Foreign Corruption

Corruption of Foreign Public Officials Act

Bribing a foreign public official happens, according to this piece of legislation, when, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, a person offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official in one of these 2 cases:

• as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or
• to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

When the offence is committed outside Canada, but, if committed in Canada, would constitute an offence under section 3 or 4 — or a conspiracy to commit, an attempt to commit, being an accessory after the fact in relation to, or any counselling in relation to, an offence under that section — of the above piece of legislation, the person is deemed to have committed that act or omission in Canada if such person is:

• a Canadian citizen;
• a permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act who, after the commission of the act or omission, is present in Canada; or
• a public body, corporation, society, company, firm or partnership that is incorporated, formed or otherwise organized under the laws of Canada or a province.

The Canadian Criminal Law of Foreign Corruption

Canadian private law doctrines and remedies for corruption are best understood within the context of the criminal law. Typically, civil actions for corrupt acts have followed criminal prosecutions and have relied on the facts determined during those prosecutions. This section first describes the criminal law doctrines applicable to both domestic and foreign corruption. Second, it examines the recently-overhauled CFPOA, the primary legislative response to foreign corruption, and assesses recent and ongoing prosecutions for foreign corruption in Canada. While the amendments made to the CFPOA in 2013 bring Canadian law in line with international standards, the extent of the government’s commitment to bringing prosecutions under the CFPOA remains unproven.

Corruption as a Criminal Offence Within Canada

Criminal law is under the exclusive jurisdiction of the federal government and applies equally in Canada’s common law and civil law jurisdictions. Most criminal law is codified in the Criminal Code, which establishes several activities related to corruption as criminal offences. In general, the Criminal Code applies only to conduct that occurs “within” Canada. Some relevant exceptions will be described as they arise.

Canadian law criminalizes corrupt acts in both the public and private sectors. The Criminal Code contains a series of provisions that deal with the corruption of federal and provincial legislators and officials involved in the administration of justice, as well as other public officials at all levels of government. It also describes several corruption offences that apply equally in the public and private sectors, as well as miscellaneous criminal offences that may be committed in the course of corrupt acts but that apply broadly to public and private dealings.

Before proceeding to describe the individual offences, it is worth noting six features of the Criminal Code that apply to all relevant offences. First, both natural persons and legal persons (“organizations”) are subject to prosecution under the Criminal Code.

Second, for all relevant offences, including those involving corruption of foreign public officials, the general common law standard of intent applies. The accused must have acted “intentionally or recklessly, with knowledge of the facts constituting the offence, or with wilful blindness toward them”. Organizations may be criminally liable for offences that involve fault. If any senior officer (eg, a director) of a corporate defendant intentionally, recklessly, or with wilful blindness participates in a corrupt act or allows it to occur, the company is guilty.8 However, other senior officers would not be personally guilty unless they were themselves wilfully blind to the corrupt acts.

Third, Canada recognizes the crime of conspiracy, whereby co-conspirators are liable to the same punishment as a person convicted of an offence.9 Conspiracy also has an extraterritorial component; a person in Canada who conspires with a person outside Canada to do anything that constitutes an offence in that place is deemed to have conspired to commit the offence in Canada; those outside Canada who conspire with persons in Canada to commit an offence under the Criminal Code are deemed to have conspired in Canada.

Fourth, any person convicted of a crime under the Criminal Code may be required to pay a fine, in addition to any prison term (in the case of a natural person). The amount of the fine is generally left to the discretion of the judge, and there is no maximum.

Fifth, both natural persons and organizations convicted of offences are subject to forfeiture of property that the prosecution proves, on a balance of probabilities, is the proceeds of the crime. If the offence did not relate to the property, proceeds of crime may still be subject to forfeiture if the prosecution demonstrates the property to be such proceeds beyond a reasonable doubt. Courts may order forfeiture of property outside Canada or, more commonly, a fine in lieu of forfeiture.

Finally, if an organization is convicted of an offence, the court may order probation for the organization. Unlike for natural persons, courts may require organizations under probation to take measures such as making restitution, establishing policies and procedures to reduce subsequent offences, and providing to the public information about the offence, the sentence, and the organization’s plan to prevent subsequent offences.

Corruption of Public Officials

Criminal Code section 119 makes it an indictable offence (colloquially, a felony) for holders of judicial offices and legislators to corruptly accept anything of value for anything done or omitted in their official capacity, and for any person to corruptly offer such benefits to a holder of judicial office. Section 120 creates a similar set of offences prohibiting payment or acceptance of bribes to any public officers, including police and anyone employed in the administration of criminal justice, so long as the bribe was made with the intent to interfere with the administration of justice. The term “corruptly” is not defined in the Criminal Code, but has been held to mean “designed wholly or partially for bringing about the effect forbidden by the section”. It does not require that a payment be given “dishonestly”.

Sections 119 and 120 describe the most serious category of corruption-related crimes. A broader offence of “fraud on the government” is established by section 121. Section 122 is the mirror image provision; it criminalizes fraud or breaches of trust by public officials in connection with their duties. Section 123 relates to the corruption of municipal officials, which includes any member of a municipal council or anyone who holds an office under a municipal government. The last provisions of the Criminal Code dealing specifically with corruption of public officials are sections 124 and 125, which make it a crime to sell or purchase an appointment to or resignation from an office, and to influence or negotiate appointments or dealings in offices.

Secret Commissions

The offence of a secret commission involves undisclosed payments to and from agents and other activities by agents intended to deceive their principals.18 This section is raised frequently in cases of corruption and applies equally whether the dealings in question involve the public or private sectors. However, it does not deal with corruption per se, but rather with the faithlessness of agents. For the purposes of section 426, “corruptly” means simply “secretly and without the required disclosure”; there is no requirement of a corrupt bargain.

Under this section, it is an indictable offence to corruptly offer or demand a benefit for doing or not doing any act relating to the affairs of an agent’s principal, or to give to an agent or receive as an agent any false receipt in which the agent’s principal has an interest with the intent to mislead the principal. Section 426 applies equally to those directly involved in the corrupt acts and those who are knowingly privy to the acts.20 For the purposes of this section, “agent” and “principal” are broadly construed – they can mean simply “employee” and “employer”21 and the agent need not have a specific principal at the time the prohibited offer to pay or accept a secret commission is made.

Property Offences

The Criminal Code creates several property-related offences that provide opportunities to prosecute persons who engage in corrupt conduct where the conduct itself is difficult to prove. These provisions, criminalizing possession, trafficking, and laundering of the proceeds of crime, were part of the 2001 amendments to Canada’s anti-foreign bribery laws intended to ensure that they encompassed proceeds from the bribery of foreign officials outside Canada.

It is an offence to possess any property or proceeds of property knowing that it was obtained from the commission in Canada of an indictable offence or an act or omission anywhere that, if it had occurred in Canada, would have constituted an indictable offence. Similarly, it is an offence to traffic in such property or proceeds, to possess it for the purpose of trafficking, or to import it into or export it from Canada.24 All of these offences are indictable offences if the property is worth more than CAD 5,000, and summary offences (colloquially, misdemeanors) if the property is worth less than CAD 5,000. Laundering the proceeds of crime may similarly be charged as a summary or indictable offence.

Other Related Offences Under the Criminal Code

Several other offences exist under the Criminal Code that do not directly deal with corruption, but which may be charged in situations involving corruption. All of these pertain equally to private persons and public officials, and to private and public dealings.

The most obvious such offence is fraud, which is frequently added as a charge in corruption prosecutions. Criminal fraud occurs where any person defrauds the public or any person of any property, money or valuable security, or any service. Fraud is an indictable offense if the subject matter of the offence exceeds CAD 5,000; otherwise, the defendant may be charged with an indictable or summary offence at the prosecutor’s discretion. Recipients of bribes who hold positions of trust may be also charged with criminal breach of trust.

Corruption often involves the drafting of false or misleading documents or accounts, usually to conceal unlawful payments. Two broadly-defined indictable offences may be invoked: forgery and falsification of books and documents. Forgery occurs when a person makes or alters a document, knowing it to be false, with intent that it should be used as genuine or that a person should, believing that it is genuine, do or refrain from doing anything. The place where the document was forged is immaterial; it can be done in or outside of Canada. Trafficking, use and possession of forged documents are also criminal and subject to the same punishment as forgery. Falsification of books and documents occurs when, with intent to defraud, a person destroys, alters, falsifies, or, omits or alters material from a document.

Finally, persons demanding bribes or other corrupt payments often use coercive tactics. Intimidation may be charged with other corruption-related offences, but it also provides a means to prosecute those who unsuccessfully demand bribes or where the receipt of improper payments cannot be proven beyond a reasonable doubt. Intimidation encompasses a wide variety of violent or threatening acts employed without lawful authority to compel someone to abstain from doing anything that she has a lawful right to do, or to do anything that she has a lawful right not to do. Intimidation is subject to greater penalties when committed with the intent to provoke a state of fear in a journalist or participant in the justice system. Accordingly, threats to those who might reveal or prosecute corruption may be dealt with under this provision of the Criminal Code.

Our analysis thus far has concentrated on offences from the Criminal Code. However, corrupt acts may violate other statutes, such as the Competition Act; of these, we will only discuss the most important source of corruption-related offences outside the Criminal Code – the CFPOA.

Corruption of Foreign Officials as a Criminal Offence – The CFPOA

Until 1999, when the CFPOA came into force, corrupt acts committed by Canadians abroad were not illegal in Canada. The shift is attributable to international law obligations Canada took on in the 1990s and 2000s, most prominently the Convention on Combating Bribery of Foreign Public Officials (“OECD Convention”).

Development of the CFPOA and Related Canadian Law

The CFPOA created three new criminal offences in Canada: bribery of foreign public officials, possession of property or proceeds from such bribery, and laundering of those proceeds.37 In 2001, Canada enacted amendments to incorporate sections 4 and 5 of the CFPOA into the Criminal Code, expanding the definitions of possessing and laundering the proceeds of bribery to include proceeds from the bribery of foreign public officials.

The 1999 and 2001 versions of the CFPOA were criticized for failing to meet Canada’s international law obligations under the OECD Convention and other treaties. In 2011, Transparency International, the OECD Working Group on Bribery in International Business Transactions (“OECD Working Group”), and an Organization of American States Committee of Experts issued reports that found Canada’s legislative and institutional framework to be lacking in several major respects, including:

• Canada had dedicated insufficient resources to investigating and prosecuting CFPOA offenses. Decisions on whether to prosecute may have been influenced by Canada’s foreign policy priorities or national economic interests. At the time of these reports, there had been only one conviction under the CFPOA, of Hydro-Kleen Group.
• The sanctions imposed were insufficient.
• The definition of “business” in the CFPOA was too narrow, including only for-profit enterprises. Canada was the only party to the OECD Convention with this limitation.
• The CFPOA included an exception for facilitation payments.
• Jurisdiction was limited to cases with a “real and substantial” connection between the offence and Canada, leaving Canadian nationals insufficiently subject to the CFPOA.
• Canada had not taken sufficient steps to raise awareness of the requirements of the CFPOA among Canadian firms, promote compliance programmes, or train tax examiners on the detection of foreign bribery.

In response, Canada significantly amended the CFPOA in 2013, bringing the country closer in line with international standards and attracting praise from the OECD and Transparency International. The changes included increasing the maximum sentences applicable to offences related to bribery of foreign public officials, eliminating the facilitation payments exception to the bribery offence, creating a new offence related to falsification of books and records, expanding the jurisdiction of the CFPOA to apply to all Canadian nationals, adding a protection against double jeopardy, and removing the words “for profit” from the definition of “business” to ensure applicability to all legal persons including not-for-profit organizations. The amendments received royal assent (the last step in the enactment of legislation) in June 2013.

The only amendment not yet in force is the provision eliminating facilitation payments as an exception to the offence of bribing a public official. It will come into force on a date yet to be fixed. The delay is intended to allow Canadian companies sufficient time to adjust to this change.

The 2013 amendments appear to satisfy the requirements of the OECD Convention and Canada’s other international law obligations; however, subsequent reports by international groups such as the OECD Working Group will also take into account actual prosecutions under the amended law.46 For example, it is too soon to tell how the reasonable expenses defence, discussed below, will evolve through case law.

Scope of Application of the CFPOA

Under the CFPOA, the general Criminal Code definition of “person” applies, so that all natural and legal persons may be guilty of all offences under the CFPOA. Since the essence of the CFPOA is its extraterritorial effect, it provides a wide geographical scope of application and, in practice, employs nationality rather than territoriality jurisdiction. Technically, the CFPOA does not derogate from the Criminal Code’s territorial jurisdiction rubric – that is, it applies only to offences committed in Canada. However, any offence under the CFPOA or a conspiracy to commit one of those offences is deemed to have been committed in Canada if the person is a Canadian citizen or permanent resident or a legal person “incorporated, formed or otherwise organized under the laws of Canada or a province”.

If the accused has already been tried for the same conduct outside Canada, her right to invoke protections against double jeopardy is preserved. However, she may not invoke double jeopardy if she was not present and was not represented by counsel at the trial outside Canada and she was not punished in accordance with the sentence imposed outside Canada.

The CFPOA applies only to acts committed “in the course of a business”, which would seem to restrict the ambit of the Act. However, “business” is defined so broadly that nearly any activity qualifies: “any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere”. This definition is broader than that in the OECD Convention (which encompasses only to bribes made in the conduct of “international business”).52 Thus, for example, the CFPOA would apply to a bribe paid to a foreign public official in Canada to obtain a contract to build a foreign embassy in Canada. The CFPOA defines “foreign state” and “foreign public official” in a similarly expansive manner, consistent with the definitions in OECD Convention Arts 1.1 and 1.4.

Offences Under the CFPOA

The heart of the CFPOA is sections 3 and 4, which created two new indictable offences: bribery of foreign officials and falsification of books and records for the purposes of bribery or hiding bribery. The CFPOA does not contain an intent element, so the general Criminal Code standard of mens rea applies, including the provisions on agent and corporate liability. The CFPOA also makes no specific provision for fines or forfeiture of proceeds of crimes; however, the discretion of judges to impose forfeiture or fines under the Criminal Code applies.

Section 3 defines the offence of bribery, which includes the following essential elements: the offence is committed by a person (individual or organization); any benefit is given or offered or agreed to be given or offered directly or indirectly; the act is done with the intent to gain a business-related advantage; the benefit is given to a foreign public official (or to any person for the benefit of a foreign public official) to induce the foreign public official to do or not do something in his official capacity or to induce the official to use his position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Until the final 2013 amendment comes into force, the facilitation payment exception applies, such that a payment does not constitute a bribe if it is made to “expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions”. Accordingly, facilitation payments made to a foreign public official for routine acts do not – for now – constitute bribery.

Conduct that would otherwise constitute bribery does not constitute an offence if the benefit is

• permitted or required under the laws of the foreign state or public international organization or
• to pay prescribed reasonable expenses incurred in good faith by or on behalf of the foreign public official.

For example, reasonable expenses for marketing or the performance of a contract will not constitute offences, but entertainment and other “softer expenses” may be criminal. The burden to demonstrate that the payments are not permitted or required under the law of the foreign state remains with the prosecution.

The second offence created by the CFPOA relates to the falsification of books, records, accounts, statements, and the like. It was implemented pursuant to OECD Convention Art 8.58 Section 4 of the CFPOA makes it a crime to establish or maintain any documents, accounts or records, make unrecorded transactions, or knowingly use false documents for the purpose of bribing a foreign public official, hiding that bribery, or obtaining or retaining any business advantage.

Prosecutions Under the CFPOA

CFPOA-related investigations are normally undertaken by the International Anti-Corruption Unit (IACU) of the Royal Canadian Mounted Police (RCMP), Canada’s national police force. The IACU was established in 2008 and concentrates on investigations of transnational bribery and other forms of corruption involving foreign public officials, as well as the laundering of proceeds of foreign corruption in or through Canada. The IACU also raises awareness about the CFPOA and provides anti-bribery training. It has two teams, based in Ottawa and Calgary, with approximately 115 staff members.

As of October 2014, four prosecutions under the CFPOA have resulted in convictions or guilty pleas. The first successful prosecution under the CFPOA involved Hydro-Kleen Group Inc., an Alberta-based oil pipeline maintenance company, which pleaded guilty to bribery on January 10, 2005, and was ordered to pay a fine of CAD 25,000. The president of Hydro-Kleen, another employee, and the company itself were charged with two counts of bribing a US immigration officer who worked at the Calgary airport. Charges against the employee and the president of the company were stayed. In July 2002, the immigration officer pleaded guilty to accepting secret commissions, received a 6-month sentence, and was deported to the US.

The second successful prosecution under the CFPOA was the first to involve a plea bargain. Niko Resources Ltd, a publicly traded oil and gas exploration and production company based in Calgary, Alberta, pleaded guilty to bribery under the CFPOA in June 2011, and was fined CAD 9.5 million. Niko provided the State Minister for Energy and Mineral Resources of Bangladesh with a Toyota Land Cruiser for his personal use and a trip to Calgary to visit an energy exposition, with a stop-off in New York for his family. The investigation commenced after a Bangladesh newspaper published an article exposing the corrupt acts. In addition to the fine, Niko received a 3-year probation order, requiring the company to implement a compliance program to be reviewed by an independent auditor.

A third company, Griffiths Energy International Inc., based in Calgary, self-reported and pleaded guilty in January 2013 to an offence under the CFPOA. Griffiths paid a CAD two million bribe to officials of the government of Chad in order to secure an oil and gas contract. Griffiths was fined CAD 10.35 million.

The most important prosecution under the CFPOA to-date is R v Karigar – the first to go to trial and the first to lead to the conviction of an individual.61 In 2013, the Ontario Superior Court found Nazir Karigar guilty of offering a bribe to a foreign official under section 3(1)(b) of the CFPOA. In 2005, Karigar, an Ottawa businessman with strong connections to India, acted as an agent of Cryptometrics Canada and agreed to offer a bribe to secure a contract for the supply of facial recognition technology to Air India for its passenger security system. Ultimately, Cryptometrics’ contract bid was unsuccessful.

What is unusual in this case is that there was no evidence that any financial advantage was actually given; only that Karigar conspired to offer at least USD 450,000 to decisions makers in the state-owned Air India and an Indian cabinet minister. However, there was a sufficient paper trail to show an intention to make the payments. Karigar was convicted largely on the evidence of a Cryptometrics executive who received immunity for his cooperation. This case provides several insights into the judicial application of the CFPOA:

• Conspiracy: The reach of the bribery offence under section 3(1) of the CFPOA extends to a conspiracy to offer a bribe to a foreign official, regardless of whether the bribe is actually paid. The actus reus of the crime is the agreement to pursue an unlawful object. The court explained that, if the RCMP were required to obtain proof of someone receiving a bribe in a foreign country, it could put “foreign nationals at risk and would make the legislation difficult if not impossible to enforce and possibly offend international comity”.
• Scope of “agree”: Section 3(1) includes an agreement between two parties to offer a bribe to a third-party foreign official who was not party to the agreement. The court found that the legislation’s objectives would not be fulfilled if “agreement” were limited to agreements between the giver and the receiver of a bribe.
• Scope of “foreign public official”: Foreign public official includes officials of state-owned enterprises, in this case, Air India officers.
• Jurisdiction: Karigar was convicted under the pre-2013 jurisdiction provisions of the CFPOA, which required a “real and substantial link” between the offence and Canada. Here, the factors in favour of the Canadian court’s jurisdiction included: Karigar was a long-term resident of Canada who worked for a Canadian company, the bribe was intended for the advantage of a Canadian company (Cryptometrics), and if the contract had been awarded, most of the work would have been done by Canadian employees. These criteria are still relevant for offences committed before June 2013.
• Penalties: Karigar was the first CFPOA prosecution not to involve a guilty plea, so it represents the first judicial interpretation of the penalty provisions of the CFPOA. The court considered domestic fraud and bribery cases, finding that deterrence is a dominant consideration in sentencing, and that serious fraud requires a penitentiary sentence of 3–5 years. Government officials gave evidence at Karigar’s sentencing hearing on the challenges of pursuing prosecutions under the CFPOA, Canada’s international reputation for leniency in CFPOA cases, and the theory that significant penalties for the bribery of foreign officials would make companies doing business abroad take heed. While the court mentioned Canada’s treaty obligations under the OECD Convention, it dismissed the suggestion that the context surrounding the CFPOA should bear on the sentence.

In 2014, there were approximately 35 active investigations under the Act. Of these, two high-profile investigations are worth mentioning. In the first, Blackfire Exploration, a Calgary-based mining company that operates in Mexico, is being investigated for allegedly bribing the mayor of a town in the Mexican state of Chiapas to prevent protesters from interrupting the company’s mining operations.

In the second, Montreal-based SNC-Lavalin, one of the world’s largest engineering firms, is under investigation for at least two instances of international bribery (as well as other domestic bribery schemes). First, SNC-Lavalin is accused of having participated in a corrupt bidding process for the construction of a bridge in Bangladesh. This investigation was initiated at the request of the World Bank, a significant lender in the construction of the bridge. SNC-Lavalin is also accused of having bribed officials in the deposed regime of former Libyan dictator Muammar Gaddafi. An ongoing civil suit against SNC-Lavalin relating to the Libyan transactions will be discussed below.

Source: Bonell M., Meyer O. (eds) The Impact of Corruption on International Commercial Contracts. Ius Comparatum – Global Studies in Comparative Law, vol 11. Springer, 2015