Niko Resources Ltd. (Niko) pleaded guilty today to one charge of bribing a foreign official contrary to the Canadian Corruption of Foreign Public Officials Act (CFPOA). This is the second conviction under the CFPOA, and the first conviction since the Royal Canadian Mounted Police (RCMP) established a dedicated International Anti-Corruption Unit in late 2007.
Niko has admitted to bribing a Bangladeshi government Minister in relation to the negotiation of a gas purchase contract and with respect to obtaining fair treatment in requirements for compensation following an explosion. Niko provided a luxury SUV worth CDN$190,000 to the minister, and paid for non-business expenses for the minister to visit Calgary, with side trips to visit family in New York and Chicago, valued at approximately CDN$5000.
The company was sentenced by the Alberta Court of Queen's Bench to the payment of a fine in the amount of CDN$8,260,000 plus a victim surcharge of 15 percent, for a total of CDN$9,499,000. In addition, there will be a three-year period of probation during which the court will supervise Niko's compliance with the CFPOA through audits and reports conducted by an independent third party at Niko's expense.
The Niko case is notable for several reasons. First, the size of the fine and victim surcharge relative to the value of the bribes is a clear indication that Canadian law enforcement agencies are prepared to seek penalties with credible deterrent value.
Second, the investigation has been ongoing for several years and involved evidence-gathering by the RCMP in Canada and abroad, including obtaining a production order as well as cooperation with foreign law enforcement agencies. This demonstrates that Canadian enforcement efforts in anti-corruption law have been raised to a new level and that significant investigative resources can and are being devoted to investigations of international corruption.
Third, the bribes paid by Niko can be characterized as lavish gifts and entertainment. This is significant in view of the propensity in many industries to view gifts and entertainment for public officials as an essential part of doing business, particularly in emerging and developing markets. Niko's conviction underscores the need for companies to have rigorous compliance measures, including formal gifts and entertainment policies and internal approval procedures.
Fourth, the case establishes that the CFPOA can reach conduct outside of Canada. Although Niko is a Canadian company, the bribes in question were paid in Bangladesh and involved a foreign subsidiary of Niko. There was concern when the CFPOA came into force in 1999 that the jurisdictional hurdle may be an impediment to Canadian prosecutions. Specifically, Canadian courts require the prosecution to establish that the alleged criminal conduct have a "real and substantial connection" with Canada beyond the mere nationality of the accused. The government of Canada attempted to fix this potential "loophole" in the legislation by introducing Bill C-31 in 2008 to establish nationality as a sufficient basis for jurisdiction under the CFPOA. Bill C-31 died on the legislative order paper when the government prorogued Parliament in 2009.
The conviction of Niko for conduct occurring primarily in another country reinforces the need for Canadian companies to implement adequate screening and compliance measures when doing business internationally, particularly in connection with their dealings with foreign governments. Effective compliance programs are an important tool to prevent unlawful conduct by employees and third parties acting on behalf of the company. Effective compliance programs must be customized for the precise needs of each company, and will generally include the following elements:
- Senior management and board commitment to compliance;
- Clearly articulated rules and procedures based on a thorough risk assessment of the company's business;
- A dedicated compliance officer with adequate resources;
- Adequate due diligence with regard to third parties and business partners;
- Ongoing compliance training for employees and third party agents and representatives; and
- Periodic audits and monitoring.
Canadian companies carrying on business internationally have faced increased enforcement of anti-corruption laws by many of our trading partners, most notably the United States under the Foreign Corrupt Practices Act. International exposure is now coupled with increased risk of prosecution under Canadian law for conduct overseas. Although there have been only two convictions under the CFPOA to date, and one pending case, the RCMP announced in January 2011 that it had 23 active investigations under way, and it is our understanding that the number is now over 30 active investigations. Several of these investigations are at an advanced stage and it is anticipated that fresh charges will be forthcoming in the near future.