With the recent shocking findings of the Oliphant Inquiry concerning apparently “gratuitous” cash payments to former prime minister Brian Mulroney, and the current high-profile Basi/Virk trial in British Columbia regarding allegations of bribery and corruption, it is perhaps time for a short lesson in the law related to corruption of public officials.
Governments around the world, including the Canadian federal government and the B.C. provincial government, have passed legislation aimed at eradicating corrupt practices involving government officials.
Canada ratified the United Nations Convention against Corruption in 2007. Both the Criminal Code and the Corruption of Foreign Public Officials Act (CFPOA) deal with corrupt practices involving government officials.
It is a criminal offence under the Criminal Code to offer to a public official, and for a public official to accept, any form of “bribe,” which is broadly defined to include any sort of loan, reward, advantage or benefit of any kind, as “consideration for co-operation, assistance, exercise of influence or an act or omission in connection with” the transaction of business related to government.
It is also an offence for anyone having dealings “of any kind” with the government to directly or indirectly pay a commission or reward to or to confer an advantage or benefit of any kind on an employee or official of the government or to a member of his or her family.
Under the CFPOA, it is an offence for a person in Canada to offer bribes to foreign government officials. The CFPOA states in section 3.1 that “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:
- as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or
- 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.
To date, enforcement action in Canada has been rare, but that may be changing. In May of this year Nazir Karigar was arrested and charged with corruption under the CFPOA. It is alleged that his Canadian company bribed an Indian government official to win a multimillion-dollar contract for the supply of a security system.
Similar legislation exists in the United States under the Foreign Corrupt Practices Act (FCPA). The FCPA has a long reach, and the United States has been far more vigorous in its enforcement with a number of significant prosecutions leading to the payment of hundreds of millions of dollars in penalties.
In a recent case, Paris-based Technip SA, an engineering and construction firm, agreed to pay a $240 million criminal penalty and settled a related civil complaint filed by the U.S. Securities Exchange Commission by paying a further $98 million in disgorgement of profits.
As will be apparent from the allegations against Mulroney and those pending against Virk and Basi, the task of identifying potentially corrupt practices is not always black and white.
For example, it is a commonly accepted business practice to woo clients and potential business partners through “entertainment” and “gifts.” But, when it comes to dealings with government officials, great care must be taken to ensure that the line between creating a convivial atmosphere in which to conduct business and a criminal transgression is not crossed.
When dealing with companies who have secured contracts with governments or government agencies, it will be prudent to investigate how those contracts were won.
This is certainly the case whenever dealing with companies who have secured government-sponsored contracts or contracts with underlying government permits or approvals, particularly in foreign jurisdictions where the custom of demanding “bakseesh” is well-entrenched and, at least historically, has been treated as an accepted business practice.
However, as is all too apparent, Canada is not immune to corrupt practices involving government officials.
Anti-corruption legislation in Canada and the United States is broadly drafted and can present serious risks for businesspeople who are not aware of the consequences. Particular care needs to be exercised in transactions involving joint ventures or the acquisition of businesses where the value is derived from government-sponsored contracts or contracts requiring government approvals or permits.
How were those contracts or the related government approvals and permits obtained? By their very nature, corrupt practices are conducted surreptitiously and so, are exceedingly difficult to uncover in any sort of standard due diligence process.
Given the sharpened focus on corrupt practices and the severity of the associated penalties, it is becoming increasingly common for parties to commercial agreements to demand specific representations and warranties to address the issue directly.
Contracting parties are often now expected to verify expressly that they have not engaged in any “corrupt” practices, including specifically any activity that violates the CFPOA or FCPA or other applicable legislation. Businesses would be wise to avoid any questionable practices involving government officials and to be extremely cautious in dealing with others who claim to be able to deliver government contracts or approvals.
This article appeared in the August 3-9, 2010 issue of Business in Vancouver.