Dickinson Wright Lawyer Brenda Swick presents "Anti-Corruption Compliance in Import/Export Transactions" at the 2017 ICPA Conference.

1. 2017 ICPA Conference2017 ICPA Conference
TorontoToronto
May 9, 2017May 9, 2017
Brenda C. SwickBrenda C. Swick
416 594 4052/bswick@dickinsonwright.com416 594 4052/bswick@dickinsonwright.com

2. Introduction
 PURPOSE: How to protect against anti-corruption compliance
risks in export/import transactions
 Third party service providers play critical role in global supply
chains, but may create corruption and other compliance
concerns
 Importance of risk-based due diligence on proposed
transaction and service providers to detect and prevent
problems
 Importance of cooperation between customs compliance and
legal department in conduct of due diligence and
developing/implementing controls over transactions on an
ongoing basis
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3. Global Enforcement Trends
 Global enforcement is increasing
 U.S. Foreign Corrupt Practices Act remains most aggressively enforced
foreign bribery law
 Other countries following suit: notably Brazil, China and India
 New tougher national laws
 Canada recently amended CFPOA to make it harsher
 Increased cooperation between law enforcement authorities
in various countries
 Rise of compliance programs
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4. Corruption is a Worldwide Concern
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5. Corruption of Foreign Public Officials Act
 The CFPOA contains two criminal offences relating to
the corruption of foreign public officials:
Bribing of a foreign public official to obtain an advantage
Perpetration of accounting offences for the purpose of
hiding bribery
 Punishment:
Imprisonment up to 14 years
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6. Application of Other Anti-Corruption
Regimes to Canadians
 Canadian companies and their directors, officers and
employees may be subject to enforcement actions in more
aggressive anti-corruption regimes including
 United States – Foreign Corrupt Practices Act
 US companies and individuals
 Companies that have issued securities in the US and file periodic reports
with SEC
 Non-US companies and individuals that cause, directly or through agents,
acts in furtherance of the corrupt payment to take place within the
territory of the US (e.g. meeting in US)
 United Kingdom – 2010 Bribery Act
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7. Corruption of Foreign Public Officials Act
 Anti-bribery Provision (section 3)
What is prohibited?
Four key elements:
Direct or indirect giving or offering of a benefit of any kind
To or for the benefit of a foreign public official
As consideration for act or omission in connection with
performance of the official's duties or to induce the official to use
his or her position to influence acts or decision of the foreign state
In order to obtain or retain an advantage in the course of business
Four elements merit special attention
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8. 1. Foreign Public Official
 CFPOA prohibits improper payments to “foreign public
officials”
 Someone who holds a legislative, administrative or judicial position in
a foreign state
 Someone who performs public duties for a foreign state (including
someone working for a public commission or other authority)
 An official or agent of a public international organization
 Includes
 Officials and employees of a country’s customs service, import/export
licensing and other regulatory agencies
 Private parties acting on behalf of foreign government departments
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9. 2. Business Purpose
 CFPOA prohibits payments for improper business purpose –
broad coverage
 Payments for the purpose of i) causing foreign public official
to fail to perform his duty; ii) securing an improper
advantage; or (iii) inducing official to use his/her influence to
obtain or retain business
 Includes payments made to foreign customs officers for the
purpose of avoiding the payment of customs duties/taxes or
compliance with foreign regulatory requirements for
imported goods
 United States v. Kay et al. 359 F. 3d 738 (5th
Cir. 2004)
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10. 3: Third Parties
 Recognition that third party can have significant impact
 CFPOA applies to direct and indirect offers or payments
 Prohibition against improper payments made directly to foreign public officials
and through third party intermediaries
 Critical because companies rely upon third parties in connection with
import/export transactions
 Canadian company may be liable for actions of customs broker, local
trade consultant, freight forwarder which makes improper payment
 Company may be liable for improper payment made by third party to
foreign official even without actual knowledge if evidence of “willful
blindness”
 Failing to inquire when you know there is reason for inquiry (R v. Briscoe
[2010] 1 SCR 411)
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11. 3. Third Parties & Risk Mitigation
 Mitigating Liability Associated with Third Parties
 Comprehensive pre-engagement due diligence of freight forwarders,
customs brokers, logistics service providers, trade consultants to
determine if they present any “red flags”
 Number of questions should be asked
 Reasons for further investigation?
 Risk Based Approach
 Consider Red Flags
 Abort engagements where unacceptable level of risk
 Adequate protections in third party contracts
 Due diligence should continue for duration of engagement through
careful oversight and monitoring to FOLLOW THE MONEY
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12. 4. Facilitating Payments: Risky
Business
 Exception to anti-bribery provisions for facilitating payments
made to foreign public officials to expedite or secure the
performance of routine government action including
 Processing official documents , visas
 Slippery slope: most companies prohibit them
 Does not include payments made to avoid the payment of
customs duties; compliance with regulatory requirements
 Red Flag: any characterization of payment to customs broker,
freight forwarder or agent as “facilitation payment”
 No exemption for de minimis payments
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13. CFPOA: Accounting Provisions
 CFPOA prohibits certain accounting practices designed to disguise
improper payments for foreign public officials
4. (1) Every person commits an offence who, for the purpose of bribing a foreign public
official in order to obtain or retain an advantage in the course of business or for the
purpose of hiding that bribery,
(a) establishes or maintains accounts which do not appear in any of the books and
records that they are required to keep in accordance with applicable accounting and
auditing standards;
(b) makes transactions that are not recorded in those books and records or that are
inadequately identified in them;
(c) records non-existent expenditures in those books and records;
(d) enters liabilities with incorrect identification of their object in those books and
records;
(e) knowingly uses false documents; or
(f) intentionally destroys accounting books and records earlier than permitted by law.
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14. CFPOA: Accounting Requirements
 It is an offence, for the purpose of concealing bribery to a foreign public
official to:
 Keep secret accounts
 Falsely record, not record or inadequately identify transactions
 Enter liabilities with incorrect identification of their object
 Use false documents
 Destroy accounting records earlier than permitted by law
 Companies should have a robust system of accounting and financial
controls which
 Accurately record transactions with enough detail to identify the transactions
(quantitatively and qualitatively)
 Provide reasonable assurances that transactions are executed in accordance
with management's authorizations
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15. CFPOA Compliance Risks
 Avoidance of Customs Duties/Taxes
 Payments made to customs officers for the purpose of avoiding
customs duties constitutes an unlawful bribe
 Risk may arise in connection with dealings though third party
intermediaries
 United States v Panalpina
 Swiss freight forwarder paid $27 million in bribes to Nigerian and other
foreign customs officials to secure preferential customs treatment,
customs clearance and import permits in Angola, Nigeria, etc. on behalf of
oil field service customers
 Customers investigated
 Negotiated non prosecution agreements and paid $237 million in fines
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16. CFPOA Compliance Risks
 Red Flags:
 Especially in high risk countries
 Arrangements which suggest non-compliance with local customs rules
 Unusual cost/expense charges which may be disguised requests for
reimbursement for improper payments
 customs entry documents declaring customs value at unusual low amount
 Requests for reimbursement for “customs processing fees”, “customs expediting
fees”, “administrative fees”, “special handling charges”
 Unusual shipping and routing arrangements
 Contracts with third parties should include audit rights to ensure compliance
with CFPOA/FCPA
 Should be invoked at first sign of “red flag” suggesting possibility of improper
payment
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17. CFPOA Compliance Risks
 Avoidance of Import Regulatory Requirements
 Can be complex regulatory requirements – non-transparent
 Time consuming and costly to comply
 Any payment made to foreign official for the purpose of avoiding
compliance constitutes unlawful bribe
 Characterizing payment as facilitating payment would be violation of
books and record provisions
 Panalpina and Helmerich & Payne cases
 Noble Corporation
 SEC charged three oil services executives with bribing customs officials in Nigeria
to obtain illicit permits for oil rigs in order to retain business under lucrative drilling
contracts
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18. CFPOA Compliance Risks
 Under-Invoicing
Could occur where customer is importer
Request to declare value lower than actual sale price of
goods
To understate value to avoid duties
Violation of books and records requirements in accounting
provisions
False accounting record
Also violations of domestic law
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19. CFPOA Compliance Risks
 Offshore Payments to Third Party Intermediaries
Request to pay service fee to an offshore account could be
a Red Flag
“Off shore account” to establish “off books” account from
which improper payments may be made
Improper characterization may give rise to books and
records offence
Best option: Summarily reject request and request normal
banking channels be followed or terminate relationship
altogether
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20. CFPOA Compliance Risks
 Hospitality/Gifts to Foreign Customs Officials
 Slippery
 Furnishing of gifts to foreign customs officials may be improper bribe if given
for an improper purpose
 to obtain preferential customs treatment, avoidance of customs duties or import restrictions
or resolution of customs disputes
 SEC v. Parker Drilling Company
 Charged with making improper payments to a third-party intermediary in order to
entertain Nigerian officials involved in resolving the company's customs disputes
 Parker Drilling agreed to pay $4 million to settle the SEC's charges
 Mitigate risk
 Compliance with gift giving policy with dollar limits
 Bona fide purpose with documented justification
 Transparency
 Proper recording in books and records (qualitatively and quantitatively)
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21. Conclusions
Import/export transactions can pose significant
corruption risk, especially in high risk countries
Understand the requirements, risks and employ
risk mitigation strategies
Companies are operating in increasingly high risk
environment and mitigation of third party risk
should be critical component of compliance
strategy
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22. Thank you!
Brenda C. Swick
bswick@dickinsonwright.com
416 594 4052
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