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Gift or graft? Laws can snag even well-meaning firms

businessman with a gift

On June 24, 2011, the Canadian oil and gas company Niko Resources Ltd. pleaded guilty to bribing a government official in Bangladesh in the hope of mitigating compensation payments for a natural gas explosion. The ensuing media firestorm, coupled with a $9.5-million fine and a three-year probation order, dealt a serious blow to the company's reputation.

The case marked the first successful conviction under Canada's 1999 Corruption of Foreign Public Officials Act (CFPOA) and was heralded as the beginning of a new era in law enforcement.

"Hopefully it will send a message to Canadian business that these laws will be enforced," Crown attorney Steven Johnston told reporters, "and the Crown will seek significant sentences if the companies are convicted of it."

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Niko's case isn't the only one on the books in Canada. According to a 2012 report by anti-corruption monitor Transparency International, 34 other investigations are under way.

"The whole issue of foreign corruption is not only getting much more enforcement activity in recent years; I think the public is also generally more wary," says Suzanne Schulz, a chartered accountant at KPMG LLP and an expert on risk consulting.

Ottawa is not alone in prosecuting companies suspected of foreign corruption. The Brititsh Bribery Act, passed in 2010, as well as the increasing number of convictions in the United States under the 1977 Foreign Corrupt Practices Act – which is notably more stringent than Canada's – are indicative of what a Grant Thornton study calls "a global imperative" to combat corruption.

Obviously, most managers would agree that they don't tolerate this type of activity at their company. Even simple allegations of bribery, true or not, can create a public relations nightmare.

"You don't want to be a public company and have an article in the paper that says that you are liable for corruption in China," says Todd Bissett, a commercial and corporate lawyer and partner at Borden Ladner Gervais LLP who lectures at Osgoode Hall Law School in Toronto. "That's a very bad soundbite."

The trouble is, foreign corruption has a way of sneaking up on organizations, particularly in developing nations where questionable practices are often the norm. The Chinese practice of gift giving to sway influence, for example, is widely regarded as a positive way to build relations, but it can often cross the line into what the Canadian government would consider bribery, according to a 2012 University of Calgary study on investment relationships with China.

In some high-pressure situations, bribery may seem like the only alternative, such as when a customs officer holds up equipment at a border crossing and demands payment. In Russia, where corruption is often accepted as a cost of doing business, such problems are not uncommon.

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Bribery can also come under the guise of a good cause. Foreign government officials, for instance, may ask for a donation to a local charity, or for financial help for a relative in school.

Because corruption is such a complex matter, senior management should put clear and vigorous anti-corruption policies in place, experts say. "That starts with senior management really setting an appropriate tone at the top," Ms. Schulz says. Above all, employees need to know that bribery will not be tolerated under any circumstances.

Ms. Schulz also insists that organizations conduct formal risk assessments. A company needs to know, for example, whether local business practices in a foreign country could put them at risk of violating Canadian law, and if so, how employees should deal with them.

This is especially important when dealing with third-party agents, particularly foreign lobbyists, who may follow local conventions and exploit the system as a matter of course.

Canada's law explicitly states that companies can be held accountable for the actions of their agents and partners. "Understand who you're doing business with," Ms. Schulz says. "Do they have any past allegations of bribery or corruption?"

Ms. Schulz suggests that organizations doing international business designate a person to monitor and report on potential violations. "They have to be given the resources and the authority to be able to carry out that responsibility," she says. "What gets measured is generally what gets done."

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Documentation of both procedures and actions is especially critical. If a situation does arise, a company's only line of defence may be evidence that it acted in good faith by having preventive measures in place and that its procedures were followed.

"They can't be seen to be something that's just a piece of paper, but 'we do things differently – wink wink,'" she says.

Keeping tabs

Those responsible for a company's compliance with anti-corruption policies should have these duties:

Investigate practices of business partners – This is particularly important in developing nations, where questionable practices are often considered acceptable.

Monitor international conferences and legislation – As global anti-corruption efforts ramp up, companies need to keep pace with changing rules and regulations.

Monitor prosecutions under the Canadian Act – Anti-corruption legislation is relatively new in Canada, and chances are it will continue to evolve and intensify.

Be a go-to person for whistle blowers – Employees who become aware of potential compliance risks need somebody they can turn to.

Educate employees – Staff should be trained on common bribery scenarios, their legal implications and how to respond to them.

Jon Stoller

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