Canada’s Corruption of Foreign Public Officials Act 1999

Legislatures around the world have passed laws prohibiting the bribing of foreign public officials to obtain or retain business opportunities. The American Foreign Corrupt Practices Act (FCPA) has received significant public attention recently due to several high-profile prosecutions. However, the Canadian equivalent to the FCPA – the Corruption of Foreign Public Officials Act (CFPOA) – has not yet been a significant concern for businesses that fall within its jurisdiction. But this may change soon. This bulletin provides an introduction to the CFPOA and contrasts it with the anti-bribery provisions of the FCPA, and provides a brief update on recent developments in Canada.¹

Offenses

Canada did not pass CFPOA until over 20 years after FCPA was passed in 1977. CFPOA was written in ratification of the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention).² The Convention was motivated by the view that bribery hinders both economic and political progress in several ways: it decreases the quality of goods, discourages fair competitive practices, impedes economic development and independence, and stifles advances in democracy and transparency in developing and developed nations alike.³ The Convention required ratification by five of the ten countries with the largest share of OECD exports, representing 60% of total combined exports. Canada’s ratification fulfilled this requirement.⁴

CFPOA and FCPA are analogous but not identical. While both have anti-bribery provisions, only FCPA has accounting and record-keeping provisions. Originally, a distinguishing element of the CFPOA was its provisions prohibiting the possession or laundering of property obtained through bribery. These prohibitions are no longer contained in text of CFPOA, but were instead repealed and consolidated with Canadian Criminal Code provisions prohibiting the laundering or possession of the proceeds of other criminal acts.⁵

Jurisdiction

Both acts give authorities jurisdiction to charge individuals as well as corporations. However, FCPA has a longer jurisdictional reach than CFPOA,applying to issuers in the US, domestic concerns and any person pursuing a bribery arrangement with a foreign official while within the territory of the US.⁶ The Canadian test for jurisdiction, determined by case law, is different and narrower.⁷ First, Canada will only try cases with a ‘real and substantial’ link to Canada. This means that a significant portion of the illegal activities will have to have been committed in Canadian territory or have a real impact on Canadians. While this issue has not been litigated, the involvement of a Canadian company or wholly owned subsidiary of a Canadian company may be sufficient to trigger the application of the CFPOA. Canadian companies may also be held liable for the acts of agents or contactors if the agent or contactor plays an important role in managing the company’s activities, or if an officer of the company knows about the agent or contactor’s conduct and does not take all reasonable measures to stop them. Secondly, before claiming jurisdiction, Canadian courts must consider whether or not hearing the matter would offend international comity, ie respect for the laws of other countries.

It should be noted that the jurisdiction of CFPOA may be broadened in the future. The Canadian Minister of Justice recently introduced a bill that proposes to amend CFPOA by extending its jurisdiction to Canadian individuals acting outside of Canada (comparable to domestic concerns under FCPA).⁸ The bill was read to the House of Commons for the first time during its most recent session.

Prohibitions

CFPOA provides that:

3(1)Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official:

as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or
to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organisation for which the official performs duties or functions (CFPOA, supra note 2 s3).

The Canadian and American anti-bribery offenses are similar, making compliance less complex for corporations that fall within both jurisdictions. Both acts forbid transferring or offering to transfer any type of benefit for the purpose of influencing a foreign official to misuse their power or influence. However, while FCPA requires the use of ‘any means or instrumentality of interstate commerce’ for conviction of issuers or domestic concerns, CFPOA offense does not (FCPA, 15 USC §§ 78dd-1(a) and 78dd-2(a)). Neither act requires that the conveyance be direct. Bribes given through an agent or received by a party other than an official are still prohibited if the ultimate goal is to influence an official by conferring a benefit. Both acts require that the purpose of the bribery be to obtain or retain a business advantage but neither require that the business arrangement in question include the recipient of the bribe or that the bribe be successful. Finally, both acts incorporate very similar definitions of ‘foreign public official’, which includes members of government bodies and public international organisations (CFPOA, supra note 2 at s2 and FCPA, 15 USC § 78dd-1(f)). One difference is that CFPOA explicitly includes the judiciary.

Defences

CFPOA and FCPA offer the same three defences to alleged violators with slight variances.

The first defence allows payments that are lawful under the laws and regulations of the foreign nation where they were received (FCPA, 15 USC §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1)). One key difference is that CFPOA defence does not require that the payment be lawful under the ‘written’ laws of the foreign nation as does FCPA. In Canada, the defence applies when the payment was either ‘permitted or required under the laws of the foreign state or public international organisation’ (CFPOA, supra note 2 at s3(3)(a)). Because of the lack of Canadian case law interpreting this provision, the ambit of the word ‘permitted’ is ambiguous and potentially broader.

The second defence allows reasonable expenditures made to develop a business relationship.⁹ This may include payments made for the purpose of demonstrating, promoting or explaining products or executing or performing obligations of a contract formed with a foreign government, but may not include entertainment or other, softer, expenses.

The third defence, exempts facilitation payments from the bribery prohibitions. Facilitation payments are defined as bribe-type payments made for the purpose of facilitating or expediting the performance of routine governmental actions.¹⁰ Examples of routine governmental actions include obtaining permits, processing government documents (including visas and work orders) and providing police protection, mail service, phone service, power and water. Both acts expressly provide that any payments made to influence a decision by a foreign official to ‘award new business or to continue business with a particular party’ are not facilitation payments (FCPA, 15 USC § 78dd-1(f)(3)(B) and CFPOA, s3(5)).

Sanctions

Unlike FCPA, which can be enforced through civil or criminal sanctions, CFPOA can only be enforced through criminal prosecution. Conviction for a CFPOA violation, an indictable offense, can result in imprisonment for up to five years (CFPOA, supra note 2 at s(3)(2)). There is no legal limit to fines imposed upon conviction of an indictable offense in Canada; the quantum is left to the discretion of the court.¹¹ There is also no Canadian statute of limitations for indictable offenses (CFPOA Guide, supra note 5 at 7). Because, as mentioned above, the Criminal Code prohibits the retention of the proceeds of crime, a convicted company may also be required to remit all profits obtained from the act of bribery.

Concerned parties should also be aware that bribes are not tax deductable in Canada.¹²

Therefore, even before considering the possible negative effects of conviction upon stock prices and corporate image, it is clear that violation of the CFPOA could be very costly. ¹³

Trends

Recent American enforcement actions, such as those against Baker Hughes and Siemens, have reminded the world of the potential severity of facing charges for violation of FCPA. It is clear that these are not isolated incidents. According to the US Department of Justice, it has laid more charges in the past five years than in the 26 years beforehand.¹⁴

Canadian authorities have not yet followed suit but there is evidence that the situation may change in the near future. The Royal Canadian Mounted Police established a special unit solely dedicated to investigating international bribery in 2008.¹⁵ The unit has been active, and at least one investigation is already underway concerning allegations of bribery on the part of a Calgary-based oil company in Bangladesh.16 In its annual report on the implementation of the Convention, Foreign Affairs and International Trade Canada reported a long list of efforts being conducted by numerous government departments in Canada to raise awareness and ensure compliance with Canadian anti-bribery law.17 As discussed above, another important development is the proposed amendments to CFPOA that would broaden its jurisdiction to Canadian nationals acting outside of Canada.

Conclusion

Corporations around the world have learned the importance of complying with FCPA. Although the CFPOA has not presented an imminent threat to date, this may not be the case in the future. For organisations doing business with government, compliance with CFPOA should be a priority.

By Paul Schabas, partner, andTony Wong, partner, Blake, Cassels & Graydon LLP.

Authors acknowledge the assistance of Jessica Lithwick, law student.

E-mail: paul.schabas@blakes.com;

tony.wong@blakes.com.

notes

1) FCPA 1977, (USA) 15 USC §§ 78m, 78dd-1, 78dd-2, 78dd-3, 78ff (2000) [FCPA 1977].
2) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 8 April 1998, online: OECD,http://www.oecd.org/document/21/0,3343,en_2649_34859_2017813_1_1_1_1,00.html. Countries that have ratified the OECD Convention include: Germany, Australia, Brazil, France, Japan, South Korea and the UK.
3) For discussions conducted by North American legislatures concerning the negative impact of bribery of foreign public officials see US, Unlawful Corporate Payments Act of 1977, House of Representatives (HR Doc No 95-640) online: The US Department of Justice, http://www.usdoj.gov/criminal/fraud/FCPA/history/1977/houseprt.html [House Report] and in Canada: Legislative Assembly, House of Commons Debates, no 167 (7 December 1998) at 1135 (Julian Reed).
4) The Corruption of Foreign Public Officials Act: A Guide (Ottawa : Department of Justice Canada, 1999), online: Department of Justice Canada, http://www.justice.gc.ca/eng/dept-min/pub/CFPOA-lcape/index.html [CFPOA Guide].
5) Criminal Code, (Canada) RSC 1985, c C-46, ss 354 (1) and 462.31(2) respectively [Criminal Code].
6) For explanation of FCPA see Adrea Dahms and Nicolas Mitchell, ‘Foreign Corrupt Practices Act’ (2007) 44 Am Crim L Review at 614 [Dahms and Mitchell]; for Canadian law: Criminal Code, supra note 6, s2.
7) CFPOA Guide, supra note 5. See also R v Libman, [1985] 2 SCR 178 at para 74.
8) Canada Bill C-31, An Act to amend the Criminal Code, the Corruption of Foreign Public Officials Act and the Identification of Criminals Act and to make a consequential amendment to another Act, 2nd Sess, 40th Parl, 2009, cl 38(4).
9) FCPA, 15 USC §§ 78dd-1(c)(2), 78dd-2(c)(2) and 78dd-3(c)(2) and CFPOA, supra note 2 at s3(3)(b).
10) FCPA, 15 USC §§ 78dd-1(b), 78dd-2(b) and 78dd-3(b) and CFPOA, supra note 2 at s(3)(4).
11) Kent Roach, Criminal Law, 3rd ed (Toronto, Ontario: Irwin Law, 2004).
12 Income Tax Act, (Canada) RSC 1985, c 1 (5th Supp) at s67 (5)(1).
13) NERA Economic Consulting, ‘The Wider Costs of FCPA Investigations’ (March 2009) 8 Kroll Global Fraud Report, online: http://www.kroll.com/library/fraud/FraudReport_English-US_Mar09.pdf at 12.
14) ‘The Accomplishments of the US Department of Justice 2001-2009’, online: United States Department of Justice http://www.usdoj.gov/opa/documents/doj-accomplishments.pdf at 31.
15) Caroline Ross, ‘Teams to fight international corruption’, online: Royal Canadian Mounted Police: http://www.rcmp-grc.gc.ca/gazette/vol70n1/news-nuvelles2-eng.htm.
16) Niko Resources Ltd, press release (15 Jan 2009), online: SEDAR http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00008005.
17)) Foreign Affairs and International Trade Canada, Ninth Report to Parliament (December 2, 2008) Foreign Affairs and International Trade Canada, online: http://www.international.gc.ca/trade-agreements-accords-commerciaux/ds/9-report-rapport.aspx#enforce.

The In-House Lawyer