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International Trade

A Cautionary Note - Bribery has a Wide Scope

Published: 03/12/2010

By Lawrence Herman, Gregory Hogan

Pitfalls in Doing Business Abroad

A matter that sometimes is forgotten is the broad reach of Canadian law making it a criminal offense for any Canadian company, and any person employed by that company anywhere in the world, to pay money or provide any kind of benefit as an inducement or "bribe" to foreign government officials when doing business abroad.

The Corruption of Foreign Public Officials Act ("CFPOA") was passed by Parliament in 1999 to implement the 1997 OECD Convention on Combating Bribery of Foreign Public Officials. The Canadian statute is the counterpart to the US Foreign Corrupt Practices Act. Section 3 of the Canadian Act provides,

3. (1) Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official

(a) as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions;

or

(b) to induce the official to use his or position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Note the reference to a "reward, advantage or benefit" given directly or indirectly to foreign public officials. This covers a wide range of inducements beyond the transfer of money. Note also the reference to these payments or benefits being provided "in order to obtain or retain an advantage in the course of business." Those terms make the application of the law very broad indeed.

Exceptions and Defences

Not every kind of payment, benefit or gift to a foreign official is prohibited, however. The Act allows what are called "facilitation payments" - small payments done to assist officials in routine functions where the result is predetermined. The Act defines these to include the issuance of a permit, licence or other document; the processing of documents such as visas and work permits; the provision of services "normally offered to the public" such as mail pick-up and delivery, telecommunication services, power and water supply, police protection and the like.

The point to underscore is that the exception for "facilitation payments" is meant to allow payments of a relatively innocuous nature to low or mid-ranking officials. Anything that extends beyond routine matters to higher-order decision-making would potentially be caught by the Act. There are gray areas, of course, where the line between routine and non-routine decisions may not be easy to determine. In those cases, it’s better to err on the side of caution.

Some intergovernmental bodies dealing with corruption issues, notably Transparency International, are opposed to the very idea of these kinds of payments and suggest that companies avoid them altogether (see the discussion of this on TI’s website: www.transparency.org).

There are also defences to charges under the Act. The first is that the payment or benefit was lawful in the foreign State concerned. This defence is not easy to mount and there are pitfalls here in not confusing custom or practice in the foreign State concerned with the requirement for written laws that justify the payment or benefit.

The second defence to any charge is that the payment was a "reasonable expense" incurred in good faith for "the promotion, demonstration or explanation of the person’s products and services" or for "the execution or performance of a contract between the person and the foreign state" Again, it should not be assumed that this defence will be easy to prove.

Facts are the Dominant Consideration

Whether a payment or benefit falls within any of these exceptions or defences will depend on the particular facts. To be on the safe side, it should be assumed that all payments or benefits for travel, hotel, dinner and entertainment or club fees and other expenses aimed at gaining a favourable decision from a person in higher authority would be an offense. Luncheon or dinner invitations as courtesies and mementos or souvenirs may not be prohibited, depending on the facts and the circumstances. Much will depend on whether the foreign official involved is in a position of authority and can make or influence an impending decision of importance to the business affairs of the company.

As noted, when dealing with foreign public officials that are in positions of authority, it’s always best to err on the side of caution and seek advice in any cases that are more than minor benefits and innocuous gifts or entertainments.

Resources and Guides

There are many useful sources of advice and best-practices standards on meeting these anti-bribery and anti-corruption requirements. Together with consulting Transparency International, referred to above, Canadian businesses should look at the material provided by the OECD (www.oecd.org) and the OECD’s Business and Industry Advisory Committee (BIAC) and the latter’s Anti-Bribery Resource Guide (www.biac.org) as well as the Rules of Conduct and Recommendations issued by the International Chamber of Commerce in Paris (www.iccwbo.org). There are other sources of information that can be uncovered doing a simple Google search.

Caution and Prudence

The OECD Convention and the CFPOA have brought about changes in the way Canadian corporations must conduct diligence in foreign business operations. The important point here is that prudence and caution are the watchwords when dealing with foreign public officials in the context of business deals.