Shared border and close ties aside, Canada and US differ on global anti-corruption laws

(This article dissects key provisions of the 1999 Corruption of Foreign Public Officials Act of Canada (CFPOA) and contrasts the 1977 US Foreign Corrupt Practices Act (FCPA).)

By: Steven Johnston*

The United States may have led the charge against global corruption with the Foreign Corrupt Practices Act of 1977, but Canada recently has worked to catch up. As the government has increased anti-corruption enforcement, many have taken notice of Canada’s Corruption of Foreign Public Officials Act (CFPOA) for the first time.

The Canadian law has several similarities with the FCPA, but it also has several unique provisions and key differences. This makes a good understanding of the requirements of both laws vital for successful anti-corruption compliance on both sides of the border.

Canada and the United States have closely-linked economies. The US is Canada’s largest trading partner by far. Of the 421 non-US listed companies on the New York Stock Exchange, 75 are Canadian. On NASDAQ, 46 listed companies are Canadian.

Conversely, 92 US companies are listed on the Toronto Stock Exchange.

Because of this, laws that deal with corporate ethics easily and inevitably cross the border.

Origin of Canada’s CFPOA

Canada’s Corruption of Foreign Public Officials Act (CFPOA) was passed in response to ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Enforcement of the law increased considerably in April 2008, when two “International Anti-Corruption Units” were established in the Royal Canadian Mounted Police, the national law enforcement agency. The IACUs are based in Ottawa and Calgary.

The RCMP took its new corruption enforcement duties to heart and acknowledges it has 23 pending CFPOA investigations.

Enforcement of the CFPOA pre-dates creation of the IACUs. Two cases, Hydro Kleen (indexed as R v. Watts [2005] A.J. No 568), and R. v. Niko (unreported, June 24, 2011 ABQB) were decided previously. The Niko investigation began before the IACUs were created, but was concluded with IACU investigators.

The CFPOA was amended in December 2001 to clarify that the Attorney General of Canada or the Provincial Attorneys General may prosecute possession of proceeds of crime and money laundering under its provisions.

The offences under the CFPOA

Because the FCPA and CFPOA trace their history to the OECD treaty, the similarities in their tone is not surprising. The CFPOA creates a criminal offense, which requires proof beyond a reasonable doubt for a conviction. It carries a five-year prison term and unlimited fines for organizations.

Section 3(1) of the Act states:

3(1) Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, 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,

(a) as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or

(b) 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.”

While both acts make bribery of foreign officials illegal, the similarity in the definitions of a “foreign public official” is significant.

Who is a ‘foreign public official’?

The CFPOA defines a foreign public official as:

“(a) a person who holds a legislative, administrative or judicial position of a foreign state;

(b) a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function; and

(c) an official or agent of a public international organization that is formed by two or more states or governments, or by two or more such public international organizations.”

US definition of ‘foreign official’

The US defines a “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”

While there are slight differences in the two definitions, US cases confirm a similarity. Canadian courts have not addressed the definition, but the act seems to focus on state-run corporations rather than on “instrumentality.”

Canadian judges faced with a case hinging on this definition may give considerable weight to existing US case law. They may find an advantage in “cross border judicial comity” when interpreting acts rising from the same international convention.

Facilitation payments

Facilitation payments, often the subject of debate, cause no end of concern for compliance officers. Both acts share the concept and allow for them.

While the FCPA provides little direction on what they may be, the CFPOA sets out a non-inclusive list emphasizing that these payments must be “an act of a routine nature.”

In a background note to the CFPOA, the Department of Justice Canada emphasizes that “a payment to obtain or retain an improper advantage could not be characterized as a facilitation payment.” Because bribery is illegal in every country and facilitation payments may be difficult to recognize, persons contemplating such payments should seek legal advice.

Notable differences in the two laws

Apart from the similarities, there are notable differences in the two laws.

The most obvious is that the CFPOA lacks a “books and records” provision. However, it is not accurate to say that creative accounting practices may not result in criminal liability for bribery of foreign officials.

In Canada, offenses under the Criminal Code are immediately part of police investigations of bribery and could be used in prosecutions. While the facts of the case are important, the Code’s fraud and “falsification of books and documents” provisions would apply.

In Canada, as in the US, the CFPOA is not the final word on offenses that can be committed in international bribery. Others such as fraud, secret commissions, money laundering and possession of proceeds of crime may be charged. They would increase the potential severity of the criminal penalty and raise the likelihood of prosecution and an increase in prison sentences.

No ‘books and records’ provision in CFPOA

The absence of a books and records provision points to a second difference in the laws. Canada has no securities regulator like the US Securities and Exchange Commission, or procedures that lead to enforcement of FCPA books and records violations. Thus, a breach of the CFPOA triggers a criminal investigation only, while US FCPA violations can be civil or criminal.

In Canada, the Crown may simply charge or not charge to trigger an enforcement action. Unlike the US, the Crown does not usually formally explain its decision to prosecute or not prosecute.

Canada also does not have a formalized declination or non-prosecution process. This means that once a decision is made to prosecute an offence under the CFPOA, it is dealt with in the normal criminal process.

Nor is there a formal voluntary disclosure regimen for persons or business organizations that wish to do so. The effect is that a company or person wishing to make a voluntary disclosure does so ad hoc. This is not to say it cannot be done, and the informal process allows a more flexible approach. A person or organization making a voluntary disclosure in Canada would be well advised to contact an IACU to start the process.

Jurisdiction provisions also differ

The CFPOA has no formalized jurisdiction provision, meaning existing common law, known as “the territoriality test,” is operative. In one case, R. v. Libman, [1985] 2 S.C.R. 178, the Supreme Court of Canada ruled that for a Canadian court to acquire jurisdiction requires a “real and substantial link” between the offence and Canada. The OECD has criticized Canada for its lack of a formalized jurisdiction provision in the CFPOA.

Some cases suggest that a simple listing on a stock exchange in Canada may not be enough to invoke jurisdiction. The US Justice Department’s interpretation of jurisdiction boils down to the “nationality test,” which is generally recognized as being wider than Canada’s “territoriality test.”

Another important distinction in the two laws is that the CFPOA and related Criminal Code provisions create indictable offenses. In Canada there is no statute of limitations for an indictable offence.

This contrast means a person immune from prosecution for a FCPA violation because of the statute of limitations may still be prosecuted in Canada assuming sufficient evidence under the CFPOA.

Short of a formal indication from Canada, a declination to prosecute in the US is not binding on Canada. Canada recognizes double jeopardy, but it remains open whether a declination or non-prosecution agreement (NPA) would trigger double jeopardy in Canada. A declination or NPA may be generated for reasons that are unpersuasive in Canada.

Other dissimilarities arise in the outcome of cases under the two acts. A CFPOA conviction results from a criminal case. The penalty can be prison of up to five years, or an indeterminate fine. A business organization may also be placed on probation with the duty of implementing compliance and enforcement programs created and enforced by the Court.

No sentencing guidelines in Canada

Canada has no sentencing guidelines. The sentences in the two decided cases to date, R. v. Watts (Hydro Kleen) and R. v. Niko, are so far apart as to be of little assistance ($25,000 versus $9.49 million).

In the Niko case, the company admitted donating an SUV and a trip to the foreign public official. It is generally agreed that the sentence in Niko is more persuasive because it appears to more adequately reflect the sentencing ranges being imposed under similar laws spawned by the OECD treaty.

A final notable distinction is that while the FCPA and CFPOA both contemplate the illegal act being committed in the course of business, the FCPA applies to non-profit organizations, but the CFPOA requires a for-profit enterprise.

Caution is wise policy in bi-national business dealings

While the CFPOA and FCPA are similar, there are enough differences to compel caution. A business operating in both countries should not assume that compliance with the “home” law means it is in compliance with the “foreign” one. Following best practices in each country is a safe practice. Any company that faces exposure in both countries should assure that its compliance program effectively addresses both laws. If legal problems arise, it is wise to contemplate exposure and legal consequences on both sides of the border.

* Steven Johnston is a Crown Attorney with the Alberta Justice Specialized Prosecutions Economic Crime Unit, in Canada. He prosecutes major Canadian CFPOA cases and lectures on this law.

(This article does not provide legal advice or is the opinion of the Alberta Department of Justice or Attorney General of Alberta.)

Click here to view the full text of the CFPOA