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

A guest post  from Mark Morrison [1](Blake, Cassels & Graydon), the Canada Expert for FCPA Professor, and Blakes attorneys Michael Dixon [2] and James Reid [3].

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This past year has been one of mixed results for Canadian authorities under Canada’s Corruption of Foreign Public Officials Act (CFPOA), Canada’s equivalent to the FCPA. On the one hand, Canada increased its rating on Transparency International’s well known Exporting Corruption: Progress Report 2014: Assessing Enforcement of the OECD Convention on Combating Foreign Bribery to a “Moderate Enforcement” rating from 2013’s classification of  a “Limited Enforcement” rating. In addition, 2014 saw precedent setting court decisions and sentencing of individuals.

Despite these developments, it has now been two full years since the last penalty was imposed on a corporate defendant under the CFPOA, that being Griffith’s Energy who was sentenced to a $10.35 million dollar fine in January 2013.  The lack of proceedings against corporations in 2014 may be reflective of the considerable resources being dedicated by the Royal Canadian Mounted Police (RCMP) to the ongoing, high profile investigation of Canada’s largest construction and engineering company, the resolution of which is widely anticipated to make headlines in 2015.  This post discusses some of the developments in Canada’s anti-corruption efforts in 2014 and what can be expected in the year ahead.

Enforcement Proceedings

In 2014, Canadian authorities appear to have focused their attention on pursuing individuals who had violated the provisions of the CFPOA. Noteworthy for corporate officers, 2014 marked the first jail sentence for an individual, and several other individuals are being pursued by authorities in Canada. Notable enforcement proceedings are discussed below.

Karigar – On May 23, 2014, Nazir Karigar was sentenced to three years in prison for offering to bribe foreign officials.  This sentence was the most significant development in Canadian anti-corruption enforcement proceedings in 2014, as it marks the first time a jail term has been handed out to an individual convicted under the CFPOA. This case will likely stand as a precedent for sentencing in future corruption cases.

Karigar was convicted on August 15, 2013.  The case concerned 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.  At the time, Karigar was acting for Cryptometrics Canada.  Karigar was convicted despite Cryptometrics not being awarded the contract or there being any evidence the bribe was actually offered or paid to Indian officials, as the internal agreement amongst Karigar and Cryptometrics management to offer a bribe was held to be an offence.

In sentencing, Justice Hackland of the Ontario Superior Court took Karigar’s age (67) and other circumstances into account as mitigating factors.  However, the bribery scheme was viewed as a serious crime.  Accordingly, principles of denunciation and deterrence were placed at the forefront in administering the three year sentence.

It is also important to note, that at the time Karigar was charged, the maximum prison sentence for a CFPOA violation was only five years. Since then, the 2013 amendments to the CFPOA raised the maximum penalty from five years to 14 years.

Chowdhury – Five individuals were jointly charged with bribing a foreign public official to obtain a contract to provide consulting services for building the World Bank funded Padma Bridge Project in Bangladesh.  One of the individuals charged, Abdul Hasan Chowdhury, was a Bangladeshi citizen and resident who had never been to Canada.  On this basis, and without submitting to the jurisdiction of the Canadian Court, Chowdhury applied to prohibit the Crown from proceeding in Canada with the charge against him under the CFPOA.

Ultimately, the Court found that Canada did have jurisdiction over the offence since many of the acts making up the offence took place in Canada, the investigation was conducted in Canada and the bulk of the evidence was gathered in Canada. However, Justice Nordheimer held that the CFPOA does not give the Court jurisdiction over foreign nationals who do not reside, or are not otherwise present (such as through extradition or otherwise) in Canada.  The Court held that the mere fact Chowdhury was a party to the offence was not sufficient to give the Canadian courts personal jurisdiction over him unless he either physically came to Canada or Bangladesh offers to surrender him to Canada. Notably, Canada does not have an extradition treaty in place with Bangladesh.  In result, the charges against Chowdhury were stayed.

The allegations in question in this case pre-dated the 2013 amendments to the CFPOA which expanded the jurisdictional reach of the CFPOA from territoriality to nationality based jurisdiction.  Notwithstanding this expanded jurisdictional scope of the CFPOA, however, the key point to be taken from this case is that a Canadian court needs to have jurisdiction over both the offence and the person before it may exert jurisdiction.

Ongoing Cryptometrics Investigations – Following the Karigar sentencing in May, on June 4, 2014, the RCMP charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) for bribery offences under CFPOA.  UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged with bribery under CFPOA and with one count of fraud contrary to the Criminal Code of Canada.  Canada-wide warrants have been issued for all three accused.  These charges go to show that Canadian authorities will continue to pursue enforcement proceedings, even against foreign nationals, despite being unsuccessful in the Chowdhury case discussed above.  One key difference between these charges and Chowdhury, however, is that Canada does have extradition treaties in place with the US and UK, creating a potential avenue by which Canadian authorities could assume personal jurisdiction over these individuals.

Ongoing Investigations – The most significant Canadian anti-corruption enforcement action is the ongoing, high profile corruption investigation relating to allegations that Canada’s largest construction and engineering company (the Company) bribed foreign public officials to secure contracts in a number of foreign countries, including Libya, Bangladesh and Algeria (the Engineering Investigation).  Canadian authorities have been carrying out the Engineering Investigation since 2011 with the cooperation of others, including the World Bank and Swiss authorities.  It is reported that the Company is providing its full cooperation with authorities.

To date, at least three former executives of the Company and two others connected with the Padma Bridge Project in Bangladesh have been charged under the CFPOA and are awaiting trial. On the domestic front, the Company has also faced corruption allegations related to the construction of a $1.3 billion hospital in Montreal, regarding which several former executives are facing charges, including, fraud, conspiracy and breach of trust.

The allegations currently subject to the Engineering Investigation are the most serious to involve a Canadian company to date and onlookers are intently watching what will unravel in 2015, when it is expected that a resolution of this high profile case will likely occur.

New Legislation and Government Policy

Extractive Sector Transparency Measures Act – In October 2014, the Canadian Government introduced the Extractive Sector Transparency Measures Act (ESTMA) which will create mandatory public reporting of payments to governments and government officials by the extractive sector.  The reporting obligations in ESTMA will apply to companies that are engaged in the commercial development of oil, gas or minerals in Canada or abroad and are either listed on a stock exchange in Canada or have a place of business in Canada, do business in Canada or have assets in Canada, and meet certain size thresholds.

ESTMA, which is expected to come into force in the spring of 2015,  is designed to further Canada’s fight against corruption by enacting reporting obligations with respect to payments made to foreign and domestic governments (and government officials), and will eventually include aboriginal governments.  These proposed mandatory reporting requirements are in line with other countries implementing similar requirements, including the European Union and the United States.

Amendments to the Federal Government Integrity Provisions – In March 2014, the Federal Government announced it had made significant changes to its Integrity Provisions, which are incorporated in all solicitations administered by Public Works and Government Services Canada (PWGSC).  PWGSC handles the majority of Federal Government procurement transactions.  By adding a requirement that bidders certify that neither the bidder, nor any of the bidder’s affiliates, has been convicted of (or received an absolute or conditional discharge) under any foreign offense that PWGSC regards as having “similar constitutive elements” to listed Canadian offenses (including fraud, money laundering and bribing a foreign public official), the new Integrity Provisions establish rules for debarring corporations and individuals where they or their affiliates have committed an integrity offence.

The integrity provisions impose rigorous certification provisions, which, if not complied with can result in significant consequences including debarment from participating in Government procurements for 10 years from the date of conviction and the right for the Government to terminate a contract for default.  The Canadian Government also maintains the right to pursue other remedies available, including the ability to sue for damages that may occur as a result of termination.

Conclusion

The introduction of ESTMA and the new Integrity Provisions continue the trend towards a stronger legislative commitment to anti-corruption enforcement in Canada, which began with the 2013 amendments that strengthened the CFPOA.  Given this clear legislative direction and the likely freeing up of enforcement resources, expected after the imminent resolution of the Engineering Investigation, our forecast is that 2015 will be an active year for Canadian anti-corruption enforcement.