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Facilitation Payments are Bribery: Canada

Repeals “Facilitation Payments” Exception

Written By: Cyndee Todgham Cherniak

Date: October 31, 2017

Canadian anti-corruption law is now clear, facilitation or “grease” payments to foreign public officials are illegal. There used to be a gray area - some Canadian companies did not know how to approach the small payments requested by low-level officials to speed up routine government functions and Canadian compliance managers wasted much time guessing about whether the Canadian government would prosecute particular payment.  Was there a value limit?  What types of government functions would be accepted as routine? What types of government functions would be considered to be non-discretionary? Now, the guesswork is over.  If it looks like a bribe, it is a bribe and it is illegal.

Under the 1998 version of the Corruption of Foreign Public Officials Act (also known as Canada’s FCPA) facilitation payments were exempt bribes.  Bill S-14 “An Act to Amend the Corruption of Foreign Public Officials Act” received Royal Assent on June 19, 2013 and included in subsection 3(2) the repeal of the facilitation payments exemption.  However, the repeal of the facilitation payments exemption would enter into force on a day to be fixed by order of the Governor in Council (that is, the Federal Cabinet).  Nothing happened for 4+ years until October 26, 2017 when the Governor in Council fixed the day to be October 31, 2017.  On October 30, 2017, Global Affairs Canada issued news release “Canada repeals facilitation payments exception in Corruption of Foreign Public Officials Act” and announced the removal of the facilitation payment exemption would take place the next day. The “Order Fixing October 31, 2017 as the Day on which subsection 3(2) of the Act Comes into Effect” was published in the Canada Gazette on November 15, 2017.

What is a facilitation payment?
This is a good question and one that was regularly asked by Canadian companies and compliance managers. Now the question is irrelevant – bribery of all kinds is illegal.
Bribery includes direct or indirect offers and agreements to give a loan, reward, advantage or benefit of any kind to a foreign public officials (or any person for the benefit of a foreign public official) as either (1) consideration for an act or omission by the official in the performance of the official’s duties or functions or (2) to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Facilitation payments/grease payments can be equated with the concept of “pulling strings”.  In many countries, government employees are not paid very well and “supplement” their income by requesting foreign entities and persons to pay small amounts for them to do tasks that are within their job description. Old section 3(4) of the Corruption of Foreign Public Officials Act set out a non-exhaustive list of types of facilitation payments in small amounts made to a foreign public official to expedite the performance of a routine, non-discretionary, government action that could be considered to be facilitation payments, including:

• the issuance of a permit, license or other document to qualify a person to do business;
• the processing of official documents, such as visas and work permits;
• the provision of services normally offered to the public, such as mail pick-up and delivery, telecommunication services and power and water supply; and
• the provision of services normally provided as required, such as police protection, loading and unloading of cargo, the protection of perishable products or commodities from deterioration or the scheduling of inspections related to contract performance or transit of goods.

As the result of the repeal of the facilitation payments exemption, even small payments for routine, non-discretionary activities could be considered to be bribery.

What is Still Legal Under Canadian Law?
There are now only three very limited exceptions under Canada’s anti-bribery laws:

1) Payments that are permitted or required under the laws of the foreign jurisdiction are legal under Canada’s anti-bribery law – however, since few forms of bribery are permitted under foreign laws, this exemption is limited.  This exemption will be applicable if there are fees under the laws of the foreign jurisdiction (e.g., payments to the municipal government of police services during filming at a location in the foreign city);

2) Payments of reasonable expenses incurred in good faith directly related to the promotion, demonstration or explanation of products or services; and

3) Payments of reasonable expenses incurred in good faith directly related to the execution or performance of a contract between the person and the foreign state.
These legal payments include valid marketing or business development activities, such as hospitality, meals, and entertainment.  There will still be questions concerning the expenses and the amount or reasonableness of the expense.

Divergence Between Canadian Law and US Law
Facilitation payments remain permissible under U.S. law.  This means that Canadian companies operating abroad and Canadian subsidiaries of U.S. companies must comply with the more strict Canadian legal requirements.

Punishment
The punishment for foreign acts of bribery is more severe.  A single act of corruption can negatively impact the company and its employees. There have been cases in the news that affected the international reputation of a company and resulted in the loss of unrelated business opportunities.

Under Canadian law, bribery of foreign public officials is punishable by up to 14 years in jail for individuals (including complicit employees, executives, shareholders, directors) and all persons may be subject to an unlimited fine.

A corporation that is convicted under the Corruption of Foreign Public Officials Act may also be prohibited or barred from doing business with the Government of Canada for up to 10 years under Canada’s Integrity Regime.

Foreign jurisdictions and international organizations (e.g., the World Bank) also have debarment policies that could apply to a person convicted under Canada’s Corruption of Foreign Public Officials Act.

What Should Canadians Do To Comply With New Reality?
The Government of Canada gave 4+ years to get ready, but few took the steps to get ready for the prohibition of facilitation payments because technically they were still permissible.  The October 31, 2017 effective date means that everyone must now be in compliance or take steps to ensure compliance from October 31 forward.

Canada’s Corruption of Foreign Public Officials Act applies to persons (Canadian citizens, Canadian residents, entities in Canada, individuals transiting through Canada, etc.) with a real and substantial connection to Canada.  There are many steps that should be taken to ensure compliance:

1. Review all past decisions issued relating to facilitation payments and speak with the parties involved in previous approvals to make sure it is clear that the decision will be different after October 31, 2017 (unless the payment can be approved under a different exemption);
2. Update your compliance program, policies, manuals and procedures to reflect changes in Canadian law and adopt the more stringent standard – to the extent that a compliance program, policy, manual or procedure is silent about facilitation payments, eliminate any room for error by making it clear that facilitation payments are prohibited unless permitted and required by local law;
3. Update contracts with foreign representative and agents to clearly state that payment of a facilitation payment to a foreign public official will result in the termination of the relationship;
4. Inform employees and foreign representatives and agents that all forms of bribery are prohibited and could result in criminal charges.  Write a memo to employees and foreign representatives providing an updated compliance programs, policies, manuals and procedures;
5. Prepare an updated training program for employees to learn about the prohibited facilitation payments and the words and phrases to use to refuse requests for illegal payments;
6. Encourage employees and foreign representatives to learn about foreign laws relating to the legal payments mandated under foreign law that apply to the activities of your company;
7. Ensure that any legitimate payments made pursuant to a foreign law are duly recorded in the books and records of the company; and
8. If corruption is part of the culture in a jurisdiction, change the culture.

If you would like to know more about Canada's anti-bribery laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.