Canada Takes Landmark Anti-Bribery Enforcement Action

Amid mounting international pressure to toughen its anti-corruption efforts, Canadian authorities have rendered their first significant conviction under Canada's Corruption of Foreign Public Officials Act since its passage in 1999, a harbinger of more enforcement activity to come.

“It's been relatively quiet until now,” says John Boscariol of law firm McCarthy Tétrault in Toronto. “I think for a U.S. company that in the past may have thought anti-bribery was not an issue in Canada, the message is that it is now.”

The CFPOA—Canada's version of the U.S. Foreign Corrupt Practices Act—prohibits Canadian companies and individuals from bribing foreign officials. At the time of the law's inception, however, Canada had neither the enforcement manpower nor the budget to pursue any investigations.

Priorities changed in 2008 under the newly created international anti-corruption unit of the Royal Canadian Mounted Police, Canada's national police force. Charged with investigating Canadian companies participating in corruption abroad, the unit consists of two dedicated teams: one in Calgary (at the heart of Canada's booming mining industry) and another in Ottawa (the national capital), with seven officers each.

The RCMP's anti-corruption unit is currently involved in more than 20 investigations, says Superintendent Stephen Foster, director of RCMP's commercial crime branch. “The RCMP is committed to involvement in the global movement to address [corruption],” Foster says. “Canadian companies can expect continued enforcement.”

The first notable action bubbled to the surface June 24, when Niko Resources, a Calgary-based oil and gas company, agreed to a $9.5 million fine after pleading guilty to one count of bribery under the CFPOA. The guilty plea was the culmination of a six-year investigation by the RCMP.

“Nothing significant has happened by way of enforcement until now,” Boscariol says. Yes, Hydro Kleen Systems was fined $25,000 in 2002 for bribing a U.S. immigration customs official working at the Calgary International Airport, but that case was “more of a footnote in the history of this legislation,” he says.

Additionally, in May 2010 the RCMP charged an individual, Nazir Karigar, for allegedly bribing an Indian government official to facilitate a multi-million dollar contract for the supply of a security system. The company in that case has not yet been charged and the matter is still before the court.

According to the Niko settlement, Niko provided the energy minister of Bangladesh with a car and trips to the United States and Canada in an attempt to ensure the company was “dealt with fairly in relation to claims for compensation” related to a 2005 explosion at Niko's Bangladesh's natural gas facility, which caused damage to a nearby village.

The conflict Niko encountered is one that many companies face: that for better or worse, bribery is a way to get business deals done. “I think Canadian companies are hearing that all the time in jurisdictions around the world,” says James Klotz, president of Transparency International Canada, and a partner at law firm Miller Thomson in Toronto.

“I think for a U.S. company that in the past may have thought anti-bribery was not an issue in Canada, the message is that it is now.”

—John Boscariol,

Partner,

McCarthy Tétrault

That business-as-usual tactic is not an acceptable defense. “Frankly, I think the environment is now fundamentally changed,” Boscariol says. “Companies need to be very vigilant in this area in explaining to their agents and employees what is acceptable and what is not under these Canadian laws.”

Stiff Penalties

Niko CEO Ed Sampson issued a statement acknowledging the wrongdoing. “We accept responsibility, and we appreciate the seriousness of the actions,” he said. “As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of chief compliance officer who reports directly to our board, to ensure that something like this doesn't happen again.”

Since 2009 Niko has adopted a full anti-corruption compliance program, a training program, and new processes for risk assessment, due diligence, and compliance monitoring and reporting around the world “to ensure it meets all court probationary requirements and its own internal ethical and best practices standard,” Sampson said.

Under the settlement, Niko also entered into a probation order, which puts the company under court supervision for the maximum three-year period under Canadian law. (Think deferred-prosecution agreement, all you American compliance officers.) Niko must also provide regular reporting to the RCMP on its anti-corruption program; retain an independent auditor to prepare a written report on Niko's remediation efforts and compliance with anti-corruption laws; and self-reporting awareness of any potential criminal conduct.

Niko's sentencing came one month after Transparency International issued its 2011 Progress Report. In the report, Canada was the only G-7 country to provide “little or no enforcement” of its international anti-corruption laws since TI started tracking such data in 2005. The timing of the enforcement action is “completely coincidental,” says Klotz. “We had a feeling the Niko case was coming down the pike for a long time.”

Canadian authorities continue to face challenges in enforcing the CFPOA, given that prosecutors must prove that the crime has a “real and substantial connection” to Canada. This requirement is more stringent than countries such as the United States or Britain, that have jurisdiction based on nationality of their citizens.

In the Niko case, prosecutors were able to overcome this jurisdictional hurdle only because all the parties involved acceded to the “real and substantial” link between Canada and the offense. “If we close this jurisdictional loophole, prosecutors will be able to pursue Canadians who engage in corrupt practices anywhere in the world,” Klotz says.

DETAILS ON NIKO

What follows is an explanation of the various charges against Niko Resources:

THE CHARGES

On or between the 1st day of February 2005 and the 30th day of June 2005, at or near the City of Calgary in the Province of Alberta, Niko Canada did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary to Section 3(1)(b) of the Corruption of Foreign Public Officials Act.

SUMMARY

1. The accused, Niko Canada, is a publicly traded corporation. The company operates with a head office in Calgary, Alberta, Canada, and has a number of wholly owned subsidiaries through which it conducts international business operations in countries outside of Canada. In the case at bar the companies from the Niko family which are relevant to this factual matrix include Niko Canada and Niko Resources (Bangladesh) Limited.

2. The allegation contained herein is that Niko Canada, directly and indirectly provided improper benefits to a foreign public official in Bangladesh in order to further the business objectives of Niko Canada and its subsidiaries.

3. The acts alleged to have been committed by the corporation named above are as followed:

CORRUPTION OF FOREIGN PUBLIC OFFICIALS ACT OFFENSE

4. In May 2005, Niko Bangladesh provided the use of a vehicle costing one hundred and ninety thousand nine hundred and eighty four Canadian dollars ($190,984.00) to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings. Niko Canada acknowledges that, having funded Niko Bangladesh's acquisition of the vehicle and knowing that Niko Bangladesh delivered as aforementioned, it is responsible under Canadian criminal law principles for this act.

5. Additionally, Niko Canada paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend the CO EXPO oil and gas exposition, and onward to New York, and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5,000.00.

Source: Her Majesty the Queen and Niko Resources.

Closing that loophole, however, is a matter for lawmakers. The closest the government came to achieving that came in 2009, when Canada's Parliament introduced legislation that would have allowed for the prosecution of Canadian companies or individuals engaged in bribery of government officials abroad without the need to prove any substantial connection to Canada. The bill died in session and hasn't since been reintroduced.

Compliance Measures

The newest enforcement action is not just a wake-up call for Niko. “There are a lot of corporate officers and directors that are coming to terms with this now that they actually see a sizeable fine,” Boscariol says.

The appropriate response to this new enforcement regime means more than simply having a written compliance program in place. Boscariol recommends that companies with operations in Canada make sure they take the following additional steps:

A thorough review of business partners, especially agents in third countries, to ensure no issues exist with bribing or gifts to the government.

Internal training on a regular basis.

An internal reporting structure that allows employees to report potential problems.

“Not being able to point to anything makes the situation a whole lot worse,” Boscariol says.

“Transparency, integrity, and corporate social responsibility are the keys for companies operating internationally,” advises Foster.

Effective compliance measures are all the more important as coordination among global enforcement agencies continues to intensify—and remember that U.S. prosecutors are in the vanguard of anti-corruption enforcement, and Canada is the United State's closest ally and trading partner. “I would expect that the two countries would work together on cross-border corruption cases, much in the way the U.S. is working with other countries to get joint plea agreements in those countries,” Klotz says.

Foster reiterates that message. “Because the activity is international in nature, you can expect that the RCMP will continue to cooperate and collaborate with other law enforcement,” he says.

Boscariol says he is also seeing better cooperation among corporate clients. “I've already seen U.S. companies asking their Canadian partners to contractually commit to obligations relating to anti-bribery,” he says.

Often times in the past, Boscariol adds, Canadian companies would inquire about an anti-bribery matter because their U.S. parent or U.S. business partner, supplier, or customer came to them and raised an issue in the context of FCPA. Some weren't even aware that a similar anti-corruption law existed in Canada. “I think that is going to change,” Boscariol says.

Foster stresses that it is essential companies enforce an overall no-tolerance policy. “Don't bribe, don't break the law, reduce your risk of potential fines to zero.”