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.