Canadian firm is first to voluntarily disclose breaking Canada’s Corruption of Foreign Officials

(This ACFCS.org story is adapted from an article in the May 2013 International Enforcement Law Reporter, published and edited by attorney Bruce Zagaris. A partner at Berliner, Corcoran & Rowe, in Washington, DC, Mr. Zagaris is member of the ACFCS Advisory Board and a leading world expert on international financial crime matters.)

Griffiths Energy International, Inc., a Canadian company formed in 2009 to obtain oil and gas production contracts in the Republic of Chad, has had a difficult beginning. It has had untimely changes in top leadership. Now, it faces a major corruption scandal.

In November 2011, while it was conducting due diligence for an initial public offering scheduled the following month, Griffiths detected some dubious “consulting” agreements. It formed a committee of independent directors and hired outside professionals to comb through 212,000 documents and interview many people related to the transactions.

The Griffiths internal investigation, which is said to have cost $5 million, revealed that between August 30, 2009 and February 9, 2011, the prior management had entered into two contracts with a Chad foreign public official, Mahamoud Adam Bechir, and his wife, Nouracham Niam. Bechir was Chad’s ambassador to Canada and the United States at the time.

Chad ambassador’s wife provided ‘advisory assistance’

The contracts called for a US$2 million cash payment and four million “founders” shares of Griffiths stock. They were actually bribes to obtain exclusive drilling rights in two oil and gas properties in Chad. The consulting services the ambassador’s wife was to render included “providing advisory, logistics, operational and other assistance with respect to implementing Griffiths’ oil and gas projects in Chad.” Through the embassy, she arranged a meeting between Griffiths executives and Chad’s president. The drilling rights were a big win for the fledgling Griffiths, which had failed in several earlier attempts to purchase rights to produce oil and gas in Chad’s rich southern oil fields.

The $2 million was transferred to Nouracham Niam’s Washington company, Chad Oil Consultants, LLC. The shares, transferred at a price of less than one cent each, were trading at more than $6 at the start of 2013. Thus, the value of the original 4 million shares exceeded $20 million.

Although there is no self-reporting obligation in Canada concerning foreign corrupt payments, Griffiths handed over the entire incriminating file to the Royal Canadian Mounted Police, the Public Prosecution Service of Canada, and the United States Department of Justice as an early Christmas 2011 present.

At the time of the bribes, Griffiths had been receiving legal advice from the Toronto law firm that employed former Canadian Prime Minister Jean Chrétien. Chrétien had helped numerous Canadian companies in their dealings with African countries, but there was no evidence that he had participated in or had knowledge of the Griffiths bribes. The two bribe takers admitted that Chrétien was instrumental in achieving the oil deal at the highest political levels in the government of Chad.

Two years after it won right to drill, Griffiths pled guilty to bribery

On January 25, 2013, two years after signing the drilling rights contract with Chad, Griffiths pleaded guilty to bribery under section 3(1)(b) of Canada’s Corruption of Foreign Public Officials Act and signed an Agreed Statement of Facts in the Court of Queen’s Bench in Calgary, Alberta.

The “negotiated resolution” was a guilty plea accompanied by a fine of C$9 million and a 15% victim fine surcharge, for a total of C$10.35 million dollars. Griffiths also agreed to assist prosecuting authorities “in other processes or legal remedies that the Crown may pursue that are relevant to this matter.”

Griffiths was not placed on probation and all of its directors and senior executives have departed since the time of the offense.

Under new management, the company has adopted an anti-corruption compliance program and strengthened its internal controls. The fact that Griffiths had initiated the internal investigation and turned itself in to law enforcement authorities was a mitigating factor. This is the first time under Canada’s Corruption of Foreign Public Officials Act that a company has voluntarily disclosed its own corruption after an internal investigation.

Bribes were discovered soon after founder’s death

There is no maximum fine established in the Canadian law and no limitation period for the most serious category, or indictable, offense. In addition to corporate liability, directors and officers may be sanctioned with fines and imprisoned for up to five years. No individual has been charged under the law yet.

A few weeks after the new management took over at Griffiths in July 2011, founder Brad Griffiths, a former investment banker, fell from his fishing boat and drowned in a lake outside his Ontario cottage. Shortly after his death the bribes were discovered by the new management.

Mahamoud Bechir continues to dispute the Griffiths bribe and disclaims any benefit from the $2 million given to his wife. He was relieved as Chad’s ambassador to South Africa on January 26, 2013.11

Griffiths continues to operate with 44 workers in Chad. It began to spud its third well on January 24, 2013. It maintains rights to explore and extract resources over a total area of 26,103 square kilometers in southern Chad.

Prosecutor seeks return of bribes, as company prepares for IPO

The prosecutor in the Griffiths case is seeking to reclaim the $2 million payment and the shares in Griffiths. Some of the proceeds have been spent on a luxury house in the Washington, DC suburbs, investments and a car for one of the couple’s nine children.

Griffiths plans an initial public offering in London this spring at a 50% premium on its current grey market price, which would value the company at more than $1.1 billion. If the European IPO is successful, it would tend to vindicate the new management’s strategy in voluntarily dealing with the corruption.

The company may be seen as replacing its management, investigating its own previous malfeasance, blowing the whistle on itself, co-operating with legal authorities and paying the fine. A full corruption clean-up cost of significantly less than $20 million is a miniscule price to pay for a $1.1 billion market reset valuation of the company.

Canada seeks to bolster Corruption of Foreign Public Officials Act

Shortly after the guilty plea by the company on February 5, 2013, the Government of Canada introduced An Act to Amend the Corruption of Foreign Public Officials Act. Promising to “redouble” its fight against corruption, it proposes to increase the maximum prison term to 14 years from 5 years for individuals, permit prosecutions against Canadians and their companies regardless of where the alleged occurred, enact a new business records crime of falsifying records or hiding payments related to bribery of foreign public officials, and stage out the exemption for facilitation payments.

* Peter Bowal is a Professor of Law at the University of Calgary, where Karen Lynn Perry is a student.