Case ScenariosLaw and Border: Practical Tips for Complying

with Canada’s Foreign Corruption Laws

August 16, 2014 - St. John’s, NL

Scenario 1 – Political Connections

• Your client is an engineering firm with operations in central America.

• The firm has made significant sponsorship contributions to a new program offered by the national university’s faculty of engineering.

• The daughter of the Mayor of a central American city, who has been holding up construction permits required for one of your firm’s projects, is a member of the program’s first graduating class.

• The Project Manager at your client receives a letter from the Mayor, including a copy of his daughter’s CV seeking her consideration for any engineering vacancies. The firm’s recruitment team had previously considered her application, but did not consider it competitive and had not offered her an interview.

• Independent of the recruitment team, the Project Manager asks to interview the Mayor’s daughter and subsequently proposes to offer her a two-year fixed-term position on the project team. The following week the permits are approved. 

• Are there any issues?

• What if the Mayor’s daughter was a strong candidate who was selected for a position based on merit (but not yet notified) prior to the Project Manager receiving the Mayor’s letter? What if the position was an unpaid internship?

• What if the Mayor requested that the engineering firm establish a $15,000 university scholarship fund to be administered by the city in exchange for the approval of the road permits? What if the request was for “community support” in the form of payment to the city for the purpose of purchasing an iPad for each city councilor? 

Scenario 1 – Political Connections

Scenario 2 – Making a Plan

• Senior executives of a Canadian manufacturing company meet to discuss their plans to expand into Denmark. Confused by Denmark’s high score on the Transparency International (TI) Corruption Perceptions Index, they agree that the best way to gain entry to this market will be to bribe public officials.

• They develop a plan to approach senior officials through an intermediary with bribes of various amounts to gain preferential access to the Danish market.

• Stan Smithers, the company’s CFO, becomes increasingly uncomfortable about the plan. When his concerns fall on deaf ears with the other company executives he decides take his concerns to the police.

• Has an offence been committed under the CFPOA?

• Who potentially faces charges?

• What can Stan expect from the police?

Scenario 2 – Making a Plan

Scenario 3 – Charitable Causes

• “The Sisters of Peace” is a registered Canadian charity, with offices located in St. John’s. It works towards the improvement of mother and child health in troubled areas of the world. 

• After a major earthquake strikes the Island of Pimento, the charity launches a campaign requesting “urgently required funds for the delivery of medicines to the women and children of Pimento affected by the earthquake.”

• The charity collects $3 million over the next month as a result this campaign, and spends $2.5 million on medicines. It sends the medicines and the balance of $500,000 to a church located on the Island with instructions to “get the medicines to the women and children of Pimento and to use the $500,000 to pay for inland transportation and incidental costs”.  Prompt delivery is necessary to avoid people dying.

• Although the church is located in a safe area, some of the worst earthquake damage is located on in areas controlled by an insurgency group known for taking hostages.  The Church pays $50,000 to the Government to obtain expedited permission to deliver the medicines to rebel held territory.

• When the Church’s convoy of trucks destined for the insurgency held territory is stopped by a government controlled checkpoint, the charity’s delegate, a citizen and resident of Canada, gives each of the 10 government guards $200 and the trucks are allowed to continue. The medicines save 300 people from death.

• What are the legal issues, if any?

Scenario 3 – Charitable Causes

• You are assisting a client negotiate an oil exploration and exploitation agreement with Sonangol, Angola’s national oil company.

• During the course of the negotiations, Sonangol’s representatives indicate that they would like to modify the terms of the agreement to include the purchase of a helicopter by your client for the purposes of the joint venture.

• What would you advise? VOTE:

Scenario 4 – Oil exploration agreement

1. No problem. The parties are free to negotiate any applicable terms.

2. Maybe a problem but resolvable with proper terms included in the agreement.

3. Yes there is a problem. Agreements should include only relevant considerations.

New Facts:

• The agreement is written to clearly stipulate that the helicopter will be used to survey the joint venture’s oil platforms at sea.

• However, there are rumours that Minister of Energy intends to requisition the helicopter under a regulation that allows the Minister to requisition the property of any Sonangol joint venture.

• After some due diligence, you realize that the Minister directed Sonangol to negotiate for the helicopter as part of the joint venture agreement, and that the Minister uses helicopters for extensive personal use to travel to and from an exclusive resort.

• Does this change your approach? VOTE:

Scenario 4 – Oil exploration agreement

1. No. The government’s internal affairs are none of your concern as long as the specific agreement is clear.

2. Maybe. There may be a need for more due diligence to ensure compliance with relevant anti-bribery laws.

3. Yes. To permit this agreement to go through as currently negotiated could be considered willful blindness on behalf of our client.

More New Facts:

• Your client’s reluctance to provide the helicopter has caused Sonangol to break off the negotiations. A negotiator for Sonangol tells your client that they will no longer deal directly with the company, but negotiations can continue if the company agrees in writing to hire a designated agent negotiator to act as a go-between for the two parties.

• The company meets with the agent negotiator and is surprised to hear that he will not be asking the company to pay him for his services as he is paid by Sonangol.

• What would you advise your client about hiring the agent?

Scenario 4 – Oil exploration agreement

1. A lot of red flags pointing to a potential bribery scheme and the company should consider withdrawing from negotiations.

2. There are no issues because the agent is being paid by Sonangol. Even if there is a bribery, the company could never be accused of providing a benefit.

3. The company should conduct due diligence on the agent to check possible connections with Sonangol officials. If company decides to proceed, they should insist on audit rights over the agent.

Scenario 5 – Overseas Agent

• A  Canadian manufacturer of military equipment has a contract with an agent in India whose mandate is to explore new business opportunities. 

• The Agent periodically responds to the Government of India Ministry of Defence (“MoD”) solicitations on behalf of the manufacturer, working closely with the manufacturer’s sales force located in Canada.  

• All contracts with the MoD are in U.S. dollars. The Agent collects a commission of 20% on all successful bids.

• Typically the manufacturer is instructed to wire the agent’s commission to its bank in England within 15 days of receiving payment from the MoD.

• Other duties of the Agent include providing a warehouse for the storage of spare parts, which is the rationale for the high commission. The manufacturer’s commission to agents in Europe is 12% but those exclude warehousing services.

• The Indian agent is incorporated under the laws of India and the primary shareholder is married to the niece of the Minister of Defence.  

• You have just been hired as General Counsel with a stock option plan and a bonus based largely on the manufacturer’s performance. You learn of this situation during your third week on the job. 

• What do you do?

Scenario 5 – Overseas Agent

Scenario 6 – Reach of the CFPOA

• Ben Fraser is a Canadian citizen living and working in the United States. He maintains his citizenship but has not been in Canada for more than 20 years.

• While working for his US employer, Ben pays a sizeable bribe to a Chinese official to secure a contract for the company. The company obtains the contract leading to more and more work in China.

• Several years later Ben’s company is set to be purchased by a larger US firm. During the due diligence for the sale, the bribe paid by Ben is discovered and US officials are notified.

• The evidence against Ben is strong but the limitation period under the US FCPA has expired. US officials conclude that they cannot prosecute Ben but given his Canadian citizenship they request that Canada consider a prosecution.

• Can Ben be prosecuted in Canada for this offence?

Scenario 7 – Cash Infusion

• Your client is a public mining company working to establish a mining project in Papua New Guinea.

• It has retained an experienced consulting firm that touts its experience in the region to assist in obtaining the necessary permits and for “government relations.” There have been a number of delays in processing the required applications and your client is very frustrated.

• The consulting firm tells your client that they’re confident they can get the job done within the next month, but indicates that the firm will need a quick infusion of cash (approximately $100,000) to make the necessary arrangements.

• The consultant then forwards a chain of email correspondence between herself and members of the Minister of Infrastructure’s staff, including a confidential Ministry policy memo containing details of the government’s concerns regarding the proposed project.

• What is your reaction? What should you do next?

• What if, rather than asking for $100,000, the consulting firm made a series of $200 payments on the company’s behalf to low-level clerks in charge of issuing permits?

• What if it was only one payment?

Scenario 7 – Cash Infusion

• Your client, a Canadian subsidiary of a US-based multinational telecommunications company signs an agreement with a First Nations community to build telecom towers on their land.

• You assist your client in developing an Impact and Benefit Agreement (“IBA”) to govern the terms of the relationship. Only the Chief of the First Nations community is involved in the negotiations.

• If bribery issues arise, which laws might apply to your client? (VOTE)

Scenario 8 – First Nations Agreement

1. This is a domestic bribery issues and only Canada’s Criminal Code applies.

2. The controlling company is US based. Therefore, US FCPA applies as well as Canada’s Criminal Code.

3. Both the Canadian Criminal Code and US FCPA apply in addition to potentially many other countries’ foreign anti-bribery laws.

New facts:

• The Chief wants to negotiate labour provisions for preferential hiring from the local community as well as the establishment of a community development fund. He also wants to negotiate a salary for himself as a “consultant” during the length of the contract.

• What would you advise? VOTE:

Scenario 8 – First Nations Agreement

1. No Problem. These stipulations are standard in IBAs and it’s a way to ensure broader community development.

2. Maybe a problem. While these are standard in IBAs, there is a risk of abuse and community approach should be encouraged in the negotiation and management of the agreement.

3. Yes it’s a problem. As private contracts, IBAs keep transparency to a minimum. A community committee should be established to negotiate and implement the IBA.

New facts:

• Your client has run into challenges finalizing the IBA. As a result, the First Nations community suggests that the process can be facilitated if your client enters into a Joint Venture (“JV”) Agreement with their suggested partner, an influential member of the national aboriginal community.

• While conducting due diligence, you discover that there are unproven, but public, allegations of his previous involvement in improper payments through previous deals with aboriginal communities.

Scenario 8 – First Nations Agreement

1. Client should refuse the proposed JV and continue to negotiate bilaterally. From a corruption perspective, JVs are too hard to manage.

2. Client can explore the JV but must ensure that the agreement allows them to closely monitor the activities of the JV to help ensure no improper payments are made.

3. Client must go beyond monitoring the JV and must ensure it has the right to monitor and audit the proposed partneras they could be using their profits from the JV to pay kickbacks to members of the First Nations Community.

Scenario 9 – Ministerial Influence

• Your client is a St. John’s-based shipping company with international operations, and is trying to win a contract to build a port facility in Venezuela.

• The Venezuelan Minister of Transportation is influential in determining who receives the contract. Your client’s business team leader develops a relationship with the Minister’s daughter, and without consulting with counsel, enters into a consulting agreement with her where she will assist your client in obtaining lucrative contracts in other South American countries.

• Subsequently, your client receives the contract to build the port facility in Venezuela. Four months later, the Minister’s daughter assists the company in obtaining contracts to build port facilities in Colombia and Peru.

• Under the terms of the consulting agreement, she is entitled to a commission of $100,000 for each port facility.

• Are there any issues with paying the Minister’s daughter this commission, and if so, what would you advise the company do?

• What if the Minister’s daughter was also paid a $50,000 commission for the Venezuelan port facility contract?

Scenario 9 – Ministerial Influence