The first reported case of corporate foreign corruption dates back to the 16th century, when the British East India Company bribed Mogul rulers with "rare treasures, including paintings, carvings and costly objects made of copper, brass and stone" in consideration of a tax break on exports.1 Historically, these practices were seen as an essential aspect of doing business abroad, or "as a kind of grease to move economic machinery along when there were bureaucratic obstacles."2 Thus, foreign corruption became a well-entrenched profitable practice, which was even welcomed by shareholders of early multinationals.3
However, "a serious foreign policy problem"4 emerged for the United States in the wake of the Watergate scandal, when investigations by the Securities and Exchange Commission ("SEC") revealed "slush funds" that were used by US corporations to bribe foreign public officials in order to secure business.5 The ensuing adoption of the US Foreign Corrupt Practices Act ("FCPA") paved the way for US authorities to enforce a new set of business standards. Such enforcement has become more intrusive over time, as evidenced by the $4 billion in settlements under the FCPA collected from both US and foreign companies over the past five years.
By comparison, Canada's enforcement of its Corruption of Foreign Public Officials Act6 is still in its infancy. In fact, since the CFPOA came into force in 1998, its enforcement has led to only three corporate guilty pleas – those of Hydro Kleen Systems,7 Griffiths Energy International8 and Niko Resources9 – and to the conviction of one individual, Nazir Karigar.10 That being said, the tide is quickly turning, especially since the adoption of Bill S-14 in June 2013, which, among other things, expanded the foreign corruption offense to acts committed abroad by Canadian nationals and corporations, added a separate offense for certain deceptive bookkeeping practices for the purpose of bribing a foreign public official, and provided for the repeal of the facilitation payments exception. As investigations by the RCMP International Anti-Corruption Unit are mounting and high-profile cases are making their way through the courts, the expectations of former Minister of Foreign Affairs Lloyd Axworthy, one of the CFPOA's sponsors, that there would "be a large catalogue of prosecutions every year"11 may well come to fruition.
While the authorities are pulling out the heavy legislative artillery and cracking down on enforcement, little administrative guidance is provided on the CFPOA's implementation, especially with respect to its impact on corporations. Therefore, many queries remain as to the full scope of the CFPOA and its implications for Canadian businesses. This article seeks to shed light on some of the CFPOA's intricacies and legal puzzles that await the courts.
1. What Is Foreign Corruption?
Foreign corruption, as criminalized under the CFPOA, is
1. the giving, offering or agreement to give or offer
2. an advantage or benefit of any kind
3. directly or indirectly to a foreign public official
in order to obtain an advantage in the course of business, and
a) as consideration for an act or omission by the official in connection with the performance of his or her duties; or
b) to induce the official to use his or her position to influence the decisions of his or her state or public international organization.12
A closer look at the main components of the offense reveals its breadth. First, the CFPOA criminalizes the conduct of giving, offering or agreeing to give or offer a bribe, regardless of whether or not the bribe was actually received by the public official.13 In criminal law, such an offense is referred to as an inchoate offense or a conduct crime, as opposed to a result crime.14 It follows that if a person agrees to offer a benefit to a foreign public official, but later changes his or her mind, that person has nonetheless committed an offense under the CFPOA.
For instance, Nazir Karigar was convicted on the basis that he had agreed to bribe Air India officials and India's Minister of Civil Aviation, at the time, in order to secure a security contract. According to the court, the crime was consummated the minute Karigar agreed to bribe a foreign public official, even though Karigar's principal was not ultimately awarded the security contract and even though the Crown had failed to prove that money had actually changed hands.15
Second, the concept of an advantage or benefit of any kind leaves open the possibility of even relatively small benefits falling afoul of the CFPOA.16 The offense targets not only offshore wire payments and envelopes filled with cash. It can also encompass lavish gifts and less obvious benefits, such as payment of tuition, promises of future employment, support for business opportunities, provision of confidential information or access to an exclusive club.17 An exception is provided for benefits that are permitted or required under local laws or under a public international organization's governing laws.18
Providing travel, hospitality or entertainment to a public official can also amount to an unlawful benefit, unless the expenditures are reasonable and are directly related to a valid business purpose, such as the demonstration of products or the execution of a contract.19 However, this exception does not, for example, cover the expenditures of a public official's guest. "Late rewards" bestowed after a foreign public official has done or omitted to do something are not expressly covered by the offense. While such payments might not have influenced the public official to take any given course of action, they could still be viewed as evidence of a prior agreement.
Third, the offense covers both direct and indirect benefits. The notion of an indirect benefit covers an array of scenarios by which benefits can find their way to or benefit a foreign public official through intermediaries. On the one hand, it can refer to the funneling of the bribe through intermediaries, such as consultants and subsidiaries. For instance, in Niko Resources, Niko's Bangladeshi subsidiary had provided a Toyota Land Cruiser to the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in his dealings with Niko Bangladesh. In its guilty plea, Niko Canada acknowledged having funded Niko Bangladesh's acquisition of the car, knowing that the company would deliver it to the foreign public official.20
On the other hand, an indirect benefit can also refer to providing a benefit to a third party who is affiliated with a foreign public official, including a child, a relative, a political party or a business. Prosecutors could take the position that an offense has been committed if the benefit given or offered to the affiliated third party ultimately benefits the foreign public official. For instance, Schering-Plough Corporation, a US- based pharmaceutical company, made a $76,000-donation to a bona fide charity founded by the director of a Polish regional government health authority. The SEC found, pursuant to the FCPA, that the payment was made to induce the director to purchase Schering-Plough's pharmaceutical products within the regional health authority.21 Accordingly, the SEC viewed Schering-Plough as having given something of value – perhaps "enhanced self-worth or prestige"22 – to a foreign public official. Schering-Plough paid a civil penalty of $500,000 and undertook to retain an independent consultant to review its anticorruption policies.
An additional issue, sometimes coined the "princeling problem," refers to the practice of hiring or doing business with public officials' children or relatives. In the United States, authorities have taken the position that such practice could constitute an offense if the official's duties relate to the hiring company's interests and something of value passes through the relative to the official.23 Corporations should be cautious about hiring the children of foreign public officials, unless there is a bona fide business reason that is unrelated to the child's lineage.
Footnotes
* The authors would like to thank Alexander Steinhouse, an associate in the White Collar Defence & Investigation practice group at Davies Ward Phillips & Vineberg LLP, and students-at-law Vanessa Pendenza and Dov Whitman for their assistance in the preparation of this article.The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of Davies Ward Phillips & Vineberg LLP.
1. Milton S. Gwirtzman,"Is Bribery Defensible?"New York Times Magazine (5 October 1975) 19.
2. Statement of Wesley Cragg, President of Transparency International Canada, in the Debates of the Senate (Hansard), 1st Session of the 36th Parliament, vol. 137, issue 100 (December 3, 1998) at 1650 ("CFPOA Debates").
3. Gwirtzman, supra note 1.
4. Senator Frank Church's opening remarks to the Multinational Corporations and United States Foreign Policy: Hearings Before the Subcomm. on Multinational Corps. of the S. Comm. on Foreign Relations, 94th Cong. 1 (1975) at 2.
5. For a detailed study of the legislative history of US foreign anticorruption legislation, see Mike Koehler, "The Story of the Foreign Corrupt Practices Act" (2012) 73:5 Ohio State L.J. 929.
6. SC 1998, c 34 ("CFPOA").
7. R. v. Watts, [2005] AJ No. 568 (ABQB) (Quicklaw).
8. R. v. Griffiths Energy International, [2013] AJ No. 412 (ABQB) (Quicklaw) ("Griffiths").
9. R. v. Niko Resources Ltd., 2011 CarswellAlta 2521 (ABQB) (Westlaw) ("Niko").
10. R. v. Karigar, 2013 ONSC 5199 ("Karigar (conviction)").
11. CFPOA Debates, supra note 2 at 1630.
12. CFPOA, s 3.
13. Karigar (conviction), supra note 10, ¶¶28-29.
14. R. v. Greenwood, [1991] OJ No. 1616, ¶31 (ONCA) (Quicklaw).
15. Kargiar (conviction), supra note 10, ¶¶29 & 33. Another good illustration of the offense's inchoate nature is Griffiths, supra note 8, in which an initial agreement to bribe the Chadian Ambassador to Canada was terminated on the advice of the company's counsel and replaced by an agreement to pay the same bribe to the Ambassador's wife. Only the latter payment was completed. In the agreed statement of facts, however, criminal liability was acknowledged with respect to both agreements.
16. However, it may prove difficult to characterize a trivial benefit as being given as consideration for an act or omission.
17. Mark Pieth, Lucinda A. Low & Nicola Bonucci, eds., The OECD Convention on Bribery: A Commentary, 2nd ed. (New York: Cambridge University Press, 2014) at 128.
18. CFPOA, para. 3(3)(a).
19. CFPOA, para. 3(3)(b).
20. Niko, supra note 9, Agreed Statement of Facts, ¶4.
21. US SEC, admin proceeding file no. 3-11517 (June 9, 2004), online: < www.sec.gov/litigation/admin/34-49838.htm >.
22. Mike Koehler,"A Double Standard? Part III"(September 30, 2010), online: < www.fcpaprofessor.com/category/schering-plough >.
23. US DOJ, FCPA Opinion Releases, n° 82-01, 82-04 & 95-03, online: < www.justice.gov/criminal/fraud/fcpa/ >. See also CFPOA Debates, supra note 2 at 1540, in which former Minister of Foreign Affairs Axworthy mentions that the award of a benefit to the relative of a foreign public official could amount to an offense if "the public official gained some benefit along the way through this activity."
Reprinted with permission from The 2015 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited .
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