties, such as professional service firms, that can assist with either the investigation or the authorities.
Becky Seidler is a Senior Manager within KPMG’s Forensic practice in Toronto. She holds an Honours Bachelor of Business Administration degree, is a Chartered Accountant, and a Chartered Business Valuator. She has assisted clients with anti-bribery and corruption investigations and risk assessments in North America and Asia. With over 6 years of public accounting experience, she has also assisted clients in investigation, fraud risk management, litigation support, loss quantification, contract compliance, and data analytics assignments.
Contact:
Becky Seidler, Senior Manager, KPMG Forensic.
beckyseidler@kpmg.ca (416) 777-3439
(Footnote)
1 Lanny A. Breuer, Assistant Attorney General, Criminal Division, US Department of Justice.
Prepared remarks to Compliance Week, 2010 – 5th Annual Conference for Corporate Financial,
Legal, Risk, Audit & Compliance Officers, May 26, 2010.
2 Ibid.
3 Ibid.
4 “Canada is pushed for stronger enforcement of anti-corruption laws”, Christa C. Wesel, B.A.,
LL.B., C.Dir., August 2009.
5 “Bill C-31: An Act to amend the Criminal Code, the Corruption of Foreign Public Officials Act
and the Identification of Criminals Act and to make a consequential amendment to another Act”,
Cynthia Kirkby, Legal and Legislative Affairs Division, October 6, 2009.
6 Anti-Corruption Regulation 2010, published by Getting the Deal Through. Contributing editor:
Homer E. Moyer Jr.
7 “RCMP charge Canadian in foreign-bribery crackdown”, Greg McArthur, The Globe & Mail,
July 2, 2010.
8 Ibid.
9 Ibid.
10 “Foreign Anti-Bribery and Corruption: A New Era of Enforcement”, Suzanne Schulz and
Gerhard Benade, At Risk, Winter 2009.
11 This article is available by clicking here or by contacting one of the Forensic professionals
listed on the back of this publication.
12 FCPA Business Guide, Jenner & Block, March 2010.
13 Ibid.
14 http://online.wsj.com/article/BT-CO-2010058.thml?mod=WSJ_latestheadlines, accessed May
21, 2010.
15 “Whistleblower rewards could drastically change FCPA practice”, Miler Chevalier, Corporate Compliance Insights.
16 FCPA Digest, March 2010. Shearman & Sterling LLP.
17 The CFPOA and FCPA have provisions that exempts a payment “if it is made to expedite or
secure the performance by a foreign public official of any act of a routine nature”.
18 Lanny A. Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice.
Prepared remarks to Compliance Week, 2010 – 5th Annual Conference for Corporate Financial, Legal, Risk, Audit & Compliance Officers, May 26, 2010.
19 “FCPA Debarment Bill Introduced”, Mike Koehler, Corporate Compliance Insights, May 25,
2010. It is notable that there is a qualified: “unless waived by the head of a Federal Agency.”
20 “Latin Node Inc.: Undiscovered FCPA Violations Wipe Out an Investment”, Shearman & Sterling LLP, April 15, 2009.