Bribery and corruption enforcement is on the rise around the world. In this climate, all businesses, even the best corporate citizens, need to examine their exposure to potential corruption allegations. Pleading ignorance of the corrupt practice – or the laws that govern them – isn't a "get out of jail free" card. Nor is being innocent: an accusation, as far as a company's reputation goes, can be just as bad for a business as a conviction.
Fortunately, mitigating this risk, while requiring effort on part of the business, is to a large extent a matter of common sense. To effectively protect itself and its reputation, a Canadian business operating abroad should keep the following five points in mind.
1. GET A CORPORATE COMPLIANCE POLICY
Start with an internal compliance policy that ensures management and employees know what they can and cannot do when conducting business in foreign jurisdictions. The document can be as simple or as complex as your business (tips on what it must contain follow below). The very process of creating such a policy can be helpful to your business and your employees in understanding the behaviour expected of them in dicey situations, as well as educating them about the difficult issues they may encounter. A strong compliance policy also sends a message, internally and externally, that your organization takes compliance seriously, and can be your first line of defence should your organization face charges or allegations.
2. KNOW THE LAW – IN EVERY RELEVANT JURISDICTION
International anti-corruption legislation is just that – international. That means complying with the Canadian Corruption of Foreign Public Officials Act is not enough. You might think of it as the beginning of your legal obligations in this area, as international anti-corruption legislation often involves overlapping jurisdiction. The United Kingdom's Bribery Act 2010 applies to any individual or organization that carries on business, or part of a business, in any part of the United Kingdom. The United States' Foreign Corrupt Practices Act applies to foreign nationals and businesses operating in the United States. Many other jurisdictions have similar reach and legislation.
Knowing the law is necessary to staying within its bounds; it's also necessary for crafting an adequate compliance policy – which, in turn, is necessary in just about any corruption-related defence, as proof that the defendant business has had procedures in place intended to prevent misconduct.
3. KNOW THE PENALTIES – THEY CAN BE SEVERE
For those who need punitive motivation, the recent Canadian case involving Niko Resources Ltd. underscores that the penalties for non-compliance can be high. Niko Resources was fined $9.5 million, and put under court supervision for three years to ensure its compliance with the Canadian Corruption of Foreign Public Officials Act. Niko's crime? Providing, through its subsidiary company in Bangladesh, a luxury SUV valued at approximately $190,000 to the then-Bangladeshi State Minister for Energy and Mineral Resources. Niko's settlement with the Canadian government dominated business and mainstream headlines, both at home and abroad, layering negative press and reputational loss for Niko on top of the court decision.
Penalties in other jurisdictions can be even tougher. In the United States, settlements of several hundred million dollars are common, and individuals in every jurisdiction can face jail time if convicted for bribery or corrupt practices.
4. KNOW WHO YOU'RE WORKING WITH
Your subsidiaries, partners, agents or third parties in foreign jurisdictions can get you in trouble – and you will be held responsible for their actions. A business can be prosecuted for the acts of third parties under both the United Kingdom's Bribery Act 2010 and the United States'Corrupt Foreign Practices Act, and "we didn't know what they were doing" is not an acceptable excuse. That means you need to know exactly who you are dealing with, and what their record is. Just as importantly, you need to ensure that these agents know that bribery and corruption are not accepted as a business practice within your organization and that your global corporate compliance policy applies to them too.
What you don't know will hurt you. In the United Kingdom, a business can face liability for failing to prevent bribery conducted by an associated person with or without that business's knowledge. In the United States, a business can be liable for the corrupt practices of a third party. If the industry or jurisdiction has a reputation for off-side practice, tread extra-carefully: if there was high probability of corruption occurring, the US legislation assumes knowledge.
5. DO YOUR DUE DILIGENCE
Due diligence is a critical component of keeping a business on-side with anti-corruption laws in all of its practices and business relationships. But it requires extra attention in a merger/acquisition situation, where you may acquire potential successor liability if you don't do your homework. Has the target or merger partner been compliant with applicable anti-corruption laws? Can it prove it? Such due diligence requires an investment of resources and a timeline generous enough that if the review unearths something troubling, you're able to bring in the appropriate authorities, address the issue – and, if necessary, walk from the deal without a reputational smear.
Sorting things out post-deal should not be an option. Transparency International underscores that a failure to detect bribery or corrupt practices before the deal closes can have catastrophic results in terms of legal and reputational risks post-close.
WHERE SHOULD YOU GO FROM HERE?
If you don't have a corporate compliance policy in place, get working on it now – and keep mind it must comply with the law in all jurisdictions in which you operate. For an extra motivational kick, review the penalties for non-compliance – you don't want to risk them. Make sure you know who you're working with, domestically and abroad, and that all your subsidiaries, partners, and agents know your compliance policy. And, through it all, don't skimp on due diligence – it will save you.
ANTI-CORRUPTION COMPLIANCE CHECKLIST
Nobody wants their business to become the subject of corruption or bribery charges, and prevention starts with a corporate compliance policy. Transparency International, an anti-corruption NGO, suggests Canadian businesses consider the following steps in the creation of their anti-corruption compliance policies.
Internal Compliance Policies and Procedures
- Appoint a "Compliance Officer" to ensure that all domestic and foreign legislation is addressed and complied with at all levels of operations.
- Ensure that whatever policies or procedures are in place clearly indicate that the business has a zero tolerance policy with respect to bribery and corruption.
- Ensure that the policy clearly defines bribery and corrupt practices, as well as provides examples of what does and does not constitute bribery or corrupt practices for each applicable piece of legislation.
- Require management and employees to review internal compliance polices and procedures on an annual basis.
- Ensure that due diligence is conducted on agents and third parties acting for the business in foreign jurisdictions, and that any agent or third party is aware of the business's internal policies and procedures regarding bribery and corrupt practices.
- Ensure that the business maintains adequate and detailed records of compliance issues relating to bribery or corrupt practices, including audits.
- Enforce the policy at all times, disciplining employees who do not comply and reporting any illegal activity to the proper authorities.
Due Diligence
- Conduct due diligence aimed at addressing concerns related to bribery and corrupt practices for all deals.
- Ensure that the due diligence is conducted early in the transaction, so that if any corrupt practices are found, they can be addressed.
- Review the internal policies of the target or partner company to ensure that the business has an adequate anti-corruption policy in place.
- Know the industries that the target or partner company has historically been involved in, and take note of whether those industries are historically associated with corrupt practices.
- Ensure that sufficient resources are devoted to due diligence on corruption-based concerns, so that there are no surprises (and potential legal troubles) post-close.