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Canada’s “Africa Sting” Moment

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As noted in various reports, three executives of SNC-Lavalin Group (former SNC vice-president of energy and infrastructure Kevin Wallace, former SNC vice-president of international development Ramesh Shah, and Bangladeshi-Canadian businessman Zulfiquar Ali Bhuiyan) were recently acquitted in connection with a Bangladesh bribery scheme “after an Ontario judge threw out wiretap evidence key to the case, saying the wiretap applications were based on gossip and rumour.”

The recent development follows charges being dropped against two other defendants charged in the same case.

While not a perfect parallel, the recent failed prosecution north of the border is similar in certain respects to the DOJ’s failed, manufactured Africa Sting case.

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Friday Roundup

Roundup

Checking in on the Hoskins appeal, checking in up north, checking in across the pond, for the younger generation, if that would happen in a company, and another one dismissed. It’s all here in the Friday roundup.

But first, if you got your FCPA from FCPA Professor in 2016, please consider a donation to help defray the yearly costs of running this free public website.

Checking In on the Hoskins Appeal

This previous post highlighted how U.S. District Court Judge Janet Bond Arterton (D.Conn) significantly trimmed the DOJ’s criminal FCPA enforcement action against Lawrence Hoskins. Unhappy with the decision, the DOJ filed a motion for reconsideration which Judge Arterton denied (see here).

The DOJ appealed to the Second Circuit and this previous post highlighted the DOJ’s opening brief. Recently Hoskins filed this response which states in pertinent part.

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Mid-Year Review Of Anti-Corruption Law North Of The 49th Parallel

Canada

A guest post  from Mark Morrison (Blake, Cassels & Graydon) the Canada Expert for FCPA Professor, and Blakes attorneys Michael Dixon and James Reid.

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This year, Canada has been actively implementing laws aimed at a holistic approach to the fight against corruption. This post discusses some of the new legislation effected by the Canadian Government to compliment Canada’s equivalent of the FCPA, the Corruption of Foreign Public Officials Act (CFPOA), as well as some of the recent enforcement proceedings taking place in Canada so far this year.

New Anti-Corruption Laws

The Integrity Regime – On July 3, 2015, the Government’s principal contracting arm, Public Works and Government Services Canada,  announced the implementation of a new government-wide Integrity Regime for all federal government procurement. The new Regime replaced the Integrity Framework, which was heavily criticized as being unfairly harsh for its lack of due process and failure to account for remedial actions taken by companies subject  to its application. The new Regime has provided some flexibility to ameliorate some of the harshest aspects of the Framework.

Under the Integrity Regime, a supplier is barred from doing business with the Government of Canada for 10 years if it or any board members have been convicted or discharged in the past three years for a range of integrity-related offences in Canada or abroad, including bribery, fraud, bid-rigging, tax evasion, insider trading and money laundering. However, the decade long ban can be cut in half if the supplier shows it has taken action to co-operate with authorities, takes remedial action and enters into an administrative agreement with the Government. While the new regime amounts to a retreat from the integrity rules enacted just last March, in which any prior conviction against a supplier or any of its international affiliates would have earned a 10-year ban with no chance of its reduction, the automatic debarment penalty remains–unlike the U.S. equivalent integrity provisions.

In addition, arguably the most significant improvement to the former Integrity Framework, is that the new Regime eliminates mandatory ineligibility of a supplier for the actions of an affiliate (including a parent company) unless there is evidence that the supplier/potential supplier had involvement in the wrongdoing that led to the conviction of its affiliate.

The Extractive Sector Transparency Measures Act (ESTMA) – ESTMA is Canada’s latest step in the global fight against corruption. The ESTMA, which came into force on June 1, 2015, is designed to complement Canada’s existing anti-corruption regime in the CFPOA by creating greater transparency over payments to a government by the extractive sector. ESTMA’s reporting requirements apply to companies engaged in the development of oil, gas or minerals that are either (a) listed on a Canadian stock exchange or (b) have a place of business in Canada, do business in Canada or have assets in Canada, and which meet certain size thresholds.

Companies subject to the ESTMA are required to report and publically disclose all payments, including taxes, royalties, fees and any other consideration for licenses, permits or concessions in excess of CAD$100,000. The Government has recently published draft guidelines and reporting specifications for public comment. The ESTMA will apply to payments to certain aboriginal governments, subject to a two-year transitional period. Non-compliance with the reporting requirements is an offence. Any director or officer who directed, authorized, assented to, acquiesced in or participated in the non-compliance can also be held personally liable. These offences are subject to a maximum fine of CAD$250,000 for each day that the non-compliance continues.

Recent Enforcement Proceedings

Canadian anti-corruption enforcement has increased from 2014, which did not see any penalties imposed on corporate defendants under the CFPOA. The lack of enforcement in 2014 may have been reflective of the considerable resources and attention that was dedicated by the Royal Canadian Mounted Police (RCMP) to the high profile investigation of Canada’s largest construction and engineering firm.

SNC Lavalin In February of this year, the RCMP laid corporate corruption and fraud charges against the Quebec based construction and engineering companies of the  SNC Lavalin Group, which stems from the Group’s dealings in Libya between 2001 and 2011. The RCMP investigation has also lead to criminal charges against several former SNC executives.

SNC maintains that any wrongdoing was the act of rogue individuals no longer employed by the company, and has entered a plea of not guilty. Unlike in the United States, Canada does not currently have deferred prosecution agreements, civil settlements, or other formal resolution procedures available outside of a criminal guilty plea. No preliminary hearing dates have been set in relation to the corruption charges against SNC.

In addition, to the Libya allegations, former SNC executives have also been charged in connection with an alleged bribery scandal related to a $1.3 billion hospital project in Montreal, where it has been alleged that former SNC executives funneled money to ex-McGill hospital officials in exchange for the contract. A three week preliminary hearing, which is protected by a publication ban, heard testimony from about 16 people this past March.  No decision on committal for trial has yet been issued.

MagIndustries – The RCMP has obtained a search warrant and is investigating allegations from a whistleblowing accountant at MagIndustries Corporation, that bribes were paid to officials in the Republic of Congo to win approvals tied to a potash mine development. The RCMP believe four top executives with the company, including the CEO, ignored warnings from Canadian financial advisers and signed off on a string of illegal payments to Congolese officials. None of the allegations contained in the search warrant have been tested in court, and the RCMP has not laid any charges to date.

Canadian Senate Expenses Scandal – dominating Canadian media headlines since the recent announcement of the October Federal Election, is the ongoing political scandal concerning the expense claims of certain Canadian senators which began in late 2012. Senators Patrick Brazeau, Mike Duffy, Mac Harb, and Pamela Wallin claimed travel and living allowance expenses which were ineligible. Brazeau, Duffy, and Harb were criminally charged with one count each of fraud and breach of trust. As a result, the Auditor General of Canada examined expense claims made by all the other 116 senators and former senators over a two-year period. In the June 2015 report of the Auditor General, the Auditor General identified thirty senators whose claims were ineligible, and of these, recommended that nine cases be referred for police investigation.

Conclusion

Canada continues to focus on anti-corruption compliance and enforcement by bolstering the legislative tools available to law enforcement and government agencies. Onlookers are intently watching what will come from the high profile cases against SNC and the Canadian senators. As things are looking now, the remainder of 2015 is shaping up to be one of the most active years in Canadian anti-corruption enforcement history.

Canadian Government Overhauls the Integrity Regime for Suppliers – Still Tough to Get Over Debar

Canada

Today’s post is from Milos Barutciski and Matthew Kronby (partners with Bennett Jones in Toronto).

It was originally published as a Bennett Jones Client Alert and is reposted below with permission.

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On July 3, the Government of Canada announced a new Integrity Regime to replace the previous rules for debarment (disqualification) from public procurement. The new Regime, which is effective immediately, responds to more than a year of steady criticism of the previous Integrity Framework first established in 2010 by Public Works and Government Services Canada (PWGSC), the principal procuring arm of the Canadian federal government. That criticism, from business, legal and anti-corruption organizations, argued that the Integrity Framework had become so inflexible, punitive and far-reaching that it would be counterproductive to its objectives, namely to deter criminal misconduct and protect the integrity of the public procurement process. Commentators argued that the actual effect of the old Integrity Framework was to make it difficult for the government to find “clean” suppliers and to discourage companies from acknowledging and remediating wrongdoing.

The Government signaled its intention to address these concerns in its April 2015 budget. The new Integrity Regime goes a considerable distance to correct many of the problems with the Integrity Framework, but falls short in some critical respects.

The Concerns Giving Rise to the New Integrity Regime

Under the former Integrity Framework, suppliers faced disqualification from PWGSC procurements for fraud or corruption offences they or their affiliates have committed. The definition of “affiliates”, which appears to have been drawn from the U.S. debarment rules, is very broad; it covers all relationships where one entity has the power to control the other or a third party has the power to control both. In 2012, the list of offences that could give rise to debarment was expanded to include the bribery of foreign public officials under the Corruption of Foreign Public Officials Act and other federal offences.

None of this provoked particular concern until March 2014, when PWGSC adopted the latest in a series of “get tough” amendments to the Integrity Framework. One of these amendments imposed a mandatory 10-year ineligibility period for suppliers, with no scope for reduction due either to the gravity of the offending conduct or the remediation efforts of the business involved. In contrast with the U.S. and similar regimes elsewhere, which give credit for mitigating circumstances and remediation efforts in determining or subsequently reducing debarment penalties, companies doing significant business with the Canadian government have had little incentive to admit to and redress corrupt conduct and potentially a strong disincentive to do so.

The 2014 amendments also expanded the ineligibility conditions to include foreign offences “similar” to the listed domestic offences. Since the Integrity Framework already extended to the conduct of far-flung affiliates, this meant that Canadian businesses could face automatic 10-year debarments from most federal procurement not only for their own corrupt conduct but for the foreign conduct of remotely related entities over which they exercised no oversight or control. Increasing international enforcement of regulatory laws, such as anti-corruption, economic sanctions, antitrust and competition offences, meant that Canadian companies could face automatic debarment in ever expanding circumstances with no connection to Canada.

Key Elements of the New Integrity Regime

The new Integrity Regime remains under the primary authority of PWGSC and its Minister. The elements of the Regime are set out in a new PWGSC Ineligibility and Suspension Policy. The new Regime introduces key changes in relation to (i) the potential to reduce the length of debarment through remediation in certain circumstances; (ii) interim debarment prior to conviction; (iii) the consequences of “affiliate” conduct, (iv) the impact of conviction for foreign offences, and (v) new administrative and review process within PWGSC.

Potential Reduction of 10-year Debarment

The Regime maintains the 10-year ineligibility period for participation in procurements, which will apply for any convictions for covered offences within the previous three years. However, suppliers, other than those convicted of fraudulent conduct in a government procurement, will have the opportunity to reduce their ineligibility by up to five years by co-operating with law enforcement authorities or implementing appropriate remediation to address the causes of the misconduct. To restore their eligibility, suppliers also will need to obtain independent third-party certification that they have successfully addressed the causes of the misconduct. Suppliers convicted of fraud in connection with Canadian government procurement will remain ineligible indefinitely until they have received a pardon.

Ineligibility extends to sub-contractors as well. Suppliers who without prior Ministerial approval perform government contracts using sub-contractors deemed ineligible under the Integrity Regime will themselves face five-year debarments.

Interim Debarment

In addition to the 10-year ineligibility period, suppliers that have been charged with or admitted to any of the covered offences may be suspended from participating in procurement processes pending completion of the criminal proceedings.

PWGSC will maintain a list of ineligible and suspended companies and individuals.

Affiliates

The actions of an affiliate no longer render the supplier automatically ineligible. Instead, a supplier will be ineligible for the conduct of an affiliate only where the supplier can be shown to have “directed, influenced, authorized, assented to, acquiesced in or participated in” the conduct that would give rise to ineligibility. The Integrity Regime also establishes a review process under which suppliers will have 30 days to contest determinations of ineligibility based on the conduct of affiliates.

Foreign Offences

“Similar” foreign offences remain a basis for ineligibility or suspension under the Integrity Regime. The regime now explicitly contemplates an assessment of that similarity as well as the fairness and legitimacy of the proceedings that produced the foreign conviction. However, it is unclear who will be charged with making those assessments; the Ineligibility and Suspension Policy contemplates suppliers hiring independent third parties to provide information about foreign conviction but states rather vaguely that the “opinion of Canada” will be determinative.

Administrative Process

As under the Integrity Framework, the Government will be able to enter into a contract with an otherwise ineligible supplier where doing so is deemed necessary to the public interest, such as where no other suppliers can perform the contract or where failure to enter into the contract would pose risks to national security or public health.

The Regime contemplates the use of administrative agreements imposing conditions and compliance measures that an ineligible supplier must take to have its 10-year ineligibility period reduced or suspension following charges lifted, or when the Government invokes the public interest exemption or maintains an existing contract with a supplier who has become non-compliant. Supplier compliance with these agreements will be subject to independent third-party monitoring.

Impact Assessment

The new Integrity Regime addresses the overreach and potential unfairness that were inherent in the Integrity Framework’s application to foreign convictions of supplier affiliates. More generally, it adds transparency to the process by which ineligibility decisions will be made.

The elimination of automatic 10-year ineligibility is also a welcome development as it, to some degree, recognizes and encourages cooperation and remediation efforts by suppliers who have committed listed offences.

However, the revised policy fails to make a clear distinction between punishment and deterrence of misconduct (the domain of criminal law) and protecting the integrity of federal procurement and taxpayer dollars (the domain of procurement rules). The growing severity of corporate fines and the risk of individual imprisonment in corporate criminal cases, together with the reputational harm suffered by companies found guilty of white collar crimes, are a very strong deterrent for repeat offences and a general deterrent for other companies. It is unlikely that an automatic five-year debarment from Canadian public procurement will contribute significantly further to deterrence. It will, however, have a detrimental impact on Canadian companies (and their employees) even when they have substantially overhauled their management and practices. The automatic debarment will also harm Canadian taxpayers by eliminating potential suppliers and reducing the number of competitors bidding on public contracts (with the consequential pricing impact of reduced competition).

PWGSC’s claim that the new Regime will encourage suppliers to proactively disclose misconduct seems similarly misguided. Unlike the U.S., which can offer deferred or non-prosecution agreements to enable companies that voluntarily confess their sins to avoid debarment, the only benefit the Regime will offer such companies is that their ineligibility period can begin sooner. Those companies will still face a minimum ineligibility period of five years, more than long enough to have serious or even existential consequences if they are heavily dependent on federal procurement contracts. Companies facing legal exposure in Canada or abroad that include potential ineligibility under the Integrity Regime therefore will want to consider their options carefully, with the assistance of expert legal counsel.

SNC-Lavalin Should Be Grateful And Not Pout

Child Crying

But Mom / Dad, when Johnny gets into trouble his parents do things a little bit differently, why can’t I benefit from that?

As I told The Globe and Mail in this article, that is my reaction to SNC-Lavalin’s unusual statement upon being criminally charged by Canadian authorities for alleged improper payments to Libyan officials.

As noted in this previous post, last week the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.

Upon being charged, SNC-Lavalin issued this release, which as relevant here, stated:

“It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.”

SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout.

For starters SNC-Lavalin can only be found guilty of the charges alleged to the extent one of its “senior officials” engaged in improper conduct.  This is a much more exacting standard than the very lenient U.S. standard of respondeat superior corporate criminal liability in which a business organization can face criminal liability to the extent any employee engaged in improper conduct within the scope of employment and intended, at least in part, to benefit the organization.

Perhaps most importantly, SNC-Lavalin should be grateful, and not pout, that Canadian authorities will have to prove the facts and legal theories alleged in the enforcement action.  In the U.S., FCPA enforcement agencies are rarely put in the position of having to prove anything in a corporate FCPA enforcement action.  Rather, the DOJ (or SEC) occupy the position of prosecutor, judge and jury all at the same time and use resolution vehicles such as non-prosecution and deferred prosecution agreements (NPAs / DPAs) or administrative settlements – all of which are not subjected to any meaningful judicial scrutiny.

In short, SNC-Lavalin should be grateful, and not pout, that Canadian law enforcement authorities have not abandoned (as U.S. authorities have) traditional legal principles in the name of ease and efficiency. Accusing a person – whether a natural person or a legal person such as SNC-Lavalin – was never meant to be easy or efficient and it is interesting that SNC-Lavalin appears to be begging for such a system.

In other portions of its recent statement, SNC-Lavalin stated that the criminal charges “are without merit.” In other words, SNC-Lavalin seems to be saying that even though the criminal charges “are without merit,” it would have gladly forked over tens of millions – or perhaps hundreds of millions of dollars – of shareholder money to make the RCMP go away.  How would that benefit SNC-Lavalin’s employees and shareholders?

It is also worth nothing that SNC-Lavalin’s statement casts several opinion statements as fact.

For instance, many would disagree that companies subject to the FCPA “benefit” from the common enforcement approach in which the DOJ (or SEC) are not put in a position to prove anything in relation to the facts and legal theories alleged.  Many would also disagree that companies subject to the FCPA “benefit” from the excessive leverage the DOJ (or SEC) have over companies in extracting corporate settlement.  Moreover, many would disagree that the U.S. approach to resolving corporate FCPA enforcement actions through NPAs and DPAs or administrative SEC actions have “been effectively used in the public interest.”

In short, SNC-Lavalin should be grateful, and not pout, that it is subject to a legal system in which law enforcement has to prove facts and legal theories to someone other than itself.

And let’s face it, the problem with SNC-Lavalin’s predicament has little to do with Canada’s legal regime for prosecuting companies, but rather Canada’s recent – and foolish – automatic debarment rules (see here and here).

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