Since the Corruption of Foreign Public Officials Act (the “CFPOA”) entered into force on February 14, 1999, it has not been an important concern for most companies.   This is largely due to the fact that only one Canadian company has been prosecuted under the CFPOA to this point.   However, with the increased focus internationally on combating corruption, and the aggressive approach now being taken in the U.S., this is likely to change.

Many companies are violated the provisions of the CFPOA without realizing it, and exposing themselves to large financial penalties and the possibility of prison time for individuals.

So what does the CFPOA say?

Subsection 3(1) states:

Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official

(a) as consideration for an act or omission by the official in connection with the performance of the official's duties or functions; or

(b) to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

This offence applies to both individuals and corporations, and due to the broad definition of “business” in the Act it could cover activities for profit anywhere in the world.

A ‘reward, advantage or benefit’ covers not only the obvious bribes, such as cash payments, but also other benefits that are often regarded as common business practice in a foreign country.   The less obvious bribes include gifts, vacations, charitable and political contributions, and the retention of agents and contractors.   The payment also does not have to be made directly to the foreign public official.   For example, it was quite common in years past for Canadian companies to pay for the Canadian education of the children of senior foreign officials.   This is a ‘reward, advantage or benefit’ under the CFPOA.

Obtaining or retaining an advantage includes any payments that have the effect of assisting the business.   This includes payments to a public official to obtain favourable tax treatment, to influence legislation, to reduce the frequency of government inspections and audits, and to obtain or renew a contract.

Any person performing a function on behalf of a foreign state, regardless of the status of the position, is potentially a ‘foreign public official’ for the purposes of the CFPOA.   In countries where business enterprises are owned or operated, even in part, by the government, this could include a significant number of people.

The CFPOA does permit facilitating payments to be made.   These are payment made, not to obtain a business or other improper advantage, but to expedite or secure the performance of routine, non-discriminatory government action.   Examples are payments to obtain permits, licences, work orders, police protections, and payments made to ensure the protection of goods during transit.   These must be accurately recorded as facilitating payment in company books and records.   While these payments are permitted under the CFPOA a company must be cautious as they may not be legal under the domestic laws of the foreign country.

The financial penalties under the CFPOA are unlimited.   The amount of a fine is determined by the court according to the particular situation.   For individuals, there is a possibility of serving up to five years in prison if found guilty.

Instructing a third party to make a corrupt payment for you does not get around the requirements of the CFPOA.   It is insufficient to be wilfully blind, or ‘ask no questions, about the activities of an agent.   Under the American Foreign Corrupt Practices Act two companies have been fined for authorizing distributors and sales agents to make improper payments, or turning a blind eye in situations where there was a high probability that improper payments were being made.

So why does this matter?

All Canadians doing business abroad must fully understand the CFPOA and take steps to ensure that their agents, subcontractors, employees, or foreign subsidiaries do not violate the Act.   Individuals and companies must ensure that they avoid creating ambiguous situations by, for example, instructing agents to ‘do whatever it takes’ to obtain business in a foreign country.

Although there is no explicit due diligence defence built into the CFPOA, Canadian corporations operating internationally may be able to reduce their risk of liability by developing a compliance program.   This can assist the corporation in demonstrating that any employee or agent found making illegal payments was acting without the authorization of the company.

If you have any questions about the CFPOA or setting up a compliance program for your business visit our International Business Ethics and Anti-Corruption website here , or contact the writer at pam.vermeersch@gowlings.com .