GT Anti-corruption legislation around the world Canada, UK, US


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A Grant Thornton white paper that outlines anti-corruption legislation in Canada, the US and UK. We offer some insight into this legislation and how it could impact your business.

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GT Anti-corruption legislation around the world Canada, UK, US

  1. 1. A Grant Thornton white paperAnti-corruption legislation casts aglobal net: Don’t get caught becauseyou don’t know the rulesAudit • Tax • Advisorywww.GrantThornton.caGrant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
  2. 2. Do you operate in markets or industrieswith a high risk of corruption and/or bribery?Do you know if your internal anti-corruptionpolicies are sufficient to defend your companyand its senior management from prosecutionunder current anti-corruption legislation?Do you have operations located in theUnited States or United Kingdom? Contents 3 The new global landscape 4 The major players – taking it to the world 6 An anti-corruption program is a global imperative 7 Culture change must accompany policy change 7 Slow response could have rapid repercussions
  3. 3. The new global landscape—it’s critical to know the terrain The US Foreign Corrupt Practices Act Prior to the UK Bribery Act, the These are some of the (FCPA) and new UK Bribery Act are FCPA was the global gold standard for critical questions that both designed to directly and significantly anti-corruption legislation. Aggressive address bribery and corruption, but investigation and prosecutions have should be front-of-mind they are not aimed exclusively at domestic steadily risen, including many non-US for globally active Canadian companies, making it clear that the fight organizations, their authorized agents and companies, as countries against corruption transcends national other indirectly culpable entities. The UK around the world—including borders and has become a global Bribery Act, however, goes even further. Canada—enact and enforce imperative. Canadian companies are Companies may be at risk simply by not complex regulations around further challenged by heightened having a corporate anti-corruption corruption and bribery. enforcement of the Corruption of Foreign program in place. Public Officials Act (CFPOA). Both The regulators mean business. From fines and reputational private and public companies have been— Canadian companies operating in global damage to jail time for and will continue to be—aggressively markets have been subject to multiple convicted individuals and targeted by these laws, particularly those foreign laws and are at risk on a number companies, the consequences doing business in foreign markets where of fronts, which now includes bribery and of non-compliance are the risk of corruption is high. Sanctions corruption. As this risk landscape substantial. As a result, for failing to comply with these laws are expands, you need to understand the local potentially severe, with fines, penalties and international laws relevant to your Canadian companies must and jail time all on the table. activities and take steps to identify, avoid now work to understand the and respond to unintended complicity. substance and reach of US and UK laws as well as our own legal environment. 3
  4. 4. The major players –taking it to the world court. This has had the expected Prosecutions of companies and individuals impact on US companies, but a more occur daily and the numbers are increasing. worrisome trend for the rest of the world is the consistent targeting and In 2010, the US SEC and the DOJ pursuit of non-US-based entities. investigated dozens of cases of suspected Although the international holdings corruption, and prosecutions or settlementUnited States and complex structures of multinationals fines totalled US$1.8 billion.After terrorism, fighting foreign often discourage scrutiny, the United  corruption is the US government’s biggest States is no longer holding back, and Eight of the top 10 largest FCPA corporatefocus. In 2008, Siemens AG plead guilty their approach is successfully breaking defendants of all time involve foreign rather than US violating the FCPA, agreeing to pay down traditional barriers to cross-a US$450 million penalty and disgorge border prosecutions.5$350 million in wrongful profits.1 In 2010, guidance document published by theFrench-based Alcatel-Lucent2 joined Ministry of Justice6 clearly states that theythe growing number of successfully will also have jurisdiction over offencesprosecuted foreign multinationals, paying committed outside the United KingdomUS$137 million in fines. A trend is clearly where the person committing theseemerging—enforcement and prosecution offences has a close connection with thein bribery and corruption cases almost United Kingdom.doubled from 2009 to 2010,3 and the United Kingdom While the courts will decide howsize of fines increased as well. Of the The Bribery Act, which came into effect the Act applies to non-UK companies,top 10 penalties incurred since the July 1, 2011, may apply to a Canadian the Serious Fraud Office—the policeFCPA’s inception, eight occurred in the company if it “carries on a business or department responsible for handlingpast 24 months, including UK defence part of a business” in the United investigations of this nature—appearscontractor BAE’s settlements of almost Kingdom. The British authorities have to be taking the view that virtually anyUS$500 million.4 made it clear that they will vigorously company conducting business in the The Department of Justice (DOJ), the pursue cases where a UK-based company United Kingdom must be in compliance.Securities Exchange Commission (SEC) is impacted by bribery, irrespective of The scope of this law actually exceedsand other authorities are highly focused where in the world the acts or omissions the FCPA in several significant areas.on developing sophisticated techniques may have been committed. In other First, the UK Bribery Act applies toand procedures for taking offenders to words, the bribery activity can take place commercial bribery as well as bribery anywhere in the world and it would of government officials. This means that1 appear that the UK authorities—like their unlike the FCPA or CFPOA—whose crm-1105.html2 US counterparts—intend to take an scopes are applicable only to the latter— lucent-settles-bribery-case.html aggressive stance on jurisdiction. The prosecution of business-to-business3 fcpa-enforcement-a-dojsec-priority-127995108.html4 5 6 pay-the-fcpa-piper/ foreign-corrupt-practices-act.html act-2010-guidance.pdf4
  5. 5. The UK Bribery Act, which came into effect in 2011, is a significant redraft and upgrade of earlier legislation that had been roundly criticizedby the Organisation for Economic Cooperation and Development (OECD). The OECD stated in an October 2008 report that “the continuedfailure of the UK to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery hashindered investigations.”bribery is fair game. Second, the Act Progress Report 2011: Enforcement of the More recent developments show thatconsiders “failure to prevent bribery” OECD Anti-Bribery Convention7 reports the enforcement picture is changing inan offence. This may be its most on this lack of progress in enforcing Canada, and the conviction of Nikoambitious and far-reaching provision, and the OECD Anti-Bribery Convention Resources Ltd. in June 2011 indicates justthe most controversial, as it suggests that in Canada. Among other criticisms, how much. The company was fined aif a company with no anti-corruption Canada was chastised for again being total of C$9.5 million and was placed onmeasures in place becomes implicated in “the only G7 country in the ‘little to no probation for three years. The Canadianbribery, the lack of a program may itself enforcement category’” and “the only probation order, however, was basedbe a crime. Third, facilitation payments, OECD member that does not provide on a US Department of Justice (DOJ)which are allowed under the FCPA and nationality jurisdiction, which presents document called a “deferred prosecutionCFPOA, are specifically disallowed under a serious obstacle to enforcement.” On agreement” used in FCPA cases. Thisthe UK Bribery Act. the positive side, the report found it type of document is an agreement in Further clarification on how and to “promising that 23 foreign bribery which companies under FCPA scrutinywhom the Act will be applied comes from investigations are under way” and are granted amnesty in exchange for• the government’s official guidance suggested that if prosecutions resulted, fulfilling certain corruption compliance (referenced above), Canada’s international status should rise.8 requirements—also known as a• the joint prosecution guidance of the Given the United Kingdom’s response “Schedule C.” director of the Serious Fraud Office to similar criticism, it seems likely that The fact that a Canadian probation and the director of public prosecutions Canada could react similarly. In fact, the order was based on a set of requirements who are charged with enforcing the government introduced Bill C-31 in 2009, listed in a US DOJ agreement was a Act, and which “proposed to amend the CFPOA clear example of the rapidly growing• the Act’s ongoing application and by clarifying that it applies to Canadian cooperation between governments to resulting precedents. individuals acting outside of Canada.” prosecute corruption. The terms of the It also included provisions to apply order may potentially show how the lawsThe Act focuses on companies registered the CFPOA based on the nationality of different countries are leading to morein or with offices in the United Kingdom principle, which would allow certain harmonization of global standards foror that employ UK citizens, but even offences committed outside Canada to compliance in this area. Since the Nikowithout direct ties to the United be prosecuted as if they had occurred in conviction, several other enforcementKingdom, Canadian businesses with Canada.9 While this Bill died on the order incidents have emerged, including a raidglobal presence or aspirations need to paper, growing international pressure on junior mining company Blackfireunderstand UK, US and other global makes it likely that these or similar Exploration in Calgary10 and a probe intoanti-corruption legislation and be aware measures will be the next likely legislative the overseas operations of SNC-Lavalin.11of related emerging issues. step. In the meantime, we are seeing There are, in fact, dozens of known cases increasing enforcement of the CFPOA’s currently under review by the RCMP, existing measures. and at least one further prosecution— Nazir Karigar, who has been charged with one count of corruption.Canada 7 Transparency International, Progress ReportJust as the OECD targeted the United 2011: Enforcement of the OECD Anti-Bribery Convention,’s lax response to foreign download/61106/978536, 8 Ibid., 6.corruption, Canada has now been singled 10 9 TI-Canada’s Anti-Corruption Developments Review, http://out as the worst offender amongst G7 calgary-miner-over-bribery-allegations/article2145226/ Corruption_Developments_Review_01-01_2001-Winter.pdf, 11 Transparency International’s p. 6-7. co-operating-with-rcmp-investigation/article2155640/ 5
  6. 6. An anti-corruptionprogram is a global imperativeClearly, the rules have changed in Canada and 3. Develop an effective anti-corruption policyaround the world. Domestic enforcement is on the that considers the prevention, detectionrise and simply doing business, including raising and ramifications of foreign corruption andcapital or debt, in the United States or the United bribery. It must be reflected in all aspects ofKingdom may subject you to the provisions in their your operations, with controls focused onrespective corruption acts. International enforcement high-risk areas. This is a crucial measure.legislation is broad, diverse and has teeth, which Remember, having adequate procedures inmeans that Canadian companies need to take place to prevent bribery could be used as acorrective action. legal defence should anyone associated with There are six steps you can take to help address the company be accused.12known risks and prepare for even more broad futureglobal legislation: 4. Ensure that all individuals and entities acting on your behalf overseas are properly trained in1. Understand the specific risks facing your your anti-corruption policies and procedures. Also conduct comprehensive background organization by undertaking a detailed risk due diligence, not only on individuals, but on analysis. Identify high- and low-risk areas overseas acquisitions, joint venture partners and within the company, pinpoint their locations, any other entities to ensure they do not pose a define their activities and review existing anti- corruption risk. corruption and related procedures.2. Be sure you understand the laws to which 5. Design and implement a specific plan to meet the above challenges and requirements for your your international operations are subject, as company’s particular situation. well as which countries are keen to act on them. If you operate in countries where the risk of bribery and corruption is high, or 6. Understand that failing to take action on these where the legal framework and environment issues results in severe risks for companies and encourage prosecution, you could be a target their officers/directors. for investigation. 12
  7. 7. Culture change Slow responsemust accompany could have rapidpolicy change repercussionsCompanies can actively combat corruption Initial corporate reaction to this new wave of global anti-corruption legislation has been mixed. Of course,through controls and policies, internal no company supports, encourages or countenances any kind of criminal behaviour, but “corruption”investigations and appropriate penalties, often occupies a middle ground. Many behavioursbut enforcing an organization-wide that have long been accepted—client entertainment and gifting, for example—are now under scrutiny.culture change is equally critical. You Certainly in the United Kingdom, some worry thatmust implement a zero-tolerance anti- new, more restrictive legislation on what is and is not acceptable might disadvantage them in relation tocorruption policy while consistently companies operating in largely unregulated regions. Change is here, however, and it’s in your bestencouraging positive behaviours, interests to see that your organization understandsparticularly during difficult economic the landscape. The new legislation is complex, and understanding the big picture will betimes when corruption often increases. particularly difficult for companies operating in multiple jurisdictions. For many, an adviser who can provide an organization-wide program of education, prevention, detection and investigation will be critical to their anti-corruption response. Take charge, before the regulators take action.An anti-corruption corporate culture requires: • Top-level commitment, in the form of – senior management involvement – a zero-tolerance atmosphere • Policies and procedures that – are clear, practicable and fair – cover gifts, hospitality, expenses and facilitation payments • Procedures applied consistently, internally and externally 7
  8. 8. About usGrant Thornton is one of the world’s leading Contributorsorganizations of independent assurance, tax Sandy Boucherand advisory firms. These firms help dynamic T +1 416 369 7027organizations unlock their potential for growth by E meaningful, actionable advice through a David Elzingabroad range of services. Proactive teams, led by T +1 403 508 1371approachable partners in these firms, use insights, E and instinct to solve complex issues for Derek Malcolmprivately owned, publicly listed and public sector T +1 403 508 1374clients. Over 31,000 Grant Thornton people, across E countries, are focused on making a difference toclients, colleagues and the communities in which welive and work.About Grant Thornton in CanadaGrant Thornton LLP is a leading Canadian accountingand advisory firm providing audit, tax and advisoryservices to private and public organizations.Together with the Quebec firm Raymond ChabotGrant Thornton LLP, Grant Thornton in Canadahas approximately 4,000 people in offices acrossCanada. Grant Thornton LLP is a Canadian memberof Grant Thornton International Ltd, whose memberfirms operate in close to 100 countries worldwide.Audit • Tax •© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd TL-FAIS-05-11-2012