Canada: handling internal investigations

Canada has increased the scope and frequency of white-collar crime prosecutions in recent years, making it more important than ever for companies operating in Canada to develop internal best practices for preventing, investigating and responding to allegations of corporate wrongdoing.

One area that has undergone an evolution as of late is Canada’s foreign corrupt practices regime. Although once considered a laggard in this area,¹ Canada has recently committed to prosecuting foreign corrupt practice with renewed vigour,² through legislative amendments, increased funding for enforcement efforts, and high-profile investigations and prosecutions.

There are no formal procedures in place for self-reporting, leniency or immunity under Canada’s Corruption of Foreign Public Officials Act (CFPOA).³ This stands in contrast to prosecutions under other statutes in Canada, such as Canada’s Competition Act,⁴ which has both an immunity and leniency programme. Nevertheless, recent amendments and case law have demonstrated the importance of handling internal investigations properly in the event of suspected incidents of foreign corruption. They serve as useful guidance for companies in developing policies and procedures for handling internal investigations, not only in the context of suspected foreign corruption, but also under other criminal and regulatory regimes in Canada as well.

Overview of Canada’s foreign corrupt practices regime

On 14 February 1999, Canada’s CFPOA came into force, which brought Canada into compliance with the Organisation for Economic Co-operation and Development’s 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention).⁵

The OECD Convention requires parties to implement laws prohibiting the bribing of foreign officials and impose effective penalties for violating those laws.⁶ To date, 40 states have ratified the OECD Convention, including 34 members of the OECD and six non-members: Argentina, Brazil, Bulgaria, Colombia, Russia and South Africa.⁷ The OECD has a peer monitoring system through its Working Group on Bribery (the Working Group), which publishes reports on its members and their compliance with the OECD Convention.⁸

In accordance with the OECD Convention, Canada’s CFPOA prohibits giving, offering or agreeing to give 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, in order to obtain or retain an advantage in the course of business.⁹ The CFPOA applies to both individuals and corporations.¹⁰ A violation of the CFPOA is a criminal office; therefore, the violation must be proven beyond a reasonable doubt. There is no limitation period for a breach of the CFPOA.

There are two statutory defences available to individuals or corporations accused of contravening the CFPOA:

• payments required under the laws of the foreign state or public international organisation for which the foreign public official performs duties or functions; or
• payments made to pay the reasonable expenses incurred in good faith by or on behalf of the foreign public official that are directly related to:
• the promotion, demonstration or explanation of the person’s products and services; or
• the execution or performance of a contract between the person and the foreign state for which the official performs duties or functions.¹¹

As will be discussed in greater detail below, a third statutory defence for facilitation payments is being phased out of the CFPOA.¹²

The penalties for breach of the CFPOA are potentially significant. An individual who violates the CFPOA is guilty of an indictable offence, and is subject to a term of imprisonment of up to 14 years. ¹³ The CFPOA does not specify the penalty for a breach by a corporation; however, under Canada’s Criminal Code,¹⁴ corporations guilty of an indictable offence are subject to a fine in an amount that is at the discretion of the court.¹⁵ In other words, there is no limit to the fine that may be imposed on a corporation that is guilty of breaching the CFPOA.

In considering the quantum of the fine to impose on a corporation guilty of breaching the CFPOA, the Criminal Code provides that a court shall consider, among other things, the advantage realised by the organisation as a result of the offence; the cost to public authorities in investigating and prosecuting the offence; whether the organisation or its representatives were convicted of a similar offence or sanctioned by a regulatory body for similar conduct; and any measures that the organisation has taken to reduce the likelihood of it committing a subsequent offence.¹⁶ The significance of this latter factor will be discussed in greater detail below.

Beyond the financial penalty, a conviction under the CFPOA can result in significant business and reputational costs. For example, a conviction under the CFPOA automatically leads to permanent debarment from contracting with Public Works and Government Services Canada.¹⁷

The Royal Canadian Mounted Police (RCMP), Canada’s federal police agency, has exclusive authority to investigate and lay charges under the CFPOA.¹⁸ In 2008, the RCMP established two International Anti-Corruption Units, one in Canada’s capital, Ottawa, Ontario, and the other in Calgary, Alberta.¹⁹ In June 2013, the RCMP created a new National Division, which has a mandate to focus on sensitive, high-risk investigations.²⁰ The RCMP is also part of the International Foreign Bribery Taskforce, a new transborder agreement with the United States, Australia and the United Kingdom to combat foreign bribery.²¹

Canadian authorities do not publish CFPOA investigations every year; instead, the RCMP releases this information to the public from time to time. According to the Department of Foreign Affairs, Trade and Development Canada, as of November 2013, there were 36 ongoing investigations, four convictions, and one case in which charges have been laid but not yet concluded under the CFPOA.²² Two ongoing, high-profile cases involve the RCMP’s investigation of Blackfire Exploration Ltd for alleged bribery of a foreign official in Mexico in relation to a mining project,²³ and charges laid against two engineers from SNC-Lavalin for allegedly bribing foreign officials in Bangladesh in connection with the construction of a bridge.²⁴

Canada strengthens its foreign corrupt practices regime: the Fighting Foreign Corruption Act

In March 2011, the OECD’s Working Group released its Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Canada (the Phase 3 Report), which criticised parts of Canada’s foreign corrupt practices regime.²⁵ In response, Canada passed Bill S-14, the Fighting Foreign Corruption Act (FFCA), in June 2013, which addresses a number of the concerns raised by the Working Group.²⁶

One concern raised by the Working Group was the jurisdictional limits of the CFPOA; the CFPOA only applied when the foreign corrupt practice had a ‘real and substantial connection’ to Canada, whereas the OECD Convention requires parties to exercise jurisdiction over their nationals who commit foreign corrupt practices offences abroad.²⁷ The CFPOA has since been amended such that acts or omissions committed by Canadian citizens, permanent residents, or Canadian companies outside Canada will be deemed to have been committed in Canada.²⁸

There are limits, however, to the increase in the jurisdictional scope of the CFPOA. This was made plain in the recent case of Chowdry v HMQ²⁹ before the Ontario Superior Court of Justice. The central issue before the court in that case was whether the CFPOA extends Canada’s jurisdiction to a foreign national for the purpose of charging him with an offence under the CFPOA. Mr Chowdry, the former Interior Minister and Minister of State of Bangladesh, is alleged to have influenced the selection committee for a bridge project in favour of SNC Lavalin. Mr Chowdry is a Bangledeshi citizen and resident; he is not and has never been a Canadian citizen or resident of Canada. The court held that while the amendments to the CFPOA allow Canadian courts to assume jurisdiction over the actions of Canadians or permanent residents outside Canada, the CFPOA does not allow Canadian courts to assume jurisdiction over foreign nationals outside Canada who are not otherwise subject to Canada’s jurisdiction.

Another concern identified by the OECD Working Group in the Phase 3 Report was that the CFPOA contains a statutory defence for facilitation payments (ie, payments made to ‘expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions’).³⁰ Although still currently part of the CFPOA, the FFCA provides that the statutory defence for facilitation payments will be repealed on a date to be fixed by the Governor in Council.³¹ Accordingly, multinational and US companies and individuals must be sensitive to this upcoming difference in Canada’s anti-corruption regime, as they may face exposure to liability in Canada for actions that are permitted in the US.

Handling investigations under the CFPOA: lessons learned from the case law

There are currently no formal procedures in place for self-reporting, leniency or immunity under Canada’s foreign corrupt practices regime.³² Nevertheless, cases prosecuted under the CFPOA demonstrate that there is an advantage to adopting proactive compliance processes and procedures, conducting independent internal investigations into suspected misconduct, self-reporting, and cooperating in police investigations.

R v Niko Resources Inc

In R v Niko Resources Inc,³³ Niko Resources Inc (Niko), a publicly traded company based in Calgary Alberta, pleaded guilty to one count of bribery of a foreign public official in violation of the CFPOA. Niko admitted that its subsidiary, Niko Bangladesh, provided the use of a vehicle (which cost C$190,984), to a Bangladeshi public official in order to gain favour for the company in its business dealings. Niko also paid travel and accommodation expenses for the same official to attend a conference in Calgary, and improperly paid approximately C$5,000 for the official to travel to New York and Chicago to visit his family.

The Crown and defence put forward a joint submission regarding the penalty, which suggested that the court impose a fine of C$8,260,000 plus a 15 per cent victim fine surcharge, and three years of probation. In accepting the joint submission, the court noted that bribing a foreign official is a very serious crime, and emphasised denunciation and deterrence as key objectives of the sentence.³⁴ However, the court also considered as a mitigating factor the fact that Niko had pled guilty, cooperated with authorities during the investigation, and taken ‘significant and extensive’ remedial steps to ensure that the conduct was not repeated.³⁵

R v Griffiths

The case of R v Griffiths³⁶ demonstrates the potential benefits of internal investigations and self-reporting. Griffiths Energy International Inc (Griffiths), a privately held oil and gas company based in Calgary, Alberta, pleaded guilty to one count of bribery. In 2011, the company’s new management team discovered internal irregularities in its contracts with Chad dating to 2009, including a C$2 million consulting contract with a company controlled by the Chadian ambassador’s wife. Griffiths also discovered an offer to purchase 4 million shares of the Chadian company in return for preferential treatment in securing energy properties for Griffiths in Chad.

Upon discovering the irregularities, Griffiths took immediate corrective action. Griffiths launched an independent internal investigation, self-reported the crime to law enforcement, and cooperated fully with authorities.³⁷ Griffiths also instituted a robust anti-corruption programme to deter any future illegal conduct.³⁸

The court held that Griffiths’ entire course of conduct demonstrated a complete and genuine remorse for the illegal conduct perpetuated by its former management, and that these were ‘very significant mitigating factors’ in the sentence imposed.³⁹ The court accepted the Crown and defence’s joint submission that the penalty be a fine of C$9 million plus a victim fine surcharge of 15 per cent.

Lessons learned

Both Niko and Griffiths are instructive in terms of the steps companies should take in proactively preventing foreign corrupt practices from occurring, and handling investigations both internally and in cooperation with law enforcement when incidents arise.

Institute robust compliance measures

Niko’s probation order provides guidance on the measures that companies should adopt to prevent, detect and address suspected violations of the CFPOA.

Pursuant to the probation order, Niko was required to ensure that it had rigorous anti-corruption policies and procedures designed to detect and deter violations of the CFPOA. These policies and procedures must include a system of internal accounting controls and an anti-corruption compliance code that applies to all personnel. Implementation and oversight of the compliance standards and procedures must be delegated to a senior corporate executive, and periodic training must be provided to all directors, officers and employees. The probation order also provided for due diligence and compliance requirements when working with agents and business partners. Finally, Niko was obligated to implement a reporting protocol, disciplinary procedures, and conduct a periodic review and testing of its compliance code, standards and procedures to evaluate and improve their effectiveness.

Niko was ordered to develop compliance standards and procedures based on a risk assessment of the foreign bribery risks facing Niko, including: its geographical organisation, interactions with various types and levels of government officials, industrial sectors of operation, involvement in joint venture agreements, importance of licenses and permits in the company’s operations, degree of governmental oversight and inspection, and volume and importance of goods and personnel clearing through customers and immigration.⁴⁰

Based on Niko’s experience, companies would be well advised to perform their own risk assessments, identify the company’s foreign bribery risks, and implement policies and procedures that will proactively address these risks. Company personnel should be trained on these policies and procedures, and oversight should be provided by senior management. Finally, the policies and procedures should be reviewed regularly for efficacy and updated when necessary.

Internal investigations and self-reporting

As noted above, the court in Griffiths was clearly influenced by the steps Griffiths took to immediately and effectively investigate the suspected corruption. Upon becoming aware of the impugned contractual arrangements, Griffiths’ management immediately formed a special committee comprising independent members of Griffiths’ board of directors. The special committee then retained external counsel, who were given a broad mandate to conduct a thorough investigation which extended beyond the irregularities identified, and included any other potentially improper payments made by Griffiths.⁴¹

It is noteworthy that even though the bribe at issue in Griffiths was much more significant than in Niko, a factor that the court held to be a ‘major aggravating factor’,⁴² the court nonetheless accepted the joint submission for a fine that was, in contrast to Niko, relatively small compared to the bribe. Moreover, unlike in Niko, Griffiths was not given a term of probation.

According to RCMP Inspector Greg Shields, head of Calgary’s commercial crime section, this was the first case to his knowledge in which a Canadian company had voluntarily disclosed corrupt foreign dealings to the RCMP. He opined that fines under the CPFOA may be more favourable to companies if they self-report previous misdemeanours.⁴³

If a company suspects that it may have run afoul of the CPFOA, best practices suggest that it should immediately form an independent committee of the board of directors with broad authority to investigate the matter. The company should also stake steps to preserve all potentially relevant information. The decision in Griffiths indicates that immediate and effective steps undertaken by a company to investigate potential violations of the CFPOA will likely be viewed favourably by the court, and serve as a mitigating factor during sentencing.

Cooperation with RCMP investigations and remedial steps

In both Niko and Griffiths, the court considered the companies’ cooperation with the RCMP, guilty pleas, and institution of remedial policies and procedures as mitigating factors in determining the appropriate sentence. Griffiths even took the extraordinary step of sharing the content of legally privileged communications with its former outside legal counsel with the RCMP.⁴⁴

The extent to which a company decides to cooperate with an RCMP investigation is ultimately a business decision. The Griffiths case highlights the benefits to cooperating and being transparent with the RCMP during the course of an investigation. Any steps taken to streamline the investigation and prevent future infractions will likely influence the court in determining the appropriate sentence.

However, it should also be borne in mind that there are limits to the RCMP’s investigatory powers. The RCMP will normally be constitutionally required to obtain a warrant before searching and seizing relevant documents.⁴⁵ Moreover, certain relevant information can be withheld on the grounds that the information is privileged. Companies are entitled to rely on their constitutional and procedural rights when faced with a prosecution by the RCMP.

Conclusion

Canada is increasing its efforts to investigate and prosecute suspected violations of the CFPOA. As penalties under the CFPOA are potentially severe, companies would be well advised to adopt proactive measures to deter violations of the CFPOA, and address any suspected violations head-on through timely, independent internal investigations and cooperation with the RCMP. Canadian courts treat the bribery of foreign officials as a serious crime. However, lessons from recent cases suggest that the measures companies take to internally investigate suspected violations will loom large in the court’s determination of an appropriate sentence.

Notes

1. OECD Working Group on Bribery, Canada Phase 3: Report on Implementing the OECD Anti-Bribery Convention in Canada (18 March 2011), online: www.oecd.org/canada/Canadaphase3reportEN.pdf [Phase 3 Report]; Transparency International, Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention (May 2011), online: www.transparency.org/whatwedo/pub/progress_report_2011_enforcement_of_the_oecd_anti_bribery_convention [Transparency International Progress Report].
2. Foreign Affairs, Trade and Development Canada, ‘Strengthening Canada’s Fight Against Foreign Bribery’ (5 February 2013), online: www.international.gc.ca/media/aff/news-communiques/2013/02/05b.aspx?lang=eng [Foreign Affairs Canada – Strengthening Canada’s Fight].
3. S.C. 1998, c. 34 [CFPOA].
4. R.S.C. 1985, c. C-34.
5. Ibid.
6. OECD Convention, article 1.
7. Foreign Affairs, Trade and Development Canada, ‘Canada’s Fight against Foreign Bribery’ (26 November 2013), online: www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/corr-14.aspx?lang=eng [Foreign Affairs Canada – Canada’s Fight].
8. Ibid. article 12.
9. CFPOA, section 3(1).
10. Ibid. section 2.
11. Ibid. section 3(3).
12. Foreign Affairs Canada – Strengthening Canada’s Fight, supra.
13. CFPOA, supra, section 3(2). On 23 May 2014, the first individual in Canada convicted of violating the CFPOA was sentenced to three years in prison: R v Karigar, 2014 ONSC 3093. Mr Karigar was tried and convicted under a prior version of the CFPOA, which had a maximum prison term of five years. The maximum prison term has since been increased to 14 years.
14. R.S.C. 1985, c. C-46.
15. Ibid. section 735(1).
16. Ibid. section 718.21.
17. OECD Working Group on Bribery, Canada: Follow-Up to the Phase 3 Report & Recommendations (14 May 2013), online: www.transparency.ca/9-Files/2014-New/2014-TI_OECD-PhaseIII_Report-Canada-EN.pdf.
18. CFPOA, supra, section 6.
19. Foreign Affairs Canada – Canada’s Fight, supra.
20. Royal Canadian Mounted Police, ‘RCMP’s New National Division to Focus on Sensitive and International Investigations’ (3 June 2013), online: www.theglobeandmail.com/news/politics/rcmp-launches-new-unit-to-investigate-corruption-in-federal-government/article12274364/.
21. Royal Canadian Mounted Police, ‘New International Taskforce Combats Foreign Bribery’ (11 June 2013), online: www.rcmp-grc.gc.ca/ottawa/ne-no/pr-cp/2013/0611-ifbt-gtice-eng.htm.
22. Foreign Affairs, Trade and Development Canada, ‘Canada’s Fight against Foreign Bribery’, supra.
23. Greg McArthur, ‘RCMP raid Calgary miner over bribery allegations’ The Globe and Mail (29 August 2011), online: www.theglobeandmail.com/news/national/rcmp-raid-calgary-miner-over-bribery-allegations/article542841/#dashboard/follows/.
24. Royal Canadian Mounted Police, ‘RCMP Charge Former SNC Lavalin Senior Executive’ (18 September 2013), online: www.rcmp-grc.gc.ca/ottawa/ne-no/pr-cp/2013/0918-lavalin-eng.htm.
25. Phase 3 Report, supra. See also Transparency International Progress Report, supra.
26. Bill S-14, An Act to amend the Corruption of Foreign Public Officials Act, 1st Sess., 41st Parl., 2013 (assented to 19 June 2013) [FFCA].
27. OECD Convention, supra article 4(1).
28. CFPOA, supra, section 5(1).
29. 2014 ONSC 2635; see also Neal J. Smitheman et. al., ‘Canadian Court Rules That It Does Not have Jurisdiction Over a Foreign National Under Canada’s Corruption of Foreign Public Officials Act’ (9 May 2014) Fasken Martineau DuMoulin White Collar Crime, Investigations & Compliance Bulletin, online: www.fasken.com/en/canadian-court-rules-that-it-does-not-have-jurisdiction-over-a-foreign-national-under-canadas-corruption-of-foreign-public-officials-act/.
30. CFPOA, supra, section 3(4).
31. FFCA, supra, sections 3(2), 4; for more information on the FCCA and amendments to the CFPOA, see Neal J Smitheman and Antonio Di Domenico, Northern Exposure: Contrasting Canada’s Corruption of Foreign Public Officials Act with Anti-Corruption Legislation in the United States of America and the United Kingdom, Presented at the National Institute on White Collar Crime 2014, American Bar Association (5–7 March 2014), online: www.fasken.com/en/northern-exposure-contrasting-canadas-corruption-foreign-public-officials-act-2014/.
32. See: Antonio Di Domenico, ‘Individual Sentenced to Three Years in Prison for Violating Canada’s Corruption of Foreign Public Officials Act: Will There by a Formal CFPOA Leniency Program in Canada?’ (4 June 2014) Fasken Martineau Competition Chronicle, online: www.competitionchronicle.com/2014/06/individual-sentenced-to-three-years-in-prison-for-violating-canadas-corruption-of-foreign-public-officials-act-will-there-be-a-formal-cfpoa-leniency-program-in-canada/.
33. [2012] A.W.L.D. 4536 [Niko].
34. Ibid. at paras. 10, 17.
35. Ibid. at para. 18.
36. [2013] A.J. No. 412 [Griffiths].
37. Ibid. at paras. 15–16.
38. Ibid. at para. 19.
39. Ibid. at paras. 20–21.
40. Probation Order, online: www.cba.org/ABC/ladefense/Pdf/Niko%20Probation%20Order.pdf.
41. R v Griffiths Energy International, Agreed Statement of Facts, online: www.cba.org/ABC/ladefense/Pdf/Griffiths_Amended_Statement_of_Facts.pdf, at para. 41.
42. Griffiths, supra at para. 14.
43. Kelly Cryderman, ‘Judge approves $10.35-million fine for Griffiths Energy in bribery case’ (25 January 2013), online: www.theglobeandmail.com/report-on-business/industry-news/the-law-page/judge-approves-1035-million-fine-for-griffiths-energy-in-bribery-case/article7858675/#dashboard/follows/.
44. Griffiths, supra at para. 16.
45. A recent decision of the United States Court of Appeal for the District of Columbia Circuit ruled that an SEC conflict mineral disclosure rule requiring entities to disclose that any of their products had not been determined to be ‘DRC Conflict free’ violates the First Amendment right to freedom of expression. Although the constitutional protections for freedom of expression in Canada differ, this case highlights that there are limits in the ability of a regulatory enforcement agency to seek disclosure.