Cracking down on corruption

Canada is still lagging other countries on anti-corruption, and experts say it needs better tools.

Since enacting the Corruption of Foreign Public Officials Act, Canada has produced four convictions. Canada’s record on anti-bribery prosecutions is a tiny fraction of those of other countries with similar anti-bribery laws. This comes not from complacency or comparative lack of will but due to fewer and differently shaped tools with which to investigate and prosecute white collar crime, say lawyers.

“It is clearly not, in my opinion, a priority of the current government to get tight on white collar crime, especially Canadian companies involved in bribery and corruption overseas,” says Norm Keith, who practises white collar defence and regulatory issues with Fasken Martineau DuMoulin LLP.

“Are employers taking it more seriously? I don’t know,” he says. “Are they being prosecuted and is there activity and investigations going on? No, absolutely not.”

The modern-day saga of anti-corruption began with Richard Nixon.

Out of Watergate came U.S. Securities and Exchange Commission investigations that led to the admissions of more than 400 U.S. companies that they had made “questionable or illegal” payments to foreign government officials of more than US$300 million, according to a 2009 research paper on foreign corruption published by Osgoode Law School.

Congress enacted the Foreign Corrupt Practices Act in 1977. It was draining the swamp, the prequel.

As the only country with an anti-bribery law, the U.S. tried to level the playing field. The OECD produced the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which Canada ratified in 1999, enacting the Corruption of Foreign Public Officials Act.

Around $1.9 trillion circulates the globe in bribes every year, according to the World Bank. That is two per cent of the world’s GDP and 10 times what the world spends on development assistance.

Bribery limits competition in the market and penalizes companies that do not bribe, increases the delivery of substandard goods and services, distorts prices, breaks environmental laws and wastes foreign aid contributions, according to the International Standards Organization, which developed the ISO 37001, anti-bribery compliance certification system.

In 2012, Canada was ranked as the worst G7 nation in fighting bribery by the OECD working group on bribery, and the then-tough-on-crime Conservative government was criticized by international organizations such as Transparency International as being soft on corruption. At that time, only one prosecution had come out of the CFPOA since its enactment. In 2011 alone, the U.S. had reported 227 and Germany 135, according to an article in the Western Journal of Legal Studies.

The lone Canadian conviction produced a fine of $25,000 and involved HydroKleen, the Alberta air conditioner service company. The bribe, which was $28,299, was more than the fine.

Since then, Canada armed the CFPOA with amendments, stiffening penalties, adding an offence for falsifying books and records, widening jurisdiction for Canadian authorities and eliminating the exemption for facilitation payments, which came into force last year.

In 2014, the Extractive Sector Transparency Measures Act became law, requiring large extractive companies to report payments made to foreign governments or those performing government functions. The Liberal government also created the Canadian Ombudsperson for Responsible Enterprises to encourage lawful practices from Canadian corporations abroad.

Other than HydroKleen’s 2005 conviction, the CFPOA’s record includes Nazir Karigar, convicted in 2013 for bribing Indian officials to get a contract from Air India for the technology firm Cryptometrics. Also in 2013, Griffiths Energy International Inc. pleaded guilty to bribing Chadian officials to expand their oil business in that country and paid a $10.35-million penalty. In 2011, Niko Resources Ltd. also pleaded guilty to bribing a Bangladeshi official with a trip to North America and the use of a Toyota Landcruiser and was sanctioned $9.4 million.

Kristine Robidoux is senior compliance and regulatory counsel at Gran Tierra Energy. From 2004 until 2008, she ran a consulting firm specializing in transnational risk in bribery, fraud and corruption. From 2008 to 2017, she was with Gowling WLG International and founded its global business integrity practice. She represented Niko Resources and Griffiths Energy in their CFPOA cases.

Robidoux says Canada is getting serious about enforcing foreign corruption.

“Absolutely, I think the government and the enforcement agencies are not only getting serious about enforcing it, but I think that they’re understanding the phenomena of transnational crime,” Robidoux says. “They’re understanding it better. They’re learning how to investigate it better. They’re becoming much more effective at co-operating with their international counterparts. So, overall . . . I would say they’re absolutely becoming more effective.”

In 2008, the RCMP created two teams to investigate foreign bribery and international corruption, one in Calgary and one in Ottawa. In 2013, the International Foreign Bribery Taskforce was established, in which the RCMP works with the FBI, Australian Federal Police and the U.K. National Crime Agency.

Since the CFPOA’s enactment, Global Affairs Canada has released an annual report on the act’s implementation. In 2014, there were 27 investigations ongoing. The report for 2016 stated there were 10 active investigations underway, but the 2017 report did not provide that statistic.

RCMP media relations contact Tania Vaughan told Canadian Lawyer via email that the 14 agents in Calgary and Ottawa are supplemented with “23 additional resources assigned to support these investigations.” As to why the RCMP no longer states the number of ongoing investigations, Vaughan replied, “The RCMP will not confirm an investigation unless charges are laid and it is a matter of public record.”

Keith says that if Canada was truly cracking down on foreign bribery there would be more than four cases to cite.

“There are no current trials going on, no recent cases. I don’t know anybody who actually has evidence to support a position that they’re ramping up.”

In Canada, there has not been a CFPOA conviction since 2013. In total, Canada has levied $19,874,000 in fines for CFPOA convictions.

In the United States, 2017 saw nearly US$1 billion in fines with an average fine of US$77,819,743. The biggest year in the history of the FCPA was 2008, with more than US$2.6 billion in fines, with an average fine of US$188,880,139, according to a Stanford University study.

John Boscariol, a partner at McCarthy Tétrault LLP, says to compare Canadian enforcement of anti-corruption with the U.S. is naïve, as our southern counterparts have more tools with which to investigate and prosecute violations of the FCPA.

One such tool is a deferred prosecution agreement. In a DPA, an offending party has their prosecution suspended provided they co-operate with authorities. The U.S. has had DPAs for more than 25 years and the U.K. since 2014. In the U.K., the co-operator may be fined, pay restitution to victims or be made to implement a compliance regime.

On March 27, the Government of Canada announced it is introducing legislative amendments to create a Canadian form of the DPA regime called a remediation agreement regime.

 The move comes after public consultations last fall and will come into force 90 days following the Royal assent of the 2018 budget. The agreements would be subject to prosecutorial discretion and judicial approval, the government said.

DPAs will be a “game changer,” says Boscariol.

“It’s important when you look at Canada’s history of enforcement and convictions that because we have a different regime than the United States our numbers are much smaller.

“I think the DPA will go a long way to changing the perception that we’re so far behind the U.S. in this area,” says Boscariol.

Proponents of DPAs say they would multiply the number of corruption and commercial crimes brought to the attention of law enforcement and help investigators and prosecutors develop techniques, knowledge and expertise in pursuing those cases, as well as enhance the amount of restitution for victims. The early resolution of these cases would free up judicial resources, according to a 2017 report by Transparency International Canada.

Brenda Makad is a sergeant with the RCMP’s International Anti-Corruption Teams. She says if a DPA regime is instituted, it will not alter the way the RCMP investigates cases of foreign bribery.

“So, this isn’t going to be like somebody knocks at the door and discloses information and then a deal is cut and then it saves us a bunch of time and we don’t have to do the investigation,” she says. “We’re still going to have to go about our duties and our job investigating the offence.”

Another difference between the U.S. and Canada is that Canadian foreign bribery can only be pursued as a criminal matter, whereas the U.S. Department of Justice and the Securities and Exchange Commission often tag-team bribery cases using both criminal and administrative law.

“In Canada, the only tool is prosecution in a criminal court beyond a reasonable doubt,” says Milos Barutciski, a partner and co-head of international trade at Bennett Jones LLP. “And what that means is that they don’t have the leverage that the U.S. has to take administrative action on a balance of probabilities. So that’s the biggest difference.”

He says another factor that works against Canada’s pursuit of bribery and white collar crime in general is the time it takes cases to get from the charge to the sentencing stage.

“Criminal trials in Canada are more cumbersome and the criminal process in Canada is more cumbersome and time-consuming than it is in the United States,” he says. “The result is Canada’s record in white collar prosecutions, at least at the trial level relative to the United States, is abysmal.”

In 2008, former chief justice of the Superior Court Patrick LeSage and University of Toronto Law Professor Michael Code authored a “Report of the Review of Large and Complex Criminal Case Procedures” to respond and offer recommendations to increasingly time-consuming complex criminal trials.

LeSage and Code wrote that three factors had transformed the trial process from succinct in the seventies to the present marathon.

“These three causal events were the passage of the Charter of Rights and Freedoms, the reform of evidence law by the Supreme Court of Canada, and the addition of many new complex statutory provisions to the Criminal Code and other related statutes,” they wrote in the report.

“All the criticism that they make of criminal processing in Canada for large complex trials are multiplied exponentially in a white-collar case, which includes corruption cases because you have an extra element of forensic accounting evidence, which creates even more complexity,” says Barutciski.

Another factor in Canada is that, to convict the company in Canada, the bribery offence must be proven to have been committed, beyond a reasonable doubt, “with the knowledge or acquiescence or under the direction of the senior officer,” he says.

In the U.S., if authorities can show that a lower-level employee authorized a bribe, the knowledge does not have to reach the upper echelons for the company to be liable.

“So that’s another reason why U.S. companies, they are more exposed. They can be convicted on the basis of the guilty actions of a fairly junior employee,” Barutciski says.

Pursuing bribery allegations with the criminal law alone is “too blunt an instrument,” says Joseph Groia, principal of Groia and Company.

What is lacking in anti-bribery is a national financial regulator such as the Securities and Exchange Commission in the U.S., Canada having provincial agencies regulating their respective capital markets, says Groia, who is a securities litigator and has acted in civil, criminal and administrative cases including the Bre-X and Hollinger affairs.

“If you had a national enforcement agency and a national regulator who could go after public companies on a national and international basis, then there’s a whole range of administrative and civil powers that would be available,” he says.

With a national securities regulator, Canada could work on a national basis together with the SEC, giving Canada an enhanced status in pursuing corruption, he says.