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Canada’s new DPA regime brings internal controls to the forefront

Canada’s enforcement landscape may be changing. The Canadian legislator appears to be signalling a will to increase enforcement of the Corruption of Foreign Public Officials Act (CFPOA) (as well as other economic crimes) with the September 2018 adoption of the new Canadian Deferred Prosecution Agreement (DPA) regime, also called the Remediation Agreement regime. The Remediation Agreement regime appears to place a greater focus on the importance of internal controls.

In contrast to enforcement of domestic corruption, through for example the Charbonneau Commission in Québec, Canada’s enforcement of foreign bribery offenses has historically been very low compared to that of the United States and the UK. Since Canada’s Corruption of Foreign Public Officials Act or CFPOA was enacted in 1998, there have been only four convictions, with three ongoing cases.

In comparison, the U.S. DOJ initiated 314 FCPA actions between 1998 and 2018. One of the reasons why U.S. regulators have been more active in enforcing foreign bribery offenses may lie in the fact that the FCPA sets a lower threshold for prosecution. The FCPA’s books and records and internal controls provisions do not require proof that an actual foreign bribe was paid, but merely that the internal controls environment created a risk that bribery, improper payments, or corrupt activity could be concealed. On the other hand, Canada’s CFPOA requires an actual intent to conceal bribery. The CFPOA does not include an internal controls requirement.

However, the adoption of the Remediation Agreement regime potentially signals a will to increase enforcement of the CFPOA. Though an actual intent to conceal bribery would still be required to prosecute under the CFPOA, the Remediation Agreement regime would place a greater focus on the importance of internal controls if a company seeks to avoid prosecution and fines through a DPA.

Under certain conditions, the Canadian prosecutor may invite an organization accused of an offense to negotiate a Remediation Agreement, subject to the Attorney General’s approval. For example, in evaluating whether an organization should be granted a Remediation Agreement, the prosecutor is required to consider whether the organization has taken measures to prevent similar wrongdoing.

Under the Remediation Agreement, the organization obtains the stay of proceedings against fulfilment of the obligations agreed upon in the agreement itself. One of these obligations may also be to put in place corrective measures and promote a compliance culture, in particular with respect to internal controls and employee training. The organization would need to report to the prosecutor on implementation of these measures. Therefore, having a strong internal controls program may not only weigh in the prosecutor’s decision to enter into negotiations, but can also be a condition to the fulfilment of the Remediation Agreement.

The Remediation Agreement may also include the appointment by the organization — with the prosecutor’s approval — of an independent monitor to verify that such corrective measures have been properly implemented. The independent monitor could for example verify the efficiency of internal controls by review the company’s policies and procedures, performing walkthroughs of processes and testing subsets of transactions. A major difference from the U.S. DPA regime is that both the Remediation Agreement and the order declaring its successful completion will need to be approved by a judge, upon application by the prosecutor. Therefore the review of the independent monitor’s report may require two levels of scrutiny (i.e. the prosecutor’s and the judge’s) in confirming that an organization has successfully implemented strong internal controls.

Though Canada’s implementation of the Remediation Agreement regime appears to point to a stronger emphasis on requiring a sound internal control program, the true impact of the regime remains to be seen.  Within the first few months of the existence of the Canadian DPA, allegations surfaced that the government may have attempted to pressure the public prosecutor into negotiating a Remediation Agreement with SNC-Lavalin, in order to help the Montreal-based engineering company avoid negative consequences.

Beyond the political scandal that surrounded this first attempt to conclude a Remediation Agreement, it will be interesting to see if the first Remediation Agreements impose an obligation to assess and enhance internal controls, how stringent that obligation will be, and ultimately whether Canadian prosecutors will use this new tool to expand the enforcement of the CFPOA.

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Amina Khoungui, pictured above, is an Associate Director in FRA’s Forensic Accounting Team based in Canada. She has been involved in many US FCPA DOJ monitorships, and has also recently supported the first French anti-corruption agency monitorship, with a focus on internal controls and books & records. She is fluent in French, Arabic, English, Spanish and Portuguese. She can be contacted here

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