Category: Guest Posts

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.

Anti-Corruption Developments In Singapore – Ten Things To Know

A guest today from Wilson Ang (a Partner at Norton Rose Fulbright in Singapore).

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Corruption in Singapore has recently been characterised by high-profile cases involving public officials. These cases involving two former senior public officials allegedly obtaining sexual gratification in exchange for favouring certain companies and a university professor allegedly obtaining sexual gratification and other gifts from a student in exchange for better grades, have raised interesting issues in relation to Singapore’s anti-corruption laws.

On 14 May 2013, former director of the Central Narcotics Bureau (CNB), Ng Boon Gay was acquitted of four charges of corruptly obtaining sexual gratification from a female sales executive in exchange for assisting to further the business interests her two IT company employers on the grounds that there was neither a corrupt element, nor guilty knowledge on the part of the accused as the parties were in a pre-existing romantic relationship.

Conversely, both Peter Lim and Tey Tsun Hang faced guilty verdicts. On 31 May 2013, Lim, the ex-commissioner of the Singapore Civil Defence Force (SCDF), was convicted of one charge of corruptly obtaining sexual gratification from a female general manager of a vendor in the IT industry in exchange for favouring the business interests of her employer. He later admitted to seven other corruption charges for trysts with two other women, who were working for technology companies that were SCDF vendors. He was sentenced to six months in jail. On 28 May 2013, Tey, a professor at the National University of Singapore (NUS), was found guilty of six charges of corruption including two acts of sexual intercourse with, and the receipt of four gifts of varying monetary values from, one of his law students and was sentenced to five months in jail. Both Lim and Tey claimed they were in a romantic relationship with their gratification-giver. However, these claims failed.

While these cases captured the attention of the media and the public, the judgments handed down by the courts also clarified and advanced the understanding of the Singapore legal landscape. Here are ten things to know about anticorruption developments in Singapore.

1 – Sex is Gratification

It is trite law that sexual favours amount to gratification under Singapore laws.  Sex between consenting adults in an intimate relationship can amount to gratification for the purposes of establishing corruption.  Gratification is defined in isolation without the notion of corrupt intent. It would be erroneous to define gratification by the reason it takes place. The context in which the gratification was received is only relevant to establish the intention behind it.

2 – Presumption of Guilt

If any gratification is given to a person employed by the Government or a public body by any person who has or seeks to have dealings with the Government or that public body, it is presumed that there is corrupt intent and that the gratification was an inducement or reward, unless this presumption is successfully rebutted on the facts.

In all three cases, the “public body” test was satisfied. However, only Ng managed to successfully rebut the presumption. The judge found that the sexual acts took place in the context of a romantic relationship, and that both the intentions of the recipient and giver of gratification were innocuous. Although the presumption of corruption was triggered by law when the sexual relationship began, due to the fact that Ng knew of her dealings with the Government, Ng was able to successfully rebut the presumption.

3 – Quid Pro Quo Not Needed

Under Singapore law, on satisfaction of the “public body” test, there is no need to prove that the receipt of gratification was an inducement for a specific corrupt act. It is sufficient for the gratification to be given in anticipation of some future corrupt act.  However, the accused must have corruptly accepted the gratification i.e. believing that it was offered as an inducement, before this presumption is triggered.

Case law refers to the sense of obligation the receipt of the gratification must create in the recipient. The relationship has been characterised by the courts as the purchase of the recipient’s “servitude,” establishing a “retainer relationship and the accused being “beholden to” the giver.

4 – Ability to Favor Not Required

Under Singapore law, on satisfaction of the “public body” test, there is no requirement for the accused to have the ability to show favor in exchange for the gratification. It is sufficient that the accused believed that the gratification was offered as an inducement to favourable treatment.

In Tey’s case, it was argued that Tey was never in a position to show favour in relation to the student’s grades due to NUS’ anonymous marking system. As the defence failed to rebut the presumption of corrupt intent, Tey’s supposed lack of power to alter grades had no effect on his guilt.

5 – Gift Thresholds in Singapore

Although there is no specific guidance on monetary thresholds of gifts in Singapore law, practical guidance can be found in the approach of public bodies.

The Instruction Manual, published by the Singapore Government, which applies to all Singapore public officials, details when gifts and entertainment can be accepted and when they must be declared. As a matter of practice, all gifts need to be approved by a permanent secretary and only gifts under S$50 can be accepted. Any gifts valued at more than S$50 can only be kept if they are donated to a governmental department or independently valued and purchased from the Government. Taking a slightly different approach, Tey’s case revealed that the NUS Policy on Acceptance of Gifts by Staff requires consent to be sought for all gifts over S$100.

6 – What is a Public Body?

Under Singapore law, the definition of “public body” is broad, encompassing a wide range of bodies on a purposive reading. Both the CNB and SCDF were held to be public bodies, being departments of the Government.

Despite the defence’s arguments, NUS was also found to be a public body in Tey’s case, being a “corporation … which has the power to act… relating to… public utility or otherwise to administer money levied or raised by rates or charges…”, since the public utility include the provision of public tertiary education.

NUS’ receipt of funds from the Government and function as an instrument of implementing the Government’s tertiary education policy further supported the finding that NUS was a “public body.”

7 – Violation of Internal Codes and Policies Can Indicate Corrupt Intent

If internal codes of conduct and policies and procedures are knowingly breached, the court may infer that the accused knew what he did was corrupt. Therefore, knowingly acting in conflict of internal codes or policies invites an inference of guilty knowledge. In Tey’s case, his breach of the NUS Code of Conduct was found to be tantamount to corrupt intent.

8 – Not Every Conflict of Interest Permits the Inference of Corruption

A corrupt element is not always constituted due to the contravention of some code or policy. The fact that Ng’s sexual acts were carried out in the context of a romantic relationship led to the court’s finding that there was no corruption, despite his breach of internal conflict of interest rules.

9 – Statements Can Be Retracted, Credibility Can Be Impeached

The retraction of earlier statements made to enforcement agencies was a common feature. Whilst this is procedurally permitted by the courts, the risk is that the witness’s credibility will be impeached. Applications for impeachment were made in all three cases. However, the court will only impeach witnesses if there are serious discrepancies or material contradictions in their evidence.

Both Lim himself and Ng’s gratification-giver were successfully impeached. One should note, however, that the totality of the impeached witness’ evidence does not have to be rejected by the court. The evidence must be scrutinised to determine what is true and what should be disregarded.

10 – Focus on Abuse of Power and Position

The abuse of power and position has been the common underlying basis.

In Tey’s case, it was determined that there was a clear imbalance of power between Tey and his student. The court emphasised his self-portrayal as a person who could influence her academic prospects, that he revealed her examination results before they were officially released, and that he took her out for lunch and disclosed information to her that was not available to other students.

In Lim’s case, the court pointed to Lim’s substantial control over SCDF’s procurement procedures and noted that, whilst his gratification-giver may not have had direct knowledge of the full extent of his power, she did have an impression of his substantial influence. The court further determined that Lim was aware that she would factor this in when he asked her for oral sex, considering that she did not want her company’s business interests with SCDF to be negatively affected but wanted to have them enhanced.

Conversely, the court in Ng’s case pointed to the lack of imbalance of power, noting that his gratification-giver was not “someone who could be easily taken advantage of or someone who would cower in the fear of persons in authority”.

[A version of this post first appeared on www.cfoinnovation.com]

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

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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Recent developments in anti-corruption law north of the 49^th parallel have demonstrated that Canadian authorities are serious about combating bribery worldwide. In addition to a number of recent prominent enforcement proceedings, on June 19, 2013 the Canadian government passed into law amendments to the Corruption of Foreign Public Officials Act (CFPOA).  This post discusses the amendments to the CFPOA and recent enforcement proceedings in turn.

Amendments to the CFPOA

The recent amendments to the CFPOA strengthen Canada’s anti-corruption legislation. The amendments to the CFPOA close significant loopholes, create new offences, and increase penalties for violating its provisions.  They include:

Nationality Jurisdiction – Prior to the amendments, the CFPOA contained a significant loophole with the application of territorial jurisdiction. Territorial jurisdiction created enforcement difficulties as there must be a territorial nexus between Canada and the offence for the CFPOA to apply, meaning that some part of the formulation, initiation or commission of the offence must have taken place within Canada. Considering that the CFPOA is directed at transactions that predominantly occur abroad, territorial jurisdiction hampered the ability of Canadian authorities to enforce the CFPOA in cases where the entire transaction occurs abroad.

The proposed amendments have closed the territorial jurisdiction loophole by employing nationality jurisdiction in a similar manner as other global anti-corruption legislation, such as the United States Foreign Corrupt Practices Act (FCPA). The relevant provision deems acts of Canadian citizens, permanent residents, corporations, societies, firms or partnerships on a worldwide basis to be acts within Canada for the purposes of the CFPOA. This provision essentially subjects all Canadian citizens and companies to global regulation by Canadian authorities under the CFPOA.

Increased Penalties – The amendments have significantly increased the penalties for violations of the CFPOA. Maximum imprisonment for violation of the CFPOA is now 14 years, as opposed to five years prior to the amendments.

Books and Records Offence – New offences now exist for concealing bribery in accounting records. Pursuant to the new books and records provisions, it is an offence to keep secret accounts, falsely record, not record or inadequately identify transactions, enter liabilities with incorrect identification of their object, use false documents, or destroy accounting books and records earlier than permitted by law for the purpose of concealing bribery of a public official. Similar to the bribery offence under the CFPOA, the new books and records provisions carry a maximum sentence of 14 years’ imprisonment.

While this new offence has some similarity to the books and records provisions of the FCPA, it is not likely to have the same impact in Canada as it has had in the United States, as in Canada the new books and records provisions are criminal, meaning both that the authorities must prove an offence to the higher standard of proof, and also that there is no civil resolution option provided under the CFPOA.

No Facilitation Payments –Under the amendments, the current exception in the CFPOA for facilitation payments will eventually be removed. The timing for removal of such exception is subject to a further order of the Governor in Council. Companies that conduct business in Canada whose anti-corruption policies currently allow for facilitation payments should consider modifying their policy accordingly.

No For-Profit Requirement – Prior to the amendments, application of the CFPOA was restricted to for-profit transactions. This allowed for potential arguments that any particular payment did not violate the CFPOA because it was not directly tied to a for-profit purpose. Under the amendments, this potential argument is no longer available as the for-profit restriction has been removed.

Double Jeopardy – Previously, the CFPOA did not specifically address the potential availability of double jeopardy protection in circumstances involving prosecutions for the same conduct in different jurisdictions (for instance, in the United States under the FCPA). While common law arguments for such protection did exist, the availability of a double jeopardy defence based on the principles of autrefois acquit or autrefois convict was by no means certain. The amendments now clarify this uncertainty and ensure that Canadian companies and individuals tried in another jurisdiction cannot be convicted for the same conduct in Canada.

Recent Enforcement Proceedings

Canadian authorities continue to demonstrate their willingness to enforce Canadian anti-corruption laws. This year has seen a significant conviction under the CFPOA, ongoing investigations into a Canadian corporation and its affiliates worldwide relating to corruption allegations, and the explosive corruption allegations against a large number of municipal officials in Quebec. The notable enforcement proceedings are discussed below.

Griffiths Energy – The Griffiths Energy case earlier this year is the second major conviction under the CFPOA.   In January 2013, Griffiths pled guilty to an offence under section 3(1)(b) of the CFPOA and agreed to pay a fine of $9M, plus a 15% victim surcharge, for a total of $10.35M. This fine was in relation to consulting agreements that provided for payments in the amount of $2M to two entities owned and controlled by Chad’s ambassador to Canada and his spouse. In assessing the fine, the Court noted that Griffiths had self-reported, taken the extraordinary step of sharing privileged materials, spent $5M conducting an internal investigation into the bribery, and had to postpone its planned IPO at a cost of $1.8M. In the absence of these factors, the fine imposed on Griffiths could have been significantly greater.

Decision in Karigar Trial Expected This Year– The decision in the trial of the first individual charged under the CFPOA is currently outstanding and expected to be released in the second half of this year. The trial, which was held in September, 2012 involved a former employee of Cryptometrics, Nazir Karigar. Cryptometrics was a company developing facial recognition software for airports and governments. The RCMP laid charges against Mr. Karigar individually, alleging that he violated the CFPOA by paying bribes to Indian officials in relation to a security system contract.

Investigation into SNC-Lavalin -The investigation into SNC-Lavalin Group Inc. (SNC-Lavalin) and its subsidiaries remains ongoing. On September 1, 2011 the RCMP raided its offices in connection with a corruption probe into the bidding process for the World Bank funded Padma Bridge Project in Bangladesh.  On April 11, 2012, two former executives of SNC-Lavalin were charged with one count each of corruption under the CFPOA.  In addition, two former executives, including a former CEO, are facing fraud charges relating to a contract for a multi-billion dollar health facility in Montreal.

Corruption Inquiry in Quebec – The Charbonneau Commission inquiry into corruption in the management of public construction contracts in Quebec took a break for the summer in June and is expected to resume this September. While the final report of the Charbonneau Commission Inquiry is not expected until Spring 2015, the inquiry has heard testimony of rampant corruption in municipal contracting in Quebec. There have been wide ranging allegations against a large number of municipal officials, suggesting that they accepted bribes to award municipal construction contracts. Notably, allegations of corruption have resulted in the resignation of the former mayors of Montreal, Michael Applebaum and Gerald Tremblay, in addition to the resignation of the Mayor of Laval, Gilles Vaillancourt. Additionally, there have been allegations of collusion on the part of engineering and construction firms in bidding on municipal contracts.

Ongoing RCMP Investigations -In addition to the foregoing matters, the RCMP has also made it known that it has 34 active and ongoing CFPOA investigations.

Conclusion

The recent trend of increased focus on anti-corruption compliance and enforcement in Canada has increased exponentially over the first half of 2013. This trend will continue to intensify with the recent amendments to the CFPOA, the active investigations by the RCMP, and the continued emphasis on anti-corruption compliance in the media and in Canadian board rooms.

Mid-Year Review From Down Under

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

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Australia has been gripped by an unusual phenomenon over the last few months, an unreal Federal election campaign. While citizens of the US are used to a year long Presidential campaign, we like ours to be short and sharp, over in no more than a month, as the prolonged sight of too many politicians making too many promises they cannot or will not keep, is unedifying. As a result, any serious attempts at legal reforms concerning foreign bribery and corruption initiatives seem few and far between. However, there has been some movement on the Hill.

Australia Signs up to International Foreign Bribery Taskforce

During May 2013, the Australian Federal Police, the United States Federal Bureau of Investigations, the Royal Canadian Mounted Police and the United Kingdom City of London Police Overseas Anti-Corruption Unit all signed a Memorandum of Understanding setting up a new International Foreign Bribery Taskforce (to be known as IFBT).

The IFBT is part of a new transport agreement undertaken by the Australian, United States, Canadian and United Kingdom agencies to combat foreign bribery.  The purpose of the taskforce enables the agencies and the countries they represent to work collaboratively to strengthen investigations into foreign bribery offences and to support the relevant OECD and United Nations Anti-Bribery Conventions.

It is expected that the taskforce will:

• enhance local law enforcement responses to foreign bribery on an international scale;
• allow police experts in the participating countries to share knowledge, skills, methodologies and case studies;
• meet annually to discuss trends and challenges in each of their jurisdictions; and
• share investigative techniques, exchange information and good practice initiatives which can then be applied in international investigations.

The creation of the taskforce goes some way towards Australia addressing the criticisms directed towards it by the OECD in the October 2012 Phase 3 Review of Australia’s compliance with the OECD Anti-Bribery Convention.

Australia Considers Reforms to Anti-Money Laundering and Counter Terrorism Financing Laws

Where improper payments occur involving foreign public officials, there is always a risk that Australia’s anti-money laundering and counter terrorism financing laws (AML-CTF laws) may be invoked.

In June 2013, the Government released a discussion paper which looked at possible areas of reform, including:

• the disclosure of the identity of beneficial owners and controllers in a corporate structure;
• the identity of trust settlors;
• the level of due diligence required in high risk jurisdictions and circumstances;
• understanding a customer’s business or occupation; and
• the extent of record-keeping that is required.

All of these issues impact on the extent to which Australian and overseas regulators require corporations to understand the risk profile in each jurisdiction in which they do business, with who do you do business and to proactively manage those risks.

To Facilitate or not to Facilitate – That is the Economic Question?

On 15 November 2011, nearly 2 years ago, the Australian Government issued a Consultation Paper on whether, amongst other reforms being considered to Australia’s foreign bribery laws, facilitation payments should be banned. The period for consultation was mercifully short, one month. The due date passed, then silence.

From time to time thereafter, various bureaucrats speaking at law conferences would admit that facilitation payments “were being reviewed” or “were under consideration” and that “there were arguments on both sides”, but nothing more was said to inform us about what these arguments were and why the Government was unable to make a decision. It appears as if paralysis had set in.

Then in February 2013, the Canadian Government reignited the debate by amending the Corruption of Foreign Public Officials Act and banning facilitation payments. The ban has yet to take effect, with the Canadian Government giving business, or more accurately those businesses who continue to pay facilitation fees, time to reorganise their affairs.

While the national Australian election is due over the next few months, substantive reform of criminal laws may be less of an election priority. However, that has not stopped one lobby group, the Australia-Africa Mining Industry Group (AAMIG) from spruiking the benefits of facilitation payments as promoting cultural development, lessening poverty and generally allowing Australian business to do business in developing nations.

AAMIG has argued that removing facilitation payments will not help eliminate poverty across Africa, that Africa is not a uniform nation, and that legislative changes in London, Ottawa or Canberra will not add to the economic well-being of Africa (see Why miners pay in Africa, The Australian Financial Review 10 July 2013). AAMIG says it has been lobbying Australia’s politicians (to maintain facilitation payments) and the reception has been, according to AAMIG, “very understanding”, but to what end remains unclear (see Miners nervous of anti-bribery laws, The Australian Financial Review 10 July 2013). No politician is named or quoted as agreeing to the proposition that paying small bribes is good for Australian business.

AAMIG uses an example of the payment of money to a foreign public official for petrol for his government vehicle to conduct on-site inspections. What AAMIG appears to favour is a law that permits small bribes to be allowed as a feature of doing business and for them to be transparently recorded until such time as developing countries can properly pay their employees and their own governance frameworks improve. This analysis raises many questions which AAMIG appear not to address. For example, what assurance does an Australian company receive that the money (no doubt cash) paid for petrol in fact goes in petrol? Why is cash used? Why is cash paid to an individual instead of a company dealing directly with a government agency? What receipt is received (none is the probable answer)? How does the company record the payment in its books and records? Would such a payment be made in Australia if requested by a public official?

AAMIG appears to advance a system which entrenches small systemic bribes so that affluent companies can continue to do business throughout the world without regard to the underlying damage that corruption causes to the local society. It is not as if AAMIG is promoting itself as a participant in any foreign political reform, the group just wants its members to be free to pay small bribes to get their business up and running and a financial return to stakeholders (whoever that amorphous group may be). As Glenn Dyer and Bernard Keane from the Crikey.com website wryly noted, it seems that AAMIG are promoting a sense of cultural imperialism (see No exemptions: bribes are bribes, from Murdoch to African miners, Crikey.com 10 July 2013) – it is immoral not to pay these (facilitating) bribes as the economic wellbeing of the nation demands that the foreign companies invest in the nation and they have to pay these bribes to help the nation develop. What AAMIG fails to appreciate or in fact ignores is the cancerous effect that corruption (and the very business activities it wants its members to undertake) has had and continues to have in many developing countries.

The international trend is moving inexorably away from allowing facilitation payments. While the United States of America and Australia permit facilitation payments, the defence is of very limited operation. The Commentaries to the OECD Convention suggest that while criminalisation may not be practical, governments must address the “corrosive phenomenon” of facilitation payments. The United Nations Convention Against Corruption requires its signatory members to enact laws to criminalise bribery, public or private. The Rt Hon TRH Cole, the Royal Commissioner who investigated AWB’s UN Oil-For-Food Program payments in 2006 was blunt in his assessment of facilitation payments – saying “only sophistry enables one to distinguish a facilitation payment – which is a small bribe – from the notion of a corrupt payment” as it is simply a payment made to secure an advantage or priority to which the payer is not otherwise entitled (see Managing Corruption Risks in Offshore Operations, TRH Cole, 24 October 2007).

Increasingly, large, medium and small businesses are banning facilitation payments. AAMIG is telling its members to effectively pay small bribes in circumstances where if those members do not fully understand the circumstances of the payment, their helpful bribe to promote or advance their business (why else is the payment being made?) all of a sudden has become an illegal bribe to a foreign public official with the potential intent to secure or maintain that which the company seeks, its own commercial advantage in business, and to which it might not otherwise be legitimately entitled.

Perhaps the last word should be left to the Australian Council of Superannuation Investors (ACSI) which published a report, Anti-Corruption and Bribery Practices in Corporate Australia in October 2011 (at www.acsi.org.au), one month before the Australian Government published its facilitation payment consultation paper. The ACSI offered this view:

Bribery is a ‘long tail’ risk difficult to quantify and address. Bribe giving or taking can remain hidden for many years then unexpectedly surface with catastrophic consequences. Directors and employees with shorter term horizons are less likely to suffer immediate consequences of engaging in corruption or bribery than investors (leaving aside the risk of prosecution and imprisonment) but ultimately this risk threatens the long-term success and stability of a company and consequently value for shareholders, who eventually pay the price (italics added)

The investors and shareholders of AAMIG members might do well to pause and reflect on the risks they really want their directors and management to undertake and their own levels of transparency and accountability.

Defamation Claims Increase Costs Of Cooperation With Government Investigations

A guest post today from Jeremy Byrum (McGuireWoods LLP).  The post concerns a civil defamation claim relating to Royal Dutch Shell’s 2010 FCPA enforcement action.  (See here for the prior post regarding the enforcement action).

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Defamation Claims Increase Costs of Cooperation with Government Investigations

Disclosing the results of a company’s internal investigation to government investigators is always fraught with potential problems.  The most obvious is the danger of waiving attorney-client privilege and work product protections that would otherwise shield the internal investigation from discovery in parallel litigation.  But another less heralded danger is the risk of defamation claims by employees identified through the investigation as having participated in illegal activity.  The risk associated with such claims was on display in a recent ruling by a Texas court of appeals, which held that Shell Oil Company was only entitled to a conditional privilege, and not “immunity,” for statements it made in a written report to the Department of Justice (DOJ) regarding alleged violations of the FCPA.

On November 4, 2010, the DOJ announced more than $236 million in civil and criminal penalties from the settlement of alleged FCPA violations in Nigeria.  The settlements followed a lengthy investigation of Panalpina Group, a Swiss logistics company, and several of its oil and gas clients, including Shell.  According to the Texas court of appeals’ decision, the DOJ first requested a meeting to discuss Shell’s business with Panalpina in July 2007.  Following that meeting, Shell agreed to conduct an internal investigation, which eventually culminated in a written report that was submitted to the DOJ in February 2009.

Following the 2010 settlements, a former employee sued Shell for defamation, claiming that Shell’s written report falsely stated that he recommended reimbursement to contractors for payments that he knew were bribes.  The trial court granted summary judgment in favor of Shell, finding that Shell had an absolute privilege (i.e., immunity) for the statements it made to the DOJ.  The Texas court of appeals reversed that finding on June 24, 2013, holding that Shell’s written report was only covered by a conditional privilege.  Consequently, Shell is not immune from suit if the former employee can show that Shell’s actions were motivated by malice.

The key legal issue in the case was whether Shell’s statements were made in the context of an ongoing or proposed judicial or quasi-judicial proceeding.  If so, then the statements would be absolutely privileged.  But the appeals court rejected Shell’s argument that the DOJ’s solicitation and the resulting internal investigation were evidence of a proposed judicial proceeding.  Likewise, the court rejected Shell’s argument that the 2010 settlement was evidence of a proposed judicial proceeding.  In the absence of direct evidence that the DOJ was contemplating a judicial proceeding in February 2009, the court rejected Shell’s absolute privilege claim.

The case is also noteworthy for the policy arguments made in the majority and dissenting opinions.  The dissent takes on the key policy issue—the potential chilling effect of the court’s ruling: “If absolute privilege is not available, a cooperating party runs the risk of defamation actions by anyone identified as having involvement in a potentially prohibited transaction.  This risk creates a disincentive for companies to conduct their own investigations, to make frank assessments of fault, and to communicate findings to DOJ.”  The majority focused on a rival policy argument, however, suggesting that absolute immunity would “discourage, rather than encourage, truth-telling” because companies have a “strong motive to deflect blame.”  The majority concluded that a conditional privilege was sufficient protection to encourage companies to cooperate with law enforcement.

The court’s ruling no doubt raises additional concerns for companies considering the already difficult decision whether to disclose the results of an internal investigation.  As the dissent notes: “A company like Shell is, in the face of a DOJ inquiry, in a quandary: it can provide inculpatory statements regarding actions taken on its behalf by its employees, recognizing that it is exposed to a defamation claim.  Or it can face criminal prosecution or penalization for a failure to comply and cooperate adequately with the DOJ’s investigation.”  But this may be less of a dilemma than the dissent imagines.  A company’s concerns about potential defamation claims ordinarily will pale in comparison to the high stakes risks associated with a criminal investigation by the DOJ.  Thus, the feared chilling effect is likely overstated.

Although the Texas court’s decision increases the potential costs of cooperating with a government investigation, it probably will not alter the level of cooperation in most cases.  In all likelihood, companies will continue to assess the appropriate level of cooperation necessary to avoid or minimize their exposure in a criminal investigation, and will simply accept the possibility of defamation claims as an unfortunate cost of doing business.