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TABLE OF CONTENTS Sep 9 - 15, 2013 Volume 99 Number 30 - 0 comments

Commentary: Canada's first foreign anti-corruption trial - Lessons from R. v. Karigar

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By: Mark N. Sills and Jennifer L. Egsgard, special to The Northern Miner
2013-09-04

While the law has been on the books in Canada since 1998, it has only been in the last five years that enforcement has become a priority, with greater resources being given to the RCMP for investigations. Three CFPOA convictions have been issued in the last two years. Convictions of Canadian companies Griffiths Energy International and Niko Resources both resulted from guilty pleas and led to fines of $10.35 million and $9.5 million respectively. Currently, there are reportedly over 35 active Royal Canadian Mounted Police investigations into violations of the CFPOA.

On Aug. 15, 2013, the Ontario Superior Court of Justice convicted Canadian Nazir Karigar for agreeing to offer bribes to public officials in India, contrary to Canada’s CFPOA. It is the first time an individual has been convicted under the CFPOA. The Karigar case is also the first prosecution that has proceeded to trial, providing an interpretation by a Canadian court of CFPOA provisions.

Let’s first look at the facts of Nazir Karigar case. In this case, the Crown alleged that Karigar assumed a leading role in a conspiracy to bribe Indian officials to secure the award of a tendered Air India contract for facial recognition software for a Canadian company Cryptometrics Canada, which is a subsidiary of U.S.-based Cryptometrics Corp.

In the decision, Justice Hackland of the Ontario Superior Court of Justice found there was sufficient evidence to find Karigar had contravened section 3(1) of the CFPOA by agreeing or conspiring to pay a bribe to foreign public officials.

Several aspects of the Court’s reasons provide important interpretations of certain provisions of the CFPOA:

 1. Employees of state-owned companies may be considered to be “foreign public officials” for purposes of the CFPOA. The court found that Air India is a corporation owned and controlled by the government of India. The targeted Air India officials, therefore, fell within the definition of “foreign public official” in the CFPOA.

The decision highlights the broad scope of the term “foreign public official”. Companies should remember that liability for foreign bribery can arise not only when dealing with direct representatives and employees of governments but also with employees of state-owned companies and other bodies that are performing duties on behalf of a state or public international organization.

 2. No bribe was actually paid. The court noted that there was insufficient evidence to establish that a bribe had in fact been paid to a public official.

However, Karigar’s agreement or conspiracy to pay the bribe, coupled with evidence of his belief that a bribe had been paid, was enough for the court to issue a conviction under the CFPOA.

 3. “Agreement” or “conspiracy” to bribe. Karigar argued that the CFPOA required evidence of an actual agreement to bribe between the accused and the bribe recipient. The court rejected this interpretation, stating that such an interpretation would unduly restrict the act, and would unreasonably require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk and making the legislation difficult if not impossible to enforce.

The judge specifically referred to the wording of the Organisation for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, to which Canada is a party, in coming to his conclusions on this issue.

Instead, all that was needed to establish the act of the offence was an agreement or conspiracy with another person to pay a bribe, as well as a belief that the bribe is being or was paid.

The court also found that because the offence involved conspiracy, hearsay evidence from co-conspirators could be admitted.

 4. Risk from whistleblowers. Companies that engage in bribery run the risk of getting caught. This risk arises not only from law enforcement investigations, but also from potential “whistleblowers” within or outside the company. In this case, the accused himself acted as a whistleblower when he apparently became dissatisfied with the business relationship, thus exposing the Cyptometrics companies and their executives to prosecution.

The Public Prosecution Service, and ultimately the court itself, did not appear to have been impressed by his change of heart on the acts of bribery, however, given that he initiated the process at the outset and carried it through for many months.

Conducting business in a way that contravenes applicable laws on bribery exposes a company to the risk of whistleblowing by any parties with knowledge of the illegal act.

 5. Co-operation with authorities. This case demonstrates both the advantages and risks of co-operating with authorities. The primary Crown witness, a Cryptometrics employee who participated in the conspiracy, benefitted from co-operation as he testified under the promise of immunity.

Karigar, on the other hand, blew the whistle on the bribery to Canadian and U.S. authorities, yet thus far is the sole party to be prosecuted. It is unclear whether U.S. officials will be pursuing charges against the U.S. company or individuals.

Whistleblowers would be well advised to make the decision to come forward only after considering all of the factual and legal circumstances. As noted above, active participants in bribery schemes may find that voluntary disclosures do not, at least at a certain point, mitigate or otherwise attenuate prosecutors’ efforts to obtain convictions.

 6. Risks from third party agents. This case demonstrates the need for scrutiny when hiring third party agents to secure contracts.

The evidence suggested that initially, Cryptometrics did not realize that Karigar intended to pay bribes in order to assist the contract award. Businesses need to be certain that they have rigorous systems in place in order to ensure third party agents are not engaging in bribery on their behalf. A failure to do so may result in corporate liability through the criminal law doctrine of willful blindness, a subject we have addressed in an earlier article, available at: www.lexmercantile.com.

 7. Territorial jurisdiction. This case was prosecuted under the former provisions of the CFPOA that effectively required there be a “real and substantial” link between the act of bribery and Canada, in order for the offence to be prosecuted in Canadian courts. The court found that such a link existed in this case by virtue of the fact that at all material times Karigar, a Canadian resident, was employed by, or an agent of, a Canadian company attempting to secure an unfair advantage for that company, whose employees in Ottawa stood to benefit from the bribery.

Recent amendments to the CFPOA have eliminated the need for a “real and substantial” link between the offence and Canada in cases where an accused individual is a permanent resident or Canadian citizen, or if a corporate accused is organized in Canada.

8. Prison sentence. A sentencing hearing for Karigar is expected to be held in September 2013. Under the old CFPOA, he faces a maximum prison sentence of five years. Under the amended CFPOA, the maximum sentence for bribery is now 14 years in prison.

This is an edited version of a full bulletin, available at www.lexmercantile.com, that also details the facts of the Karigar case, and discusses how Canadian companies can protect themselves from bribery liability.

Mark Sills and Jennifer Egsgard are partners in Sills Egsgard LLP, a Toronto law firm specializing in international trade and investment and related regulatory compliance issues. Visit www.lexmercantile.com for more information.



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