As the corporate risk landscape changes, North American companies need to conduct a risk assessment and implement a top-down culture and compliance program against bribery and corruption. Our first series of CSR Law Bulletins look at the issue from three perspectives (that of the corporate legal counsel, the litigator, and the UK). In the second of the series, we look at the issue from the point of view of a litigator, outlining basic steps to respond when faced with allegations of corruption.
It is usually a surprise and definitely stressful when allegations of bribery or corruption are levelled against your company. The approach a company should take will depend on the foundation for the allegation, but regardless, a plan should be developed with legal and public relations input, before anything is done.
Prepare a Litigation Strategy
If an allegation has even a slight basis, it is wise to engage legal counsel immediately to map out an appropriate litigation strategy. Depending on the circumstances, this may result in a decision to plead guilty to the charges, as Niko Resources did earlier this year. Or it may be wise to defend against the charges. Either way, the company may want to introduce more stringent compliance policies and procedures.
In addition, if a company is facing allegations as a result of a whistleblower, it is essential to understand the local and international law applicable to whistleblowers before any hasty action is taken.
A company that can demonstrate it implemented clear policies and compliance procedures, paid attention to the "red flags," maintained strong corporate governance and was cautious in dealings with third parties will be better positioned to negotiate with prosecutors. In those cases it is important to get early advice on whether part of the company's defense will be a "rogue employee" — that an employee acted on his or her own against company policy.
Unravel Jurisdictional Issues
As more countries exert extra-territorial power on the issue – most notably the US and now the UK – it is essential to know whose rules are in play.
Canada's Corruption of Foreign Public Officials Act (CFPOA) has relatively limited reach with its claim to "jurisdiction over the bribery of foreign public officials when the offence is committed in whole or in part on its territory, provided that a significant portion of the activities constituting the offence take place in Canada and there is a real and substantial link between the offence and Canada." The UK and US versions have a much wider grasp.
All this means that a Canadian-based mining company with operations in Africa could potentially run afoul of in-country rules, Canada's CFPOA, the US's Foreign Corrupt Practices Act (FCPA) if it is listed on a US securities exchange and/or the UK's Bribery Act if its business or personnel have a close UK connection. Acts amounting to bribery or corruption may create liability in more than one jurisdiction – and there are different subtleties to what is permitted under each regime.
Consider Defending Facilitation Payments
The key example of how each of the different anti-bribery Acts can operate is with respect to facilitation payments. Such payments seem likely to continue as a gray area of the law because of the varying views of each jurisdiction.
Canada's legislation recognizes that in some countries, payments to foreign officials must be made simply to coax them into performing routine aspects of their jobs. It makes an exception for "facilitation payments" made to expedite or secure the performance by a foreign public official of any "act of a routine nature" that is part of the foreign public official's duties or functions.
Specifically, Canada allows for two defenses for facilitation payments. The first is where the payment was lawful in the foreign state or public international organization for which the foreign public official performs duties or functions. If successful, this would be a full defense to the offense of bribing a foreign official. The second defense, intended to apply to relatively modest payment amounts, requires that the accused show that the loan, reward, advantage or benefit was made to repay a reasonable expense, incurred in good faith by or on behalf of the foreign public official and directly related to the promotion of the person's products and services or to the execution or performance of a contract between the person and the foreign state of that official.
The US's FCPA also acknowledges the reality of facilitation payments, but as noted above, the UK's Bribery Act now bans them.
International Criticisms of CFPOA
One peculiarity of Canada's legislation – criticized openly by the OECD – is that it applies only to "for-profit" activities. The OECD continued to pressure Canada to change this distinction. But for now at least, there may be a potential loophole for individuals and companies accused of corrupt practices abroad if their activities relate to not-for-profit work, such as contracting to provide disaster relief or a business transaction that does not yield a profit.
The OECD is also critical of Canada's decision to limit its extra-territorial jurisdiction to offenses that involve a "real and substantial" link to the territory of Canada. Given the high volume of work done internationally by Canadian companies, including in the developing world, the OECD argues that this limitation is not in step with the intentions of the OECD Convention. For now at least, this limitation provides the most significant potential defense, and obstacle, to prosecution in Canada.
Understand the Penalties
Canada has garnered negative attention for its lax penalties, but it is probably more accurate to point to its historically weak enforcement effort. Indeed, the penalties under Canadian law can be quite steep for contravening the CFPOA, including a five-year maximum term of imprisonment and/or fines. This ensures that such bribery is an extraditable offense. The amount of any fine would be at the discretion of the judge, and there is no maximum. As an indictable offense, no limitation period applies.
As a comparison, in the US, the FCPA allows for both criminal and civil penalties. As in Canada, individuals can receive up to a five-year jail term and/or fines of up to $100,000 and companies can receive fines of up to $2 million per offense. It is worth noting that the US has been stepping up its enforcement activities in recent years.
In the UK, civil or criminal proceedings may be taken with a potential 10 year jail term for individuals – or 14 years if the Proceeds of Crime Act aimed at money laundering comes into play.