By Julia Webster
Throughout January and February 2023, Baker McKenzie’s Canadian international trade team is publishing a series of articles focusing on developing Canadian trade compliance issues.
This article focuses on Canada’s measures used to combat corruption.
As the Government of Canada prepares for its June 2023 Phase 4 Review by the Organization for Economic Cooperation and Development (“OECD“) under the Convention on Anti-Bribery (“Convention“), it appears to be bolstering its anti-corruption enforcement tools and taking steps to use existing enforcement mechanisms.
In addition to the OECD’s Phase 4 Review process, the following announcements by the Government on anti-corruption measures are reviewed below:
- The creation of a public federal public beneficial ownership registry.
- The creation of a national financial crime agency.
- The use of a remediation agreement to settle charges under the Corruption of Foreign Public Officials Act (“CFPOA”).
Canadian companies should continue to follow these developments as they may have wide-ranging compliance consequences.
In particular:
- A national beneficial ownership registry may create increased compliance costs for federally incorporated companies, but may assist Canadian financial institutions with their compliance obligations.
- The creation of a national financial crime agency may alter the efficacy of anti-corruption enforcement in Canada.
- The first remediation agreement negotiated under the CFPOA will help companies contemplating voluntary disclosure to gauge expectations on potential financial penalties and required compliance mechanisms.
Notably absent from the Government’s anti-corruption measures announced in 2022, remain the 2018 proposed amendments to the Public Services and Procurement Canada’s Ineligibility and Suspension Policy. The implementation of these amendments could drastically change the outcome for companies convicted of prescribed offences. Currently, companies are subject to a mandatory 10 years of ineligibility. The draft amendments provide for a flexible and discretionary method to establish a period of ineligibility. It remains to be seen whether the amendments will be tabled for consideration again in 2023.
Federal Public Beneficial Ownership Registry Accessible in 2023
In April 2022, the federal Budget announced the creation of a publicly accessible beneficial ownership registry in 2023, which will initially only include those businesses incorporated under the Canada Business Corporation Act. The registry fast-tracks the government’s previous commitment, promising that the online searchable registry will be ready before the end of 2023.[1] Provinces and territories may choose to opt into the national registry to include beneficial ownership information for provincially incorporated businesses. The Government plans to include measures to validate and verify the information included in the registry, the details of which have yet to be announced.
The Government began to introduce the federal legislative underpinnings of a national registry in 2018. Amendments to the Canada Business Corporations Act in 2018, 2019 and 2022, require corporations to maintain a securities registry of individuals with “significant control” over a corporation (i.e. 25% or more of the voting rights, 25% of more of a corporation’s outstanding shares by FMV) or of individuals who have “control in fact”. Businesses must report this information to Corporations Canada, which has the authority to share this information with FINTRAC.[2] Innovation, Science and Economic Development Canada (“ISEDC”) maintains guidance as to how businesses should be complying with the CBCA amendments. Several provinces have also amended their corporate statutes to require the reporting of beneficial ownership information.
The Government’s announcement follows the Financial Action Task Force’s (“FATF”) March 2022 amendment to Recommendation 24, which requires member countries to “ensure beneficial ownership information is held by a public authority or body functioning as a beneficial ownership registry” and ensure that “competent authorities can rapidly and efficiently access beneficial ownership information”. Although the FATF does not specify that a registry should be publicly accessible, the work of investigative journalists and watch-dog organizations to expose secrecy jurisdictions used to shelter assets (i.e Panama Papers (2016), FinCEN Files (2020), Pandora Papers (2021)) has popularized the creation of public registries with the notion that “more eyes” assists in rooting out corruption. Additionally, Transparency International Canada’s landmark paper focused on how Canada is marketed as a secrecy jurisdiction also advocates for the creation of a public registry.
Although the CBCA amendments create further compliance for CBCA incorporated companies, the registry may also assist Canadian financial services providers in verification of their internal compliance policies. All Canadian businesses should continue to follow the development of the registry throughout 2023 to determine any future reporting requirements.
Proposed Canadian National Financial Crime Agency
In Budget 2022, the Government of Canada announced $2 million in funding to Public Safety Canada over the course of 2022 and 2023 to study the creation of a national financial crime agency in Canada.
To date, the Government has not provided any further information on the proposed jurisdictional scope of the agency (i.e. what constitutes “financial crime”) and whether it will supersede existing agencies, like the RCMP, FINTRAC, and the CRA or work in conjunction with existing agencies to undertake a national coordinating mechanism. It also remains unclear whether the proposed agency will supplement or supersede the Financial Crime Coordination Centre (“FC3“) established in 2019, with a focus on combatting money-laundering.
The creation of a national agency will likely alter the course of Canadian anti-corruption enforcement. For example, it is possible that a new national agency may provide assistance to the RCMP in investigating allegations of CFPOA offences, or create a coordination mechanism, requiring provincial agencies, like securities regulators, to report investigations into bribery allegations. Canadian businesses operating in industries where there is a high risk for financial crime should continue to follow the development of the proposed agency and its future regulatory regime.
First Remediation Agreement Negotiated Pursuant to CFPOA Charges
In September 2022, the RCMP charged Ultra Electronics Forensic Technology Inc. (“UEFTI”) and four former directors under subsection 3(1)(a) and 3(1)(b) of the CFPOA. The charges relate to allegations that UEFTI directed agents in the Philippines to bribe foreign public officials to influence a contract. The UEFTI charges is a reminder that there is no limitations period under the CFPOA. The charges were announced in 2022, over five years since the alleged activities occurred.
In November, the accused appeared in Quebec Superior Court, where Crown counsel announced that a remediation agreement (an “RA”) was negotiated and the parties would put the agreement before the court for a hearing on its approval. This is the first RA negotiated under the CFPOA, on the heels of the first ever RA negotiated to resolve fraud charges under section 380 of the Criminal Code announced in May 2022.
Counsel has requested a hearing in camera for the approval of the RA. It is unclear whether the court would be willing to grant the request, which raises questions on the ad hoc procedure being developed within the negotiations themselves, and the court’s approval process. The Public Prosecution Service of Canada (the “PPSC”) guidelines within the PPSC Deskbook are silent on the subsequent court approval process, including the use of hearings in camera. The court will have to rely on provisions under the Canada Evidence Act and the common law to determine whether to grant an in camera hearing. The next court date is set for January 17, 2023, where we expect the court to opine on whether the approval of the RA will be heard in camera.
Companies considering voluntary disclosure under the CFPOA should take note of the procedural precedents being developed in the UEFTI case, including whether a public version of a negotiated RA will be made available before court approval. Should the court approve the RA, it will provide precedential insight into the PPSC’s negotiating tactics, including financial penalties and other continuing compliance costs, such as use of monitorships, which may assist companies in weighing the uncertainty of trial against the costs of making voluntary disclosure and the likelihood of being invited to negotiate an RA by the PPSC.
June 2023 OECD Phase 4 Review
In June 2023, Canada will begin its Phase 4 Review under the Convention lead by examiners from Austria and New Zealand (“Review”). The Review includes the completion of an evaluation questionnaire, an on-site visit by examiners, a preliminary report, an evaluation in the Working Group, and publication of the final evaluation report.
The Review will assess Canada’s progress on addressing the recommendations made twelve years ago in Canada’s Phase 3 Report (October 2010), such as suggestions to dedicate PPSC resources to CFPOA prosecutions and to train provincial securities regulators on the CFPOA to prosecute bribery related accounting offences. The Review will also evaluate Canada’s enforcement efforts and enforcement results and any issues raised by amendments to domestic legislation.
With respect to Canada’s enforcement results, Canada had 20 active CFPOA investigations and one ongoing CFPOA prosecution during the 2010 OECD Phase 3 Review. In thirteen years, Canada has successfully prosecuted two cases (one of which remains under appeal) and obtained two guilty pleas with respect to charges under the CFPOA:
- Niko Resources Ltd. – Guilty Plea (June 2011)
- Griffiths Energy International Inc. – Guilty Plea (January 2013)
- Nazi Karigar – Convicted (August 2013) and Appeals Dismissed
- Sami Bebawi and Stéphane Roy – Charged (January 2014), Roy Charges Stayed (February 2019), Bebawai Convicted (December 2019) and Ongoing Appeal
- SNC Lavalin Construction Inc. – Charged (February 2015), Guilty Plea (non-CFPOA charge in December 2019)
- Robert Barra and Shailesh Govindia – Convicted (January 2019), Appeal Allowed (August 2021)
- Damodar Arapakota – Charged (November 2020) and Trial Scheduled (October 2022)
- Ultra Electronics Forensic Technology Inc. and Former Executives – Charged and Remediation Agreement Announced (September 2022)
The OECD has published a monitoring guideline, which sets out the mechanics of the Review. There is a strong likelihood that this public scrutiny by Canada’s peers will continue to drive domestic legislative changes to combat corruption and may also enhance the efforts behind enforcing existing legislation.
[1] In the 2021 federal Budget, the Government previously committed to establishing a registry by 2025.
[2] The reporting requirement is not yet in force.