On the heels of the March 3, 2016 announcement by the United States Securities and Exchange Commission (SEC) that Nordion (Canada) Inc. (Nordion Canada) would be paying $375,000 as civil fine for resolution of the U.S. anti-corruption enforcement, reports started to emerge that the Royal Canadian Mounted Police (RCMP) has closed its foreign bribery investigation into Nordion Canada due to lack of evidence.
The violations that resulted in the fine being imposed by the SEC against Nordion Canada concerned several payments made under a scheme allegedly involving a Canadian-based employee, Mikhail Gourevitch, who introduced Nordion Canada’s predecessor public company (Nordion) to a Russian businessman and his wholly-owned company (collectively the Agent). In early 2002, Nordion executed its first written consulting agreement with the Agent to obtain medical isotopes from a Russian government instrumentality.
Thereafter, Nordion expanded the relationship by retaining the Agent to assist Nordion in obtaining Russian government approval for the sale of its liver cancer treatment, TheraSphere. From 2005 through 2011, Nordion paid the Agent approximately $235,043 in connection with these services. A portion of these funds were used by the Agent to allegedly bribe Russian government officials and at least $100,000 is claimed to have been transferred to Mr. Gourevitch in a kickback arrangement. Ultimately Nordion was unable to distribute its cancer treatment in Russia.
For details concerning the resolution of the U.S. enforcement against both Nordion Canada and Mr. Gourevitch, see our Update entitled “Nordion resolves 4-year anti-corruption investigation.”
Why the disparity of treatment between the U.S. enforcement authorities and the Canadian enforcement authorities in relation to Nordion Canada? Why have the Canadian authorities advised Nordion Canada that they will not pursue enforcement apparently for lack of evidence while the SEC imposed fines against Nordion Canada? The RCMP has not publicized its reasons for the declination to prosecute and some reports appear to suggest that the voluntary disclosure by Nordion was the prime motivation for the RCMP’s decision not to prosecute for lack of evidence.
We believe that while Nordion Canada’s voluntary disclosure and full cooperation may have paved the way for the RCMP closing its investigation against Nordion Canada, there are at least two plausible reasons grounded in law that explain the RCMP’s decision not to prosecute Nordion Canada:
- First, it appears from the information released by the SEC that: (i) the management of Nordion did not know that Mr. Gourevitch had concocted the bribery scheme because the arrangements were hidden from Nordion management including by the use of Russian in communications between Mr. Gourevitch and the Agent; and (ii) that Mr. Gourevitch is said to have received a kickback. These facts would suggest that the company could credibly have claimed that Mr. Gourevitch was a “rogue” employee engaging in deception against the company and indeed participating in unlawful acts that would never have been condoned by the company. In this regard, Nordion’s prompt self-disclosure of the findings of its internal investigation to the authorities in Canada and the United States; its actions in hiring outside counsel and forensic auditors to review and update its policies, procedures and internal controls even while it was conducting an independent investigation; termination of all contracts with the Agent, dismissal of Mr. Gourevitch (who has since apparently departed from Canada and is said to be living in Israel), and implementation of extensive remedial measures (described in our previous Update) all likely provided credibility to Nordion’s position that the bribery scheme was known only to Mr Gourevitch. In these circumstances it would appear that both the U.S. enforcement authorities and the RCMP likely believed that the company should not be charged with bribery notwithstanding theories of corporate liability and the existence of provisions in legislation that in appropriate factual conditions allow for the attribution of actions of employees to the corporate employer.
- Second, the settlement entered into between Nordion Canada and the SEC was with respect to the books and records and internal controls provisions of the Foreign Corrupt Practices Act, for which the SEC has a civil enforcement mandate against public companies listed on a U.S. securities exchange. Here the acts in issue occurred in the years 2002 to 2011, when Canada did not yet have a books and records provision. As of mid-2013 the Corruption of Foreign Public Officials Act (CFPOA) now contains a books and records offence, applicable to both private and public companies, allowing for criminal liability to be attached. However, Canada does not have a civil offence in the CFPOA relating to incorrect books and records or failure to have internal controls. Therefore, the RCMP was likely handicapped in pursuing the books and records violations as the events in issue occurred prior to the coming into force of the books and records amendments to the CFPOA and in any case proof of criminal intent is more difficult to assemble than is the case with the claimed civil violation under applicable U.S. laws.
At this time it is not known whether the RCMP intends to take enforcement action against Mr. Gourevitch, who was at the time of the events at issue a dual Canadian-Israeli national. As noted above, latest information suggests that he currently resides in Israel.