BUSINESS IN THE MIDDLE KINGDOM: AN EVALUATION OF CFPOA RISK.

AuthorWhite, D'Arcy P.
PositionCanada Corruption of Foreign Public Officials Act

INTRODUCTION 138 I CFPOA LIABILITY: A GENERAL OVERVIEW 141 II FACTORS CONTRIBUTING TO CORRUPTION RISK IN CHINA AND THE POTENTIAL FOR CFPOA LIABILITY 142 A. Factor 1: Pervasiveness of the State: Who is a Foreign Public Official? 142 B. Factor 2: Guanxi 149 C. Factor 3: Intermediaries and Agents 156 III THE SIGNIFICANCE OF THESE FINDINGS 158 IV CONCLUSION 159 INTRODUCTION

As recently as 1986, Canadian companies could deduct foreign bribery as a business expense. (1) Since the Parliament of Canada introduced the Corruption of Foreign Public Officials Act (CFPOA) in 1998, this lax attitude towards foreign bribery has begun to change. Today, individuals and corporations that pay bribes to public officials abroad are subject to potential criminal prosecution back home. (2)

While Canada has, for many years, been seen as a laggard in the fight against transnational bribery, there are reasons to believe that enforcement is picking up, and the risks posed by the CFPOA for Canadians conducting business abroad are real. Since 2013, Parliament has rolled out a variety of reforms to the Act, closing loopholes to territorial jurisdiction and for not-for-profits, adding a new books and records offence, and removing the facilitation payments carve-out. (3) Although there have only been seven convictions for foreign bribery since the CFPOA's adoption, three have been in the last two years. (4) Additionally, in 2018, Canada introduced a scheme for deferred prosecution agreements (DPAs), giving Canadian authorities access to the non-trial resolutions prominent in other OECD countries in the fight against transnational corruption. (5) While Canadian enforcement still lags far behind the active prosecution that occurs under the American Foreign Corrupt Practices Act (FCPA), it is noteworthy that the FCPA rested dormant for nearly two decades before picking up steam. (6) In any case, the Canadian trend is in the direction of more CFPOA prosecution, not less.

Over the same period, Canadian businesses have developed extensive economic ties with various countries that rank poorly on Transparency International's Corruption Perceptions Index. This article will focus on those ties with the 80th ranked country on that list, the People's Republic of China (PRC). (7) The reasons for this selection are twofold. Firstly, Canada has extensive economic links with China. The PRC is Canada's second largest trading partner, behind only the United States, (8) and Canadian foreign direct investment in China increased by 43% over the 2013 to 2017 period. (9) As former Canadian ambassador to China David Mulroney recognizes, Canadian companies have had notable successes taking advantage of business opportunities in China. (10) And in 2014, the Canada-China Foreign Investment Promotion and Protection Agreement entered into force, encouraging further Canadian investment in the Chinese market." With China continuing its pursuit of the United States for the world's largest economy and China's continued economic liberalization, these opportunities seem only likely to increase. (12)

Secondly, doing business in China presents distinctive anti-corruption challenges stemming from its unique history, culture, political system, and economic environment. These challenges have been the subject of continual discussion in the American legal community, often appearing in American FCPA case law and generating significant scholarly attention. (13) By contrast, although Canadian companies operating in China face this same challenging environment, scant attention has been paid to the risk of CFPOA prosecution posed by these factors. Combined with the limited body of case law interpreting the CFPOA, this lack of attention creates considerable uncertainty when determining how doing business in China may translate into CFPOA liability back home. As a result, Canadian lawyers and the companies they advise face considerable ambiguity when devising compliance programs to respond to these challenges.

This article will endeavour to fill this scholarly void and reduce such uncertainty. To do so, it will group various realities found in the Chinese environment (and re-occurring in the American literature) into three main factors that expand the general likelihood of encountering bribery in China: (1) the pervasive role of the state in the Chinese economy, (2) the Chinese custom of guanxi, and (3) the reliance of Western companies on local agents and intermediaries. The article will evaluate the degree to which each factor expands the potential for CFPOA liability from doing business in China. This will involve an attempt to draw jurisprudential lines, first isolating the issues courts are likely to face in interpreting the CFPOA, and then predicting how far the scope of CFPOA liability may extend. In doing so, the article's Chinese focus will also provide a case study, from which broader lessons about the CFPOA's scope may be derived.

Ultimately, while some of the conclusions drawn here about the CFPOA's application in China will point in different directions, it will be shown that many of the same factors that have elicited commentary in the American context have the potential to expand the scope of CFPOA liability for Canadian businesses operating in China. For instance, under the first factor, I will show that the pervasiveness of the Chinese state expands the class of people that might be considered foreign public officials (FPOs) under the CFPOA, broadening its application. Under the second factor, I will demonstrate that the Chinese custom of guanxi, a "complex cultural system of personal relationships... that most Chinese see not only as a natural way of doing business but pragmatically necessary," (14) expands the occasions on which businesses may encounter liability, though small acts may be saved under the statutory exemptions in section 3(3) of the CFPOA. (15) Under the third factor, I will show that the reliance of Western companies on local agents and intermediaries to deal with the oftentimes unfamiliar Chinese environment, examples of which are found in the first two factors, compounds the risk from those factors.

In a final section, I will draw two additional elements of significance from the analysis presented in this article. First, I suggest that in light of the overall spectre of China-related CFPOA risk, lawyers can use the provided interpretations of the Act as starting points to devise industry-specific anti-bribery programs for their clients, customizing them based on the likelihood of encountering a particular risk factor in the client's industry. Second, I suggest that the significance of these interpretations is not confined to the China-focused analysis presented in this article. Although the overall picture drawn from these interpretations is China-specific, the interpretations themselves may have broader application across national boundaries, providing a window for future commentary, debate, and application of the CFPOA.

I CFPOA LIABILITY: A GENERAL OVERVIEW

The CFPOA establishes criminal liability for: (a) a bribery offence and (b) a books and records offence. This article will address the bribery offence only, which the Canadian Department of Justice has referred to as the "centerpiece" of the CFPOA. (16) To secure a conviction, the Crown must prove beyond a reasonable doubt that the accused committed the actus reus with the requisite mens rea. Section 3(1) of the CFPOA sets out the actus reus: (11)

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. (18) Though the Act does not set out the required mens rea, courts have read in a mens rea of intention and knowledge. (19) This includes willful blindness, a doctrine that "imputes knowledge to an accused whose suspicion is aroused to the point where he or she sees the need for further inquiries, but deliberately chooses not to make those inquiries." (20)

II FACTORS CONTRIBUTING TO CORRUPTION RISK IN CHINA

AND THE POTENTIAL FOR CFPOA LIABILITY

With this statutory framework in mind, I now turn to the exercise of interpreting the bribery offence in the context of the Chinese environment. Given the paucity of Canadian case law interpreting the Act, (21) reasoning in this area will be supplemented by principles of statutory interpretation and comparative analysis with the text of the American FCPA.

  1. FACTOR 1: PERVASIVENESS OF THE STATE: WHO IS A FOREIGN PUBLIC OFFICIAL?

    Although contemporary China has, in some ways, transitioned to a market economy, shaking the legacy of China's soviet-style command economy has proven difficult. China remains a one-party state, where the government plays a pervasive role in the local economy. As recently as the mid-2000s, the Chinese government reportedly owned 70% of the country's productive wealth and was a majority shareholder in 31 % of publicly listed companies. (22) Similarly, although the role of state-owned enterprises (SOEs) has considerably diminished since China's 1978 economic reforms, SOEs continue to play vital roles in crucial sectors of the Chinese economy, such as banking, telecommunications, oil and gas, electricity and water supply, and infrastructure development. (23) For any given project, the state can perform the roles of landlord, supplier, customer, or business partner. (24)

    There are also indications that the pervasiveness of the Chinese state will...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT