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Canadian Court of Appeal Upholds Karigar Conviction For Bribery Of Foreign Public Official

Judicial Decision

Today’s post is from Milos Barutciski and Sabrina Bandali (lawyers in the Toronto office of Bennett Jones).

On July 6, 2017, the Ontario Court of Appeal upheld Nazir Karigar’s conviction and three-year prison sentence for agreeing to bribe a foreign public official contrary to the Corruption of Foreign Public Officials Act (CFPOA). Karigar had acted as an agent of Cryptometrics Canada, an Ottawa-area company, in pursuing a contract to supply security screening equipment to Air India. The trial judge determined that Karigar had agreed with other persons to bribe Indian public officials in order to win the contracts and sentenced Karigar to a three-year imprisonment for contravening section 3 of the CFPOA. The trial judge notably did not conclude that Karigar actually paid a bribe.

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Friday Roundup

Attend the FCPA Institute,  Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup.  It’s all here in the Friday roundup.

FCPA Institute

Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

Wal-Mart Fires Back

This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues.  As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

Wal-Mart has fired back in this proxy filing which states, in pertinent part:

The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation

As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.

We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”

As hinted at in the previous post, I agree with Wal-Mart’s position.

Up North

This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar.  Karigar was recently sentenced to three years in prison.

As noted here from Baker & McKenzie’s Canadian Fraud Law:

“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.

In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”

As noted in this Osler alert:

“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.

Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”

For more, see here from Blakes.

The Race is On

This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities.    The U.K. has unique double jeopardy provisions and former U.K.  Serious Fraud Office Director Richard Alderman has stated (see here):

“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”

The race is on as GSK recently disclosed:

“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”

In this release, the SFO states:

“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.

For additional reporting, see here

Deserving Part 2

Earlier this week, the African Development Bank (“AfDB”) announced:

“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”

The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.

As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.

My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Quotable

In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:

“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.

The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]

A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.

[….]

What do you tell companies about self-reporting allegations to the authorities?

I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?

I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.

You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure.  The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”

Revised Roundup

Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling.  The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.

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A good weekend to all.

 

Worth Noting From Canada’s First CFPOA Decision

This previous guest post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”), including the specific facts in the action against Nazir Karigar.

Given the general dearth of Foreign Corrupt Practices Act case law, you ought to have the urge to digest any form of judicial scrutiny of “FCPA-like” cases and the judicial opinion in the Nazir Karigar case makes for an interesting and worthwhile read.

For starters, the judge found that Air India officials were “foreign public officials” under the CFPOA.

This is hardly surprising.

Why?

Because the CFPOA, unlike the FCPA, defines the targeted recipient category, in pertinent part, as follows.

“a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function”

As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal in the Joel Esquenazi and Carlos Rodriguez action), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.

Back to the Karigar decision.

The first take-away point is that the bribery attempt was unsuccessful in that the contract at issue was never awarded.  There have been FCPA enforcement actions consistent with this theory as well.  (See, among other actions, the 2005 FCPA enforcement action against Monsanto – here and here).

A disputed legal issue in Karigar was whether the prosecution needed to prove that the actual bribes were paid and the specific identity of the foreign public officials allegedly bribed.  Summarizing the argument of defense counsel, the opinion states:

“[I]n the submission of counsel for the accused, [counsel argues] that the court cannot know whether any foreign public official was actually offered or received a bribe or other inducement, whether any such official was induced to use his or her position to influence any act or decision and whether any such official had any duties or functions which could be influenced by any such inducement.  In short, in the absence of any evidence that a bribe was actually offered or paid to any official, how can the Crown have proven the requisites of the offense charged beyond a reasonable doubt?”

The opinion then states:

“I agree that there was no evidence as to what became of the two payments … after the amounts were transferred from the bank account of Cryptometrics Inc. in New York to the accused’s account in India.  It is correct so say that there was no evidence as to what subsequently became of those two sums of money and in particular whether these funds were offered or paid to anyone who qualified as a foreign public official under the Act.”

“The position of the Crown is that no evidence of what actually became of the money is necessary to establish a violation of the CFPOA.  The Crown argues that incoate offenses, in particular a conspiracy to pay bribes, as exists here, constitutes a violation of the Act.  […]

[…]

“There would appear to be no jurisprudence interpreting the CFPOA.  This is the first prosecution under this Act which has proceeded to trial.”

“In any event, I am satisfied that a conspiracy or agreement to bribe foreign public officials is a violation of the Act.  The actus reus of this offense is the agreement to pursue an unlawful object.  […]

[…]

“I also reject the accused’s submission on a policy basis.  In my opinion if the word ‘agrees’ in the Act is restricted to the act of essentially two parties, ‘one to pay the bribe and one to receive the bribe,’ the scope of the Act would be unduly restricted and its objectives defeated.  Moreover, to require proof of the offer of or receipt of a bribe and the identity of a particular recipient would require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk and would the legislation difficult if not impossible to enforce and possibly offend international comity.”

If the above sounds familiar to you, it should.  Similar issues have been contested in recent FCPA enforcement actions.

In U.S. v. O’Shea, the DOJ alleged that the defendant violated the FCPA by making payments to officials at a Mexican utility allegedly owned or controlled by the Mexican government.  The judge granted a motion for acquittal after the DOJ’s evidence.  In doing so, and as relevant to the identity of a “foreign official” issue, the judge stated:

“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up [somebody] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”

However, the notion that the specific identity of a “foreign official” must be proven by the enforcement agencies has been rejected by two other trial courts in individual FCPA enforcement actions.  In SEC v. Jackson, the court concluded, in ruling on a pre-trial motion to dismiss, that the “government does not have to connect the payment to a particular official.”  The court stated:

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. […] Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. […] It would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe.”

Likewise in SEC v. Straub, the court agreed with the above Jackson decision in the context of a pre-trial motion to dismiss and stated that “the language of the [FCPA] does not appear to require that the identity of the foreign official involved be pled with specificity.”  The court stated:

“Such a requirement would be at odds with the statutory scheme, which targets actions (such as making an ‘offer’ or ‘promise’) without requiring that the ‘foreign official’ accept the offer or reveal his specific identity to the payer.  Indeed, the fact that the FCPA prohibits using ‘any person’ or an intermediary to facilitate the bribe to any ‘foreign official’ or ‘any foreign political party’ suggests that the statute contemplates situations in which the payer knows that a ‘foreign official’ will ultimately receive a bribe but only the intermediary knows the foreign official’s specific identity.”

Another interesting aspect of the Karigar is asking the obvious question – will there be a related FCPA enforcement action(s)?

Karigar was a paid agent for Cryptometrics Canada and acted on behalf of related entities including Cryptometrics USA.  According to the opinion, $200,000, was transferred from Cryptometrics USA to Karigar’s bank account in furtherance of the bribery scheme.  The opinion further references a relevant letter agreement between Kairgar and the CEO of Cryptometrics USA as well as specific conduct in furtherance of the bribery scheme that took place at Cryptometrics’s office in New York.  In addition, the opinion references an additional $650,000 that was transferred from Crytometrics USA’s bank account in furtherance of the scheme.

Moreover, as noted in the opinion, Karigar corresponded with the DOJ regarding the conduct at issue.  Specifically, the opinion states “that on August 13, 2007, Karigar  – using an alias – “sent an e-mail to the Fraud Section (FCPA) of the U.S. Department of Justice stating that he had information about U.S. citizens paying bribes to foreign officers and inquired about reporting the matter.”  The opinion also references two other e-mails Karigar sent to the DOJ.

Canada’s First Foreign Bribery Trial Results In First Conviction Of An Individual

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

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Introduction

On August 15, 2013, the Ontario Superior  Court of Justice convicted  Nazir Karigar of offering bribes contrary to section 3(1)(b) of the Corruption of Foreign Public Officials Act (CFPOA). This is the first trial decision of a charge under the CFPOA, and the  first conviction against an individual. In the course of convicting Mr.  Karigar, the Court affirmed a number of interesting and potentially important points that are discussed further below.

Facts

This case concerns an agreement to pay  approximately US$450,000 in cash, as well as certain shares, to Air India officials and the Indian Minister of Civil Aviation to secure a contract for  the provision of facial recognition software and related equipment. At the material time, Mr. Karigar was acting as a paid agent for Cryptometrics Canada (Cryptometrics), a Kanata-based technology company.

The evidence at trial disclosed that in 2005 Mr. Karigar contacted an executive of Cryptometrics. Mr. Karigar held out that he had contacts at Air India, and that he could assist Cryptometrics in obtaining work from Air India for its biometric facial recognition technology. An agreement was subsequently entered into whereby Mr. Karigar and others would help the company obtain work from Air India in exchange for 30% of the expected revenue stream from the work generated.

On February 24, 2006, Air India released an official Request for Proposal and shortly after, under the direction of Mr. Karigar, the company submitted a bid. A separate bid was also submitted by another company controlled by Mr. Karigar, to create the appearance of a competitive tendering process. In conjunction with submitting the bid, US$200,000  was transferred from Cryptometrics U.S.A. to Mr. Karigar, purportedly for the purpose of bribing Air India officials, though the Court noted there was no evidence that the money was actually paid to Indian officials. This first payment was to make sure only two companies would be deemed to have submitted  technically qualified bids in response to the Request for Proposal.

As the process continued, further funds in the amount of US$250,000 were transferred from the company to Mr. Karigar that were purportedly destined to be paid to the Indian Minister of Civil Aviation. The evidence indicated that the purpose of this payment was for the Minister to  support Cryptometrics’ bid and have the contract awarded, though ultimately the company was never successful in obtaining the award of the contract.

Based on these circumstances, the Court found that Mr. Karigar had agreed with others to offer bribes to foreign government officials contrary to s. 3(1)(b) of the CFPOA, and convicted him accordingly. Mr.  Karigar has not yet been sentenced for this offence.

Key Points

In the course of its decision, the Court made a number of points that are worth noting:

  • The Court accepted that officials from Air India constituted “foreign public officials” for the  purposes of the CFPOA as Air India was a corporation owned and controlled by  the Government of India. This case reinforces the potential breadth of persons  who may be treated as government officials for the purposes of foreign corrupt practices legislation. In particular, the class of persons to whom bribery is  prohibited under the CFPOA is not limited to government officials in the  traditional sense, but also includes directors, officers and employees of  state-owned/controlled corporations.
  • The case notes that Mr. Karigar was initially not an employee of the company, but rather was engaged as an agent and was to be compensated on a success fee basis. In addition, the case disclosed the use of further sub-agents, which the evidence suggested were used  potentially for the purposes of transferring funds to government officials. The use of agents, particularly in countries where there is a higher incidence of corruption, remains a higher-risk practice and is at the heart of the majority of enforcement actions to date in Canada and a number of proceedings under the U.S. Foreign Corrupt Practices Act.
  • The Court held that the CFPOA offence includes a conspiracy offence such that an agreement to pay a bribe is enough to constitute an offence, even without proof that the bribe was actually offered or paid to a foreign official. The Court convicted Mr. Karigar on the basis that there was evidence of an agreement between him and his business associates to pay bribes to Indian officials, and that he believed that such bribes would be paid. The Court was clear that the agreement to pay a bribe does not need to be between the individual paying the bribe and the foreign official. Rather, the agreement to pay a bribe to a foreign official between business associates constituted an offence. Moreover, the Court explicitly rejected that any evidence of proof of the offer or receipt of a bribe, or the  identity of the recipient of the bribe, was required for a conviction.
  • While the CFPOA has recently been amended to extend the jurisdiction of Canada to prosecute offences involving Canadian corporations or citizens worldwide, this case was tried prior to those amendments coming into effect. Of note, the Court confirmed that the current amendments did not apply retroactively, and only applied to offences committed after June 19, 2013. The Court also confirmed that for offences occurring prior to June 19, 2013, a connection to the physical territory of Canada was required. The Court found that there was a connection in this case because at the material times Mr. Karigar was employed or acting as an agent of a Canadian company, the purpose of the scheme was to obtain an unfair advantage for a Canadian company, and had the contract been awarded, a significant amount of work would have been done by Cryptometrics’ employees in Ottawa.
  • It is important to note the role that co-operation with government authorities played in securing the conviction of Mr. Karigar. Notably, the key witness at trial for the Crown was a company executive who was also involved in the bribery scheme, although was granted immunity in this matter, in exchange for his testimony.
  • This case demonstrates the potential benefit of co-operation with authorities, although it also demonstrates its potential pitfalls, as some of the evidence used to convict Mr. Karigar was his own. Mr. Karigar was actually his own “whistle blower”; he was the anonymous informant who tipped off the U.S. Department of Justice to  allegations against Cryptometrics. Consistent with what we have seen in  practice, the U.S. authorities then shared the information with Canadian  enforcement authorities. Accordingly, while there can be benefits to self-disclosure and co-operation, it should be carefully considered and managed, and pursued only in appropriate circumstances and based on all  available information.

Conclusion

Nazir Karigar’s conviction demonstrates the continued dedication of Canadian enforcement authorities to pursue charges under the CFPOA. It also demonstrates the ability of Canadian authorities to secure convictions, not only by guilty plea, but through the more rigorous trial process. This case underscores the need for a robust compliance program, including conducting a risk assessment, implementing appropriate policies,  training employees and agents, implementing a governance structure aimed at preventing anti-corruption violations, using protective contractual terms,  engaging in due diligence, and engaging in ongoing monitoring to guard against  these types of matters.

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