Ontario Court Concludes That Conspiracy to Bribe Violates the Corruption of Foreign Public Officials Act

Overview

On August 15, 2013, the Ontario Superior Court of Justice found Mr. Nazir Karigar guilty of violating the Corruption of Foreign Public Officials Act [1] (“CFPOA”).  At the time of the decision, the CFPOA had already been amended by the Fighting Foreign Corruption Act [2](“FFCA”), which received Royal Assent on June 19, 2013.  However, the conduct that led to Mr. Karigar being charged allegedly occurred between 2005 and 2008.  As a result, the Karigar case was decided under the prior law.  Nevertheless, it still contains valuable insight that will also apply to the current CFPOA.

Relevant Facts

Mr. Karigar was charged with agreeing to give or offer bribes to Air India officials and India’s then Minister of Civil Aviation, in order to secure a contract from Air India for the supply of facial recognition software and related equipment.  Mr. Karigar was a Canadian businessman who was allegedly acting as a paid agent for Cryptometrics Canada (based in Kanata, Ontario) and certain other related companies.

On or about September 2005, Mr. Karigar met with Robert Bell, Vice-President of Business Development for Cryptometrics Canada in Ottawa.  During this meeting, Mr. Karigar offered to help Cryptometrics Canada secure this contract from Air India, in exchange for 30% of the revenue stream.

On April 16, 2006, Mr. Karigar and Mr. Bell had a meeting in India with Mario Berini, Chief Operating Officer for Cryptometrics Canada and its U.S, parent company, Cryptometrics Corporation (“Cryptometrics USA”).  During this meeting, Mr. Karigar’s assistant first mentioned that Indian officials would have to be paid in order to obtain the contract.  A proposal in response to Air India’s Request for Proposal was subsequently prepared on behalf of Cryptometics Canada.

The sum of $200,000.00USD was transferred from Cryptometrics USA to Mr Karigar’s bank account in Mumbai and there was strong circumstantial evidence that the money was intended for the purpose of paying the bribe.  An additional $250,000USD was subsequently transferred from Cryptometrics USA to the Mumbai bank account of Mr. Karigar in order to secure the Air India contract.

The Crown based its case on two alleged bribes, one in the amount of $200,000USD paid to an Air India official and one in the amount of $250,000.00USD paid to the Indian Minister of Civil Aviation.  However, counsel for the accused claimed that the Crown had failed to present any evidence regarding the payment of these bribes to any improper recipient.  As a result, he alleged that it was not possible to establish that any foreign public official was actually offered or paid a bribe.

Counsel for the accused also claimed that, in order for the court to exercise jurisdiction over the case, the Crown was required to prove that there was a “real and substantial link” between the offense and Canada, based on the principles set out by the Supreme Court of Canada in Libman v. The Queen[3].  He argued that the bulk of the elements of the offense had no connection to Canada.  For example, the directing minds of the proposed business transaction were Mr. Berini and Robert Barra, CEO of Cryptometrics USA; both were U.S. citizens based in New York.  In addition, the dealings with Air India officials, apart from two brief visits to Kanata, Ontario, all occurred in India.

Interpretation of the Word “Agree”

Counsel for the accused argued that a violation of Clause 3(1)(b) of the CFPOA had not been established because it requires proof that a person “directly or indirectly gives, offers or agrees to give or offer” a benefit to a foreign public official.  His position was that the word “agrees” should be given its ordinary meaning so as to apply to “the agreement of two people – one to pay the bribe and one to receive the bribe.”  As there was no evidence that any foreign public official was actually offered or paid a bribe, counsel for the accused claimed that a violation of Clause 3(1)(b) had not been established.

The Crown argued that conspiracy to pay bribes was included under Clause 3(1)(b) of the CFPOA.  In support of this position, it pointed out that Section 3 of the CFPOA prohibited the giving, offering or agreement to give or offer a bribe but did not prohibit the receipt of a bribe.  The Crown also drew attention to the language of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”), which Canada signed on December 17, 1997; the CFPOA was enacted to satisfy Canada’s obligations under the Convention.

Regional Senior Justice Hackland agreed, finding that the language of Clause 3(1)(b) of the CFPOA was consistent with the terms of Article 1 of the Convention, which reads in part as follows:

2. Each Party shall take any measures necessary to establish that complicity in, including incitement, aiding and abetting, or authorisation of an act of bribery of a foreign public official shall be a criminal offence. Attempt and conspiracy to bribe a foreign public official shall be criminal offences to the same extent as attempt and conspiracy to bribe a public official of that Party.

As a result, the court concluded that the use of the term “agrees” included the concept of conspiracy.

Counsel for the accused had also relied on Section 6 of the FFCA by arguing that these amendments only now made conspiracy to offer bribes an offense.  The language of Section 6 is as follows:

6. An information may be laid under section 504 of the Criminal Code in respect of an offence under this Act — 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 this Act — only by an officer of the Royal Canadian Mounted Police or any person designated as a peace officer under the Royal Canadian Mounted Police Act.

Hackland R.S.J. rejected this argument, finding that Section 6 of the FFCA implies or assumes that conspiracies are already caught by the CFPOA and simply now provides exclusive authority to the Royal Canadian Mounted Police to lay charges for those offences.

Finally, Hackland R.S.J. rejected the position taken by counsel for the accused on a policy basis.  He concluded that, if the word “agrees” in the CFPOA was restricted to the acts of two parties (one to pay the bribe and one to receive the bribe), the scope of the CFPOA would be unduly restricted and its objectives defeated.  Further, to require proof of the offer or receipt of the bribe and the identity of the particular recipient would require evidence from a foreign jurisdiction (possibly putting foreign nationals at risk), would make the legislation difficult if not impossible to enforce, and might possibly offend international comity.

Territorial Jurisdiction

The FFCA has now established “nationality jurisdiction” as a basis for Canadian courts exercising jurisdiction over persons accused of violating the CFPOA.  In other words, jurisdiction over the bribery of foreign public officials may now be based on the Canadian nationality or Canadian permanent resident status of the accused, even if the offence occurred outside of Canada.  However, as the alleged offence occurred prior to the effective date of the FFCA, it was necessary to establish a “real and substantial link” between the offense and Canada, in accordance with Libman v. The Queen.

Relying on Libman v. The Queen, Hackland R.S.J. concluded that the substantial connection test was not limited to the essential elements of the offence, as counsel for the accused had suggested.  All that was necessary to make the offense subject to the jurisdiction of the courts was that a significant portion of the activities constituting the offence took place in Canada.

In finding that a real and substantial connection to Canada existed, Hackland R.S.J. relied on the following facts:

  • When the accused first approached Cryptometrics Canada, a Canadian company based in Kanata, Ontario, he was a Canadian businessman resident for many years in Toronto.
  • At all material times, the accused was employed by or acting as agent of Cryptometrics Canada.
  • Had the Air India contract been awarded, a great deal of work would have been performed by Cryptometrics Canada employees in Kanata.

For the above reasons, Hackland R.S.J. found that a sufficient substantial connection existed to confer jurisdiction over the bribery offense.

In addition, Hackland R.S.J. found nothing that would offend international comity, an additional factor mentioned in Libman v. The Queen.  If the Cryptometrics Canada could obtain a contract through the use of bribes and not be prosecuted for it, the purpose of the Convention would be thwarted and Canada would be in violation of its international obligations.  Also, nearly all of the real evidence, principal documents, and emails were seized in Canada.  In addition, all of the witnesses who testified were from Canada.

Hackland R.S.J. appears to have applied a fairly liberal interpretation of Libman v. The Queen.  Although both the accused and Cryptometrics Canada were based in Canada, none of the essential elements of the offense and only a relatively small portion of the activities relating to the offence ever took place in Canada.  In fact, the conspiracy was probably not established until the April 16, 2006 meeting in India, when the proposed bribe was first mentioned.

Although the discussion of territorial jurisdiction is no longer a significant issue for offenses that occur on or after June 19, 2013, this decision suggests that courts will be inclined to find a real and substantial connection to Canada when considering offences that occurred prior to the effective date of the FFCA.


[1] S.C. 1998, c. 34.

[2] S.C. 2013, c. 26.

[3] [1985] 2 S.C.R. 178.

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Posted in Corruption of Foreign Public Officials Act

Canada Enacts Amendments to the Corruption of Foreign Public Officials Act

Background

As a member of the Organization for Economic Co-operation and Development (“OECD”), Canada signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “OECD Convention”) on December 17, 1997.  To satisfy its obligations under the OECD convention, the Government of Canada implemented the Corruption of Foreign Public Officials Act (“CFPOA”), which came into force on February 14, 1999.  The purpose of the CFPOA is to discourage Canadian companies from utilizing corrupt practices abroad.

On March 18, 2011, the OECD Working Group on Bribery completed its report on Canada’s enforcement of the OECD Convention (the “2011 OECD Report”).  Although it acknowledged Canada’s recent enforcement efforts, it stated that several recommendations contained in its June 2006 report had still not been implemented.

On February 5, 2013, the Government of Canada introduced Bill S-14, also known as the Fighting Foreign Corruption Act (the “Act”), in the Senate.  It proposed several significant amendments to the CFPOA.  

Bill S-14 was approved by the Senate and the House of Commons without amendment and became law upon receiving Royal Assent on June 19, 2013.   A summary of the resulting amendments to the CFPOA, most of which are effective as of June 19, 2013, appears below.

Maximum Penalty Increased

The Act has increased the maximum penalty under the CFPOA to imprisonment for a term of up to fourteen years.  Previously, the maximum penalty was five years.

The Addition of Accounting Provisions

Unlike the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”)[2], the CFPOA did not previously contain any provisions to prohibit off-the-books accounting practices.  The Act has now created an offence under the CFPOA for any person who engages in improper accounting practices in order to commit an offence under the CFPOA or to conceal such a violation; this implements one of the recommendations described in the 2011 OECD Report.

The following accounting practices are now prohibited, if they are employed for the purposes of committing an offense under the CFPOA or concealing such a violation:

  • Establishing or maintaining accounts that do not appear in any required books and records;
  • Making transactions that are either not recorded in required books and records or are not adequately identified in those books or records;
  • Recording non-existence expenditures in required books and records;
  • Entering liabilities in required books and records bearing an incorrect identification of their object;
  • Knowingly using false documents; or
  • Intentionally destroying required books and records earlier than permitted by law.

The maximum penalty for this offence is imprisonment for a term of up to fourteen years.

Expansion of Jurisdiction to Include Offences Committed Outside Canada

The Canadian legal system applies a territory-based principle when determining whether it will extend criminal jurisdiction to offences that take place outside of Canada.[3]  As violations of the CFPOA result in criminal penalties, it was previously necessary to demonstrate a real and substantial link between Canada and the act of bribing a foreign public official abroad; this requirement can make prosecutions under the CFPOA difficult.

In the United States, the FCPA applies both territorial-based and nationality-based jurisdiction.  Under the FCPA, territorial jurisdiction involves the use of the mails or any means of instrumentality of interstate commerce in furtherance of an improper payment.[4]  As a result, territorial jurisdiction only addresses improper payments that have some connection to United States territory.  However, the FCPA also applies an alternate nationality-based jurisdiction that includes acts performed outside of the United States by a national of the United States or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States or any State, territory, possession, or commonwealth of the United States.[5]

Previously, the CFPOA did not apply nationality-based jurisdiction.  However, as a result of the Act, an act or omission that would constitute an offence under the CFPOA is now deemed to have occurred in Canada if the person is:

  • A Canadian citizen;
  • A permanent resident of Canada who, after the commission of the act or omission, is present in Canada; or
  • Any public body, corporation, society, company, firm, or partnership that is incorporated, formed, or otherwise organized under the laws of Canada or a province.

This amendment implements one of the recommendations described in the 2011 OECD Report.

Elimination of the Facilitation Payments Exception

Under the prior CFPOA, a facilitation payment is permitted 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, including:

  • The issuance of a permit, licence, or other document to qualify a person to do business;
  • The processing of official documents, such as visas and work permits;
  • The provision of services normally offered to the public, such as mail pick-up and delivery, telecommunications services, and power and water supply; and
  • The provision of services normally provided as required, such as police protection, loading and unloading of cargo, the protection of perishable products or commodities from deterioration, or the scheduling of inspections related to contract performance or transit of goods.

According to the former Subsection 3(5), an “act of a routine nature” does not include a decision to award new business or to continue business with a particular party, including a decision on the terms of that business, or encouraging another person to make any such decision.  The U.S. FCPA contains virtually identical language relating to permissible facilitation payments. 

The Act will now delete the facilitation payments exception from the CFPOA “on a day to be fixed by order of the Governor in Council.”  In other words, the Government of Canada will delay the implementation of this particular amendment until a future date.

This delay acknowledges the competitive disadvantage that Canadian companies would currently face as a result of the amendment, since most other countries (including the United States) still  recognize facilitation payments.   However, the fact that the CFPOA  now contains language formally repealing the facilitation payments exception also sends a message to Canadian companies that the Government of Canada considers facilitation payments to be bribes.

Elimination of the Requirement that Conduct be for Profit

The CFPOA prohibits the bribery of a foreign public official in order to obtain or retain an advantage in the course of business.  The term “business” was previously defined in the CFPOA as “any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere for profit.”

Canada was the only party to the OECD Convention to have included a “for profit” requirement in its anti-corruption legislation.  The Act has now deleted the reference to profit from the definition of “business,” which clarifies that the CFPOA is intended to apply to the conduct of all business, not just business “for profit.”  This implements one of the recommendations described in the 2011 OECD Report.

Royal Canadian Mounted Police Given Exclusive Authority to Lay Charges

The Act now clarifies that criminal charges for a violation of the CFPOA may only be laid by an officer of the Royal Canadian Mounted Police or any person designated as a peace officer under the Royal Canadian Mounted Police Act.

Conclusion

The Act clearly improves the ability of the Royal Canadian Mounted Police to prosecute Canadian entities under the CFPOA.  Although it did not address all of the outstanding recommendations contained in the 2011 OECD Report, the Act represents a significant step towards improving anti-corruption laws in Canada.


[1] S.C. 1998, c. 34.

[2] 15 U.S.C. §§78dd-1, et seq.

[3] See R. v. Libman, [1985] 2 S.C.R. 178.

[4] 15 U.S.C. §78dd-1(a), -2(a), -3(a).

[5] 15 U.S.C. §78dd-1(g), -2(i).

Posted in Corruption of Foreign Public Officials Act

The Application of United States Anti-Corruption Laws to Canadian Companies

Introduction

Anti-corruption compliance is now considered a priority issue for many Canadian companies, especially those doing business in vulnerable industries such as mining, oil and gas, infrastructure, and health care.  However, Canadian companies tend to focus exclusively on compliance under the Corruption of Foreign Public Officials Act[1] (“CFPOA”), Canada’s anti-corruption law.  While CFPOA compliance is crucial, some Canadian companies must also comply with the much stricter Foreign Corrupt Practices Act of 1977 (the “FCPA”)[2], the equivalent anti-corruption statute in the United States.

Canadian Companies Subject to the FCPA

There are several instances in which Canadian companies may be directly liable under the FCPA or where, due to their relationship with U.S. entities, they may be contractually required to comply with the FCPA.  These instances are described in greater detail below.

Canadian Subsidiaries of United States Companies

The FCPA does not specifically address foreign subsidiaries of U.S. companies and there has been no definitive decision concluding that foreign subsidiaries acting entirely on their own outside the jurisdiction of the United States are subject to the FCPA.  However, according to A Resource Guide to the U.S. Foreign Corrupt Practices Act [3], published jointly by the U.S. Department of Justice and the U.S. Securities and Exchange Commission, there are two ways in which a U.S. parent corporation may be liable for bribes paid by its foreign subsidiary:

  1. A parent may have participated sufficiently in the activity to be directly liable for the conduct.  For example, the parent may be liable where it directed its subsidiary’s misconduct or otherwise directly participated in the bribe scheme; and
  2. A parent may also be held liable for a subsidiary’s conduct under traditional agency principles; the fundamental characteristic of an agency relationship is control, including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction.  If an agency relationship exists, a subsidiary’s actions are imputed to its parent.

Therefore, Canadian subsidiaries of U.S. companies may need to comply with the FCPA, at the insistence of their U.S. parent companies.

United States Subsidiaries of Canadian Companies

The FCPA applies to all “domestic concerns.”  A “domestic concern” is defined any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States. [4]  Clearly, any legal entity organized under United States law, such as the U.S. subsidiary of a Canadian company, will be subject to the FCPA.

Issues of Securities in the United States

Companies (either U.S. or foreign) that are considered issuers of securities in the United States will be subject to the FCPA.  An “issuer” is defined as a corporation, which has issued securities that have been registered in the United States or that is required to file periodic reports with the U.S. Securities and Exchange Commission.[5]  Therefore, a Canadian company that trades its stocks, bonds, or American Depository receipts on a U.S. securities exchange will be considered an issuer and will be subject to the FCPA.

Canadian Companies Acting in Furtherance of a Corrupt Payment in the United States

A foreign company, whether or not it is an “issuer,” is subject to the FCPA if it causes, directly or indirectly (through a director, employee, agent, or stockholder), an act in furtherance of a corrupt payment to take place within the territory of the United States.[6]  Therefore, a Canadian company that would not otherwise be subject to the FCPA may be prosecuted if it any act taken in furtherance of the illegal bribe took place in United States territory.

Canadian Companies Doing Business with U.S. Companies

Although Canadian companies (and individuals) doing business with U.S. companies are not automatically subject to the FCPA, the contracts that they sign with U.S. companies will often contain terms and conditions that impose a contractual obligation to comply with the FCPA.  This is because it is unlawful for an entity subject to the FCPA to:

  1. Authorize a third party to make an improper payment to a foreign official; or
  2. Make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official.[7]

According to the FCPA, a person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if:

  1. Such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or
  2. Such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.[8]

When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.[9]

In order to avoid being held liable for corrupt third party payments, U.S. companies must exercise due diligence and to take all necessary precautions to ensure that they have formed business relationships with reputable and qualified third parties that are acting in compliance with the FCPA.  It is therefore typical for U.S. companies to include representations and warranties in its agreements, confirming the third party’s compliance with the FCPA.  Such agreements may also contain an obligation to provide annual certifications to the U.S. company, confirming its understanding of and compliance with the FCPA.

Ensuring Compliance with the FCPA

Any Canadian company that is required to comply with the FCPA (either by law or by contract) should consult with a lawyer who is familiar with both United States and Canadian anti-corruption laws.

[1] S.C. 1998, c. 34.

[2] 15 U.S.C. §§78dd-1, et seq.

[4] 15 U.S.C. §78dd-2(h)(1).

[5] 15 U.S.C. §78dd-1(a).

[6] 15 U.S.C. §78dd-3(a).

[7] 15 U.S.C. §78dd-1(a); 15 U.S.C. §78dd-2(a); 15 U.S.C. §78dd-3(a).

[8] 15 U.S.C. §78dd-1(f)(2); 15 U.S.C. §78dd-2(h)(3); 15 U.S.C. §78dd-3(f)(3).

[9] Id.

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Posted in Foreign Corrupt Practices Act
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