According to statistics released by the International Monetary Fund, 12 of the 20 fastest-growing economies into 2015 will be African nations. Opportunities are thriving for investors seeking to tap into Africa’s increasingly attractive business environment. While there have been improvements in governance and security in the past decade, the region’s history of instability and corruption continues to be a source of concern for companies operating in this region.
This source of concern is compounded by domestic legislation in a number of developed nations that prohibits bribery of foreign public officials. In Canada, the primary legislation prohibiting bribery of foreign public officials is the Corruption of Foreign Public Officials Act (CFPOA or the Act). Recent amendments to the CFPOA, and robust enforcement activity by the Royal Canadian Mounted Police (RCMP) following years of inactivity, have increased the risk of criminal and civil liability from anti-corruption legislation for Canadian companies with African operations.
The CFPOA is far-reaching legislation which criminalizes the provision of a benefit to a foreign government official as consideration for an act or omission by the official in connection with their duties, or to induce the official to influence any acts or decisions of the government or organization for which they perform duties or functions. The CFPOA applies to the worldwide conduct of Canadian citizens and corporations. Canadian authorities can prosecute Canadian corporations or citizens for a bribe occurring in a foreign country even if the transaction occurs entirely outside of Canada. In addition, directors of companies can be held liable under the CFPOA for bribes extended on their behalf through third-party agents to foreign public officials if they knew or were wilfully blind to the fact that the bribe was being provided.
As noted above, amendments to the CFPOA were recently passed into law in 2013 which close a jurisdictional loophole, create new offences, and generally strengthen Canada’s international anti-corruption legislation. The significant amendments are as follows:
- Expansion of jurisdiction: Prior to the amendments, the CFPOA contained a significant loophole since some part of the formulation, initiation or commission of the offence had to take place in Canada. Since the CFPOA is directed at bribery occurring in foreign countries, this significantly hampered the ability of Canadian authorities to enforce the CFPOA in cases where the bribery occurred entirely in a foreign country. Under the amended provision, Canadian authorities can now prosecute any Canadian company or individual for a bribe occurring in a foreign country, even if the transaction takes place outside of Canada.
- Increased penalties: The amendments significantly increased the penalties for a violation of the CFPOA. The maximum imprisonment for a violation of the CFPOA is now 14 years, as compared to five years prior to the amendments. The maximum monetary penalty is still unlimited.
- Implementation of a books and records offence: This provision makes it an offence to conceal bribery in accounting records. While this new offence shares some similarity with the books and records provisions of the U.S. Foreign Corrupt Practices Act (FCPA), it is unlikely to have the same impact in Canada as it has had in the United States. In the U.S., a large number of FCPA settlements have been made pursuant to the books and records provisions, which includes civil resolution options, and are subject to a lower civil burden of proof. Conversely, in Canada the new books and records provisions are criminal, meaning that the authorities must prove an offence to the higher standard of proof. There remains no CFPOA civil resolution option in Canada.
- Removal of facilitation payment exception: Previously, facilitation payments, which are small payments made to low-level officials to secure or expedite performance of “acts of a routine nature,” were exempted from the CFPOA. Under the amendments, this exception will eventually be removed, subject to a further order of the governor in council. Once this is made, the CFPOA will be brought in line with the U.K. Bribery Act, which also prohibits facilitation payments. Critics say these amendments will pose a great challenge for Canadian companies operating in parts of Africa, where facilitation payments are often seen as a cost of doing business. For additional information on the amendments to the CFPOA, please see our June 2013 Blakes Bulletin: Canada Strengthens International Anti-Corruption Legislation.
It is evident that Canadian authorities are determined to continue their crackdown on foreign corruption and are sending a message to Canadian corporations that they expect them to comply with anti-corruption legislation. While a number of high-profile cases – and the recent legislative developments discussed above – have created significant concern among Canadian companies doing business abroad, it is possible to minimize risks by taking concrete steps to protect you and your company from anti-corruption law violations.
WHY IT IS IMPORTANT TO BE PREPARED
Anti-corruption law violations can result in significant fines and highly negative exposure for companies. Regardless of whether it is a financial institution that needs to carefully manage reputational risk or a company acquiring assets in a high-risk region which could result in successor liability, a robust anti-corruption compliance program can manage risk and add value by potentially avoiding millions of dollars in fines, as well as major reputational harm.
Anti-corruption compliance programs have also been shown to add value in international mergers and acquisitions. American and Canadian authorities have made clear their expectation that due diligence be conducted in international transactions when acquiring a company or assets located in a high-risk jurisdiction. Anti-corruption due diligence is regularly used during mergers or acquisitions in order to avoid successor liability for past offences by the target company. A robust anti-corruption compliance program creates value in mergers or acquisitions by alleviating the acquiring company’s concerns of potential successor liability due to past transgressions by the target. For additional information on anti-corruption due diligence, please see our July 2010 Blakes Bulletin: Importance of Anti-Corruption Due Diligence for International Transactions.
With significant potential fines and highly negative exposure for Canadian companies found guilty of a CFPOA offence, it is important to implement an anti-corruption compliance program to prevent anti-corruption law violations. The following strategies will help promote compliance:
- Conduct a risk assessment: An important first step is to identify the corruption risks faced by a company. Once areas of risk are identified, assess these risks, their likelihood and potential impact, prioritize resources accordingly and develop a compliance program.
- Develop an internal anti-corruption policy: The cornerstone of any compliance program is a clearly articulated corporate policy against corrupt behaviour. The policy should send a strong message from senior management that corruption is unacceptable. It should also establish limitations and thresholds and provide guidance on risk areas.
- Train employees and enforce an anti-corruption policy: An anti-corruption policy is only as effective as the rigour with which it is implemented and enforced. The goal is to create a top-down attitude of compliance. All employees should receive periodic compliance training on anti-corruption laws and the company’s anti-corruption policy.
- Utilize internal controls to identify and correct issues: Another component of an effective anti-corruption policy is a system of internal controls aimed at preventing corruption from occurring. The goal is to develop and implement internal audit mechanisms, including accounting practices, and to identify and correct issues if and when they arise.
- Develop best practices for dealing with foreign agents and joint-venture partners: The best practice is to only engage a foreign agent where necessary and only with pre-approval from your company’s compliance officer. Adequate due diligence should be conducted and documented prior to hiring a foreign agent and/or before establishing a partnership abroad to ensure the foreign agent or joint-venture partner is reputable, properly qualified, and does not employ foreign officials.
Implementing these tips will help protect against violating anti-corruption legislation. For additional information on complying with anti-corruption legislation, please see our March 2010 Blakes Bulletin: The Long Reach of the Law: Practical Tips for Compliance with Anti-Corruption Legislation.