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Closing Our Eyes to Corruption

When it comes to fighting corrupt business practices abroad, Canada has little to be proud of argue Brett House and David G. Landry.

By: /
9 December, 2013
Brett House
By: Brett House

Deputy chief economist, Scotiabank

Monday marks the 10th anniversary of the United Nations’ International Anti-Corruption Day. Canada should embrace Dec. 9 as a day of national resolve to weed out graft: we have a lot of work to do.

Senate expense scandals, kick-backs to municipal politicians and a continuing investigation of SNC-Lavalin related to alleged bribes in the developing world all belie Canada’s squeaky-clean self-image.

Yet, despite the alarms sounded by each of these debacles, Canada’s stance on foreign corruption by our companies remains lax. We lag behind other countries’ efforts to stop this fraud.

Corruption costs the world economy more than 5 per cent of global output every year according to the World Economic Forum (WEF). That’s equivalent to over more than $3.6-trillion (U.S.) annually. Canada needs to do its part to prevent corruption and to root it out whenever it’s discovered – at home and abroad.

Until the early 1990s, bribes paid to foreign officials were considered a tax-deductible business expense by our federal government. The United States outlawed such payments in 1977.

Canada’s 1998 Corruption of Foreign Public Officials Act (CFPOA) definitively outlawed foreign bribes and ratified Canada’s participation in the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Still, it took ten more years for the RCMP to create two dedicated investigative teams to enforce the act.

In June, 2013, the federal government passed amendments to toughen the CFPOA and bring Canada into compliance with the OECD Convention. Oddly, Bill S-14, which effected these changes, was introduced through the Senate rather than the House of Commons, thereby implying limited government ownership of the reforms. Enforcement of these reforms has remained weak.

It’s no coincidence, then, that Canada has more companies banned from World Bank procurement bids than any other nation. Canadian firms account for 119 of more than 600 firms debarred for corrupt practices, compared with 44 for the United States.

Most of Canada’s 119 black-listed companies are numbered entities and obscure single-project subsidiaries related to SNC-Lavalin, as are at least 14 American firms. This doesn’t minimize the problem: it should make us wonder why we haven’t made quicker progress on resolving it.

A big reason is that we’re barely trying. In 2012, Canada initiated only two new investigations of Canadian firms’ conduct abroad, compared with 24 in the United States and an average of 8 across all G7 countries.

Canadian investigations are hamstrung by the lack of any whistle-blower incentives of the sort that have worked well in the United States.

Canadian anti-corruption action is further hampered by laws that prevent tax authorities from sharing with the RCMP evidence of foreign bribes that surfaces in tax audits. In the United States, tax-audit findings can be shared with the relevant investigative bodies.

Finally, enforcement is undercut because the CFPOA is a purely criminal statute. It requires a very high standard of proof compared with the mix of civil and criminal provisions contained in American foreign anti-corruption legislation. Where it might be impossible to meet the evidentiary requirements for criminal bribery charges, it can be much easier to lay civil charges when a firm’s books have been cooked to cover up illegal payments.

Canada’s weak enforcement regime hasn’t gone unnoticed. Transparency International (TI)’s annual report notes that Canada exercised “little to no enforcement of the OECD Anti-Bribery Convention” between 2005 and 2011. After a brief improvement in 2012, Canada has fallen back to its scofflaw ways. In fact, Canada has been the worst performer amongst the G7 countries for eight of the last nine years.

In contrast, TI lauds the United States for the “most developed and active” legal and enforcement regime to fight global corruption.

Still, the Canadian government continues to drag its feet on even a limited agenda to improve our anti-corruption frameworks.

Bill C-474, a Liberal private-member’s bill that would force companies in extractive industries to publish all of their payments made abroad, has been stuck in Parliament since early this year. SNC-Lavalin’s recent history shows us, however, that we need to go well beyond extractive industries to ensure all firms publish their foreign payments.

We also need to do more to support foreign governments’ efforts under the Extractive Industries Transparency Initiative (EITI) to force Canadian companies operating in their territory to disclose all of their payments.

At this year’s G8 Summit, Canada refused to join the rest of the G8 in an agreement on greater transparency on cross-border taxes and corporate ownership. The alternative action plan proposed by Prime Minister Stephen Harper has so far been all talk and no action.

It’s hard to think of a more quintessentially conservative project than the fight against foreign corruption by Canadian companies. Which makes it even harder to understand why this Conservative government hasn’t taken this cause to heart.

It’s time to clean up our act.

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