Risk Management and Crisis Response Blog

U.S. regulators coordinate enforcement of violations involving the FCPA

Apr 4, 2019 4 MIN READ
Lawrence E. Ritchie

Partner, Disputes, Toronto

While many in Canada lament the ‘fragmented’ financial regulatory environment that is a hallmark of  its constitutional division of powers (see our blog post on the 2018 Supreme Court case on pan-Canadian securities regulation), navigating overlapping white collar law enforcement initiatives at the federal level of the United States poses its  own challenges. In early March 2019, the U.S. Commodity Futures Trading Commission (“CFTC”) Division of Enforcement announced that it would pursue investigations into potential violations of the Commodity Exchange Act (“CEA”) involving foreign corrupt practices, requiring it to consider and coordinate efforts with the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”). The CFTC Division of Enforcement Director James MacDonald emphasized that, while the CFTC’s focus remains on fraud, manipulation, false reporting and other violations under the CEA, it will take its own action against misconduct it identifies as a violation of the FCPA. Director MacDonald announced that the CFTC issued new guidance on self-reporting violations of the Commodity Exchange Act (“CEA”) involving foreign corrupt practices.

CFTC New Enforcement Advisory

The new Enforcement Advisory issued on March 6, 2019 provides that, absent any aggravating circumstances, the Division of Enforcement will recommend a resolution with no civil monetary penalty where companies and individuals not registered (and not required to be registered) with the CFTC timely and voluntarily disclose violations of the CEA involving foreign corrupt practices, and fully cooperate and remediate. In these circumstances, the Division would still require payment of all disgorgement, forfeiture and restitution resulting from the misconduct at issue. The Division may also seek substantial civil monetary penalties from companies or individuals implicated in the misconduct that were not involved in voluntarily self-reporting.

Enforcement Director James MacDonald announced the new Enforcement Advisory at the American Bar Association’s (ABA) National Institute on White Collar Crime conference held on March 6, 2019. He emphasized that the CFTC is working with other enforcement agencies to consider when actions that may violate the FCPA may also violate the CEA, and to coordinate efforts with other regulators to avoid duplication.

Director McDonald gave examples – based on current investigations – of the types of misconduct that may be under the CFTC’s purview. For instances, bribes that are used to secure business in connection with CFTC-regulated activities, such as trading, advising or dealing in swaps or derivatives over which the CFTC has jurisdiction, using corrupt practices to manipulate pricing benchmarks for derivatives contracts, or altering commodity market prices through corrupt practices that could affect derivatives prices.

Impact on Canadian businesses and contrast to Canada’s enforcement regime

The FCPA is a U.S. statute which seeks to criminalize foreign bribery and corrupt practices implemented by American businesses abroad. Canadian businesses are not immune from investigation and prosecution under the FCPA, since companies based in Canada that trade on an American stock exchange may be subject to prosecution under both the FCPA and Canada’s corresponding legislation, the Corruption of Foreign Public Officials Act (“CFPOA”).

While in the U.S. a number of bodies and agencies that are engaged in investigating and enforcing the FCPA, Canada does not have a non-police regulatory agency responsible for the investigation of foreign anti-corruption matters in Canada. The CFPOA and domestic bribery and corruption (which is governed by the Criminal Code) are addressed as police matters and enforced by the RCMP. In Québec, anti-corruption compliance is also enforced by the Unité permanent anticorruption (“UPAC”) pursuant to Quebec’s Anti-Corruption Act.

The lack of engagement of financial agencies in similar foreign corruption enforcement initiatives may be one reason for the less robust investigation and enforcement of Canada’s anti-corruption regime, in contrast to the U.S. It also provides less incentive for companies to proactively self-report wrongdoing. Canada’s recent introduction of a deferred prosecution agreement regime is seen as a positive step towards enhancing Canada’s ability to identify and address corporate wrongdoing.