Kenneth Jull is an adjunct professor at the University of Toronto Faculty of Law, teaching the course "Financial Crimes and Corporate Compliance".
The Canadian Corruption of Foreign Public Officials Act ("CFPOA") has been in force since 1999. In June of 2011 the CFPOA streaked across the radar screens of compliance officers when Niko Resources Ltd. ("Niko"), a Canadian energy company, plead guilty and paid a fine of almost $10 million as a result of bribes paid to a Bangladeshi official. The bribes included a luxury SUV [Toyota Land Cruiser] and a trip to New York and Calgary.
The large fine is only half of the story. Niko Canada and its subsidiaries were placed on probation requiring that the companies develop compliance procedures based on risk assessment. The concepts in the prior sentence bear repeating as they are novel in Canada. The Order pierces the corporate veil to include subsidiaries, places a corporation on probation (as now authorized by the Criminal Code sentencing provisions dealing with organizations) and requires a system of risk assessment. The following paragraph from the probation Order demonstrates the extent to which risk assessment is now a mandatory element of compliance in the anti-corruption arena:
The company will develop these compliance standards and procedures, including internal controls, ethics and compliance programs on the basis of a risk assessment addressing the individual circumstances of the company, in particular foreign bribery risks facing the company, including but not limited to, its geographical organization, interactions with various types and levels of government officials, industrial sectors of operation, involvement in joint venture agreements, importance of licences and permits in the company's operations, degree of governmental oversight and inspection, and volume and importance of goods and personnel clearing through customs and immigration.[emphasis added]
Risk assessment and risk management are popular terms these days, but these skills are rarely taught in law school. I have attempted to change this trend by teaching risk management in my course on "Financial Crimes and Corporate Compliance". The type of risk assessment required in the Niko order calls for a delicate balance of competing factors. One technique to give some order to this balancing is the use of a risk management matrix to determine the relative gravity of potential harm in relation to the precautions taken to ensure compliance. The matrix will assist an organization in identifying the appropriate level of auditing and training that will be necessary in a given situation. (See Archibald, Jull and Roach, Regulatory and Corporate Liability: From Due Diligence to Risk Management (Canada Law Book), chapters 4 and 7)
The Niko case confirms that Canadian companies can be liable under the CFPOA for activities that occur elsewhere provided that there is a real and substantial connection between the offence and Canada. The Niko case also illustrates the tension between parent and subsidiary companies that may exist in foreign jurisdictions. The general rule that parents are legally separate from their subsidiaries is subject to rare exceptions where the subsidiary is a mere conduit of the parent. Niko Canada had 100% control through a holding company of Niko Bangladesh and the President of Niko Bangladesh reported to the CEO of Niko Canada. As a result, there was clearly a real and substantial connection between the activities in Bangladesh and the offence in Canada. Still, it comes as a bit of a shock to read the charges which stated that "On or between the 1st day of February, 2005 and the 30th day of June 2005, at or near the City of Calgary, in the Province of Alberta, Niko Canada did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary to Section 3(1)(b) of the Corruption of Foreign Public Officials Act."[emphasis added]
A good compliance programme should encourage the development of compensation schemes that reward compliance in addition to and perhaps in contrast to financial performance measurements. There is strong evidence that compensation schemes will skew choices made by managers. This was the finding of Karl Okamoto and Douglas Edwards in their ground breaking article entitled "Risk Taking" ((2010) 32 Cardozo L. Rev. 159). The mathematics of risk may be overruled by the emotional perception of risk takers as leaders compared to risk avoiders who may be viewed as worthy of a back office. We need a new paradigm that better reflects the mathematical realities of risk management. Compliance bonuses must be the mirror of performance bonuses.