Canadian businesses need to address the growing anti-bribery net of legislation

13 Nov, 2012

FRA pinpoints top five risks facing Canadian businesses operating in BRIC countries


Forensic Risk Alliance (FRA), the consultancy firm specializing in forensic accounting, eDiscovery and data forensics, can, today, reveal the five most frequent regulatory and compliance-related risks that businesses face whilst operating, starting-up or expanding their operations abroad. 


Canada’s laws are being enforced more stringently and frequently, making it more complex for Canadian based companies to operate both there and in emerging markets. This applies not just to Canada’s own Corruption of Foreign Public Officials Act (CFPOA) but also to the anti-bribery and anti-corruption statutes of other countries like the US’s Foreign Corrupt Practices Act (FCPA) or the UK’s recently enacted Bribery Act.


The impact of more onerous legislation on Canadian extractive companies is not to be underestimated. The OECD Phase 3 Report published in March 2011 outlines their extensive global footprint: Canadian mining companies have invested over $60 billion in developing countries, including approximately $41 billion in Latin America (including Mexico) and almost $15 billion in Africa. To give a further sense of the importance of Canadian companies in the sector, they account for 43 percent of global exploration expenditure and, in 2008, over 75 percent of the world’s exploration and mining companies were headquartered in Canada. These 1293 companies had an interest in some 7809 properties in Canada and in over 100 countries around the world.


At a recent series of roundtable discussions in Canada, on the subject of “Effective Risk Assessment, Due Diligence and Audits for Mining Companies Operating in Foreign Jurisdictions”, participants discussed the importance of anti-bribery audits with the objective of demonstrating how companies could minimize risk with respect to anti-corruption. 


Key findings identified by FRA from these discussions include:



1. Against a backdrop of increasingly complex legislation, changing politics and environmental issues, investigations are increasing and the RCMP (Royal Canadian Mounted Police) is ramping up investigations since the OECD Phase 3 report was published in March 2011 and gave Canada a “fail” grade. 


2. It is still unclear how confrontational enforcement agencies will become. Will Canada’s RCMP become as aggressive as the Department of Justice in the US? A number of high profile cases will set the standard in the next 18 months or so.


3. The extractive industry, in particular, is vulnerable to enforcement due to these factors: 

a. Corruption perception indexes are higher in the emerging markets where they operate

b. Joint venture partners could expose a company inadvertently to infringements of the law

c. Customs clearance is often where bribery and corruption is rife

d. Use of agents in business dealings


4. The real cost, damage and impact of an investigation is much higher than actual penalties levied. For example:

a. Drop in stock price (and associated liability a company then faces with respect to class action suits, etc.)

b. Distraction from core business

c. Loss of investor financing

d. Resource costs and professional fees associated with responding to allegations

e. Negative publicity resulting in a decrease in the value of the company’s brands


5. Agreements such as Bilateral Investment Treaties can become null and void as a result of bribery to secure contracts, leaving exposed companies with little recourse in the event that a concession is wrongfully taken away. 


 FRA’s COO, Maggy Deacon, concludes: “From our hands-on experience we can reveal that companies who carry out an anti-bribery audit proactively, rather than in response to an inquiry from a regulatory authority, will win out because they minimize their exposure to business costs and punitive fines. We have seen a clear trend that Canadian companies are waking up to the reality of their vulnerability when operating in emerging markets and that extractive sector companies are being proactive in the sense that they are taking action to minimize their exposure to risk now, rather than taking a ‘wait and see’ approach.” 

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