On May 23, 2014, the Ontario Superior Court in Ottawa imposed the first prison sentence under Canada’s Corruption of Foreign Public Officials Act (CFPOA). Defendant Nazir Karigar was sentenced to three years imprisonment for conspiring to bribe Indian government officials. The sentence is significant not only because it is the first handed down under the CFPOA, but also because it continues a trend of increased focus on international anti-corruption enforcement by the Canadian government. The Court’s sentencing decision provides insights that will inform companies’ decisions with regard to their international anti-corruption policies and procedures. Those insights are relevant not only to Canadian companies, but also to many companies based outside of Canada, whose Canadian-based subsidiaries and employees are obligated to comply with the CFPOA.
The Corruption of Foreign Public Officials Act
The CFPOA was enacted in 1998 and became effective in 1999. It prohibits giving, offering or agreeing to give or offer “a loan, reward, advantage or benefit of any kind to a foreign public official. . .”1 The CFPOA also contains provisions requiring those subject to the law to maintain accurate books and records.2 It applies to Canadian companies, partnerships, citizens and permanent residents, regardless of where the prohibited conduct occurred.3
In March 2011, the Organization for Economic Cooperation and Development (“OECD”) Working Group on Bribery expressed concerns about the CFPOA in its Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Canada. The Working Group on Bribery declared that the CFPOA did not authorize sufficient penalties or grant broad enough jurisdiction, among other issues. The Canadian Parliament addressed those issues in 2013 when it made several amendments to the CFPOA, including the following:4
- extending jurisdiction to all Canadian citizens and permanent residents, as well as companies and partnerships formed or organized under the laws of Canada or a province;
- adding provisions requiring accurate accounting and prohibiting the use of false documents;
- increasing the maximum penalty from five to fourteen years of imprisonment;
- eliminating the CFPOA’s exception for facilitation payments; and
- eliminating the requirement that the prohibited conduct be conducted “for profit.”
Although the OECD Working Group on Bribery’s Phase 3 Report pointed out several shortcomings of the CFPOA, it acknowledged Canada’s progress in enforcing the law. The Working Group attributed the more active enforcement to the Royal Canadian Mountain Police (“RCMP”) international anti-corruption unit (“IACU”), which was formed in 2008.
Indeed, it appears that Canada’s international anti-corruption enforcement efforts have increased modestly. In 2013, Griffiths Energy International Inc. admitted to paying $2 million to officials in Chad to secure oil exploration blocks. Griffiths Energy pleaded guilty to violating the CFPOA and was fined over 10.3 million CAD. The fine was the largest ever imposed under the CFPOA. Previously, the largest fine handed down under the CFPOA was the approximately 9.5 million CAD fine paid by Niko Resources Ltd. in June 2011. Niko Resources pleaded guilty to violating the CFPOA and admitted that its Bangladesh subsidiary had provided a vehicle valued at over 190,000 CAD and other benefits to the Energy Minister of Bangladesh. In addition to these cases, the IACU was reported to have as many as thirty-five ongoing CFPOA investigations as of early 2013.5 High profile CFPOA investigations have been reported as ongoing, including those of Blackfire Exploration Ltd. and SNC-Lavalin Inc.
Canada may also be seeking to hold more individuals accountable for offenses. Karigar was the first individual prosecuted under the CFPOA,6 and Canada has since charged other individuals with violating the CFPOA. In 2012 and 2013, the RCMP charged several individuals from the engineering and construction firm SNC-Lavalin with CFPOA violations in connection with an alleged bribery scheme relating to a contract for supervision of the construction of a bridge in Bangladesh and related consulting services.7
Sentencing of Karigar
While working as an agent for Cryptometrics Canada, Karigar initiated a complex scheme in which he attempted to bribe an Indian Cabinet Minister and officials of Air India (a state-owned airline) to win a contract to supply facial recognition software. Evidence was inconclsuive as to whether a bribe was actually paid and Cryptometrics did not ultimately win the contract.8 In August 2013, the Ontario Superior Court of Justice convicted Karigar of agreeing to offer a bribe in violation of Section 3(1)(b) of the CFPOA.9
Karigar was sentenced three years imprisonment on May 23, 2014.10 In determining Karigar’s sentence, the Court analyzed the penalties imposed under the CFPOA in the three prior corporate cases, as well as sentences handed down under anti-fraud provisions of Canada’s Criminal Code (§ 380) and provisions criminalizing domestic corruption (§ 119-122 & 426). In deciding to impose a three-year sentence, Justice Charles T. Hackland identified four aggravating factors in the case:
- Karigar carried out a “sophisticated and carefully planned bribery scheme . . . [that] would have involved payment of millions of dollars in bribes . . .”;
- Karigar acted dishonestly in several ways, including by entering false competitive bids to create the appearance of a legitimate bidding process for the contract;
- Karigar held “a complete sense of entitlement” and even informed a Canadian trade commissioner that bribes had been paid and requested assistance from the Canadian government in closing the transaction; and
- Karigar “personally conceived of and orchestrated the bribery proposal . . .”
Justice Hackland also identified three mitigating factors:
- Karigar provides a “high level of co-operation” during his prosecution, including “expos[ing] the bribery scheme to authorities,” which avoided “a great deal of trail time”;
- Kariagar had no criminal history, was in his 60’s, and was “not in the best of health”; and
- “[T]he bribery scheme was a complete failure,” so the “harm resulting from the scheme was likely restricted to the promotion of corruption among a limited group of foreign public officials.”
In handing down the sentence, Justice Hackland warned that “any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary.”
The maximum sentence Karigar could have received was five years. Importantly, Justice Hackland stated that, although the amendment to the CFPOA lengthening the maximum sentence to fourteen years did not apply to Karigar’s conduct, the amendment “illustrate[s] Parliament’s recognition of the seriousness of this offence and of Canada’s obligation to implement appropriate sanctions.” Underscoring Canadian Courts’ intention to hold individuals and companies accountable for CFPOA violations, Justice Hackland stated, “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”11
Implications of the Karigar Sentence
If it is accepted that Canada’s recent enforcement actions, ongoing investigations, and the amendments to the CFPOA portend a generally more active level of enforcement of the law in the future, then Karigar’s sentence may be seen as a judicial endorsement of Canada’s more aggressive approach towards enforcing the CFPOA.
Due to the risks posed by increased CFPOA enforcement, companies based in Canada and any companies that have subsidiaries organized under Canadian law should ensure that their anti-corruption policies, procedures, and training are comprehensive as to the unique aspects of the CFPOA. This point is particularly important for U.S. companies with Canadian subsidiaries, since those companies’ anti-corruption policies are likely designed around the U.S. Foreign Corrupt Practices Act, and may not address issues presented by the CFPOA. For example, Canada-specific policies will need to account for the fact that the CFPOA contains no exception for facilitation payments and offers different bases for jurisdiction than the FCPA.
Karigar’s sentence provides some guidance to companies in considering their international anti-corruption policies and procedures. The Court’s consideration of Karigar’s “high level” of cooperation—which obviated the need for a trial—as a mitigating factor should be considered by companies and individuals when deciding whether to cooperate with investigations and prosecutions. Also noteworthy was Justice Hackland’s finding of Karigar’s “dishonesty” as an aggravating factor, which suggests Canadian courts will punish more harshly violators who falsify records in carrying out a bribery scheme. Companies’ internal controls should be tailored to prevent record falsification and other manipulation of company records and accounting.