07 July 2011

Canada's anti-bribery laws show they have teeth with a $9.5 million penalty

The first significant prosecution under Canada's Corruption of Foreign Public Officials Act 1998 has led to a fine of nearly $9.5 million Canadian and three years' probation, in a case which not only puts all companies with a Canadian link, in particular dual-listed companies, on notice, but also shows the increased regulator activity in the global fight against bribery and corruption.

The prosecution of Calgary's Niko Resources by the Alberta Crown Prosecutor was resolved by a plea agreement, under which Niko pleaded guilty to one charge after co-operating fully with the investigation.

What did Niko do?

In 2005, there were blowouts and fires at one of Niko's drilling sites for natural gas at the Tengratila gas field in Bangladesh. This required the evacuation of nearby villagers, and left the drinking water contaminated and local agriculture destroyed.

The Bangladeshi Government was involved in a dispute with Niko over the value of the as yet uncovered gas. Its junior Energy Minister, A.K.M. Mosharref Hossain, was responsible for determining the compensation payable to the affected villagers.

Niko purchased a luxury SUV worth $190, 984 Canadian and delivered it to its local partner, BAPEX, which then delivered it to the Minister. Niko also paid $5,000 Canadian in travel costs for his trip to an Energy Expo in Calgary and a subsequent trip to New York.

Seeing local press reports about the delivery, a Canadian diplomat queried it with the president of Niko's local subsidiary. He was told "These things are done all the time".

There is no evidence that the bribes did Niko any good whatsoever.

What is Canada's anti-bribery law?

Canada's Corruption of Foreign Public Officials Act, similar to other anti-bribery legislation, takes an expansive view of the organisations it covers. Under it, business "means any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere for profit".

It is an offence under the Corruption of Foreign Public Officials Act for a person:

  • 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
  • and that benefit is as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or
  • that benefit is 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.

There are exceptions for reasonable expenses, payments required by law, and facilitation payments.

The Mounties investigate, and Alberta prosecutes

The Royal Mounted Canadian Police conducted a six-year long investigation in to the matter, which involved law enforcement agencies in Switzerland, Japan, the UK and Barbados, and cost nearly $900,000 Canadian.

Niko co-operated with the investigation and pleaded guilty in the Alberta Court of Queen's Bench to one charge under the Corruption of Foreign Public Officials Act in an agreed statement of facts. No individual officer was charged.

The Court imposed the penalty agreed between the Alberta Crown Prosecutor and Niko:

  • a fine of $8,260,000 Canadian;
  • an additional 15% Victim Fine Surcharge, bringing the fine up to $9,499,000 Canadian; and
  • a three-year Probation Order, under which Niko will be audited to ensure its compliance with the Act – audits which Niko must pay for.

Although the fine is high, it could have been higher – Niko's full co-operation almost certainly had an effect on the penalty.

It also apologised publicly, and according to its media statement it "adopted a full anticorruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world to ensure it meets all Court probationary requirements and its own internal ethical and best practices standard. "

Although this is the end of the criminal prosecution in Canada, it isn't the end of Niko's legal woes. Two Canadian law firms who have strong class action practices, Siskinds LLP and Jensen Shawa Solomon Duguid Hawkes LLP, announced on Monday 27 June that they are conducting an investigation into Niko's disclosures, stock option practices and foreign business practices.

The law in Australia – why you could be liable in two (or more) countries

One other aspect of these laws that is rarely appreciated is that a single offence in Country A could be punishable in Countries B, C and D, depending upon the links the person or company has with those countries.

For example, bribery offences committed by Australian citizens or residents or companies incorporated in Australia, including dual-listed companies, are covered by the Commonwealth Criminal Code. As a result a company which is dual-listed in Countries B or C, depending upon the circumstances, could be liable in two or more countries for a single act of bribery or corruption. The same goes for its employees: an employee who is a citizen of Country B could be prosecuted by Country B for something they did in Country A for a company incorporated in Country C.

This is even more of a concern following the introduction of increased penalties in 2010 in Australia. Individuals charged with bribery offences for conduct occurring after that date now face a fine of $1.1 million and up to 10 years' gaol time.

Companies face a penalty of whichever is the greater of:

  • a fine of up to $11,000,000;
  • three times the value of the benefit obtained as a result of the breach; or
  • 10% of the body corporate's turnover during the 12 period in question.

What should you do now?

As noted above, Canada's expansive definition of the businesses its Corruption of Foreign Public Officials Act covers means that any company with a presence in Canada could find itself susceptible to prosecution under the Canadian Act. With the Mounties' Commercial Crime unit reported to have another 20 investigations underway, it's clear that Canada is taking anti-bribery enforcement seriously.

Even if you don't have a link to Canada, the international trend towards greater regulator activity in combating bribery and corruption in international business dealings means that wherever you are, you could still fall under the scope of similar legislation – the US Foreign Corrupt Practices Act, the UK's Bribery Act which came into force on 1 July 2011, and our own Commonwealth Criminal Code which we discussed above.

Businesses with any sort of foreign link, especially those which are dual-listed on the ASX and TSX, should look at implementing internal risk management, including:

  • obtain privileged legal advice and risk assessment;
  • putting in place corporate compliance programs and policies ie. Codes of Conduct, Compliance Guide and Compliance agreements;
  • procedures to promote appropriate record-keeping culture;
  • training of all staff and board members;
  • anti-corruption protocols in internal audit processes;
  • adequate due diligence when engaging in any transaction with a third party, particularly acquisitions; and
  • ensuring a demonstrable focus on identifying and assessing appropriate remedial actions when a breach is detected.

 

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