Pack your Compliance Program with your Passport - Foreign Corruption and Competition Risks for Firms Doing Business Internationally
In June
2011, Niko Resources Ltd., a TSX-listed oil and gas exploration and production
company, was convicted on charges laid under Canada’s Corruption of Foreign Public Officials Act (CFPOA) and fined $9.5
million. The CFPOA prohibits giving or offering a loan, reward, advantage or
benefit of any kind to a foreign public official, where the purpose is to
obtain or retain a business advantage. Niko ran afoul of these requirements
when its local representatives purchased a vehicle and paid travel and
accommodation expenses for a senior government official in Bangladesh.1
The CFPOA
has been in force since 1999, yet has resulted in very little enforcement
activity. Canada has faced international
criticism, most recently from the OECD, for its failure to act in foreign bribery
cases. The Niko case should serve as notice that Canada is stepping up
enforcement under the CFPOA, as should recent RCMP revelations that there are
30 foreign corruption investigations currently under way in Canada. Canadian
companies engaged in foreign government contracting or in dealing with
government officials in relation to resource exploration and development (e.g.,
mining, oil and gas) must take particular care to ensure that effective
corporate policies prohibiting bribery are in place and that local staff in
foreign jurisdictions are adequately trained. Such companies may also face
prosecution under anti-bribery laws implemented by Canada’s trading partners:
the U.S. Department of Justice has sharply increased its prosecution of
companies and individuals for foreign corruption in recent years, and a strict
newanti-bribery lawwas introduced in the U.K. effective in
July 2011. As an example of the dramatic
enforcement action that can occur, RCMP officers executed search warrants at
the offices of SNC-Lavalin in September 2011, allegedly looking for evidence
relating to a World Bank funded project in Bangladesh.
The RCMP’s
foreign corruption task force might look to Canada’s Competition Bureau as a
model for ramping up enforcement of the CFPOA. The Competition Act prohibits price-fixing, market allocation, supply
restriction agreements and bid-rigging with an effect in Canada, even when
these agreements are entered into outside Canada. As with foreign corruption,
it is difficult to detect cartel and bid-rigging activities since such
activities are by their very nature covert. Notwithstanding these challenges,
the Competition Bureau has built a strong track record of enforcing the
criminal provisions of Canada’s Competition
Act against international cartels, most recently obtaining a $12.5 million
fine in a case involving international price-fixing for polyurethane foam. This
track record may be linked to several factors, which find parallels in foreign
corruption proceedings:
- Role of
whistleblowers – The Competition Bureau has put in place programs under
which it will recommend that the first-in cooperating party to report illegal
activity receives full immunity from prosecution, and that second-in and later
cooperating parties receive reduced sentences. These immunity and leniency
programs provide very significant incentives to corporate whistleblowers. No
similar immunity or leniency program is available under the CFPOA; however, it
is well known that whistleblowers can play a significant role in corruption
prosecutions.
- International
enforcement cooperation – Canada’s Competition Bureau cooperates closely
with its international counterparts in the US and Europe in cartel and
bid-rigging investigations, by sharing investigative information, coordinating
searches/dawn raids and communicating with each other on strategy throughout an
investigation. We expect that Canada will similarly benefit from cooperation
with, and expertise offered by, its foreign counterparts as it ramps up
enforcement under the CFPOA.
- Willingness
to target individuals – In recent years, the Competition Bureau has been
increasingly willing to target individuals and to seek a sentence of (house
arrest) imprisonment for cartel and bid-rigging offences. We understand that
the U.S. Department of Justice is seeking and obtaining jail time for
individuals convicted of violating its foreign corruption laws. It remains to
be seen whether Canada will begin targeting individuals under the CFPOA. The threat of individual sanctions would add
a powerful deterrent for executives considering such conduct and make them
vulnerable to corporate whistleblowers.
- Use of
invasive enforcement tools – Search warrants have been a longstanding tool
in the Competition Bureau’s arsenal, and domestic or international “dawn raids”
are standard in almost all significant cartel investigations. Searches are also
an important tool for detecting alleged foreign corruption. In recent years,
the Competition Bureau has relied on wiretap and other forms of surveillance evidence
in its cases. These tools allow the Competition Bureau to infiltrate a cartel
and collect “live” evidence of illegal conduct as it occurs. We understand that
U.S. authorities actively use wiretapping and “sting” operations in collecting
evidence in foreign corruption cases. It remains to be seen whether these tools
will also be used in CFPOA cases.
In the
United States, there have also been cases that have involved both antitrust/competition law and FCPA
violations. The Bridgestone case is an example: Bridgestone recently agreed to
plead guilty and to pay a US$28 million fine for its role in conspiracies to
rig bids and to make corrupt payments to foreign government officials related
to the sale of marine hose and other products. Any bid-rigging case involving
public procurement markets may also raise similar concerns about corruption –
does implementing the cartel require corrupt payments to public officials to
ensure that the bidder to whom a bid is allocated actually wins the bid?
While it
is not yet clear whether Canada will be as successful pursuing cases under the
CFPOA as it has been under the criminal provisions of the Competition Act, enforcement activity under both statutes raises
the stakes for companies doing business in Canada and internationally,
including mining companies. In this environment, the best way to reduce risk is
through the implementation of effective compliance programs. The key elements
of a credible and effective compliance program, whether it is geared at
competition or foreign corruption laws, include senior management support,
clear internal policies and procedures (e.g., a “Do's and Don'ts” guideline),
ongoing training, compliance monitoring and audits, whistleblower reporting
mechanisms and consistent disciplinary procedures to punish non-compliance.
Osler has
significant and relevant experience in assisting companies in the design and
monitoring of compliance programs so as to help prevent the shock and damage of
criminal competition law and corruption investigations. The authors of this
article would be glad to assist you in your efforts to reduce your risk in
these areas, or to answer any questions you may have.
1 For a more comprehensive review of the Niko Resources decision, see our Osler update from June 27, 2011, on the case.