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The Self Reporting Calculus for Foreign Corrupt Practices - The Math is Still Opaque in Canada

Published: 12/11/2015

By Wendy Berman

The nature, quality and extent of cooperation required to achieve significant leniency or avoid an enforcement action remains a difficult guessing game in Canada’s foreign corruption enforcement regime. In contrast, US authorities continue to provide greater clarity on their expectations regarding the extent of cooperation necessary to obtain leniency, including non-prosecution or deferred prosecution agreements1.

In September 2015, the US Department of Justice released a memorandum from Deputy Attorney General Sally Yates (the “Yates Memo”) which provides further guidance and clarification on expectations for corporate credit for cooperation and confirms the DOJ’s commitment to deterring corporate wrongdoing by targeting individual directors, officers and employees.  In particular, the memorandum provides, among other things, that:

  • Corporations must provide all relevant facts about the individuals involved in the corporate misconduct to receive any cooperation credit
  • Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized

In November 2015, and shortly following the Yates Memo, the U.S. Securities and Exchange Commission indicated in public statements2 that companies must self-report suspected foreign corruption contrary to the Foreign Corrupt Practices Act as a precondition to obtaining a non-prosecution or deferred prosecution agreement. While this may have previously been a practical reality, this clear policy statement further demonstrates a strong commitment on the part of the US authorities to reward responsible companies that self-report suspected misconduct with no enforcement agreements or other forms of leniency. Such strong policy statements ensure that corporations will continue to view cooperation as a viable strategy to mitigate or avoid the reputational damage, costs and legal challenges associated with a public prosecution, conviction or guilty plea. More importantly, the US enforcement regime provides necessary flexibility with a range of potential outcomes for responsible companies that self-detect and self-report beyond convictions or guilty pleas.

The focus on individual liability for corporate misconduct, self-reporting and corporate credit for cooperation may, however, also create strong incentives for corporations to conduct an early assessment of individual culpability as an enterprise risk management strategy.

In addition, the United Kingdom also provides a specific enforcement regime for corporate cooperation with a range of corporate settlement options, including deferred prosecution agreements (since 2013). Interestingly, the United Kingdom regime includes judicial oversight and approval for all deferred prosecution agreements, which may mitigate concerns that such settlement agreements are inappropriate or unfair leniency regimes for big corporations. The United Kingdom’s Serious Fraud Office recently entered into its first deferred prosecution agreement (approved on November 30, 2015) in a foreign corruption matter involving allegations that ICBC Standard Bank PLC bribed Tanzanian government officials in connection with a bond issuance.3

In stark contrast, Canadian authorities have provided little or no guidance on the mechanisms, benefits of, or expectations for, cooperation or self-reporting. Further, Canada lacks any protocol or regime for deferred or non-prosecution agreements, creating an inherent limitation and inflexibility when it comes to self-reporting.  In the absence of deferred or non-prosecution agreements, Canadian corporations are forced to choose between an uncertain outcome from defending the charges or pleading guilty. The latter option means a conviction, serious penalties and other consequential results, including debarment from government contracts, reputational damage and the risk of class action or other civil litigation.

The debate on whether Canada should implement US-style non-prosecution and deferred prosecution agreements has received increased attention following the foreign corruption and fraud charges against SNC-Lavalin Group Inc., Canada’s largest engineering company, in February 2015. The charges followed a lengthy investigation of SNC-Lavalin in Canada (and several other countries) over allegations that it bribed foreign public officials to secure government contracts in a number of foreign countries, including Libya (the subject of the current charges), Bangladesh and Cambodia.

Since the charges against SNC-Lavalin were announced, the company is pressing for Canada to adopt corporate settlement agreements, including permitting deferred prosecution agreements, on the basis that any conviction or guilty plea will adversely impact the company both as a result of reputational damage and serious penalties, including debarment from bidding on government contracts and potential breach of lending or joint venture agreements.4

The lack of any real range of corporate settlements remains a critical issue for Canada’s enforcement regime. A company like SNC-Lavalin, which by all accounts has revamped its senior management and anti-corruption compliance program after allegations of wrongdoing surfaced, has simply no ability under the current regime to avoid the severe collateral damage to its current shareholders, employees and creditors which would follow a criminal conviction. Broadening the range of settlement options, creates incentives and opportunities for collaboration and efficiency to combat foreign corruption as enforcement authorities gain the benefit of the voluntarily shared results of internal investigations funded by companies and timely clarification of corporate best practices.

While it remains to be seen what steps (if any) Canada will take towards implementing a regime for corporate settlements, including non-prosecution or deferred prosecution agreements, Canadian authorities would benefit from looking closely at the experience of other jurisdictions such as the United States and the United Kingdom.

For more, download our primer on Canada's Foreign Anti-Corruption Enforcement Regime or the "Canada" chapter of The International Investigations Review.

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1 Non-prosecution and deferred prosecution agreements are sentencing agreements negotiated between government/prosecution authorities and the corporation charged with an offence. Non-prosecution agreements typically result in no charges being laid against the corporation. Deferred prosecution agreements, on the other hand, typically include an admission of wrongdoing and the underlying facts giving rise to criminal (or civil) charges, which are filed with the court and stayed or suspended until the corporation fulfills the terms of the agreement, at which time the charges are dismissed. Non-prosecution and deferred prosecution agreements typically require payment of financial penalties and costs, remediation, implementation of a  rigorous compliance regime, and monitoring. 
2 Andrew Ceresney, Director, Division of Enforcement, SEC, (Keynote Address delivered at the American Conference Institute’s 32nd Annual FCPA Conference, November 17, 2015).
3 Pursuant to the deferred prosecution agreement with the SFO, Standard Bank agreed to pay US$25.2 million in fines and disgorgement, US$7 million to the Government of Tanzania, and £330,000 towards the SFO’s costs. In addition to the financial penalties, Standard Bank agreed to continue to cooperate with the SFO, an independent review of its compliance regime and to implement the recommendations of the independent reviewer.
4 Nicolas van Praet and Jeff Gray, “SNC-Lavalin says corruption charges weighing on its competitiveness,” The Globe and Mail (November 10, 2015), online: www.theglobeandmail.com.