Analysis, Anti-Corruption & Bribery

Governance Response to Rumors of Bribery

Corporate board members devote significant time to financial oversight and strategy, while often neglecting steps needed to protect and promote its most important intangible asset – its culture and reputation. The negative effects of rumors of bribery and corruption can often be as problematics as clear accusations or even convictions.

Corporate boards would be well advised to assess the actual and potential impact that allegations of corruption and other unethical conduct may have on the share price of their company including their company’s market capitalization.

Corporate directors and officers have three general legal duties; the duty to act carefully, the duty to act loyally, and the duty to act lawfully. First, the duty of care of corporate directors and officers is a special case of the duty of care imposed throughout the law under the general heading of negligence. Laws builds on moral, policy, and experiential propositions. The law of negligence is no exception. The moral proposition that underlies the law of negligence is-that if a person assumes a role whose performance involves risk that affect others, this person is under a moral duty to perform that role carefully. Therefore, corporate directors and officers are under an obligation to take steps to affirmatively reduce risks, and an omission may be wrongful.

On this foundation of moral blame, the law of negligence has established a structure of legal blame or liability. The structure of legal blame under the law of negligence generally parallels the structure of moral blame. government officials are engaged by definition in governing, their decisions will often have adverse effects on other persons. When officials are threatened with personal liability for acts taken pursuant to their official duties, they may well be induced to act with an excess of caution or otherwise to skew their decisions in ways that result in less than full fidelity to the objective and independent criteria that ought to guide their conduct.

There are plenty of case studies that evaluate the impact that the loss of trust from key stakeholders resulting from public rumors and allegations can have. These stakeholders may be the general public and institutional investors but they also include existing and potential clients. Especially the institutional investors are increasingly sensitive to compliance related violations (or rumors thereof) by companies within their portfolio. As an example, the world’s largest pension fund (Norwegian Government Pension Fund) excluded ZTE from funding due to alleged corrupt behavior.

International authorities are beginning to establish a track record of corporate convictions and multi-million-dollar penalties. Recent and ongoing criminal prosecutions of individuals have also put executives on notice that they too will face the harsh consequences of violating anti-corruption laws including the U.S. Foreign Corrupt Practices Act (FCPA) or the Canadian Corruption of Foreign Public Officials Act (CFPOA).  Under Canada’s Integrity Regime, companies that do business with government also face suspension or debarment when charged or convicted under the CFPOA or similar foreign anti-corruption laws.

Internationally, cases have shown that enforcement agencies are going to continue to scrutinize anti-bribery and anti-corruption (ABC) compliance programs and will likely bring charges when violations are the result of willful or reckless conduct. In particular, enforcement agencies may bring charges when there is a failure to adequately ensure the existence of an effective ABC compliance program resulting in the failure to prevent violations of the law.

Therefore, board members and executives must protect their organizations and themselves, by effectively implementing a robust ABC compliance program, as well as maintaining effective detection and investigation procedures including continuous improvement of the effectiveness of any existing ABC compliance program.

Here are some practical suggestions that may be useful to Board members and senior executives:

• Sustained leadership on transparency and integrity is vital.

• Strong anti-corruption measures and repeated staff training is crucial.

• The compliance office must be answering directly to the CEO and report to the Board.

• When allegations occur, move quickly with a forensic audit and if criminal issues are uncovered turn them over to the appropriate authorities.

• Ensure that the staff remuneration is not an incentive to sell contracts at all cost.

• Make it clear in documentation that this is a “clean” company that does not bribe – this has been demonstrated to be a deterrent for bribe asking.

• Include in the external audit a review of the compliance on anti-corruption measures.

• Ensure full transparency in contract management.

• Publish who the real beneficial owners of their company and subsidiaries are.

• Beware of transfer pricing and tax evasion since it creates impoverishment in countries where the company is working; especially in the natural resources sector and in poorer countries.

Analysis, Canada

Even non-political businesses could be snared by Canada’s new election law

For many of us, federal election law regulates what is, for the most part, a spectator sport.

Sure, we all have the option to vote. And we could volunteer on campaigns and spread policy ideas around. Some of us even take on the vital role of the ornery family member, burdened with the responsibility of educating his or her politically unenlightened kinfolk over dinner.

But, for the most part, we sit back, watch and cheer (or jeer). For many of us, election season is primarily about excellent TV viewing and inspired political cartoons. Perhaps for even more of us, election season is nothing more than an unavoidable irritant or sleep aid.

Many of us are happy with the status quo. But imagine if the rules changed and forced us to participate in the ruckus? That would be like armchair critics of a hockey team suddenly finding themselves lacing up and submitting themselves to drug tests.

This would never happen in sports, of course. Fans of professional sports are not subject to the rules of the game.

And therein lies a difference between the rules of spectator sports and federal election law.

This year, businesses may be surprised to find themselves as participants in a game they never wanted to play. This risk has long been present, but, as of the 2019 election, Parliament has changed the rules yet again.

Extra games have been added to the election season

First, opening day has moved up, extending the election season.

June 30 this year marks the start of the regulated election communication periods (the pre-election period), even though the election period itself doesn’t begin until the fall. This is the first year that the pre-election period exists for federal elections, adding an additional layer of rules atop the already complex requirements of the election period (which begins once an election is called).

Compliance made difficult by expansive requirements

Second, this new, extended regulated period regulates all sorts of communications through broad definitions in the law. This is where the fans of the game – businesses and individuals – could find themselves in a pickle.

Among other things, the law now applies to all paid online advertisements that hyperlink to websites that identify or name candidates, even though such websites may not have an overly political character. Managing this requirement could prove difficult, especially for businesses with an extensive web presence.

 A huge swathe of advertising will be regulated during the election period

Third, once the election period begins in the fall, all manner of issue advertising touching on policy issues is subject to rules. This includes issues that are associated with a party, party leader, candidate or even a person associated with a political party. The ambit of this definition is indeterminate, with innocuous content potentially being subject to regulation.

Out of step with the internet age

Fourth, federal election law now subjects internet activity, including advertising and online platforms, to specific and onerous requirements.

Election law as currently fashioned does not sit comfortably with our internet age; the resulting uncertainty should be a concern for any business with an online presence.

Follow the rules … or else

The Commissioner of Canada Elections wields expanded powers: he now has the power to lay charges for a long list of offences, which could result in hefty fines and prison sentences. 

Enforcement powers really drive home the importance of following the rules. Canadian businesses may find that election law is a game of higher stakes than may have been previously believed.

Anti-Money Laundering & Terrorist Financing

Anti-Money Laundering: a Comparative Review of Legislative Development

The historical background of money laundering legislation began with the drug trade.  Initial AML efforts were introduced primarily to curb the ability of drug cartels to use the proceeds of their crimes to process money from illegal drug activity and build larger drug businesses. The key historical turning point of AML legislation was the Vienna Convention of 1988 (“Vienna Convention”), where 43 countries agreed on an approach to address money laundering rather than solely focusing on the drugs trafficking and related monetary issues. Shortly thereafter, the Financial Action Task Force (“FATF”) of the G-7 issued a report specifically addressing money laundering, citing 40 recommendations which needed to be implemented by the international community to effectively address this issue. These recommendations have driven the structure of the AML regimes of Canada the U.S. and the U.K. to date.

The current Canadian AML legislative system was originally designed to address drug offences but underwent two major changes. The initial change occurred with the adoption of Part XII.2 into the Criminal Code (“Code”), which specifically criminalized laundering and possessing the proceeds of crime. This Part also granted powers to law enforcement to detain, search, and seize property from anyone thought to be in possession of the proceeds of crime, expanding the scope of enforcement powers available in Canadian law against money laundering. The second major change occurred in the early 2000’s with the adoption of the current Proceeds of Crime (Money Laundering) and Terrorist Financing Act.[1]  This law is Canada’s current AML regime and implements various tools such as reporting obligations, recordkeeping obligations, additional offences, and administrative monetary penalties to strengthen enforcement against money laundering. Furthermore, this legislation also created Financial Transactions and Reports Analysis Centre (“FINTRAC”), Canada’s special intelligence unit, which has responsibility for reviewing reports and conducting preliminary investigations into money laundering investigations.

Currently, the focus of money laundering prevention efforts has centered on increasing international cooperation and addressing terrorist financing. The FATF and World Bank have constantly advocated the need for international unity in addressing organized crime and money laundering by terrorist organizations as a necessary precursor to making any significant change in this global issue. Although there is some harmonization amongst countries such as Canada, the U.S. and the U.K., there are various other countries, such as the Cayman Islands, whose legislative system are not harmonized.

It has been 28 years since the FATF’s initial 40 recommendation report, and as can be seen from this review of the Canadian legislation, the international harmonization in money laundering protocol sought by the report is starting to take form.  Although the AML regimes of all these countries do have various nuanced differences, the structural similarities have made cooperation between agencies such as FINTRAC, the Financial Crimes Enforcement Network (“FinCEN”)[2], and the Serious Organised Crime Agency (“SOCA”)[3] both more feasible and more seamless.  Although money laundering is still a serious problem that totals in the billions of dollars worldwide, the integration of regulators, enforcement regimes and standardization of detection protocols has made it much more challenging for criminals and terrorists to launder the proceeds of their criminal activity.

The new reporting-based approach adopted by Canada, the U.S., and the U.K. since the early 2000’s has marked a significant and effective shift in AML strategy from a reactionary approach to a more proactive one.  By creating regulators, thresholds, and reporting systems for transactions at a higher risk of being related to laundering the proceeds of crime, these countries are able to attack money launderers in the early placement stage when they are most likely to be caught, as tracing proceeds during the layering and integration stages consumes more resources and time.  In addition to this reporting-based shift, the criminalization of more activities related to money laundering, such as tipping, possessing the proceeds of crime, and money laundering itself, and the stiff penalties associated with these offences has helped to deter this behaviour.

The key next steps in the fight against money laundering will revolve around both improving the current AML regimes of these countries, and gaining more buy-in from other countries to improve and somewhat harmonize their money laundering policies.  Due to the nimbleness of criminal organizations as compared with slower moving government processes, the legislation required to address money laundering is often a step behind the techniques developed by money launderers.  Larger economies such as Canada, the U.S., and the U.K. will have to continue to review and update their AML policies at a faster pace to keep up with criminal organizations which are constantly evolving.  Furthermore, these countries will have to engage in diplomatic efforts to bring countries without sound AML legislation on board, which will be no easy task.  The inherent focus on confidentiality in offshore jurisdictions is not something many of these offshore jurisdictions will want to forego, largely due to the positive impact these regimes have on their national economies.  However, since money laundering removes funds that could otherwise be legitimately spent to grow the economy, leaders in the field of AML will have to advance this message, but will also have to be careful to not infringe the national sovereignty of these other jurisdictions.  Although the challenge to stop money laundering is still an uphill journey, the vast improvements made to the AML regimes of Canada, the U.S., and the U.K. since the mid-20th century may make the climb a little less steep.

[1] Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 (the “PCMLTFA”).

[2] The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of Treasury and the American equivalent to FINTRAC.

[3] The Serious Organised Crime Agency (SOCA) is the United Kingdom equivalent to FINTRAC.

Analysis, Canada, Environmental, Health & Safety Enforcement, Health & Safety Enforcement

Safety violation results in contractor getting 18 months in jail

On Sept. 18, Sylvain Fournier, a Quebec based contractor, was sentenced to 18 months in prison followed by two years of probation.[1] Fournier had been found guilty of manslaughter under the Criminal Code relating to a workers death by means of a breach of Quebec safety code. The case is the first of its kind in Canada and raises serious concerns about the use of criminal law to enforce provincial regulatory safety standards.

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Analysis, Anti-Corruption & Bribery, Anti-Money Laundering & Terrorist Financing, Canada, Europe

London Calling – The case of Skansen and UK Jurisdictional Reach for Corporate Bribery

The is a guest blog post by Nick Johnson, Q.C., from Exchange Chambers & Bright Line Law, London.

Southwark Crown Court is a designated centre for many of the UK’s serious fraud and white-collar crime jury trials. It is a drab building in a stunning location. There’s a spectacular view of Tower Bridge and the Tower of London over the river, obscured only by HMS Belfast, a WWII cruiser permanently moored as a museum and which, last Christmas, flew the Canadian flag in tribute to the participation of the Royal Canadian Navy in the Battle of North Cape. Hundreds of Canadian sailors served on British ships in the north, including eighty on the Belfast.

As the Maple Leaf flew, I acted for the MD of Skansen Interiors Ltd, a London based fit-out and refurbishment contractor, in a bribery case which concluded last April. The company itself and two of its directors faced charges under the Bribery Act 2010 (“UKBA”), relating to making improper payments in order to secure contracts for two City of London office refurbishments worth about £6m.

The case was a legal first in the UK in that the company, despite having carried out an internal investigation and self-reported to the UK National Crime Agency, then faced a Section 7 UKBA prosecution before a jury in the Crown Court. Section 7 has an unusually wide reach. A company itself is guilty of a criminal offence where a person associated with it bribed another, even where management might be completely unaware of the bribe. It is a rare form of corporate criminal strict liability, subject to a defence where the company can prove, on a balance of probabilities, that it had in place adequate procedures to prevent such conduct. Of course, the legislation is aimed at compelling a change in corporate culture when it comes to effective anti-bribery measures. Quite apart from the interesting questions the case posed as to what may amount to “adequate procedures” and why it was that an entirely co-operative company was not offered a UK Deferred Prosecution Agreement, the focus upon the Section 7 requirements was a clear reminder of how even a non-UK corporate could well end up in a UK criminal dock.

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