1. Anti-Corruption Compliance In Import/Export Transactions
2017 ICPA Conference Toronto May 9, 2017
Brenda C. Swick

2. Introduction
PURPOSE: How to protect against anti-corruption compliance risks in export/import transactions
Third party service providers play critical role in global supply chains, but may create corruption and other compliance concerns
Importance of risk-based due diligence on proposed transaction and service providers to detect and prevent problems
Importance of cooperation between customs compliance and legal department in conduct of due diligence and developing/implementing controls over transactions on an ongoing basis

3. Global Enforcement Trends
Global enforcement is increasing
U.S. Foreign Corrupt Practices Act remains most aggressively enforced foreign bribery law
Other countries following suit: notably Brazil, China and India
New tougher national laws
Canada recently amended CFPOA to make it harsher
Increased cooperation between law enforcement authorities in various countries
Rise of compliance programs

4. Corruption is a Worldwide Concern
The Corruption Perceptions Index (CPI) rank shows how one country compares to others included in the index based on the perceived level of public-sector corruption in a country.

5. Corruption of Foreign Public Officials Act
The CFPOA contains two criminal offences relating to the corruption of foreign public officials:
Bribing of a foreign public official to obtain an advantage
Perpetration of accounting offences for the purpose of hiding bribery
Punishment:
Imprisonment up to 14 years

6. Application of Other Anti-Corruption Regimes to Canadians
Canadian companies and their directors, officers and employees may be subject to enforcement actions in more aggressive anti-corruption regimes including
United States – Foreign Corrupt Practices Act
US companies and individuals
Companies that have issued securities in the US and file periodic reports with SEC
Non-US companies and individuals that cause, directly or through agents, acts in furtherance of the corrupt payment to take place within the territory of the US (e.g. meeting in US)
United Kingdom – 2010 Bribery Act

7. Corruption of Foreign Public Officials Act
Anti-bribery Provision (section 3)
What is prohibited?
Four key elements:
Direct or indirect giving or offering of a benefit of any kind
To or for the benefit of a foreign public official
As consideration for act or omission in connection with performance of the official's duties or to induce the official to use his or her position to influence acts or decision of the foreign state
In order to obtain or retain an advantage in the course of business
Four elements merit special attention

8. 1. Foreign Public Official
CFPOA prohibits improper payments to “foreign public officials”
Someone who holds a legislative, administrative or judicial position in a foreign state
Someone who performs public duties for a foreign state (including someone working for a public commission or other authority)
An official or agent of a public international organization
Includes
Officials and employees of a country’s customs service, import/export licensing and other regulatory agencies
Private parties acting on behalf of foreign government departments

9. 2. Business Purpose
CFPOA prohibits payments for improper business purpose – broad coverage
Payments for the purpose of i) causing foreign public official to fail to perform his duty; ii) securing an improper advantage; or (iii) inducing official to use his/her influence to obtain or retain business
Includes payments made to foreign customs officers for the purpose of avoiding the payment of customs duties/taxes or compliance with foreign regulatory requirements for imported goods
United States v. Kay et al. 359 F. 3d 738 (5th Cir. 2004)

10. 3: Third Parties
Recognition that third party can have significant impact
CFPOA applies to direct and indirect offers or payments
Prohibition against improper payments made directly to foreign public officials and through third party intermediaries
Critical because companies rely upon third parties in connection with import/export transactions
Canadian company may be liable for actions of customs broker, local trade consultant, freight forwarder which makes improper payment
Company may be liable for improper payment made by third party to foreign official even without actual knowledge if evidence of “willful blindness”
Failing to inquire when you know there is reason for inquiry (R v. Briscoe [2010] 1 SCR 411)

11. 3. Third Parties & Risk Mitigation
Mitigating Liability Associated with Third Parties
Comprehensive pre-engagement due diligence of freight forwarders, customs brokers, logistics service providers, trade consultants to determine if they present any “red flags”
Number of questions should be asked
Reasons for further investigation?
Risk Based Approach
Consider Red Flags
Abort engagements where unacceptable level of risk
Adequate protections in third party contracts
Due diligence should continue for duration of engagement through careful oversight and monitoring to FOLLOW THE MONEY

12. 4. Facilitating Payments: Risky Business
Exception to anti-bribery provisions for facilitating payments made to foreign public officials to expedite or secure the performance of routine government action including
Processing official documents , visas
Slippery slope: most companies prohibit them
Does not include payments made to avoid the payment of customs duties; compliance with regulatory requirements
Red Flag: any characterization of payment to customs broker, freight forwarder or agent as “facilitation payment”
No exemption for de minimis payments

13. CFPOA: Accounting Provisions
CFPOA prohibits certain accounting practices designed to disguise improper payments for foreign public officials
4. (1) Every person commits an offence who, for the purpose of bribing a foreign public
official in order to obtain or retain an advantage in the course of business or for the
purpose of hiding that bribery,
(a) establishes or maintains accounts which do not appear in any of the books and records that they are required to keep in accordance with applicable accounting and auditing standards;
(b) makes transactions that are not recorded in those books and records or that are inadequately identified in them;
(c) records non-existent expenditures in those books and records;
(d) enters liabilities with incorrect identification of their object in those books and records;
(e) knowingly uses false documents; or
(f) intentionally destroys accounting books and records earlier than permitted by law.

14. CFPOA: Accounting Requirements
It is an offence, for the purpose of concealing bribery to a foreign public official to:
Keep secret accounts
Falsely record, not record or inadequately identify transactions
Enter liabilities with incorrect identification of their object
Use false documents
Destroy accounting records earlier than permitted by law
Companies should have a robust system of accounting and financial controls which
Accurately record transactions with enough detail to identify the transactions (quantitatively and qualitatively)
Provide reasonable assurances that transactions are executed in accordance with management's authorizations

15. CFPOA Compliance Risks
Avoidance of Customs Duties/Taxes
Payments made to customs officers for the purpose of avoiding customs duties constitutes an unlawful bribe
Risk may arise in connection with dealings though third party intermediaries
United States v Panalpina
Swiss freight forwarder paid $27 million in bribes to Nigerian and other foreign customs officials to secure preferential customs treatment, customs clearance and import permits in Angola, Nigeria, etc. on behalf of oil field service customers
Customers investigated
Negotiated non prosecution agreements and paid $237 million in fines

16. CFPOA Compliance Risks
Red Flags:
Especially in high risk countries
Arrangements which suggest non-compliance with local customs rules
Unusual cost/expense charges which may be disguised requests for reimbursement for improper payments
customs entry documents declaring customs value at unusual low amount
Requests for reimbursement for “customs processing fees”, “customs expediting fees”, “administrative fees”, “special handling charges”
Unusual shipping and routing arrangements
Contracts with third parties should include audit rights to ensure compliance with CFPOA/FCPA
Should be invoked at first sign of “red flag” suggesting possibility of improper payment

17. CFPOA Compliance Risks
Avoidance of Import Regulatory Requirements
Can be complex regulatory requirements – non-transparent
Time consuming and costly to comply
Any payment made to foreign official for the purpose of avoiding compliance constitutes unlawful bribe
Characterizing payment as facilitating payment would be violation of books and record provisions
Panalpina and Helmerich & Payne cases
Noble Corporation
SEC charged three oil services executives with bribing customs officials in Nigeria to obtain illicit permits for oil rigs in order to retain business under lucrative drilling contracts

18. CFPOA Compliance Risks
Under-Invoicing
Could occur where customer is importer
Request to declare value lower than actual sale price of goods
To understate value to avoid duties
Violation of books and records requirements in accounting provisions
False accounting record
Also violations of domestic law

19. CFPOA Compliance Risks
Offshore Payments to Third Party Intermediaries
Request to pay service fee to an offshore account could be a Red Flag
“Off shore account” to establish “off books” account from which improper payments may be made
Improper characterization may give rise to books and records offence
Best option: Summarily reject request and request normal banking channels be followed or terminate relationship altogether

20. CFPOA Compliance Risks
Hospitality/Gifts to Foreign Customs Officials
Slippery
Furnishing of gifts to foreign customs officials may be improper bribe if given for an improper purpose
to obtain preferential customs treatment, avoidance of customs duties or import restrictions or resolution of customs disputes
SEC v. Parker Drilling Company
Charged with making improper payments to a third-party intermediary in order to entertain Nigerian officials involved in resolving the company's customs disputes
Parker Drilling agreed to pay $4 million to settle the SEC's charges
Mitigate risk
Compliance with gift giving policy with dollar limits
Bona fide purpose with documented justification
Transparency
Proper recording in books and records (qualitatively and quantitatively)

21. Conclusions
Import/export transactions can pose significant corruption risk, especially in high risk countries
Understand the requirements, risks and employ risk mitigation strategies
Companies are operating in increasingly high risk environment and mitigation of third party risk should be critical component of compliance strategy

22. Brenda C. Swick bswick@dickinsonwright.com 416 594 4052
Thank you!
Brenda C. Swick