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Busting Bribery

Ophelie Brunelle Quraishi and Peter Dent on how Canada is fighting corruption.

By: /
6 April, 2013
By: Ophelie Brunelle Quraishi
Ophelie Brunelle Quraishi is a manager and lawyer within Deloitte Forensic and has previous experience as a public prosecutions attorney prosecuting white collar and organized crime.
By: Peter Dent
Peter Dent is a Partner and the National Leader of Deloitte Forensic, which provides services to clients related to financial crime risk.

Bill S-14 was submitted on February 5th 2013, proposing several significant changes to Canada’s anti-corruption law, called the Corruption of Foreign Public Officials Act (CFPOA). The bill seeks to include increased terms of imprisonment, the prohibition of facilitation payments, the application of the law to not-for-profit organizations, new provisions in regards to books and records, and a broader jurisdictional reach. What impact would this proposed change have?

The law’s main purpose is to criminalize the bribery of foreign government officials by individuals and companies, similar to the Foreign Corrupt Practices Act (FCPA) of 1977 and the 2010 UK Bribery Act. Under the CFPOA, the current maximum sentence is 5 years imprisonment, with penalties that are left up to the court’s discretion. Bill S-14 proposes to increase the maximum sentence from 5 years to 14 years for bribery offences, bringing the maximum sentence in line with corruption and fraud offences in the Criminal Code. This has been an area of consistent criticism by the Organization of Economic Co-operation and Development (“OECD”) in their evaluation of Canadian anti-corruption legislation and enforcement.  

The OECD commended Canada for adopting other criminal measures, but also issued several recommendations in their most recent evaluation of Canada in 2011, including that sanctions under the CFPOA be effective and dissuasive. These criticisms are understandable, as we have only recently started to see prosecutions under the CFPOA, a law that dates back almost fifteen years. 

These proposed changes are bound to impact the relative importance given to anti-corruption compliance programs and other proactive measures amongst senior executives and corporate Boards.  To date, it has primarily been the largest Canadian companies that have implemented robust anti-corruption programs. The evaluation of changes to existing Director and Officer liability insurance requires reflection.  However, it is safe to say that the CFPOA is emerging from the legislative wilderness of Canadian criminal jurisprudence.

Another important outcome of Bill S-14 is the eventual removal of the current facilitation payments exception. Facilitation payments, or “grease” payments, are currently an exception permitted under the Canadian anti-corruption law.  In effect, the CFPOA currently tolerates Canadian companies making relatively small payments to foreign government officials, with certain restrictions, which would be considered violations of domestic bribery legislation in those foreign jurisdictions.  Some examples, for which facilitation payments are made, include the issuance of permits, licenses, and the processing of visas and work permits. The language of this proposed amendment includes the word “eventual” when referring to the elimination of the facilitation payment exemption.  Of all the amendments proposed by Bill S-14, it is the only one to use this term.  Furthermore, the proposed language indicates that this amendment will take place at a later date to be set by Cabinet, begging the question as to how quickly Canadian entities would need to be concerned about enforcement.  

Canada is one of five countries around the world that currently has a facilitation payments exception within its legislative framework, alongside the United States, New Zealand, South Korea, and Australia. In the US, facilitation payments fall under an exception in the FCPA and are still permitted, notwithstanding the OECD’s recommendations of 2009, which encourage the prohibition of these payments. In Australia, public consultation on the removal of the facilitation payments exception was sought between late 2011 and early 2012 by the federal government.

Although the results are yet to be published, it is likely that changes are under way. The UK’s recent anti-bribery law prohibiting facilitation payments as well as the OECD’s watchful eye may be of influence in this area going forward.  Therefore, this proposed amendment should not be overlooked: Canadian nationals, corporations, and non-profits will need to adapt their policies to this new prohibition given the shrinking tolerance for such payments.

A cross-cutting amendment of Bill S-14 relates to the maintenance of adequate books and records and the falsification of internal documents. As the Canadian legislative framework now stands, falsification and forgery offences are covered by the Canadian Criminal Code, the Income Tax Act, and the Canada Business Corporations Act. However, these laws do not specify what constitutes adequate books and records. Additionally, provincial securities commissions may bring civil suits for failing to comply with Canadian Generally Accepted Accounting Principles (“GAAP”), but there are legal obstacles to them sharing information or evidence obtained on a non-voluntary basis with other law enforcement authorities.1 These criticisms are among many voiced by the OECD. Bill S-14 responds to these criticisms by proposing a books and records requirement, punishable by a maximum of 14 years of imprisonment and unlimited fines. What constitutes “adequate books and records” remains to be seen.

Although the prohibition of falsifying records might seem straightforward, how does one otherwise measure the adequacy of company records? The proposed amendments do not give any specifics but the proposed change may make prosecutions under the CFPOA easier as it is rare indeed for companies to properly account for bribes. The interpretation given by the courts will most likely clarify the breadth of this new requirement, but in the meantime, companies might be left in the dark. However, entities operating under the FCPA’s reach must already comply with strict accounting provisions.

Bill S-14 also proposes to remove the “for profit” requirement that now exists within the CFPOA, meaning that not-for-profit organizations would ostensibly also have to comply with the amended law. In the CFPOA’s current version, the term “business” is specified as applicable to organizations operating for profit only. Interestingly, Canada is the only OECD Member State signatory to have made this distinction. The OECD strongly recommended that the Canadian government modify this definition because its application was unclear.  For example, does the “profit” requirement apply only to the transaction itself or to the entity carrying out the bribe? The OECD viewed that such a requirement was an obstacle to the law’s proper enforcement.

What consequences could this legislative change bring to Non-Governmental Organizations operating in high-risk countries? How will this amendment affect how humanitarian organizations carry out their day-to-day activities abroad? Although the effects of the proposed changes have yet to be determined, these are some of the questions not-for-profit organizations will have to face.

Another proposed amendment widens the CFPOA’s jurisdiction, allowing the prosecution of bribery offences committed outside Canada if the individual is a Canadian citizen, a permanent resident, or an entity incorporated or formed under the laws of Canada or one of the provinces. This nationality clause will allow the Canadian government to exercise its jurisdiction over all individuals, companies, and not-for-profit organizations with Canadian nationality, regardless of where the bribery offence takes place. This clarification in jurisdiction will facilitate prosecutions abroad where Canadian corporations have subsidiaries employing Canadian citizens.

Although Bill S-14 does not address all its’ international critics, the proposed amendments may serve to increase the number of prosecutions and convictions under the CFPOA in the near future. Companies and not-for-profit organizations will have no choice but to revise their compliance programs, employee training, and due diligence requirements on business partners as part of their on-going business activities and any upcoming mergers and/or acquisitions.

Peter Dent spoke at the April 3rd Toronto Branch event, Tackling Corruption: What Companies Need to Know When Doing Business Abroad.

1 R. c. Jarvis, [2002] 3 R.C.S. 757, 2002 CSC 73

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