CGEF anti-corruption presentation by: Anthony Cole

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  • 1. Anti-Corruption Why it matters and how it can affect your business Presented by: Anthony Cole 16 October 2014 Dentons Canada LLP

2. What is Corruption? 16 October 2014 Dentons Canada LLP 2 Behaviour on the part of public officials, whether politicians or civil servants, by which they enrich themselves, or others close to them, by the misuse of the public power entrusted to them. Canadian companies and their employees commit a serious criminal offence under Canadian law if they become involved in corruption It has also become a major enforcement priority Unfortunately for businesses, the supply side is generally the target 3. Canadas Corruption of Foreign Public Officials Act 16 October 2014 3 Prohibits bribing a foreign public official in order to obtain or retain an advantage in the course of business Offers, rewards or agreements Direct and indirect bribes are prohibited (i.e. through a local agent or consultant) Foreign Public Official is broad not just legislative, administrative or judicial but also members of boards, commissions, corporations, etc. that perform a duty or function on behalf of the foreign state. Section 4: offence to manipulate, falsify or destroy books and records to conceal or facilitate bribery books and records that they are required to keep in accordance with applicable accounting and auditing standards Dentons Canada LLP 4. CFPOA - Long Reach 16 October 2014 Dentons Canada LLP 4 Applies to activities conducted outside of Canada by Canadian citizens, permanent residents of Canada, or entities incorporated under the laws of Canada or a province Also applies if the offence has a real and substantial link to Canada 5. CFPOA - Defences 16 October 2014 Dentons Canada LLP 5 Lawful under local law Highly unlikely to be made out EXCEPTIONS: Reasonable promotional expenses payment for reasonable expenses of the official directly related to (1) promotion, demonstration or explanation of products or services, or (2) execution or performance of a contract Facilitation payments - eliminated by 2013 legislation, but the change is not yet in force Payments made to expedite or secure an act of a routine nature; part of the officials duties/functions Does NOT include decision to award new business or continue business 6. CFPOA - Liability of the Company 16 October 2014 Dentons Canada LLP 6 Senior officer, with intent to benefit the organization, is party to the offence or directs others to commit the offence, or knows that the offence is about to be committed but fails to take all reasonable measures to stop it Knows includes willful blindness knowing that there is a risk, but deliberately choosing not to make enquiries to avoid having fears confirmed Senior officer defined in the Code person who establishes policies, or manages important aspects of the business 7. CFPOA - Penalties 16 October 2014 Dentons Canada LLP 7 Bribing an official is an indictable offence and may result in up to 14 years imprisonment Serious crime - same max. sentence as e.g. torture, sexual assault with a weapon, and human trafficking Fines are unlimited R v Watts (2005, Alberta QB) guilty plea, $25,000 fine R v Niko Resources (2011, Alberta QB) guilty plea, $9,499,000 fine, probation order monitoring for 3 years R v Griffiths Energy (2013, Alberta QB) guilty plea, $10,350,000 fine R v Karigar (2013, Ontario SCJ) convicted at trial, 3 years in prison Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary. 8. CFPOA - Other Consequences 16 October 2014 Dentons Canada LLP 8 Reputational damage Costs of the investigation: Avon Products - $247 million between 2009 and 2011 Wal-Mart - $157 million in Fiscal 2013; $73 million in Q1 for Fiscal 2014 Siemens over $1 billion Skeptical business partners Stock devaluation Ineligibility to participate in World Bank projects and debarment from public tenders in numerous jurisdictions (including Canada) Shareholder actions o Often pursued against Directors 9. USA - Foreign Corrupt Practices Act Governs: Any Publicly Traded Company Registered in the United States or its agents Any US Person, including citizens, residents, or domestic concerns Any foreign national or business acting or causing actions within the United States Bribery of Foreign Officials: Payment of anything of value (directly or through a third party) Liability for agents To a foreign official, foreign political party, or candidate for office, including officials of state-owned businesses With a corrupt intent to influence a government decision, obtain business, or obtain an improper advantage Books and Records: Publicly Traded Companies must maintain accurate books that reflect all transactions Publicly Traded Companies must have internal accounting controls to ensure all transactions and dispositions are recorded The SEC investigates compliance with the FCPA; provides civil enforcement The Department of Justice prosecutes criminal violations of the FCPA 16 October 2014 Dentons Canada LLP 9 10. 10 FCPA Penalties: For the Company 16 October 2014 Dentons Canada LLP 11. 11 FCPA Penalties: For the Individual Anti-Bribery: Criminal: Up to 5 years in prison and up to a $250,000 fine (per violation) plus restitution Accounting Provisions: Criminal: 20 years in prison, up to $5 million fine (per violation), and restitution Important additional considerations: Issuers are prohibited from paying criminal and civil fines that may be imposed on an officer, director, employee, agent, or stockholder Foreign nationals may face extradition to the U.S. and/or seizure of personal assets Dentons Canada LLP16 October 2014 12. UK - BRIBERY ACT 2010 16 October 2014 12 BRIBING ANOTHER PERSON OR BEING BRIBED BRIBING A FOREIGN OFFICIAL Lower threshold no intent to induce improper performance need be proven Global Reach : Any person or company that has a close connection with the U.K. - corporation, citizen, resident; or An act or omission forming part of the offence occurs in the U.K. Dentons Canada LLP 13. UKBA - Liability for Agents 16 October 2014 13 S.7 - FAILURE TO PREVENT BRIBERY Strict Liability Compliance/due diligence defence - have to show reasonable systems and procedures to prevent bribery were already in place Committed by a relevant commercial organization Entity, wherever incorporated, that carries on business or part of a business in the U.K. Triggered by bribery by an associated person- broad scope to this concept Agents or consultants acting for company Dentons Canada LLP 14. UKBA - Penalties 16 October 2014 14Dentons Canada LLP Unlimited Fine Up to 10 years imprisonment Debarment under EU Procurement Directive 15. MONEY LAUNDERING 16 October 2014 Dentons Canada LLP 15 Dealing with assets tainted by bribery/corruption Could be the entire profit from license, concession, contract procured by the illicit act Applies even if corruption/bribery is wholly the act of another e.g. rogue employee, agent, contractor Can give rise to a disclosure problem I could give you a number of reasons why I think [keeping quiet] would be wrong. Let me though just give you one. Which of you would like to go and visit your CEO and CFO in a police station where they are being held following arrest on money laundering charges. Those charges will be based upon decisions by the CEO and CFO on your advice that disclosure will not be made to the SFO and that the benefit of the corruption will therefore be retained within the corporate. I can imagine some difficult discussions. Richard Alderman (former Director, Serious Fraud Office) to an audience of lawyers 16. TERRORIST FINANCING 16 October 2014 Dentons Canada LLP 16 You dont have to be a terrorist or a terrorist supporter to commit a terrorist financing offence know who you are dealing with and find out where your money is actually going Section 83.03 Providing, making available, etc. property or services for terrorist purposes (can be directly or indirectly), intending or knowing that they will be used .to benefit any person who is facilitating or carrying out terrorist activity. Punishable by up to 10 years in prison Local laws also likely to be relevant 17. ECONOMIC SANCTIONS- Special Economic Measures Act 16 October 2014 Dentons Canada LLP 17 Trade controls targeting destinations, organizations, individuals, and particular types of strategic goods (military, nuclear, oil, etc.) May include: asset freezes (special rules for Canadian financial institutions) Embargoes and restrictions of certain investments/transactions prohibition against any dealing with listed individuals or organizations restrictions on using target countrys shipping, airlines Rapid implementation and frequent amendment 18. SEMA - Case Study: Iran Thou shalt not: Deal directly or indirectly with designated persons or state-connected entities Export to Iran arms and related material; all goods used in the oil industry in Iran; and items that could contribute to nuclear proliferation; and any goods listed on the ECL to Iran without a permit Bank/Invest make any new investment in the Iranian oil and gas sector; provide or acquire financial services to allow an Iranian financial institution (or a branch, subsidiary or office) to be established in Canada, or vice versa; conduct a financial transaction with Iran, subject to certain exceptions; and establish correspondent banking relationships with Iranian financial institutions, or purchase any debt from the government of Iran Transport contract with or provide services to Iranian ships 1816 October 2014 Dentons Canada LLP 19. Which Countries are Affected 19 Under Canadian Regulations Burma/Myanmar, Belarus, Central African Republic, Cte d'Ivoire, Democratic Republic of the Congo, Eritrea, Guinea-Bissau, Iran, Iraq, Lebanon, Libya, Liberia, North Korea, Russia, Sierra Leone, Somalia, Sudan, Syria, Tunisia and Egypt, Ukraine, Yemen, Zimbabwe Other Countries (E.U. and U.S.) also have similar measures in place Dentons Canada LLP16 October 2014 20. REVENUE TRANSPARENCY 16 October 2014 Dentons Canada LLP 20 Government of Canada intends to impose mandatory reporting standards for payments made by extractive industry companies to governments (domestic and foreign) Proposed standards will apply to companies involved in the commercial development of oil, natural gas, and minerals Applies to publicly listed companies as well as medium and large private companies Stated intention to implement legislation by April 2015 Similar initiatives in E.U. (including U.K.), and expected in the U.S. 21. Revenue Transparency What is expected? 16 October 2014 Dentons Canada LLP 21 Proposed standards will require companies to publish annual reports detailing payments over $100,000 either cumulatively over one year or on a one-time basis The payments that must be reported include: Taxes levied on income, production or profits; Royalties; Fees, including license fees, rental fees, entry fees; Production entitlements, including payments made in-kind; Bonuses, such as signature, discovery and production bonuses; Dividends paid in lieu of production entitlements or royalties; and Infrastructure improvements, such as roads and electricity To be made available to public 22. WHAT TO DO? 00 Month 2013 Dentons Canada LLP Document reference # 22 Compliance Program Prevention is better and certainly less costly than cure Increasingly expected by Business Partners Avoid major problems in M&A transactions U.S. exchange-listed companies in particular, but a growing issue globally Damage Limitation Need to understand your risks and exposure, before you can mitigate it Ignoring a corruption issue will almost certainly enhance the threat to the company and individuals