U.S. DOJ and SEC update Foreign Corrupt Practices Act guidance
As we have discussed on a number of occasions, the approach taken to investigating and prosecuting financial crime in the United States is significantly different than that taken in Canada. In Canada, foreign corrupt practices are largely the purview of federal law enforcement, whereas in the United States, enforcement of similar activity is often undertaken in partnership by capital markets regulators and federal prosecutors. On Friday, July 3, 2020, the U.S. Department of Justice (the “DOJ”) and Securities and Exchange Commission (the “SEC”), jointly, issued the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Guidance”). The updated Guidance can be found here. The Guidance is a comprehensive manual aimed at helping companies and practitioners navigate the Foreign Corrupt Practices Act (“FCPA”). This is the first update to the Guidance since its publication in 2012.
Foreign bribery legislation in Canada, the U.S. and the U.K.
The FCPA, like the Canadian equivalent Corruption of Foreign Public Officials Act (the “CFPOA”), makes it a domestic offence to engage in foreign bribery overseas. It is the principal statute in the U.S. governing foreign corruption and bribery. Specifically, the FCPA and CFPOA include two main offences: the bribery offence, prohibiting corrupt payments to foreign public officials, and the books and records/accounting offence, targeted at preventing companies from hiding bribery through false or deficient accounting practices. Canadian companies, in addition to being subject to the CFPOA, may also be subject to the FCPA if, among other things, they conduct business in the U.S. or are traded on U.S. exchanges.
The FCPA is enforced criminally by the DOJ and civilly by the SEC. In 2012, the DOJ and SEC jointly issued the First Edition of the Guidance, which, although “non-binding, informal, and summary in nature”, serves as a key resource for businesses in ensuring compliance with the FCPA. In addition to serving as guidance to Canadian companies subject to the FCPA, the Guidance is also an important resource for best practices in complying with the CFPOA. The Canadian government – unlike the SEC and the DOJ’s Guidance and the U.K. Serious Frauds Office’s guidance under the U.K. Bribery Act – has not issued formal guidance regarding foreign corruption compliance, leaving Canadian companies to look to best practices under equivalent foreign legislation.
The Second Edition issued by the DOJ and SEC on July 3rd represents the first update to the U.S. Guidance since it was initially issued in 2012.
Key changes to the Guidance
While much of the original Guidance still holds true, the Second Edition covers many important changes that have occurred since 2012, notably relating to the expanding body of case law interpreting the FCPA. These updates include:
- offering updated guidance on the definition of “foreign official”;
- providing additional case law examples and hypotheticals, notably relating to the FCPA’s jurisdictional reach and its foreign written laws affirmative defense;
- elaborating on the hallmarks of an effective compliance program;
- addressing certain legal standards, including the mens rea requirement for criminal violations of books and records and internal control provisions, as well as the statute of limitation for criminal violations of the accounting provision; and
- summarizing new DOJ and SEC policies applicable to the FCPA that have been announced in their continuing efforts to provide increased transparency.
Takeaways for Canadian businesses
As discussed above, Canadian businesses are not immune from investigation and prosecution under the FCPA. U.S. anti-corruption enforcement has increased dramatically in recent years, with fines routinely in the hundreds of millions of dollars. Although the jurisdiction in which a company is prosecuted will depend on the facts of any given case, the majority of regulatory actions under the FCPA are against non-U.S. companies. Companies facing the prospect of an investigation by U.S. regulators should seek advice from counsel as to how to navigate both Canadian and U.S. foreign bribery laws.
In addition, as discussed above, in the absence of formal guidance from Canadian regulators regarding anti-corruption compliance, the U.S. Guidance – which contains useful procedures and best practices for companies regardless of where they are operating – is a valuable resource in ensuring compliance with the CFPOA. Although enforcement activity under the CFPOA has been sparse over recent years, Canadian companies should expect increased enforcement over foreign and domestic bribery offences, in particular in light of international criticism for Canada’s perceived lack of enforcement.
Companies should have effective compliance programs in place prohibiting corruption in all its forms and establishing appropriate internal controls to avoid or minimize future regulatory enforcement including fines and potential jail terms for individuals involved. These compliance programs should also include internal whistleblower reporting systems, and companies should actively investigate allegations. In addition to prohibiting corruption, companies must also maintain books and records and set up internal controls designed to ensure bribery does not occur.