Context

A growing number of Canadian companies are seeking to participate in projects in developing markets. As a result, it has never been more important for a business to ensure that it has in place the necessary controls to ensure it does not fall afoul of applicable international procurement and anti-corruption legislation.

Canadian public procurement procedures are perceived as commendable for their fairness and transparency. Carefully drafted rules and safeguards ensure that any organization seeking to bid on a government contract or project knows exactly what is expected of them, and how they must conduct themselves to be considered for the mandate. Clarity at all steps of the process allows participating organizations to set up their internal procedures and controls in a manner consistent with government and industry requirements.

Unfortunately, this standard of conduct is far from universal. Many international markets, particularly those which have undergone recent rapid economic growth, lack the regulatory framework and enforcement mechanisms necessary to ensure that public procurement is fair, transparent and insulated against corruption. The recent controversy surrounding the 2014 Sochi Olympic Games is one example. The vastly inflated expenditures associated with the construction of the infrastructure necessary for the games has been well documented, and evidence suggests that the reason for these increased costs is the poorly regulated and corrupt procurement framework currently in place there (the Russian law requiring state-owned companies to offer contracts through public tender only came into force in 2012 (see Joshua Yaffa, “Waste and Corruption of Vladimir Putin’s 2014 Winter Olympics”, Bloomberg Business Week, January 2, 2014).

Despite the poor regulation however, markets such as Russia can offer significant opportunities for development companies willing to play ball. Unfortunately it is often not understood that the consequences to Canadian companies for such conduct in international markets can result in criminal liability at home under the Corruption of Foreign Public Officials Act, or, less commonly, the Criminal Code.

The Criminal Code provisions governing bribery apply to any acts of bribery, as defined under the Act, where there is a “real and substantial link” between the offence and Canada (Legislative Summary of Bill S-14, s.1.1.1, citing Libman v. The Queen, [1985] 2 SCR 178). This relatively high standard is often difficult to meet, and as a result prosecutions under the Criminal Code for bribery outside of Canada are not common. The Corruption of Foreign Public Officials Act however is far more expansive in its scope. Bribery is dealt with in section 3(1):

3(1) Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees 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 public official

(a) as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or

(b) to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Essentially this means that where an act of bribery, such as a kickback or other improper payment, is made to a foreign public official by a Canadian citizen or company, they can face criminal liability, regardless of the connection to Canada.

Avoiding Liability

There are two ways that Canadian companies bidding on public mandates in foreign jurisdictions can ensure that they remain onside the requirements of the Canadian Criminal Code and Corruption of Foreign Public Officials Act. First, they must ensure that effective controls are established within the company which prohibit improper behaviour of the type described above cannot occur. Second, they must complete the necessary due diligence required to ensure that they fully understand the risks associated of with procurement initiatives in the market into which they hope to expand.

Assessing Risk: Proper Due Diligence

The decision to participate in a government procurement process in a developing market is not one which should be made lightly. A company could find itself entangled in a process from which it is difficult (or expensive) to escape, and as a result could end up in violation of Canadian law . The most effective way prevent such an eventuality is by ensuring that the decision to participate in a given procurement process is made having made every effort to understand the risks associated with it. It could be that established process in a given country requires the relationship between private and government parties be one fueled by gratuities which, while legal (or ignored) in that country, could result in severe sanctions in Canada.

Engaging a consultant capable of creating a risk-profile for a given market would be a necessary first step to avoiding any such pitfalls. Any existing anti-corruption and compliance policy should also be reconsidered in light of any new risks or practices present in that new market. An old or generic policy designed to ensure compliance in one market, might be less effective in a country where the process is markedly different.

Internal Controls: Anti-Corruption Compliance Policy

It is essential that proper internal controls be established to ensure that there is no risk of improper action on behalf of the corporation at any level; liability can flow from the actions of any employee, regardless of seniority. As a necessary first step, any company engaging in international commercial activities, whether procurement related or not, should have a well-established and comprehensive anti-corruption and compliance policy. A policy of this nature should ensure that employees are well informed with respect to what conduct is permissible, and that proper reporting mechanisms are in place so that employees will know to whom they should turn in circumstances where the proper course of action is uncertain. It is equally important to ensure that the policy considers the actions of third parties, such as consultants or advisors. Under the provisions of the Criminal Code and Corruption of Foreign Officials Act, a company can be held liable for the actions of those it engages to conduct business on its behalf.

Along with the adoption of an anti-corruption and compliance policy, effective enforcement mechanisms must also be established. The policy alone, if not properly administered, is of limited value. Along with the reporting mechanisms described above, the policy should clearly set out who in the organization is responsible for compliance matters, who they are responsible to, and the means by which they are to enforce the requirements of the policy.