Foreign Corruption and Director Liability Risk in Canada
There have been few cases under Canada’s 14 yr old CFPOA – Corruption of Foreign Public Officials Act – but the risk, to Canadian companies and their directors and executive management, of an investigation is getting far more press now than only a few years ago. Corporate Canada is not exactly widely known for disclosure and transparency, but one look at activity surrounding the FCPA – Foreign Corrupt Practices Act – in the US will suggest that the issues I not a passing trend.
The FCPA Blog, here, provides a list of ongoing and unresolved FCPA investigations, and notes that the DOJ and SEC do not publish investigations, so this list is comprised only of public companies who have disclosed an investigation in their own SEC filings. Canada provides very little information regarding CFPOA activities.
The only active Canadian trial under CFPOA – R. v. Karigar, 2013 ONSC 5199 (CanLII) – here, doesn’t seem like it will be a strong case for deterrence of corrupt behaviour by Canadian corporations. The only defendant in this trial was not an employee, but an agent, who admitted to the bribery, and provided no evidence in his own defence. And the executive of the Canadian company testified against Karigar under the promise of immunity. The ‘conviction’ of Karigar was widely announced, but the punishment not yet determined. But, I imagine this will still be spun as the Crown’s aggressive pursuit of corruption and counted as a big win under the CFPOA. This case was not on the FCPA Blog list.
Osler’s Riyaz Dattu, Eric Morgan and Thomas D. Gelbman have provided an article on this case, here.
My subsequent research did not reveal any information of an FCPA or CFPOA prosecution against the Canadian or US officials, described as ‘co-conspirators’, or their Canadian subsidiary or US parent companies. The surprising part was that these ‘co-conspirators’ seemed so unconcerned about prosecution of bribery that they pursued a civil claim against Mr. Karigar to recovery their bribery payments and for disclosing the bribery scheme to U.S. authorities.
I can understand why a Canadian executive might not concern themselves with the risk of prosecution for bribery, because CFPOA investigations are not often disclosed by the companies or the regulators. But, the FCPAProfessor blog, here, suggested in a July 2013 posting that the RCMP has 34 active CFPOA investigations.
Therefore, there are at least 34 Canadian companies who should heed the following advice; unfortunately, most of their directors and management might not know if they are one of the 34 companies. My advice to innocent corporate directors is that they, 1) determine their company’s risk of an CFPOA or FCPA investigation, 2) purchase a SIDE A DIC D&O Insurance policy to supplement their existing D&O insurance policy, 3) make sure that at least a few million in limits of liability is dedicated to Directors only, 4) make sure this policy has full severability of application and exclusions, and a dozen other features I would be happy to explain, 5) ask their insurance broker for a detailed explanation of how their personal loss coverage under their current D&O policy might be subject to limit erosion/exhaustion based on coverage (investigation, defence and settlement/judgment Loss, for corruption or securities litigation) for the corporate entity (any short answer to this question should be immediately rejected); and, not until all this is done, 6) ask management to disclose to the board, or at least an independent committee of the board, any actual or potential investigation under CFPOA and/or FCPA.
If this internal disclosure reveals any such situation or potential situation, they should immediately pursue outside advice regarding ‘material change’ and ‘material non-disclosure’, and, separately, regarding indemnities and insurance coverage for investigation costs, and how they might access these funds while still complying with a securities commission or RCMP gag order.
Greg Shields is a D&O, Professional Liability and Crime insurance specialist and a Partner working at the University and Dundas (Toronto) branch of Mitchell Sandham Insurance Services. He can be reached at gshields@mitchellsandham.com, 416 862-5626, or Skype at risk.first. And more details of risk and loss control can be found on the Mitchell Sandham blog.
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