Corporate liability for foreign corrupt practices under Canadian Law.

AuthorBlyschak, Paul
PositionV. Corporate Liability for the Corrupt Practices of Third Party Agents D. Wilful Blindness and Criminal Code Section 22.2 through Conclusion, with footnotes, p. 679-705
  1. Wilful Blindness and Criminal Code Section 22.2

    What are the lessons from R. v. Briscoe and Kozeny for Canadian corporations looking to guard against liability under the CFPOA in connection with the engagement of third party agents or consultants? Several possibilities are discussed below.

    First, due diligence with respect to all third party foreign agents is of great importance. Liability under the doctrine of wilful blindness "flows directly from the deliberate refusal to actively pursue additional knowledge and information when one is troubled by or fearful of the revelations such additional knowledge or information may entail." (99) Therefore, in the context of foreign corrupt practices, liability under the doctrine of wilful blindness may be rooted in a deliberate decision not to consider the degree of corrupt practices risk associated with the engagement of a particular third party agent, not to respond to concerns regarding the potential of a third party agent to engage in corrupt practices on one's behalf, or both. Stated somewhat differently, in order to avoid criminal liability under the CFPOA for actions undertaken by a third party agent, Canadian corporations and their senior officers should arguably be careful to always conduct due diligence with respect to all third party agents being considered for a particular mandate, whether related to business development or otherwise, to ascertain the degree to which corrupt practices may present a risk; and they must take preventative measures to mitigate against the risk of corrupt practices if such risk has been identified.

    Due diligence with respect to third party engagement in corrupt practices would likely include a number of different inquiries. (100) General considerations would include the jurisdiction and industry in respect of which the agent would be engaged, as it is well understood that corrupt practices are more prevalent in certain countries and industries than in others. (101) Perhaps chief among the individualized inquiries to be conducted would be confirming that an agent has the requisite resources, qualifications, and credentials to perform the services being offered. This may include consideration of the agent's educational and professional background as well as of other clients for whom the agent had performed the same or similar work. It may also include scrutiny of the proposed fees to be charged by the agent, including comparison of the proposed fees with those being charged by agents of similar qualifications in the same industry and market. Verification of the government affiliations of the agent, as well as the agent's ownership structure, may also be essential. Should the agent be partly or wholly staffed or owned by current public officials, the very engagement of the agent could constitute a violation of the CFPOA. It may also be important to verify that the engagement of the agent does not violate any local laws, as certain jurisdictions actually prohibit certain contractual arrangements involving government relations or negotiation. (102) Lastly, if it is difficult for a Canadian corporation to conduct these inquiries itself or through its legal counsel, it may be prudent to engage the services of specialized due diligence agents in the relevant jurisdiction. (103)

    Corporations may take a variety of preventative measures in the face of third party corrupt practices risk, including various contractual obligations and rights in favour of the corporation, as may be reasonable in the circumstances. (104) Corporations should avoid success-based fees or lump sums linked with the receipt of government business, contracts, licences, or concessions, in favour of monthly fees or other reasonable payment schedules. They should require agents to make detailed representations and warranties regarding the agent's resources, credentials, and qualifications, as well as a disclaimer of any affiliations with government or public officials except those specifically disclosed to the corporation. An agent can be asked agree to fulsome covenants not to engage in corrupt practices, not to engage any sub-contractors in connection with the corporate engagement without the corporation's prior written consent, and to strictly comply with all applicable laws. Such covenants may also include the obligation to promptly inform the corporation should any of the agent's circumstances change in a manner that could affect the accuracy of any of the agent's representations and warranties, including, in particular, those pertaining to the agent's government affiliations. The corporation can also insist on termination rights should any of the agent's representations or warranties be discovered to be untrue or misleading, or should the agent breach any of its covenants. Additionally, the corporation may impose on the agent the obligation to keep detailed financial records in respect of all monies received by the corporation and the manner in which such monies have been disbursed or distributed, along with a corresponding right in favour of the corporation to audit the agent's books and records upon notice. Lastly, the corporation can reserve the right to withhold payments to the agent upon the advice of legal counsel. (105)

    That said, it should be appreciated that not all third party engagements will either afford or warrant the same anti-corruption risk mitigation opportunities. Put another way, the list of contractual risk mitigation mechanisms canvassed above represents more of an ideal than a template of mechanisms that can reasonably be expected to be imposed on third party representatives in all situations. For instance, simpler engagements may not customarily be heavily papered, relying instead on simple purchase orders, service orders, or even email correspondence (for example, in the case of low-level customs or import and export facilitation services). Other engagements may come with only relatively modest anti-corruption risk (for example, domestic transportation services faced with the risk of illegal "tolls" imposed by the police or military at road blocks). On the other hand, the more important or expensive the service being provided, as well as the greater the attendant anti-corruption risk, the better leverage a corporation will have in requiring robust written anti-corruption risk mitigation mechanisms.

    However, corporations must appreciate that the appropriate due diligence and monitoring of agents will not, in and of itself, provide immunity from liability under the CFPOA for an indirect violation of section 3(1). A corporation must also abort any engagement of a third party agent in respect of which significant corruption risk has been identified, so that it cannot be argued that the corporation or its senior officers were wilfully blind to any corrupt practices actually engaged in on their behalf by the agent. The difficulty here, however, is determining with confidence at what point this threshold is crossed. That is, at what point could it reasonably be argued that a corporation and one or more of its senior officers were complicit in corrupt practices engaged in by an agent under the doctrine of wilful blindness, either by failing to reject the prospective engagement or by failing to terminate an existing engagement?

    This determination will involve difficult questions regarding the amount, frequency, and degree of due diligence and monitoring conducted. The fact that initial due diligence with respect to an agent does not raise any concerns does not necessarily mean that further investigation will not be warranted. On the other hand, business realities limit the amount, frequency, and degree of due diligence and continued monitoring that can reasonably be expected of a corporation and its senior officers: as mentioned above, anti-corruption compliance efforts are often neither simple nor without significant costs. This determination will also likely be complicated by other, more opaque considerations, including significant cultural and linguistic barriers, which can at times make it very difficult to interpret or assess the intentions or motivations of a prospective or current third party agent. (106)

    In Kozeny, the Second Circuit highlighted a number of concerning facts relating to the corruption risk of which Bourke was aware, including the high level of corruption in Azerbaijan generally, that Bourke knew of Kozeny's reputation as the "Pirate of Prague", that Bourke had purposefully devised a corporate structure designed to help evade liability for corrupt practices, and that Bourke had decided to refrain from further investigating his suspicions regarding the possibility that his business associates would engage in corrupt practices. (107) Collectively, these facts constitute a damning portrait of Bourke's state of mind, pointing to his own clear understanding that Kozeny would likely engage in corrupt practices on Bourke's behalf. In fact, the Second Circuit essentially acknowledged that this was the case, stating that the evidence could also be used "to infer that Bourke actually knew about the crimes." (108) However, the reality is that "[n]ot all potential agent engagements will present such blatant 'deal breakers'." (109)

    Consequently, legal commentators have reached a consensus on a set of facts or circumstances that constitute "red flags" that an agent may be likely to engage in corrupt practices involving foreign public officials. (110) For example, has the agent requested large upfront payments, unusually high commissions, or success-based payments tied to securing government business, licences, concessions, or permits? Has the agent been specifically recommended to the corporation by a public official or government body related to the corporation's business in a foreign jurisdiction? Has the agent resisted providing information regarding its ownership structure, credentials, or resources, or cooperating in...

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