The aftershocks in the international business community from the lengthy jail sentences recently issued by a court in Shanghai to four mining company executives on bribery-related charges are gradually subsiding. In their wake, however, is a heightened awareness that the corporate risk landscape has changed. “It is no longer possible for companies or employees to resort to corrupt practices and bribes without risking serious domestic and international consequences,” declares Transparency International.
Corruption is the abuse of entrusted power for private gain. Over the last 30 years, a legal minefield of domestic and international anti-corruption legislation has been created to stop it. Now, almost all countries have their own domestic anti-corruption legislation, and over 100 countries have signed onto various international anti-bribery or corruption conventions. One way or another, a Canadian company conducting business in or outside of Canada is covered by such legislation.
The most far-reaching of this legislation is the U.S. Foreign Corrupt Practices Act (FCPA) that was enacted in 1977. Canadian companies listed on a U.S. exchange need to carefully consider its extraterritorial effects. It criminalizes the payment or offer of a bribe to a foreign official, political party, party official or political candidate anywhere in the world when the impugned acts were committed by a U.S. concern or U.S. issuer for the purpose of obtaining a business advantage. It also creates record-keeping and reporting obligations in respect of any payments to foreign entities or individuals for all companies listed on a U.S. stock exchange or otherwise subject to the U.S. Securities and Exchange Act.
In Canada, the Criminal Code creates various offences for individuals and corporations that bribe Canadian officials and in 1999, Canada ratified the OECD [Organisation for Economic Co-operation and Developement] Convention on Combating Bribery of Foreign Public Officials in International Business Transactions by enacting the Corruption of Foreign Public Officials Act (CFPOA) to address international offences. The CFPOA forbids the conferring of (or offering, aiding or conspiring to confer) any benefit for the purpose of influencing a foreign official to misuse their power in order to gain a business advantage. It also prohibits the possession of the proceeds from such impugned activities. The reach of the CFPOA is more restricted than the FCPA, however, and to be subject to its jurisdiction, a material portion of the impugned activities would have to have been committed in Canada. This has been interpreted to include acts by a Canadian citizen or a business entity incorporated or registered to do business in Canada, as well as acts that otherwise have a material impact on Canadians.
Penalties for breach of anti-corruption statutes are severe. Under the CFPOA, for example, there is no statute of limitations; the fines that can be imposed do not have prescribed maximums; and natural persons can, additionally, face jail sentences of up to five years. Violations of the anti-corruption provisions of the Canadian Criminal Code carry a ten-year maximum jail term. Under the U.S. FCPA, violations carry both criminal and civil liability. Corporations are subject to fines of up to US$2,000,000 per offense; individuals are subject to prison sentences of up to five years and fines of up to US$100,000. In 2009, the U.S. Department of Justice imposed penalties in FCPA matters of US$817,300,000, almost double the aggregate penalties it imposed in 2008 and more than tenfold the fines it imposed in 2007.
There is no legislation obliging companies to have an anti-corruption compliance program. Nevertheless, the U.S. Federal Sentencing Guidelines (U.S. Guidelines) include provisions for the possible mitigation of penalties if an offending company can demonstrate it has implemented an effective compliance program. Although mitigation on this basis is not formalized in other jurisdictions, it is reasonable to expect more leniency by prosecutors where a strong anti-corruption program is in place. The U.S. Guidelines’ recommendations for an effective compliance program have generally been accepted as the global standard for such programs and are summarized below. Note the regulatory compliance guidance promulgated by Canada’s Competition Bureau is substantively similar.
The U.S. Guidelines for establishing an effective anti-corruption compliance program provides the following:
- The company must promote an organizational culture that promotes compliance with the law and an ethical culture.
- The promotion of an organizational culture that encourages an ethical culture entails the following:
- The company must establish standards and procedures to prevent and detect criminal conduct. In this regard, the company’s directors must ensure that senior management implements a compliance program for which operational responsibility has been delegated to specific personnel with appropriate authority and resources.
- The company’s directors must also be knowledgeable about the content and operation of the compliance program and exercise reasonable oversight thereof.
- The company must use reasonable efforts to exclude from its senior management any individual who has engaged in conduct inconsistent with the principles of its anti-corruption program.
- The company must regularly communicate and train its employees and agents on the standards of conduct established by its compliance program.
- The company must monitor and audit its operations to detect criminal conduct, including creating a system for anonymous reporting of concerns or violations.
- The company must also promote and enforce the program through the creation of employee incentives and disciplinary measures.
- The company must respond appropriately in the event criminal conduct is detected.
In recent years, there has been an intensification of enforcement of anti-corruption legislation globally. Canada assembled an international anti-corruption team of the RCMP in 2007, resulting in a dramatic increase in active investigations. The U.S. Department of Justice prosecuted more FCPA actions in the last two years than in the preceding 20 years combined. With this increasing vigilance and given the severity of the penalties, companies are well-advised to adopt a conservative approach to compliance and implement robust anti-corruption compliance programs that, as recommended by the U.S. Federal Guidelines, are effective in creating an organizational culture that encourages ethical conduct and a commitment to compliance with the law.
Dianne Prupas, corporate/ commercial associate at Fasken Martineau DuMoulin in Johannesburg, is active in the area of international law and cross border transactions, and is a member of the firm’s Global Mining Group.