Anti-Corruption Enforcement: The Corruption of Foreign Public Officials Act
Release date: May 25, 2012
Host: Vanessa Iarocci
Guests: Ray Haywood
Running time: 17:13 minutes
The Canadian government has intensified its pursuit of anti-corruption laws and in this episode of Strategy Talks, Ray Haywood of PwC’s Forensic Services Group, discusses who’s at risk and what measures Canadian companies can take to avoid the financial and reputational damage that comes with CFPOA violations.
Voiceover: Welcome to Strategy Talks, the business podcast series from PwC Canada. This interview series, featuring new topics and guests every episode is designed to give you valuable insight into some of today’s hottest issues affecting your business.
Vanessa: Canadian officials have intensified their prosecution of those who violate anti-corruption laws. And, as Canadian companies increase their presence in emerging markets, both individuals and corporations are cautioned to take heed. I am Vanessa Iarocci, your host for today’s episode of Strategy Talks. With me today to discuss the Corruption of Foreign Public Officials Act is Ray Haywood, a director with PwC Canada’s Forensic Services. Welcome Ray.
Ray: Good morning
Vanessa: Before we begin, Ray is quite atypical for an accounting firm. Can you tell us a little bit about your background, specifically with the RCMP?
Ray: Sure. Prior to joining the firm I was a member of the RCMP for about 24 years. I spent the first ten years in uniform in Saskatchewan (in Northern Saskatchewan) in small villages and then was with the major crimes group in Saskatoon for a number of years, and then moved on to Commercial Crime, and finished my career with the force....the last seven years in Toronto here, working with the Commercial Crime Unit.
As it happens I met Steve Henderson, he was on secondment working with us and he is now the Partner in charge of our National practice here in Canada. I joined PwC in 1997 after I retired from the force, and I’ve been with this group since.
Vanessa: Well thanks Ray, (a) really interesting background and PwC is certainly very happy to have you. Can you tell us a little about CFPOA Legislation?
Ray: Sure, it’s the ‘Corruption of Foreign Public Officials Act’, and it is a Canadian act, and that’s what makes it a little bit different in terms of what companies have had to pay attention to in the last several years. Americans have a similar act, the ‘Foreign Corruption Practices Act’ which is similar to our legislation and I’ll explain what the differences are shortly.
So, there have been corruption laws out there that businesses have had to be attentive to, however, American legislation speaks to companies that are registered on the Stock Exchange in New York, the SEC.
So, a number of Canadian companies have done business internationally for many years of course. They weren’t subject to that legislation. Corruption/foreign corruption legislation was not a concern of theirs. Our Act here in Canada was legislated in 1999, but there was no enforcement by regulators or the police until probably the last two years.
In conversations I’ve had with the RCMP and from talking to them at different conferences about this topic, they tell us they have about 14 investigators in Calgary and a similar number in Ottawa and they’re actively investigating violations of this legislation (the Corruption of Foreign Public Officials Act).
Vanessa: Okay, so who should be paying attention to this? What kind of companies should be interested in this legislation, and more importantly, why should they be interested?
Ray: Really any Canadian public company that is a registered public company in Canada, and is doing business outside the borders of Canada. I don’t think we often think of the United States as being a foreign country, but for the purposes of this legislation it is. It’s another jurisdiction, another country.
Our recent experience in the last year and a half to two years is natural resource companies – oil and gas, exploration companies and mining companies. We have a number we’ve worked with where they’re in other countries [and] they acquire, they grow through acquisitions, so when you buy a mine site or an oil and gas site, you also acquire all the customs and everything else that goes with the site.
They are particularly susceptible, and the resources are owned by the countries so there’s a lot of contact with government officials. To go into the country, to set up as you go on with your drilling process or your mining process there is ongoing contact and there will be throughout. They also get into issues about bringing equipment into the country and shipping product out, involving customs and all these other areas that you have to deal with. Those companies we’re finding right now have to focus on this particular issue and it’s something that they will be confronted with.
We also found a number of companies that are branch companies, or they have investments with a larger company or they’ll go into a joint project — particularly with international companies for international business, and that company is registered on the US stock exchange ... or, the other country that’s really come to prominence here in the last few years is the United Kingdom. The UK also enacted a bribery legislation act and are very actively regulating it and investigating complaints of violations of their act.
What happens with all these kind of acts internationally is there are economic groups that survey the world and tell businesses and tell organizations like ours where there are hot spots, if you will, for corruption and they become more and more demanding with countries, especially questioning countries, wanting them to enact legislation and enforce it. Similar to the privacy act a number of years ago, it’s becoming an issue for the governments and they have to participate.
So now our Canadian companies are subject to this law and will be scrutinized, and the police are reacting and investigating. We were told recently that the RCMP have approximately 23 investigations that are currently underway.
Vanessa Twenty Three? So this is a real game changer. Just to backtrack for a moment, you said that companies doing business across the border – what does that mean, ‘doing business’? That means more than just an M&A Transaction.
Ray: Absolutely. What this act speaks to is where there is any contact with a foreign public official, so, any businesses where ... most countries where you do any kind of business you have to have permits — work permits — people from Canada that work in other countries (the common term for them is Ex-Pats) at the minimum they need a work visa. So even something routine as that, you’re in contact with a public official.
We’re also finding that a number of companies that are working in other countries are, for instance, the natural resources industry, those countries have their own natural resource companies that are crown corporations if you will. Those people that work for that company would be considered public officials. The definition is fairly broad; it’s not just someone that’s an elected official or someone that works in a government office — it can be that wide.
Vanessa: So in dealing with some of the state-owned entities in Asia, for example, would you be caught under...?
Ray: Absolutely. Those people are considered ... to be subject to this act.
Vanessa: Can you give us a little clarity on what kind of issues can arise from an investigation?
Ray: One of the interesting things with this legislation, I find, [is that] it’s a criminal act; bribery and corruption is part of the criminal code of Canada and most countries. So this is a separate act – it’s a crime here in Canada for a bribe and there’s many people that get into problems here within our own borders but it’s not under this particular legislation. It’s offering or receiving any gift, gratuity, money — any consideration to make me do something that I might not normally do. It’s influencing the decisions.
Again with work permits, I was recently in India for instance, and one of the issues that came up there was that the Ex-Pats have to renew their work VISAs on a regular basis, oftentimes every three months. Part of the process there is that it has to go to the local police station where the local police chief signs off on it. One of the things the company encountered was that they wanted an administrative fee to make this go a little faster, and in India those kind of payments are not permitted so, because they are not permitted in India they were not permitted under our legislation. If you don’t pay the fee, then they hold your passport for a number of weeks and of course it’s very difficult to travel within the country without a passport and almost impossible — well you can’t — leave the country without it.
Vanessa: You can’t leave the country.
Ray: So it’s like applying for a work visa here in Canada, you have to submit your passport for the process. Now, in that particular environment it’s done routinely where people pay the administrative fee (and it’s a small dollar value in our currency) and it makes the process work fast.
So those are the kinds of things that are routine issues in those countries, they happen on a daily basis, everyone is accustomed to that particular fee, but all of a sudden we have this legislation that we have to consider: ‘Is it a violation of this legislation’, ‘What are the possible consequences’, ‘How do I deal with it, how do I record it in my books and records’, ‘How do I pay it — do I pay it ... whether it’s myself or an agent or contractor of the company if we’ve hired to deal with it?’. Those are the kinds of things the companies are going to have to sort through and address and have policies and procedures around those issues to help them through these matters.
Vanessa: Ok, so lots of risk clearly but how to you actually go about mitigating the risk so you don’t have to do all these things.
Ray: Well it’s a matter of what you have to do, or what the company should consider is "What processes and procedures do we have in place?." As I said earlier, how do you record these matters? What does an employee do when they take this visa application to the local police, they’re not doing anything wrong, they show up at the counter and they said "By the way, that’s a $25 administration fee?" It’s a small amount of money in terms of what the company is spending there, but how do I deal with this?
What the employee needs to know is what is the company’s position — what does the company think about these acts? "What are our processes and procedures to deal with it? If it’s a problem and I don’t have to deal with it, where do I go within the company, and where am I going to get an answer to this?"
It all starts at the very top of the organization. This term ‘tone at the top’ is very important particularly in this kind of field where we’re dealing with corruption and bribery. What is the company’s tolerance for these kinds of acts; if I think that it’s coming from the top of the organization then I think that it’s throughout the organization and we do not do business that way, and I’m not going to do business that way.
Vanessa: So thanks, Ray. Tone at the top is really important but folks at the top are obviously really busy managing and running their businesses and this is all new. So, what can they do? Can they turn to any outside resources to actually help them through this process?
Ray: Absolutely. There are times when a company will look outside ... for instance, in this particular area you’re right it’s a new field – or not a new field – it’s a new area they will have to consider. They may not have the expertise in house. What they would probably want to look for, and what we find our clients looking for, is people with a lot of experience in this area. Corruption and bribery is another form of fraud, so groups and organizations that have experience in dealing with those matters will know what to look for.
It doesn’t mean that you have to stop doing things like taking you Ex-Pats permit to the station and having it approved, it’s a matter of, “What kind of a process do we need to put in place; do we recognize the risk?” I think the biggest concern for companies should be, “Am I getting the information? Is it being reported back to me?”
There are a number of circumstances in these countries that ... there are countries in the world where we’ve worked with clients where there’s personal safety issues if a local employee doesn’t make payment, for instance. Those things have to be considered: “What are my risks? What is the environment I am working in? What are the local customs — do I have to stop dealing these ways?” Simple matters like hiring practices — how do those work in this particular country we're living/working in?
If someone who is a public official says to you “I have a relative, or I have a friend who has just graduated from University — can they get a job with you?” what is the process when that person goes to your company, how do you respond? One of the controls they’ve put in place is that there has to be an open and existing job, the person has to qualify and they have to go through the same processes as everybody else.
If that’s your policy, and it’s clearly written, and it’s reported back that this person was a relative or a friend, then the company is not going to have an issue with that. If I don’t know that and it’s disclosed later, then I’d have issues with that.
Another thing we’re finding, and it’s very new in Canada, there’s only been one conviction so far.
Vanessa: Only one conviction?
Ray: Only one, more to come I think — the fines and the sanctions, they’re not linear, they’re quite disproportionate. In a normal fraud case, if it’s a $100,000 fraud, you can expect a fine and probably will not go to jail. In the one conviction in Canada, the actual amount of money spent (according to the newspapers) was about $200,000 and the fine was in excess of $9 million.
Vanessa: That’s unbelievable.
Ray: It’s a very harsh sanction, financially and it also effects a company’s reputation and can very much effect their share price. It can cause sanctions for organizations like the World Bank in terms of your lending ability, and there’s a whole bunch of other issues that resonate from these kinds of matters. And that’ s not including all the time it takes to investigate it and deal with the authorities, working with your outside council and to deal with this matter and get it resolved.
So the consequences of not dealing with these, not looking to do a risk assessment [of] ‘where are we at this point in time?’ ... this is not a subject that’s in isolation, either. The anti-corruption – things about like hiring practices, ‘how do we deal with gifts and expenditure’ — those should be part of your accounting procedures and processes anyway.
So if those need to be updated, if you need to improve your processes, this is an opportunity. It’s one that you’re going to have to look at if you’re a company dealing in foreign jurisdictions. And particularly companies that do / you’re in acquisitions, companies that go through acquisition ... We’re finding a lot of our natural resource clients — oil and gas, for instance — that’s how they grow in these other countries: They go and they buy an existing site, and when you buy an existing site you buy everything — you acquire everything — that’s part of that site.
Vanessa: And you can’t move it!
Ray: No, but you also acquire all the local customs, and the people that are there and how/who’s working for them and how they interact with communities.
We were dealing with an issue in India recently where it’s a local custom — it’s at the Indian New Year — where gifts are provided to people (small dollar-value gifts, fruits and candies, that type of item). What the company did to put a control in places was [recognizing] it is a custom, and you would offend people by not participating. So what they did rather than not doing that any further, they ... put a process in place where the country manager, the person at the top of that organization in that country, received requests from all of his managers for who they would like to extend a gift to. They were centrally purchased and they had a report of who received a gift, and they were centrally distributed.
Vanessa: Oh, so a creative and effective solution.
Ray: Absolutely. There was a work-around. It wasn’t a matter of, "We’re not going to do this anymore." I think there is a danger in creating processes and procedures that say, "We’re not going to do that anymore" when you know in reality that it’s probably going to happen.
So you have a process in place that’s clearing conflict of interest. If I work for the company and someone in my family wants to be a sub-contractor for the company, is that going to be allowed? That’s another situation that we ran into recently where the company — if you disallowed it, they’re probably going to do it anyways — now it’s information I’m not aware of and I have an issue out there that I have no control over. The control for those kinds of situations can be as simple as this: "I want this declared." The company will make the decision and the sanction if you don’t declare is that we won’t do business with you.
There are those kinds of work-arounds; there are those kinds of solutions for companies but first they have to understand where they are, what their risks are, and that’s where they benefit from outside help where other organizations come in, bring independence, bring experience ... in particularly in these kinds of areas.
Vanessa: Well thank you, Ray. Really fascinating stuff. For more information on the corruption act, and learning if your bribery risks have been identified, please visit us at www.pwc.com/ca/corruption.
This concludes this episode of Strategy Talks. Thank you for listening. We hope you’ll join us again soon for another episode.
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