Canada’s Anti-Bribery Cops Reel One In

July 22, 2011

By John Mackie

TORONTO, July 22 (Business Law Currents) – Though Canada has had foreign bribery legislation in effect for over a decade, prosecutions have proven very few and very far between. So it remains to be seen whether the recent guilty plea by Calgary’s Niko Resources under Canada’s Corruption of Foreign Public Officials Act marks a scaling-up of Canadian efforts on this front, or just another blip on the radar screen.

Canada’s Corruption of Foreign Public Officials Act (CFPOA) entered into force on February 14, 1999. The Act contemplates prosecutions in respect of three offences: bribing a foreign public official, laundering property and proceeds, and possession of property and proceeds. In addition, the CFPOA enables prosecutions for conspiracy, aiding and abetting, counselling, and the like.

One aspect of the CFPOA that has attracted criticism from the Organisation for Economic Cooperation and Development and Transparency International is that there must be a “real and substantial link” between the offence and Canada. While a bill has been introduced to eliminate this requirement, it has not passed into law, and arguably remains a significant barrier to investigations.

According to the last report of the Minister of Foreign Affairs to Parliament on the enforcement of the CFPOA, prior to this year there had only been one conviction under the act. In 2005, Red Deer-based Hydro-Kleen Group Inc. pleaded guilty to two counts of bribing a U.S. immigration officer at the Calgary International Airport.

In addition, in 2010, charges under the CFPOA were laid by the RCMP against an employee of Cryptometrics, a facial and fingerprint recognition software company based in Ottawa. The allegations were that payments had been made to an Indian government official to facilitate the execution of a multi-million dollar supply contract. That matter apparently remains before the Canadian courts.

The Niko Resources case is without a doubt the highest profile prosecution under the CFPOA. Niko is involved in natural gas and oil exploration and development in a number of regions, including India, Bangladesh, the Kurdistan Region of Iraq and Pakistan. In January 2009, the company was notified by Canadian authorities that they were the subject of a formal investigation into allegations of improper payments in Bangladesh.

As it turns out, the allegations concerned the provision of a vehicle for the personal use of the then-Bangladeshi Energy Minister, valued at nearly two hundred thousand dollars; and payments covering travel costs of the same minister to attend an Energy Expo in Calgary and a subsequent personal trip to New York, valued at $5,000.

Niko cooperated in the investigation, which was concluded on June 24, 2011, and the company ended up pleading guilty to one count of bribery under the CFPOA. The sentence included a fine of $9.5 million and a probation order, which put the company under court supervision for the next three years to ensure compliance audits are completed. While the fine may not prove debilitating to Niko (the company had revenues of $56.7 million from its operations in Bangladesh in 2010, approximately 12.5 percent of the company’s $454 million in overall revenues), it sends a clear message as to the serious intentions of Canadian prosecutors.

For other issuers, the Niko case should serve as both a general caution regarding foreign bribery issues, but also a reminder of the risks associated with particular countries. Transparency International’s 2010 Corruption Perceptions Index rates Bangladesh in the lowest quartile of nations, along with other nations such as Pakistan, Afghanistan and Iraq. For companies operating in such countries, employee education on the issues, anti-bribery policies and compliance audits are critical.

Issuers and their counsel should also keep in mind that anti-bribery concerns extend beyond the regulatory realm. Contracts regularly contain representations relating to a company’s practices in this area. For an example, consider junior oil and gas company Cinch Energy, which was recently acquired by Calgary-based Tourmaline Oil, in a $205 million deal.

In the Arrangement Agreement between Cinch and Tourmaline, Cinch provides a representation and warranty regarding “Proceeds of Crime”, in which it states it has not:

…directly or indirectly, (a) made or authorized any contribution, payment or gift of funds or property to any official, employee or agent of any governmental agency, authority or instrumentality of any jurisdiction or (b) made any contribution to any candidate for public office… prohibited under the Canada Corruption of Foreign Public Officials Act (Canada) or the Proceeds of Crime (Money Laundering) and Terrorist Financing Act…

The representation goes on to state that Cinch has “instituted and maintained policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with such legislation.”

Another instance in which issuers may find themselves being asked to warrant as to compliance with anti-bribery legislation is when they look to access the capital markets. As a case in point, consider Gibson Energy, which completed a $500 million initial public offering in June.

Gibson is a “midstream” company, linking upstream oil and gas producers with downstream refiners through terminals, pipelines, tank storage and a fleet of trucks. In the underwriting agreement entered into Gibson in connection with its IPO, the company provides a representation regarding “Compliance with Certain Laws”. Though the phrasing is quite different from that contained in the Cinch agreement, it too addresses such issues as unlawful payments to foreign or domestic governmental officials.

While the Hydro-Kleen, Cryptometrics and Niko cases are the only ones to have proceeded to prosecutions, the March 2011 Phase 3 Report on Canada by the OECD Working Group on Bribery reports that there are a further 20 active investigations underway. Combined with the growing attention to corporate governance issues and the lurid attraction foreign bribery cases have for the media, it’s a timely reminder for companies to review their internal policies and procedures on this front.

(This article was first published by ThomsonReuters’ Business Law Currents, a leading provider of legal analysis and news on governance, transactions and legal risk. Visit Business Law Currents online at


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