Sonja Pavic, Patrick G. Welsh, Daniel Fombonne, Riyaz Dattu
Feb 20, 2015
On February 19, 2015, the RCMP National Division laid charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. (together SNC). Each entity was charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act (CFPOA) and one count of fraud under paragraph 380(1)(a) of the Criminal Code.
To the extent that certain Canadian businesses operating overseas have yet to implement a robust anti-corruption compliance program beyond a simple statement that company employees and agents are prohibited from bribing public officials, this prosecution is the final wake-up call for immediate action in stepping up anti-corruption corporate compliance and improving corporate governance. Furthermore, regardless of the outcome in this case, the laying of charges against this leading – and respected – Canadian public company confirms that the federal government is intent on rooting out corrupt behaviour on the part of Canadian companies, regardless of their reputation and size. This prosecution is also a dire reminder that events beginning from the time the CFPOA was made effective in 1999 can lead to prosecutions and convictions, as there is no limitation period based on the passage of time under the legislation.
These charges against SNC are the result of a three-year ongoing criminal investigation in which the RCMP investigated the company’s business dealings in Libya. The alleged criminal activities took place over 10 years between 2001 and 2011 and relate to $47.7 million in alleged bribes to public officials, and a supposed $130-million fraud in relation to the construction of the Great Man Made River Project in Libya. Three individuals have already been charged as part of the Libya-related investigation, including former SNC executive vice-president Riadh Ben Aissa, who was extradited to Canada in October following the entering of a plea agreement in Switzerland. Several other former SNC-Lavalin executives and employees have been charged in connection with an investigation into a bridge building project in Bangladesh, and the company’s operations in Algeria have also been under investigation.
Canadian Bribery and Anti-Corruption Legal Regime
Bribery has been defined by Canadian jurisprudence as “the receiving or offering of any undue reward by or to any person whatsoever in a public office in order to influence his behaviour in office and induce him to act contrary to the known rules of honesty and integrity.” Anti-bribery in Canada is enforced principally under two statutes: the CFPOA in relation to foreign business activities and the Criminal Code in relation to business carried out within Canada.
The CFPOA makes it an offence to bribe a foreign public official. Under paragraph 3(1)(b), a person commits an offence by – directly or indirectly – giving, offering or agreeing to give a loan, reward, advantage or benefit of any kind to a foreign public officer in order to induce the official to influence acts or decisions of the foreign state or public international organization for which the official performs duties or functions. The act or intention to act must be done in order to retain or obtain an advantage in the course of business. The range of officials covered under the statute includes not only direct employees of foreign states, but also persons performing public duties for foreign states, including those employed by boards, commissions, corporations, or other bodies or authorities performing those duties or functions. Bribes may be given, offered, or agreed to be given or offered not only to the foreign public official, but to any person (such as a family member) for that person’s benefit. Companies are liable to unlimited corporate fines, with individuals liable to a maximum of 14-year imprisonment if found guilty of an indictable offence.
When it was first made effective in 1999, the CFPOA excluded facilitation payments (i.e., payments made to expedite or secure the performance by a foreign public official of a routine act that is part of the official’s duties, such as the issuance of visas and work permits). In June 2013, significant amendments came into force that, among other things, expanded prosecutorial jurisdiction, increased the maximum prison term from five years to 14 years, and created new books and record-keeping requirements. As well, as part of the amendments, the facilitation payments exception will be eliminated on a date to be fixed by an order of the federal Cabinet. These far-reaching amendments are a strong signal from the Canadian government that it intends to continue ramping up its anti-corruption efforts. The legislative changes are discussed in more detail in our Osler Update from June 2013.
The Criminal Code contains several anti-corruption and bribery provisions, including provisions that address crimes of “corruption and disobedience,” such as frauds on the government and criminal breach of trust by public officer, along with other provisions such as fraud and a “secret commissions” offence.
Previous Canadian Prosecutions
The Canadian government has, to date, successfully prosecuted three Canadian companies: Hydro Kleen Group, Niko Resources Ltd. (Niko) and Griffiths Energy International Inc (GEI). The companies were charged under paragraph 3(1)(b) of the CFPOA, the basis for one of the charges against SNC.
Niko was the first company that faced significant penalties under the CFPOA. It pleaded guilty to a single bribery charge and was fined a $9.5-million fine and put on three years’ probation in June 2011. This TSX-listed international oil and natural gas exploration and production company had been negotiating a gas pricing contract with the government of Bangladesh. Subsequent to two explosions at its northeastern Bangladesh natural gas field, Niko’s Bangladesh subsidiary provided a vehicle worth approximately $190,000 to the Bangladeshi Energy Minister and covered $5,000 of his travel costs for a personal side trip he made while in North America which was added on to his legitimate business trip to Calgary.
The second prosecution concerned GEI following its voluntary disclosure, precipitated by its planned initial public offering and the internal investigation as part of the due diligence process required by investment bankers for the offering. It agreed to plead guilty for using the cover of sham consulting agreements to funnel payments in the amount of US$2 million to entities owned and controlled by Chad’s ambassador to Canada and his spouse. GEI entered a guilty plea and agreed to a fine of $10.35 million in January 2013.
Niko and GEI were both settled before going to trial. By contrast, in May 2014 Nazir Karigar, an agent for Ottawa-based technology company Cryptometrics Canada, was the first individual convicted under the CFPOA for conspiring to offer bribes to Air India officials and was sentenced to three years in jail. R. v. Karigar was in fact the first prosecution under the CFPOA that proceeded to trial. See our previous Osler Update for more information.
OECD and International Enforcement
The increased anti-corruption enforcement activity in Canada is a direct result of the OECD initiatives to ensure that signatory countries, such as Canada, live up to the legislative obligations they accepted by signing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. After facing harsh criticism from the OECD, Canada has significantly stepped up its enforcement.
Internationally, the most notorious investigation leading to the largest-ever fine was paid at the end of 2008 by Siemens to the U.S. authorities in the amount of $800 million, with a similar amount paid to the German enforcement authorities. Since then sky-high penalties have come to be expected in the United States. In the United Kingdom, the BAE Systems prosecution stands out, with payment of penalties to both the U.K. authorities and the U.S. authorities. Since then, the 2011 U.K. Bribery Act has made possible higher penalties in the United Kingdom, and the constraints on penalties in the prior U.K. legislation have been set aside.
In addition to having no limitation period, the CFPOA also allows judges to impose corporate fines at their discretion without a statutorily imposed upper limit. As noted previously, corporate officers can also be subject to imprisonment for a period of up to 14 years, and up to five years for their actions taken prior to June 2013.
The prosecution of SNC-Lavalin for foreign bribery and fraud may end up as the seminal event that will cause officers and directors of Canadian corporations to carefully review the activities of their overseas businesses including those of their agents, as well as their record-keeping and internal controls. One would expect that this will finally lead to the implementation of risk-based robust anti-corruption compliance programs for those Canadian companies operating overseas that have not yet heeded several prior wake-up calls.