International companies looking to buy Canadian resource firms are walking away from potential deals, fearing targets or their agents might have paid bribes in developing countries that would expose them to prosecution as authorities in Canada and elsewhere intensify a crackdown on foreign corruption.
Bay Street lawyers who work on these deals, but cannot reveal the names of any companies involved as such talks are confidential, say mergers involving small Canadian companies with assets overseas are increasingly being stalled or called off by buyers concerned about possible bribery.
Potential acquirers fear that buying a small Canadian company with mines or other assets in countries with a reputation for corruption could see them inherit the potential for multimillion-dollar fines if the company or its agents paid foreign officials for favours.
Would-be buyers are also demanding much deeper due diligence on companies where bribery may be a concern, including bringing in forensic accountants to audit samples of a company’s payments. And they are requiring even small companies with operations in countries where corruption is rampant to show they have strict policies and procedures to ensure rogue employees are not paying bribes.
“I am seeing deals get delayed, for sure, and in some cases, acquirers walking away or potentially re-pricing,” said John Boscariol, a lawyer with McCarthy Tétrault LLP who advises U.S. and other foreign firms looking to buy Canadian resource companies.
Mining deals are in a slump as anxiety over low and falling commodity prices continues. But concerns about bribery in proposed deals involving Canadian resource companies with assets in high-risk countries are clearly an increasingly important factor.
The concerns are being driven by beefed-up anti-bribery enforcement in Canada and Britain, and continued attention from the United States, which has a longer track record busting foreign bribery. Large U.S. multinationals have made the issue a priority in recent years, but new enforcement efforts and tightened rules in Canada and Britain have now made it harder for companies to gauge the potential for risks.
In Canada, the RCMP has launched more than 30 investigations and the federal government has passed tough amendments to anti-bribery legislation. The changes, given Royal assent last week, widen the law’s scope and threaten longer prison sentences.
The unfolding probe of SNC-Lavalin has dramatically illustrated the risks, as have recent multimillion-dollar fines paid by Calgary-based Griffiths International Energy Inc. and Niko Resources, both of which pleaded guilty to paying bribes overseas.
Mark Bennett, a lawyer at Cassels Brock & Blackwell LLP in Toronto who works on mining mergers, said the issue now comes up in almost every deal: “Whatever size company you are, you are taking this stuff seriously.”
He said Britain’s strict new anti-bribery law, passed in 2010, raised eyebrows. The British law goes farther than the U.S. as it bans “facilitation payments,” or small cash transactions with low-level officials to obtain routine permits or services.
Canada’s new rules also include a ban on such payments, but Ottawa has decided to phase the ban in over time. Critics say the ban will pose a challenge for Canadian companies operating in parts of Africa, where such payments are seen as a cost of doing business.
Milos Barutciski, a lawyer with Bennett Jones who advises companies on anti-corruption, said another of the key recent changes to Canada’s legislation is the introduction of a “books and records” provision that makes it an offence to record a transaction as a “consultancy fee,” for example, when it turns out to have been a bribe.
Failing to look into a suspicious transaction recorded that way could expose a chief financial officer or other corporate officers to personal liability, Mr. Barutciski said, even if they had nothing to do with the actual bribe: “This is where things get a little uncomfortable for CFOs and CEOs.”
Despite all the warning signs, some Canadian companies still do not appear take the need to set up strict internal anti-corruption controls seriously, Mr. Boscariol said: “We’re seeing … Canadian companies, sometimes juniors, smaller-size companies, looking back with these blank stares saying, ‘Why is that a big deal? Why is this a problem?’”