The Canadian business community is becoming increasingly aware of the formidable challenges associated with doing business in foreign countries. It is well known that corruption is an obstacle to sustainable economic activity, hinders the development of fair market structures and distorts competition. More importantly, participation in corrupt business practices undermines citizens' trust in the political and business system as well as its institutions and leadership. Recently, the risks to Canadian companies doing business abroad have been greatly increased as a result of the surge in investigation and enforcement activity by authorities under Canadian, U.S. and international legislation prohibiting improper payments to foreign public officials. Virtually every company operating overseas, regardless of size or complexity, must ensure it has effective policies and procedures in place to mitigate the risks of non-compliance. What may once have been accepted in certain locations and cultures as being simply a part of business is now treated as a criminal act in most countries. The consequences for executives involved and their companies can be enormous. In addition to significant fines, disgorgement of profits, harsh collateral sanctions and debarment from future contract opportunities, a company and its executives can also face crippling reputational damage.
Canadian companies operating internationally need to pay particular heed to the federal Corruption of Foreign Public Officials Act (CFPOA) as well as the U.S. Foreign Corrupt Practices Act (FCPA). Essentially, both the CFPOA and FCPA criminalize acts of bribery anywhere in the world by prohibiting companies from acting directly or indirectly to further a payment or offer of money or anything of value to a foreign official for the purpose of obtaining or retaining business or an improper advantage. Often when a business is entering a new market overseas, anti-bribery and corruption risks are not readily apparent. As examples, many Canadian companies remain unaware of the potential risks they face through gifts and offers of other non-monetary favours or "things of value" to an official, through the activities of their overseas agents, or through the improper practices of a target company in the case of a proposed merger or acquisition.
Combating foreign corruption has become a significant priority for international law enforcement authorities, especially in the U.S. as they prosecute more offenders than any other country. The U.S. legislation attacks corruption not only at the payment stage but also in respect of how these payments are recorded in a company's books and records. Often Canadian companies assume that because they do not have U.S. operations, employ U.S. citizens, or issue securities on U.S. exchanges, they cannot be subject to this U.S. legislation. This assumption is often incorrect, as the nexus to the U.S. that is required to engage the FCPA's long-arm provisions can be quite minimal.
What is gaining particular attention now is in the intensification of enforcement activities. In 2007, the United States Department of Justice and the Securities and Exchange Commission prosecuted more cases of international bribery and corruption than they had in the eight previous years combined. There is no indication that the pace of prosecution will slow down any time soon.
Here in Canada, the Royal Canadian Mounted Police (RCMP) international anti-corruption team was launched in 2007 in an effort to increase significantly the enforcement of Canada's CFPOA. In the past, Canada has been criticized by the international law enforcement community for failing to investigate and prosecute foreign corruption offences with an acceptable degree of fervour. However, with sizeable RCMP anti-corruption teams now located in both Ottawa and Calgary, the number of active investigations underway has grown dramatically, disproving the perceived lack of investigatory and prosecutorial interest. Canadian executives should expect to see charges laid against Canadian companies in the near future.
As a result of this greatly increased emphasis on enforcement, corporate management must be increasingly vigilant to ensure that the company and its employees are not caught up in allegations of corruption. Every company that operates overseas or engages agents, distributors or other third party intermediaries in foreign countries should carry out a world-wide corruption and ethics risk assessment that prioritizes both geographical and functional areas which are vulnerable. Transparency International's corruption perception index was created to rank those countries where corruption is perceived to be most prevalent, and is a useful tool in this risk management exercise. The company should have high-level corporate policies and procedures, including a global code of business conduct that sets a very clear tone from the top that no act of bribery will be tolerated anywhere in the orga nization. Supporting the code of business conduct should be internal systems and controls, corporate gift registries, policies in respect of political and charitable donations in foreign countries, due diligence checklists for the retention and monitoring of all agents and consultants, and country and risk specific training in respect of the company's ethics and bribery policies. In addition, companies should consider establishing and maintaining a whistle-blower hotline to allow employees to internally report suspected or observed misconduct without fear of retaliation.
The result of a robust compliance program is that employees will know the company's standards of conduct, understand the consequences of non-compliance, and know where to go to get further help. In the bigger picture, it will help insulate the company and its management from the serious risks outlined above.