Tag Archives: anti-corruption

Government of Canada Launches Federal Contracting Fraud “Tip Line”

On April 20, 2017, the Government of Canada introduced a new tool in the fight against federal fraud.[1] The federal contracting fraud tip line is a joint initiative between the Competition Bureau, Public Services and Procurement Canada (PSPC) and the Royal Canadian Mounted Police (RCMP).  It allows anyone who suspects unethical business practices in federal contracting, such as bid-rigging, price-fixing, bribery, undisclosed conflict of interest and fraudulent contract schemes, to report it anonymously. Individuals may report either by calling in to a toll-free number or by completing an online form.[2] The information provided through the tip line will be shared with three federal organizations and will be used to help conduct investigations and to introduce due diligence measures, where warranted. Any suspected criminal activity that is uncovered as a result will be turned over to the Competition Bureau and/or the RCMP.

The tip line complements measures already in place at the Competition Bureau to detect fraud in the realm of federal contracting. The immunity and leniency programs are currently the most relied upon by the Competition Bureau to detect and investigate criminal offences under the Competition Act. Under these programs, individuals with evidence of criminal offenses under the Competition Act are given immunity or lenient treatment if they cooperate with the Competition Bureau and Crown in investigating and prosecuting others implicated in the illegal activity.  However, the Competition Bureau has still encountered challenges over the years in securing convictions with the evidence obtained through these programs. The primary reason being insufficient resources and the lack of experience and training of Competition Bureau investigators.

This was evident in the 2014-2015 trial of several information technology companies and individuals charged with conspiracy and working together to obtain contracts with the federal government. The trial arose from charges laid following an investigation at the Competition Bureau and ultimately led to a defeat for the Competition Bureau, due to the weaknesses in the Crown’s case. At trial, it was shown that the Competition Bureau had relied almost exclusively on the testimony of self-interested people who were competing against the accused when making its referral of the case to the Director of Public Prosecutions. The Competition Bureau investigators had essentially taken the immunity and leniency reports of these individuals without independent investigation. The evidence at trial disclosed that the Bureau investigators in charge of the case, while seizing hundreds of thousands of documents from the suspect companies, failed to seek any significant material from the government agencies involved. The resulting, 8-month jury trial resulted in 60 not-guilty verdicts.

It will be interesting to see if the Competition Bureau, with its new Tip Line has learned from such cases and how it investigates future potential criminal offences under the Competition Act. By collaborating with RCMP officials, this hopefully marks the beginning of additional measures being implemented by the Competition Bureau to ensure that allegations of illegal conduct are investigated thoroughly and that only appropriate action is taken. It is not clear whether the Competition Bureau, PSPC or the RCMP will take the lead in investigations arising from tip line complaints. The addition of a combined task force, signals that the Competition Bureau is getting serious in its efforts to  detect and investigate Anti-corruption crimes.

[1]       “Government of Canada launches tip line to help Canadians report federal contracting fraud

[2]       “Report wrongdoing in government contracts and real property agreements

President Trump and Congress Water Down Anti-Corruption Rules for U.S. Mining Companies

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On February 14, 2017, President Trump signed into law a joint resolution of Congress to repeal a critical anti-corruption rule for oil, gas and mining companies. The law was introduced by the House on January 30, 2017. It quickly moved to the Senate, where it was passed with the support of the Republicans and opposition of the Democrats.

The rule is referred to as the “Cardin-Lugar regulations” and was enacted by the U.S. Securities and Exchange Commission, in accordance with the Cardin-Lugar amendment of 2010.  The amendment, prompted by the 2008 financial crisis and high prevalence of corruption in developing countries, directed the Securities and Exchange Commission to issue a rule requiring oil, gas and mining companies listed on the U.S. stock exchange to disclose how much they paid to hosting foreign governments (above a certain threshold).  The purpose of this amendment was to curb bribery and otherwise illicit payments made to governments in return for specific natural resource extraction projects.

The rule itself took a decade to finalize, and, up until the U.S. government’s recent decision to overturn it, was set to take effect next year. As the rule stood, it would require U.S. listed mining companies to file an annual report with the Securities and Exchange Commission, outlining the type and total amount of payments made to foreign governments (and the U.S. federal government) with respect to extractive projects. With the decision to repeal the Commission’s rule, there is therefore no indication that U.S.-listed companies will be subject to a reporting regime in the near future. That is, until the Securities and Exchange Commission creates a new rule. While the Cardin-Lugar regulations have been overturned, the Cardin-Lugar amendment has not been. This means that U.S.-listed companies will likely still be subject to reporting requirements at some point in time, as the Cardin-Lugar amendment requires the Securities and Exchange Commission to issue disclosure rules on extractive companies. However when this rule will be enacted, is yet to be determined. Given the length of time associated with enacting the original rule, it is unlikely that a new reporting regime will be established any time soon. In the meantime, U.S.-listed companies will be required to continue to track their payments, pursuant to the U.S. Foreign Corrupt Practices Act , however, they will not be required to make this information public.

It is unlikely that other countries who have adopted legislation consistent with the Cardin-Lugar regulations will follow the U.S. government’s new direction in this field. The regulations have received widespread support from the world’s major extractive companies, and many companies have a reporting regime. It has led to the creation of a global standard of transparency in the extractive industry, with numerous countries including Canada, the UK and the EU, enacting similar legislation to help combat corruption and to increase accountability in corporate governance.

Canada continues to be one of the countries supporting transparency requirements in the extractive industry. The Extractive Sector Transparency Measures Act  for example came into force in June 2015 and contains broad reporting obligations for oil, gas and mining companies. The reporting obligations go even further than the Cardin-Lugar provision, to include not only entities included on Canadian stock exchanges, but also certain private companies.

A concern for Canadian and foreign companies who will maintain their reporting regimes is whether the repeal of the Cardin-Lugar regulations will place U.S.-listed companies operating in mining extraction areas at an advantage compared to companies subject to rigorous transparency requirements. Particularly for projects in developing countries such as Africa, where there is a problem with corruption and where succumbing to bribery could lead to the award of mining rights and subsequent contracts. While the Cardin-Lugar rule would not have ended corruption, it was expected to put pressure on those giving bribes and those receiving them, as they would be aware that they would have to report any payments made to government. With the repeal, there is the possibility that U.S.-listed companies could feel more inclined to engage with corrupt governments and be under less pressure to decline a bribe, which could put them ahead of competitors from Canada, the UK, the EU and elsewhere. Whether or not this will in fact cause such a shift in the thinking and conduct of U.S.-listed companies during their dealings with foreign governments is of course undetermined. However, there remains a concern for mining companies subject to these types of reporting regulations, when operating and competing against American companies in these areas.

Mining companies listed on both U.S. and foreign exchanges will still be subject to transparency requirements. While the U.S. may not have reporting requirements, U.S.-listed companies operating in Canada, UK and EU will still be required to comply with applicable transparency legislation. Therefore, if a company has reason to believe and is concerned that an American competitor is committing bribery or corruption, it should consider further investigation. The suspect company may be subject to other transparency requirements and anti-corruption legislation.

In conclusion, although the repeal of the Cardin-Lugar regulations signals that Canadian, UK and EU companies will have tougher reporting guidelines compared to their US neighbours, the playing field may have just become more complex, rather than uneven.

Guest Post: Insights into the New French Anti-Bribery & Corruption Law

This week, White Collar Post features a guest post from Frédéric Ruppert(1) and Maria Lancri(2).

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In December 2016, France passed into law the so called “Sapin 2” law to combat non-ethical behavior and promote transparency. Its new anti-corruption legislation is intended to improve its commitment to business ethics, the prevention of fraud and prohibiting the bribery of foreign public official. This new French law sets forth anti-corruption measures with a view to the more efficient pursuit and prosecution of corruption cases, both foreign and domestic. The impetus came from the frequent critics, most notably from the Organization for Economic Cooperation and Development, that France had not been adequately enforcing its current anti-corruption  laws.

Large companies now have mandatory anticorruption programs, pursuant to the new law, Companies or groups of companies over 500 employees and EUR100 million of turnover and public administrations must implement a detailed anti-corruption compliance program.

Some features of the new law include obligation to implement an anti-corruption compliance program  and that the executive managers bear the actual responsibility of enforcing this obligation within their companies. This is in line with a current trend where the underlying rationale is that only when individuals understand that their personal liability is at stake, will they take care of the situation.

Anticorruption programs are quite common in various organizations now, in particular following the footsteps of US, UK and many Canadian companies. The enforcement of the parent companies’ local laws (most notably US based) against their French subsidiaries, has really helped the understanding and acceptance of such regulations. French subsidiaries of foreign companies have implemented these programs for years now.

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