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Development and Society

Corporate Social Responsibility - Bribery and Corruption

Seventh Report to Parliament (October 2, 2006)

Implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Enforcement of the Corruption of Foreign Public Officials Act

Table of Contents

• Background
• Enforcement of the Corruption of Foreign Public Officials Act (the "CFPOA")
• Monitoring Implementation of the OECD Convention
• Canada's Activities as Lead Examiner
• Annex A: OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions - RATIFICATION STATUS

Background

Canada signed the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the "OECD Convention") on December 17, 1997 and deposited the instrument of ratification with the OECD on December 17, 1998. On December 7, 1998, it adopted implementing legislation in the form of the Corruption of Foreign Public Officials Act (CFPOA), which received Royal Assent on December 10, 1998. The law came into force on February 14, 1999. The CFPOA is the main vehicle for implementation of the OECD Convention and is intended to give tangible expression to commitments made in the OECD and to represent Canada's legislative contribution to the international effort to fight corruption of foreign public officials. Section 12 of the CFPOA states that the Minister of Foreign Affairs shall cause an annual report on the implementation of the OECD Convention and the enforcement of the CFPOA to be laid before each House of Parliament. This is the Seventh Report to Parliament under the CFPOA.

• For previous reports, please see the Foreign Affairs and International Trade Canada web site.
• The Corruption of Foreign Public Officials Act.

To date, 36 states have ratified the OECD Convention, including all original members of the OECD Working Group on Bribery in International Business Transactions ("the Working Group"). The Working Group comprises the 30 member states of the OECD and six non-members of the OECD: Argentina, Brazil, Bulgaria, Chile, Slovenia and Estonia.

Annex A to this report contains information on the ratification status of the OECD Convention. All current members of the Working Group (including Canada) have had their implementing legislation evaluated as part of the peer review process. Twenty six members have also had their enforcement mechanisms evaluated as part of the Phase 2 review. The following is a summary document based on Member submissions to the OECD, of steps taken and planned future actions by other participating countries to ratify and implement the OECD Convention, current as of July, 2006:

All Phase I and Phase II country reports can be found here.

Enforcement of the Corruption of Foreign Public Officials Act (the "CFPOA")

Enforcement

In February 2005, the Royal Canadian Mounted Police (RCMP) appointed a commissioned officer to provide functional oversight of its anti-corruption programs. The corruption of foreign public officials is now specifically referenced in the RCMP Commercial Crime Program’s mandate. The RCMP has the capability to track CFPOA cases being handled by the Force and is confident that credible allegations reported to other law enforcement agencies or Canadian foreign missions will be reported through to the RCMP.

The Trade Commissioner Service of Foreign Affairs and International Trade Canada (DFAIT) has developed specific instructions to Canadian missions abroad, including embassy personnel, concerning the steps that should be taken where credible allegations arise that a Canadian company or individual has bribed or attempted to bribe a foreign public official. In April 2004, an internal committee was established, chaired by the Chief Trade Commissioner, to consider and review cases where Canadian individuals or companies have been found guilty of bribery or corruption overseas and this committee would advise the Minister responsible. To date no cases have been referred to the Committee.

The Canadian International Development Agency (CIDA) has a Protocol for Dealing with Allegations of Corruption which clearly states that: "situations involving allegations of criminal activity may require referral to police authorities or other actions which are different from the procedures outlined in this Protocol", and includes specific internal procedures for reporting allegations of corruption to the relevant Director and of the Director of the Internal Audit Division for appropriate action. The Protocol ensures a thorough assessment of the allegations regarding CIDA financing so that senior management can ascertain whether “credible evidence” of a violation of the CFPOA has occurred. If the allegations are substantiated, then informing law enforcement authorities falls within the ambit of the Protocol. CIDA has in place a policy that requires entities wishing to take part in CIDA development projects to declare previous corruption-related offences (see Contracting).

In order to clarify its policy on bribery, in 2004 Export Development Canada (EDC) introduced its Anti-Corruption Policy Guidelines (a public document) which outlines the measures EDC will apply to combat corruption, including a section on debarring companies convicted of bribery as well as a section on disclosure to law enforcement authorities. Furthermore, EDC developed a detailed internal procedural document which outlines the process for disclosure to law enforcement where there is credible evidence of bribery. EDC also developed a detailed internal procedural document relating to the debarment of convicted companies, and such process essentially provides that any party who has been convicted of bribery will be debarred from support until EDC is satisfied that they have taken appropriate measures to deter further bribery. Such measures include replacing individuals who have been involved in bribery; adopting an effective anti-corruption program; submitting to audit and making the results of such audit available. In 2006, under the auspices of the OECD Export Credit and Credit Guarantees Group, EDC worked with export credit agencies to enhance the OECD Action Statement on Bribery. In addition to providing a no-bribery declaration, exporters seeking export credit agency (ECA)-backed support will now be required to indicate whether they have been previously convicted of bribery, and whether they have been debarred by the World Bank, the Asian Development Bank, the European Development Bank or the African Development Bank, for which the ECAs agreed to undertake enhanced due diligence. Furthermore, ECAs agreed to ask for details about agents and commissions should they deem it necessary as part of the due diligence process. ECAs also agreed to do their part to raise awareness among their exporting communities about the consequences of engaging in bribery as well as to encourage them to develop, apply and document appropriate management control systems that combat bribery.

Prosecution

There has been one successful prosecution under the Corruption of Foreign Public Officials Act. Hector Ramirez Garcia, a U.S. immigration officer who worked at the Calgary International Airport, pleaded guilty in July 2002 to accepting bribes from Hydro Kleen Group Inc (a company based in Red Deer Alberta). Garcia received a 6 month sentence and was subsequently deported to the United States. Hydro Kleen, its president and an employee, were charged under the CFPOA with, among other things, two counts of bribing Garcia. Hydro-Kleen entered a plea of guilty in the Court of Queen's Bench in Red Deer, Alberta on January 10, 2005. The company admitted to one count under s. 3(1)(a) of the CFPOA and were ordered to pay a fine of $25,000. Two other charges against a director and an officer of the company were stayed.

No other prosecution under the CFPOA was reported to the Department of Justice by provincial Heads of Prosecution. Further there are no federally-conducted prosecutions at this time.

Awareness Raising

As illustrated in previous annual reports, considerable efforts have been made to make persons aware of the CFPOA. Officials continue to make presentations at conferences and at various meetings in Canada and consultations continue to take place with the provinces and territories. More specific instances include:

1. Foreign Affairs and International Trade Canada (DFAIT) - In the Spring 2005, the Deputy Minister of Foreign Affairs announced the intention to build a 21st century Foreign Ministry. Targets were established to achieve this goal and one of the priority items was to create a Values and Ethics Division, within the Office of the Inspector General. The Values and Ethics Division is the centre of expertise for DFAIT to assist employees in developing a professional culture based on the Values and Ethics Code for the Public Service. It aims to promote a solid culture of values and ethics that inspires confidence in the services provided by the Department to Canadians and in the relationships with foreign interlocutors and governments with whom we interact.

The departmental website features material on bribery and corruption as it relates to corporate social responsibility, including all previous Annual Reports to Parliament, DFAIT has been providing instructions and information to all staff (local and abroad) on both the OECD Convention and the CFPOA. The Seventh Annual Report will also be made available on the departmental web site.

Over the course of 2006 and in collaboration with stakeholders, the government of Canada is organizing a series of roundtables across the country to examine issues related to CSR and the Canadian extractive industry. This multi-stakeholder process, entitled the National Roundtables on Corporate Social Responsibility and the Canadian Extractive Sector in Developing Countries, brings together experts from civil society, industry, aboriginal communities and government. At the conclusion of this process, the government will provide the Canadian Parliament with a report, which presents recommendations for government, NGOs, labour organizations, businesses and industry associations on ways to strengthen approaches to managing the external impacts of international business activities to benefit both businesses and the communities within which they work. The discussion will touch on a wide range of CSR-related issues including corruption.

The United Nations Convention Against Corruption (UNCAC) entered into force on December 14, 2005. Not only does this Convention adapt some language from the OECD Convention, but by providing global norms for the criminalization of bribery and for transnational cooperation in related investigations, it is expected to complement enforcement of the CFPOA. Canada signed UNCAC on May 21, 2004 and is currently taking steps that would enable Canada to ratify.

The Department continues to provide training for its trade commissioners and trade commissioner assistants on the CFPOA and the OECD Convention. The Trade Commissioner Service (TCS) recently added the promotion of corporate social responsibility (CSR), which includes counselling Canadian businesses against engaging in foreign bribery, to its list of roles and activities:

• Horizons, one of the Department's trade-focussed intranet websites, now provides information to Canadian trade commissioners on how to counsel businesses abroad on the CFPOA and the risks of bribery.

• Trade Commissioners now receive information on CSR, including the CFPOA, during ‘Serving our Clients’, a mandatory training course for all trade commissioners preparing for an overseas posting, which is also available to all trade staff at headquarters.

• Trade Commissioners abroad incorporate CSR-relevant information and material in the face-to-face briefings they give to Canadian clients, which includes alerting clients to Canada’s efforts to fight corruption in international business and the existence of CFPOA.

• Canadian Embassies have been participating in CSR seminars in various regions and promote the CFPOA on numerous occasions.

• Team Canada Inc has added links on the CFPOA to its Export Source website and has referred to it in its Step by Step Guide to Exporting.

• Training - In 2004, the Trade Commissioner Service Renewal Division (BOR) led the development of a comprehensive three-day training course entitled "The Global Learning Initiative" (GLI) which sought to strengthen the capacity of trade program managers in their overall management competencies and skills which was delivered to 116 trade program managers (who serve at Canadian missions overseas) and 19 managers who work in regional offices across Canada. This course has since been made mandatory for all outgoing trade program managers. At the time of this report, all trade program managers in missions abroad and all directors and deputy directors at regional offices in Canada have received this course, which features a number of case studies with broad management issues dealing with Corporate Social Responsibility (CSR). DFAIT addresses issues of bribery and corruption within the general framework of CSR.

• Based on the success of the GLI, the need was identified to develop a similar course for all trade staff, not just program managers. As a result, "The Global Learning Initiative for International Business Development Staff Abroad" course (GLI-2) was developed which, inter alia, aims to reinforce Canadian policies vis-a-vis CSR. At the time of this report, 724 Commercial/Economic staff abroad have received the GLI-2 and the goal is to train all 1000 Commercial/Economic staff abroad by the end of fiscal year 2006/07.

• As part of its "New Approach" to client service delivery, the TCS has undertaken a process to articulate and implement its purpose, vision and six core organizational values. In order to communicate the organization's six core values effectively to all employees, a learning tool was developed for managers to use as a way to introduce the values to their teams and to help them facilitate a meaningful and engaging discussion amongst employees. The learning tool includes questions and scenarios for teams to discuss regarding each of the TCS's six core values which include, inter alia, issues relating to CSR. Currently, all new trade commissioners, as part of their introductory training, participate in a learning session where they are introduced to the core values and are given practical exercises to apply TCS core values in their future work.

• The TCS is in the process of finalizing a document entitled “Integrity Guidelines” which seeks to provide specific guidance and direction related to the core value of integrity. This document will be made available to all trade employees.

2. Department of Justice - in 1999 issued a publication: The Corruption of Foreign Public Officials Act: A Guide. The Guide has been updated to reflect amendments to the Act and has been distributed and posted on the Department of Justice web site. The Act continues to be featured in Chapter 33 of the Department of Justice's Federal Prosecution Service Deskbook. The Department of Justice is also participating in the National Roundtables on Corporate Social Responsibility and the Canadian Extractive Sector in Developing Countries, referred to above.

3. The Canadian International Development Agency (CIDA) - has been engaged in raising the awareness of anti-corruption issues within the Agency for several years:

   • In June 2000, CIDA published two anti-corruption documents: an "Anti-Corruption Primer", which articulates the parameters of corruption, its impact on development, and reviews donor strategies, and an "Anti-Corruption Questions and Strategies" document, which focuses more on developing bilateral programming approaches and lessons learned;

• In October 2003, CIDA included mention of the CFPOA and international anti-corruption conventions in the Governance Orientation Program for New Development Officers (NDOs) and Locally Engaged Professionals (LEPs);

• In December 2003 a paper entitled "Corruption and the Development Challenge" was drafted which examines the effects of corruption on the success of poverty reduction and sustainable development strategies and highlights the importance of donor harmonization;

• In June 2004, CIDA circulated an "Anti-Corruption Scoping Study" within the Agency which provides an overview of anti-corruption policy and programming activity in the Agency;

• On February 11, 2005, CIDA hosted a seminar on Corruption and Development Effectiveness at its headquarters; and

• The Agency has added a link to the Act to its website.

4. Export Development Canada (EDC) - has been engaged in awareness-raising of the OECD Convention and the CFPOA. Its activities include:

   • EDC has devoted an entire page on its website to corruption and bribery, including links to the CFPOA, the OECD Convention and the OECD Export Credits Group Action Statement on Bribery and Officially Supported Export Credits;

   • EDC has developed an anti-corruption brochure that is systematically distributed to its new customers to inform them of the potential risks they face if exposed to corrupt business practices, and to encourage the development of corporate best practices in this area. With the recent enhancements to the OECD Action Statement on Bribery, EDC will be updating this brochure to reflect those enhancements, which will include encouraging Canadian exporters to develop, apply and document appropriate management control systems that combat bribery;

   • At various times in the last two years, EDC has written to its customers to inform them about the OECD Convention and the CFPOA. EDC will be undertaking another writing campaign to all its current customers to inform them about the recent enhancements made to the OECD Action Statement on Bribery; and

   • In addition to the distribution of its brochure, EDC will continue to exploit other opportunities to communicate to customers and will do so, for example, via articles in its quarterly magazine, ExportWise, and/or through industry association trade publications.

5. Canada Revenue Agency (CRA) - has developed a section in its Audit Manual to deal with the application of section 67.5 of the Income Tax Act as it relates to outlays and expenses incurred as a result of bribery of foreign public officials. This provision prohibits the deduction of outlays and expenses involved in the bribery of foreign public officials. The Investigations Manual, which previously referred to bribery offences under the Criminal Code, has been revised to include a reference to the CFPOA and a link to the section of the Audit Manual that deals with the application of section 67.5 of the Income Tax Act. The new section in the Audit Manual "Hot Off the Presses" which is a weekly listing of new or revised material updating the CRA Electronic Library changes.

6. Royal Canadian Mounted Police (RCMP) - since March 2005 the Force has included the issue of foreign bribery generally and the CFPOA in particular to its training of all RCMP liaison officers before they depart for their assignments overseas. While the RCMP has had responsibility for CFPOA enforcement as a federal statute, specific reference to the corruption of foreign public officials in the Commercial Crime Program mandate is intended to raise awareness of this responsibility among investigators.

The RCMP, together with the Department of Justice and the International Centre for Criminal Law Reform and Criminal Justice Policy, provided subject matter expertise to the Canada-China Procuratorate Reform Cooperation Project’s Symposium on the Reform of Criminal Justice.

Contracting

In 1999, CIDA implemented an anti-corruption clause in all contracts and contribution agreements, as well as a Protocol for Dealing with Allegations of Corruption, which outlines internal procedures for assessing and reporting such allegations. In response to the Acres International case, CIDA's Contracting Management Division (CMD) introduced a new anti-corruption clause in its contracts in December 2003. This clause requires entities wishing to enter into a contract or contribution agreement with CIDA to declare previous corruption-related convictions and sanctions and that entities must confirm that, in the three years prior to signing a contract or contribution agreement, they have not been convicted of, and are not under sanction for, any corruption-related offence. If an entity has been convicted or is under sanction, it will have the opportunity to make representations to CIDA, to show that steps have been taken to counter the problem. However, CIDA reserves the right to accept, to accept conditionally, or simply refuse to do business with an entity convicted of, or sanctioned for, a corruption-related offence. In addition, CMD developed a subsequent Protocol for entities found guilty of corruption, to be implemented if/when an entity declares a previous corruption-related offence involving activities funded by an organization other than CIDA.

At Export Development Canada, exporters are asked to sign anti-corruption declarations. The wording in the declarations may be different depending on the product in question, but generally states: "We have not been and will not knowingly be party to any action which is prohibited by Canada's Corruption of Foreign Public Officials Act". Further, EDC’s insurance policies and loan documents include clauses / representations and warrants against bribery.

Tax Deductibility

The Government of Canada and all provinces deny the tax deductibility of outlays made or expenses incurred in the bribery of foreign public officials.

Monitoring Implementation of the OECD Convention

The OECD Convention aims to stop the flow of bribes and to remove bribery as a non-tariff barrier to trade. The Convention and the 1997 Revised Recommendation of the OECD Council on Combating Bribery in International Business Transactions provide for self and mutual evaluation by members of the OECD Working Group on Bribery in International Business Transactions (the "Working Group"). The aim of the review exercise is to ensure the effectiveness of national instruments to combat bribery and that all members enjoy a level playing field.

Evaluation Process

The evaluation takes place in two phases. Phase 1 is designed to evaluate whether the legal texts through which participants implement the Convention meet the standards set by it, as well as initial actions to implement the 1997 Revised Recommendation. Phase 2 studies and assess the structures put into place to enforce national laws and determine their practical application.

Phase 1 involves the review of each member country's implementing legislation to determine if it meets the requirements of the OECD Convention. All 36 members of the Working Group have undergone Phase 1 reviews.

Where a country's implementing legislation has been found not to meet the standards of the OECD Convention, a Phase 1bis examination is conducted to determine if legislation implemented in response to the initial Phase 1 review meets OECD Convention standards. To date, only Hungary and the United Kingdom have received Phase 1bis examinations. All Phase 1 reviews are available on the OECD's web site..

During the Phase 2 examination, the Working Group evaluates, among other things, member countries' enforcement and implementation of their foreign bribery legislation. Phase 2 examinations involve the completion of a questionnaire by the reviewed country followed by an on-site visit by members of the OECD Secretariat and lead examiners from two other OECD countries. These on-site visits constitute a major aspect of the evaluation process, and include meetings with government representatives as well as informal exchanges of views with representatives of the private sector and civil society. (Each examined country is consulted on the best manner of obtaining input from the private sector and civil society.)

Following an on-site visit, the Secretariat, in consultation with the lead examiners, drafts a preliminary report. The Working Group, meeting in plenary, then reviews and adopts the report which is later transmitted to the OECD Council.

Finland was the first country to be evaluated under Phase 2 in 2002. Since then, the Working Group has also reviewed, and approved, Phase 2 reports for 25 countries, including Canada. All Phase 2 examinations of current members are expected to be completed by the end of 2007.

Canada's Phase 1 Evaluation

The Working Group reviewed Canada's implementing legislation, July 8-9, 1999 and concluded that the CFPOA met the requirements set by the Convention. The Working Group also noted that some issues may benefit from further examination during the Phase 2 evaluation. These include the exemption of reasonable expenses incurred in good faith, Canada's choice not to establish nationality jurisdiction with respect to bribery of foreign public officials, payments to secure performance of any act of a routine nature from the purview of the offence, and sentencing courts’ discretion in imposing fines.

Canada's Phase 2 Evaluation

At its June 17-19, 2003 meeting, the OECD Working Group on Bribery approved the report on the evaluation of Canada's enforcement of its laws against foreign bribery. Overall, the report is positive in its evaluation of Canada's fight against corruption. However, the report makes recommendations which, in the opinion of the Working Group, would further improve Canada's capacity to fight corruption. These recommendations deal with the measures to prevent and detect foreign bribery and measures to prosecute and sanction it. The Report also identifies issues requiring follow-up by the Working Group because of insufficient practice at the time the evaluation was conducted to assess Canada's performance.

The OECD post-Phase 2 follow-up procedure required Canada to provide information on its follow-up actions at a meeting of the Working Group in March 2005, one year after the publication of the Phase 2 Report on Canada in March 2004, and a more detailed report after two years. Canada provided an oral update at a Working Group meeting on March 17, 2005 and provided a detailed written report at the meeting of March 2006.

Canada's Oral Update of Implementation of the Recommendations of the Phase 2 Examination

On March 17, 2005 Canada provided the OECD Working Group on Bribery with an oral update on progress made in the implementation of the recommendations arising out of Canada's Phase 2 examination. The Chair of the Working Group indicated that Canada had made impressive strides in the area of awareness-raising and enforcement. However, he cited areas concerning which Canada would be asked to provide more information:

• Recommendation 4a) of the Phase 2 examination which recommended that Canada consider the introduction of amendments to the Canada Business Corporations Act (CBCA) to prohibit the making of off-the books accounts and transactions and the use of false documentation.

• Recommendation 6c) regarding the establishment of nationality jurisdiction. The Working Group noted that since the Canadian Phase 2 examination many other common-law countries have adopted nationality jurisdiction for the foreign bribery offence. It nevertheless recognized that the Convention does not require members of
  the Working Group to establish nationality jurisdiction for bribery of foreign public officials. Canada, therefore, complies with the Convention as regards jurisdiction.

Canada’s Phase 2 Follow-Up Report

In March, 2006, Canada presented its Written Follow-Up to the Phase 2 Report and the Working Group issued its response on June 21, 2006. The Working Group found that Canada had made important steps in a number of areas to implement the recommendations adopted by the Working Group, including further raising awareness of the foreign bribery offence and the OECD Convention, efforts in the area of co-ordination among law enforcement authorities, strengthening accounting and auditing legislation, and developments in the area of reporting and detecting foreign bribery offences, as well as statistics gathering for sanctions for the offence.

The Working Group expressed concern over the grounds for which Canada can choose not to prosecute the foreign bribery offence “in the public interest” and over the lack of nationality jurisdiction for the offence, and encouraged Canada to adopt a policy of debarment for applicants convicted of foreign bribery in the context of public tenders. The Working Group also expressed surprise at the paucity of prosecutions under the CFPOA.

• The Working Group’s Phase 2 Follow-up Report.

Canada's Activities as Lead Examiner

Canada and Italy were lead examiners in the Phase 2 review of France and Canadian officials participated in the on-site visit of France from June 23 to 27, 2003. The report on France was adopted at the Working Group's October 2003 meeting.

Canada and France were lead examiners in the Phase 2 review of the United Kingdom and Canadian officials participated in the on-site visit of the UK from July 19 to 23, 2004. The report on UK was adopted at the Working Group's March 2005 meeting.

Annex A - OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions - RATIFICATION STATUS