Canada: The Canadian Institute - Anti Corruption And Bribery Compliance US, UK, EU And Canada: How Does It All Fit Together?

Introduction

Compared to the relevant legislation in the U.S. and U.K. Canada's Corruption of Foreign Public Officials Act (CFPOA) is an exceedingly quick read. The full Act comprises two pages and can be read thoroughly in approximately five minutes. However, the reality is that for many Canadian corporations a review of the CFPOA alone is not enough. Most multinational Corporations will need to focus as much on the FCPA and the new UK Act as they do on the CFPOA.

This paper will outline some of the limitations of the CFPOA and consider, in contrast, the breadth of the U.S. and U.K. legislation.

Offence

The CFPOA makes it an offence to directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign official in order to obtain or retain an advantage in the course of business. Specifically the charging section states as follows:

A foreign public official is defined as any person who holds a legislative, administrative or judicial position for a foreign state, a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function. It also includes an official or agent of a public international organization that is formed by two or more states or governments or by two or more public international organizations.

Importantly the CFPOA defines business to mean any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere for profit.

The penalty provision allows for a sentence of up to five years in prison and/or an unlimited fine. Probation is also available to the corporate entity that would typically be focussed on future compliance and auditing procedures and governmental oversight. In the first significant Canadian CFPOA offence, Niko Resources Ltd. was fined $9.5 million and placed on probation for three years.

Exceptions

There are essentially three defences to payments that could otherwise be characterized as offensive under the Act. The CFPOA permits a loan, reward, advantage or payment in circumstances where:

Jurisdiction

On jurisdiction, Canada stands alone. In contrast to the U.K. and U.S. Acts, Canada's jurisdiction is relatively narrow. Indeed, Canada is the only party to the OECD Convention that relies on territorial jurisdiction as opposed to nationality jurisdiction. This fact is seen as a potential obstacle to effective enforcement of our international obligations. The OECD Working Group has concluded that Canada's jurisdiction is much narrower than for most other Convention Parties.

In the Guide prepared by the Department of Justice, Canada's jurisdiction is described as follows:

The issue of the limits on territorial jurisdiction as it applies to the CFPOA has yet to be addressed head on by the Canadian courts. The Canadian decision most often referred to in the context of extraterritorial or transnational jurisdiction is the Supreme Court of Canada decision in R. v. Libman. The court noted that the primary basis of Canadian criminal jurisdiction is territorial. The court further commented as follows:

The court in Libman held, as reflected in the CFPOA Guide, that in considering Canadian jurisdiction over transnational offences, the courts must take into account all relevant facts that take place in Canada 'that may legitimately give this country an interest in prosecuting the offence. The jurisdictional threshold from that decision, is whether there is a 'real and substantial link' between the offence and Canada. It was also held in that decision that to make an offence subject to Canadian jurisdiction a significant portion of the activities constituting the offence had to take place in Canada.

When the Libman case was decided in 1985 the Supreme Court commented that transnational offences were not a type the courts had been called upon to deal with frequently. Much has changed since that time. International commerce has grown exponentially. It is impossible to predict how that growth would affect future Supreme Court rulings on territorial jurisdiction.

The Supreme Court in Libman noted that it would be a 'sad commentary on our law' if seasoned practitioners could 'operate on a world-wide scale from a Canadian base by the simple manipulation of a technicality of the law's own making. The Libman decision leaves a lot of room for debate whether isolated acts in foreign states would be sufficient to reach the threshold of a 'real and substantial link' between the offence and Canada.

In 2009 Parliament made a failed attempt to address the jurisdiction issue. In part, Bill C-31 was going to amend the CFPOA to incorporate a nationality principal. In order to get around the potential roadblock of the existing caselaw, deeming provisions were going to be put in place by Bill C-31. Those provisions would have extended the jurisdiction of the CFPOA so that any stated category of persons who commits an act outside Canada that would constitute an offence under s. 3 of the CFPOA would be deemed to have committed that act in Canada. Specifically the deeming provisions applied to Canadian citizens, permanent residents, public bodies, corporations, societies, companies, firms, and partnerships that have been incorporated, formed or otherwise organized under the laws of Canada or a province. However, Bill C-31 died on the floor of Parliament in late 2009.

At various times, Transparency International has criticized Canada's apparent limited jurisdiction. On June 28, 2011 James Klotz the Chair and President of Transparency International stated in an open letter to the Right Honourable Stephen Harper as follows:

In response to International criticisms Canada has responded that 'Canadian courts use a broad application of territorial jurisdiction, such that Canada's basis for jurisdiction is effective to combat foreign bribery.¹ At the same time, however, there is a recognition of a need to test the jurisdictional waters and a need for greater certainty. According to the OECD, Canadian authorities have stated a willingness to pursue the appropriate matters with a view to having the courts more clearly set the boundaries of their jurisdiction in this area.

Corporate Liability

Aside from the personal criminal liability of the bribe payers and facilitators, the corporate entity can also be held criminally liable under the CFPOA. Indeed, the corporate entity will often be the main target of the investigators, similar the U.S. experience.

As with any criminal offence, there is a requirement for the prosecution to prove the mental element of the offence. While the legislation is silent on the mental element of the offence, it is expected that the accepted standard of intention and knowledge must be proven, consistent with Canadian criminal law. This is a relatively straight forward process in respect of the individual actors. However, for a corporate entity determining the mental element requires a review of the actions and intention of the senior executives of the corporation or organization to determine the guilt of the entity or organization.

Criminal liability of corporations has historically been relatively narrow in Canada as compared to the U.S. The doctrine of Respondeat Superior, whereby the employer is legally responsible for all acts of its employees and agents, has been avoided by the Canadian criminal courts. Instead Canadian criminal courts have relied on the identification theory of liability. The identification theory created the necessary link between the natural person (the 'directing minds' of the corporation) and the corporate entity. This link was required for the corporation to be found guilty for the act(s) of the natural person. Thus traditionally Canadian corporate criminal liability has been limited to acts performed by or at the direction of the 'directing minds' of the corporation. The concept of the directing mind² was limited to the upper echelons of the corporate ladder. The directing mind concept of liability was limited to those within the corporation who had the authority to design and supervise the implementation of corporate policy.

This high threshold for corporate criminal liability was seen as a problem. Despite clear criminal actions by senior employees, Canadian corporations were not being held criminally liable for the acts of very senior managers and employees. Although holding significant responsibility, the senior managers did not have policy-making authority.³ It has been suggested that this approach to corporate criminal liability created an incentive for corporations to limit the number policy-makers in the corporate structure so as to limit possible criminal liability for the Corporation.⁴

Corporate criminal liability in Canada was dramatically affected by amendments to our Criminal Code on March 31, 2004.⁵ One of the changes was section 22.2, which redefined corporate criminal liability for fault based offences. In the case of the CFPOA, a fault based offence, the basis for corporate liability is now pursuant to s. 22.2 of the Criminal Code. The relevant portion of the section is as follows:

Thus, the Legislature has taken Canada beyond the confines of the directing mind concept of liability and we have entered a new era. We have moved beyond the limits of criminal liability based only on the actions of a corporate policy-maker to the broader notion of a senior officer. The application of the above corporate criminal liability section 22.2 is as yet largely untested. The courts have yet to weigh in with their interpretation of this corporate criminal liability section.

Despite this expansion of corporate criminal liability, the actions of a least a senior officer must be in play. So in Canada, under the CFPOA, the actions of the dreaded agent or subcontractor does not automatically create criminal liability for the corporate entity unless the agent or subcontractor are acting under the direction of a senior officer. However, the concept of wilful blindness can and will be applied to the CFPOA. This concept, something less than full blown intention, imputes intention or knowledge in circumstances where suspicions were aroused to the point where the need for further inquiries clearly existed. It is hard to envision a significant payment being made in an effort to secure an advantage without a senior manager knowing or having been wilfully blind as to the role an agent was playing. That would not, however, always be true for relatively low level payments or favours.

Liability of Canadian Corporations to the CFPOA

It is not clear how much of the Canadian business sector should be interested in the CFPOA. No precise number can be given. But it is a large number. In the mining and extraction industry alone the numbers are impressive. Foreign Affairs and International Trade Canada have reported as follows:

But beyond the mining sector it is safe to say that any businesses operating abroad should have a working knowledge of the CFPOA. In particular some industry sectors that have been focussed on in the U.S. include the pharmaceuticals and medical device industry, 'Oil for Food', space and aeronautics, and the 'high-tech' sector including software companies.

What's Missing in the CFPOA

Historically, the OECD's working group on bribery (WGB) has been critical of Canada and the U.K.'s lack of criminal charges in the area of foreign corruption. Both countries seem determined to address their shortcomings. Canada's response has been to take enhanced investigative action but has yet to address some of its legislative shortcomings. The U.K. has addressed both sides of the ledger.

For many what is noteworthy about the CFPOA are the missing aspects that would bring it into conformance with the expectations of the OECD and the United Nations Convention Against Corruption.

Certainly the expectation, as noted above, that Canada should address its limited territorial jurisdictional would be at the top of many lists. However, there are other areas that are noteworthy.

The OECD has also recommended that Canada amend its Act to make it clear it applies to bribery in the conduct of all international business, not just business 'for profit'. This arises directly as a result of the definition of business within the Act, as outlined above, that includes the phrase 'for profit'.

A feature of the U.K. Act that will be urged by some for both the U.S. and Canada to match is the application to strictly private commercial transactions. The logic is simple. If the idea is to create a level field of play in the international business world, the scope of such legislation should not be limited to the public sphere as a significant sector is clearly being overlooked. Of course, both the U.S. and Canada have other legal mechanisms to deal with the dishonest and fraudulent conduct generally associated with such activities.

Another feature of the U.K. Act that is missing in the U.S. and Canadian statutes is the strict liability offence for a corporation failing to prevent a person performing services on its behalf from committing certain bribery offences. Given the Canadian criminal law history and the incompatibility to mix such strict liability language with true criminal offences such as found in the CFPOA, this is one feature that is unlikely to be attempted in Canada.

Also, the U.K. Act applies to both the giving and receiving of bribes whereas the CFPOA is limited to the giving (or offering) of bribes.

The U.S. books and records requirements are also a significant distinction from the Canadian Act. The FCPA requires 'issuers' (including foreign companies) with securities traded on a U.S. exchange, or otherwise required to file periodic reports with the Securities and Exchange Commission ('SEC')), to keep books and records that accurately reflect business transactions and to maintain effective internal controls.⁶ The liability for these provisions can be that of the lower civil standard of strict liability. This difference is substantial.

The U.S. experience shows us that a books and records provision is a fruitful venture. This area has clearly been an aspect that has allowed the US to cast a wide net over the prosecution of foreign corruption. In many cases, improper payments to foreign officials result not only in bribery charges but also books and record charges given that improper payments are generally not accurately recorded. Books and records charges can also be laid in cases where no bribery charges are brought.

The failure of Canada to have a regulatory (civil) component through a books and records provision is significant. The dual civil and criminal track of the U.S. FCPA allows for a valuable alternate route to resolution. A significant number of matters in the U.S. have been resolved as a result of the ability to resolve in the administrative SEC realm rather that the criminal DOJ realm. A dual track with a civil option would also create room for a lot more resolutions in Canada as well. However, there is no reason to expect any regulatory regime here in Canada any time soon.

Unlike the U.S., Canada does not have a whistle-blower reward scheme.⁷ The impact of the US whistle-blowing provisions of the Dodd-Frank Act is eagerly awaited. With rewards of between 10 and 30% of monetary sanctions ultimately imposed, the incentive for whistle-blowers is extremely high. There is no doubt that the phones are ringing and it is only a matter of time before some whistle-blower cheques are cashed.

The guidance available in the US through the Department of Justice FCPA Opinion Procedure is also a feature not available in Canada. Conduct for which the Department of Justice has issued an opinion stating that the conduct conforms with current enforcement policy will be entitled to a presumption, in any subsequent enforcement action, of conformity with the FCPA. The ability to get guidance from the authorities in respect of questionable business transactions would be welcome in Canada.

Other Differences Between The Acts

One of the common denominators is the allowance for reasonable business expenditures. This is simply a matter of common sense. In order to do business around the world corporate citizens must be able to continue traditional businesses practices provided they are fair and reasonable. The area of reasonable business expenditures is one area where we can all look to the U.S experience to provide guidance.

Facilitation payments are a different story. Currently they are an exception in Canada and the U.S., but not under the U.K. legislation. The classic examples of such payments are:

• Obtaining permits, licenses, or other official documents
• Processing government papers, such as visas and work orders
• Providing police or security protection; loading and unloading cargo; storage of perishable products or commodities
• Providing services offered to the public (mail pick-up and delivery, telecommunications, power, water ...)
• Inspections related to transit of goods or performance of contractual terms

Liability of Canadian Corporations to Other Acts

The limitations of the CFPOA are noteworthy, but there is no escaping the FCPA and the new UK Act for many Canadian Corporations. Indeed, many should be more focussed on, and wary of, these Acts.

In 2010 the U.S. levied $1.7 billion in total penalties under the FCPA. Most of the cases involved non-U.S. companies. One theory espoused is that, 'the DOJ's focus in the short-term seems to be very much on putting pressure on non-U.S. companies to comply with global anti-corruption agreements, particularly when those companies' home countries are less than aggressive in enforcing their own corruption laws.⁸

It has been said that the U.K. Bribery Act is 'one of the most significant pieces of legislation affecting the private sector ever enacted in the U.K.' The U.K. Act, including the strict liability offence of failing to prevent bribery, applies to overseas entities that carry on a business or part of a business in the UK. A Canadian company operating in the UK could be convicted of failing to prevent bribery if persons associated with them commit an active general bribery offense or foreign public officials' offense on their behalf, even though those persons and that business have no connection with the UK. Indeed, the Act was crafted specifically to ensure parent companies cannot avoid liability through the use of separate subsidiary companies to make bribes.

Similarly, the US has for a long time asserted a very broad interpretation of its international jurisdiction. Even the use of U.S. dollars in overseas financial transactions appears sufficient to attract the attention of the U.S. authorities.⁹ In an nut shell the slightest whiff of jurisdiction could well attract the US to assert its presence.¹⁰

Highest Common Denominator

One obvious question for Canadian companies is to ask whether following the CFPOA is sufficient to ensure compliance around the world. The answer is clearly, 'No'. The current thinking of the business world was captured in the following quote:

So, for example, while the CFPOA does not have a books and records provision, Canadian companies listed on a U.S. exchange must adhere to the books and records provisions of the FCPA. Similarly, Canadian companies with U.K subsidiaries must consider their liability with respect to facilitation payments and intra-company bribery. Just because the CFPOA is relatively narrow in comparison to the UK and US Acts, Canadian organizations with an international presence ought not to let their guards down.

Double Jeopardy

The existence of multiple bribery statutes of both domestic and international scope on the books of most OECD nations creates a severe risk of double jeopardy. Given the foreseeability of battling jurisdictions between the U.S., U.K. and Canada, interesting legal and political issues arise. On the face of it, it would be improper for convictions to be registered in two different nations for offences arising out of the same circumstances. All Canadian citizens, pursuant to s. 11(h) of the Charter, have the right not to be tried twice for the same offence following a final acquittal or conviction. The International Covenant on Civil and Political Rights pursuant to Article 14(7) also recognizes that no one should be tried twice for the same offence following a final acquittal or conviction. The U.S. and the U.K. are both signatories to this Convention. Canada has ratified the Convention as well. However, the OECD and UN anti-bribery conventions lack any principle for avoiding multiple penalties arising out of the same factual matrix.

Canada attempted to specifically address this issue in Bill C-31. This Bill that did not make it into law as outlined above would have disallowed CFPOA prosecutions where the same circumstances had been prosecuted elsewhere and a legitimate and final conviction or acquittal had occurred in that other jurisdiction.

In the Libman decision, the Supreme Court foresaw the possibility of double jeopardy arising in transnational cases. The court stated that the pleas of autrefois acquit and autrefois convict could be employed to avoid any such potential injustice.¹² These special pleas recognize the concept of double jeopardy and prohibits a second proceeding for the same offence.

Freezing Assets of Corrupt Foreign Officials Act

On a somewhat different note, a growing concern in international circles is the ability to access the proceeds of foreign corruption. Canada's response to this problem, in part, has been the passage of the Freezing Assets of Corrupt Foreign Officials Act.

This Act came into force on March 23, 2011. The scope of this Act is relatively limited but of high symbolic, if not practical value. The Act arises out of the recent events in the Middle East. In particular, the events in Tunisia and Egypt spawned this piece of recent legislation.

The Act provides authority to the Governor in Council to make targeted regulations to freeze the property of, and restrict financial transactions with, named politically exposed foreign persons. This can occur upon the written assertion of a foreign state that a person has misappropriated property of the foreign state or acquired property inappropriately by virtue of their office or a personal or business relationship.

Banks, Insurance Companies and other defined entities are obliged under the Act to determine on a continuing basis whether it is in possession or control of property that they have reason to believe is the property of a politically exposed foreign person who is the subject of an order or regulation under the Act. The Act further obliges 'Every person in Canada and every Canadian outside Canada' to disclose to the RCMP the existence of property in their possession or control that they have reason to believe is the property of any politically exposed foreign person who is the subject of a freezing order or regulation.

The first regulations passed pursuant to this legislation was the Freezing Assets of Corrupt Foreign Officials (Tunisia and Egypt) Regulations, passed on the same date as the enabling Act March 23, 2011.

Conclusion

The one thing that can be said with certainty is that activity under the CFPOA will grow. It is well known that the RCMP have approximately 30 matters under investigation. It is also safe to conclude that Canadian corporations and organizations are likely to attract the attention of the authorities responsible for the enforcement of the U.K. and U.S. Acts. Choosing the path of the highest common denominator on the compliance side is clearly the appropriate path for the conscientious organization.

Footnotes

1.

2 Also variously referred to as the 'ego', 'alter ego', the 'centre' or 'vital organ' of the corporation; See R. v. Canadian Dregde and Dock Co., [1985] 1 S.C.R. 662

3 See for example Rhone (The) v. Peter A.B. Widener (The), [1993] 1 S.C.R. 497; R v. Safety-Kleen, [1997] O.J. No. 800 (Ont.C.A.) and R. v. Ontario Power Generation, [2006] O.J. No. 4659 (Ont. C.J.)

4 Darcy McPherson, 'Extending Corporate Criminal Liability?: Some Thoughts on Bill C-45' (2004) Man.L.J. 253

5 Norm Keith, Corporate Crime and Accountability in Canada, Toronto, Lexis Nexis, 2011.

6 The FCPA's Books and Records and Internal Control provisions (which apply only to issuers) require: (i) that books, records and accounts are kept in reasonable detail to accurately and fairly reflect transactions and dispositions of assets, and (ii) that a system of internal accounting controls is devised (a) to provide reasonable assurances that transactions are executed in accordance with management's authorization; (b) to ensure that assets are recorded as necessary to permit preparation of financial statements and to maintain accountability for assets; (c) to limit access to assets to management's authorization; and (d) to make certain that recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. While the Books and Records and Internal Control provisions technically apply only to issuers and not to foreign subsidiaries, the enforcement agencies routinely hold parent companies liable for false or fraudulent entries on any book or record that is ultimately consolidated with an issuer's books and records for financial reporting purposes. (Foley and Lardner LLP)

7 Canada has a section of the Criminal Code that makes it a criminal offence to threaten or retaliate against employees who report unlawful conduct to law enforcement authorities.

8 Sherman and Sterling LLP, FCPA Digest of Cases and Review Releases Relating to Bribes to Foreign Officials under the Foreign Corrupt Practices Act of 1977, Jan.20, 2011; As a practical matter, eleven of the 20 corporate matters brought in 2010 involved non-U.S. Companies and these eleven non-U.S. companies were responsible for 94% of the penalties imposed on corporations in 2010.

9 Supra Note vii; In Siemens and Halliburton/KBR, we saw the first indication that the DOJ and the SEC intended to make good on previous claims that they possess territorial jurisdiction over foreign companies based on overseas financial transactions involving U.S. dollars - a theory premised on the fact that virtually all such transactions clear through correspondent banking accounts in the United States. In those cases, in which other clearly territorial acts such as meetings, payments, and transfers from U.S. bank accounts, were charged, the 'correspondent bank account' jurisdiction was not critical to the case, but clearly provided an indication of the government's views.

10 The 1998 amendments to the FCPA expanded the jurisdictional reach of the statute to include an alternative nationality test. Whereas, prior to the amendments, 'use of the mails or any means of instrumentality of interstate commerce in furtherance of' an improper payment was needed for the FCPA to apply, under the alternative nationality test, the FCPA applies to improper payments made by U.S. companies and citizens that take place wholly outside of the United States without regard to whether 'the mails or any of other means of instrumentality of interstate commerce' were used in furtherance of the improper payment. Thus, proof of a U.S. territorial nexus is not required for the FCPA to be implicated and FCPA violations can, and often do, occur even if the prohibited activity takes places entirely outside of the United States. Indeed, many recent FCPA enforcement actions concern business activity by U.S. companies that occur in foreign countries without the knowledge or involvement of any U.S.-based employee. (FCPA Website, Foley and Lardner LLP)

11 Andi Balla, 'Foreign Anti-Bribery Enforcement Comes Under Scrutiny', Canadian Lawyer Magazine April 4, 2011,

12 Supra note at para 72

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