Note: This is a condensed version of an article originally
published on McCarthy Tétrault’s International Trade and Investment Law
Group’s Legal Update on Feb. 14, 2013. It is condensed and reprinted with permission.
By Paul Michael Blyschak and John W. Boscariol
On Jan. 25, 2013, the Alberta Court of Queen’s Bench approved a $10.35-million penalty against Griffiths Energy International Inc. (Griffiths) for a violation of the Corruption of Foreign Public Officials Act (CFPOA) in connection with the actions of the company’s previous management and representatives in Chad, Africa (Griffiths Judgment).
Although the CFPOA has been in force since 1999, the Griffiths
conviction joins the conviction of Niko Resources Inc. (Niko) in June
of 2011 (Niko Order) as only the second significant conviction rendered under Canada’s foreign anti-corruption legislation to date.
The Griffiths conviction relates primarily to a series of consulting agreements and related transactions entered into by the company, a Calgary-based junior oil and gas exploration and production firm, at the direction of its previous management and in pursuit of certain production sharing contracts (PSCs) in Chad.
Around the time the company was formed in August 2009, Griffiths and several of its founding shareholders set out to develop contacts with senior Chadian political figures, including the Chadian Ambassador to Canada and the country’s minister of petroleum and energy.
This led to the execution of a consulting agreement on August 30, 2009 between Griffiths and Ambassade du Tchad LLC (Tchad LLC), a U.S.-registered entity wholly owned by the Ambassador. The agreement provided for a $2-million fee payable to Tchad LLC in the event Griffiths was awarded the desired PSCs before the end of 2009.
Griffiths terminated the Tchad LLC consulting agreement in early September 2009 after being advised that it constituted an unlawful offer of a benefit to a foreign public official. However, on Sept. 15, 2009, Griffiths entered into a second consulting agreement on identical terms with another U.S.-incorporated entity, this time wholly owned by the wife of the Ambassador and named Chad Oil Consulting LLC (COCL). Griffiths simultaneously (i) granted the Ambassador’s wife 1,600,000 founder shares in the company at a price of $0.001 per share, and (ii) granted an additional 2,400,000 founder shares at the same price to two individuals nominated by the Ambassador’s wife, including the wife of the then Deputy Chief of the Chadian Embassy in Washington, D.C. (Deputy Chief).
Following the expiration of its initial term, the COCL consulting agreement was renewed by the parties effective Jan. 1, 2011, with only minor amendments. Shortly thereafter, and after months of negotiations, a Griffiths subsidiary executed a PSC with Chad on Jan. 19, 2011. The $2-million dollar payment owing to COCL was placed into escrow in February, 2011, before being transferred to COCL pursuant to deposit instructions received from the Deputy Chief.
Griffiths acknowledged that, by entering into the Tchad LLC and COCL consulting agreements and by issuing seed shares to the Ambassador’s wife and her nominees, it violated paragraph 3(1)(b) of the CFPOA by providing direct or indirect benefits to the Ambassador in an attempt to induce the Ambassador to use his position to influence decisions of Chad in respect of the desired PSCs.
However, the Statement of Facts also contains several important acknowledgements by the Crown which informed its agreement to limit the fine imposed on Griffiths to $10.35 million (being a fine of $9 million plus a 15 per cent victim fine surcharge).
First, the Crown acknowledged that the current senior leadership of Griffiths was distinct and separate from the management steering the company at the time of the corrupt practices at issue, and that the new management had taken swift action following the discovery of the offending consulting agreements.
The Crown also acknowledged the decision of Griffiths to voluntarily self-disclose its special investigation to the RCMP and representatives of the Public Prosecution Service of Canada and Alberta Justice on Nov. 15, 2011, as well as their counterparts in the United States shortly thereafter.
While Justice Brooker of the Alberta Queen’s Bench (Court) said "the penalty imposed must be sufficient to show the Court’s denunciation of such conduct as well as provide deterrence to other potential offenders,” he said Griffiths’ conduct upon discovering a possible breach of the CFPOA demonstrated a "complete and genuine remorse for the illegal conduct manifested by its former officers."
It would be difficult to exaggerate the apparent influence of Griffiths’ self-disclosure on the amount of the fine imposed. Niko was fined $9.5 million for gifts in kind worth an aggregate of approximately $200,000.00. Griffiths, on the other hand, was fined about eight per cent more than Niko for payments in excess of 10 times the value of gifts provided by Niko.
Criminal culpability under the CFPOA resulted both from the COCL consulting agreement under which the $2-million dollar payment was made as well as from the earlier consulting agreements, even though no payments were actually made pursuant to those agreements. This serves as a clear reminder that the CFPOA prohibits mere offers or promises made to, or for the benefit of, foreign public officials and not only actual payments made to or for the benefit of such officials.
Although the Crown acknowledges that that the $2-million payment made by Griffiths’ past management to COCL is beyond the reach of the Court, forfeiture proceedings in respect of the seed share issuances to the Wife and her nominees are understood to have been initiated and were scheduled to be heard by the Court on Feb. 15, 2013. The experience of Griffiths may therefore serve as the first instance in Canada of the seizure of assets tainted by foreign corrupt practices.
It should not be lost on companies with overseas operations that engaging third-party agents even with the best of intentions can be fraught with uncertainty and represents one of the most significant areas of anti-corruption risk facing Canadian business.
The experience of Griffiths and its new management and directorship emphasize the need for Canadian companies with overseas operations or business partners to implement and enforce comprehensive anti-corruption policies and procedures customized to their particular circumstances in a proactive manner. This will best place an organization, as well as its management and directors, to detect and prevent potential violations of the CFPOA, and to quickly respond accordingly. As the RCMP and Crown have now made abundantly clear, with approximately 35 ongoing CFPOA investigations, the Canadian business community now operates in a new and aggressive era of anti-corruption enforcement.
Click here to read the full article, with citations.
Paul Michael Blyschak is an associate in Calgary and John W. Boscariol is a partner in Toronto with McCarthy Tétrault.
By Paul Michael Blyschak and John W. Boscariol
On Jan. 25, 2013, the Alberta Court of Queen’s Bench approved a $10.35-million penalty against Griffiths Energy International Inc. (Griffiths) for a violation of the Corruption of Foreign Public Officials Act (CFPOA) in connection with the actions of the company’s previous management and representatives in Chad, Africa (Griffiths Judgment).
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It would be difficult to exaggerate the apparent influence of Griffiths’ self-disclosure on the amount of the fine imposed.
|
The Griffiths conviction relates primarily to a series of consulting agreements and related transactions entered into by the company, a Calgary-based junior oil and gas exploration and production firm, at the direction of its previous management and in pursuit of certain production sharing contracts (PSCs) in Chad.
Around the time the company was formed in August 2009, Griffiths and several of its founding shareholders set out to develop contacts with senior Chadian political figures, including the Chadian Ambassador to Canada and the country’s minister of petroleum and energy.
This led to the execution of a consulting agreement on August 30, 2009 between Griffiths and Ambassade du Tchad LLC (Tchad LLC), a U.S.-registered entity wholly owned by the Ambassador. The agreement provided for a $2-million fee payable to Tchad LLC in the event Griffiths was awarded the desired PSCs before the end of 2009.
Griffiths terminated the Tchad LLC consulting agreement in early September 2009 after being advised that it constituted an unlawful offer of a benefit to a foreign public official. However, on Sept. 15, 2009, Griffiths entered into a second consulting agreement on identical terms with another U.S.-incorporated entity, this time wholly owned by the wife of the Ambassador and named Chad Oil Consulting LLC (COCL). Griffiths simultaneously (i) granted the Ambassador’s wife 1,600,000 founder shares in the company at a price of $0.001 per share, and (ii) granted an additional 2,400,000 founder shares at the same price to two individuals nominated by the Ambassador’s wife, including the wife of the then Deputy Chief of the Chadian Embassy in Washington, D.C. (Deputy Chief).
Following the expiration of its initial term, the COCL consulting agreement was renewed by the parties effective Jan. 1, 2011, with only minor amendments. Shortly thereafter, and after months of negotiations, a Griffiths subsidiary executed a PSC with Chad on Jan. 19, 2011. The $2-million dollar payment owing to COCL was placed into escrow in February, 2011, before being transferred to COCL pursuant to deposit instructions received from the Deputy Chief.
Griffiths acknowledged that, by entering into the Tchad LLC and COCL consulting agreements and by issuing seed shares to the Ambassador’s wife and her nominees, it violated paragraph 3(1)(b) of the CFPOA by providing direct or indirect benefits to the Ambassador in an attempt to induce the Ambassador to use his position to influence decisions of Chad in respect of the desired PSCs.
However, the Statement of Facts also contains several important acknowledgements by the Crown which informed its agreement to limit the fine imposed on Griffiths to $10.35 million (being a fine of $9 million plus a 15 per cent victim fine surcharge).
First, the Crown acknowledged that the current senior leadership of Griffiths was distinct and separate from the management steering the company at the time of the corrupt practices at issue, and that the new management had taken swift action following the discovery of the offending consulting agreements.
The Crown also acknowledged the decision of Griffiths to voluntarily self-disclose its special investigation to the RCMP and representatives of the Public Prosecution Service of Canada and Alberta Justice on Nov. 15, 2011, as well as their counterparts in the United States shortly thereafter.
While Justice Brooker of the Alberta Queen’s Bench (Court) said "the penalty imposed must be sufficient to show the Court’s denunciation of such conduct as well as provide deterrence to other potential offenders,” he said Griffiths’ conduct upon discovering a possible breach of the CFPOA demonstrated a "complete and genuine remorse for the illegal conduct manifested by its former officers."
It would be difficult to exaggerate the apparent influence of Griffiths’ self-disclosure on the amount of the fine imposed. Niko was fined $9.5 million for gifts in kind worth an aggregate of approximately $200,000.00. Griffiths, on the other hand, was fined about eight per cent more than Niko for payments in excess of 10 times the value of gifts provided by Niko.
Criminal culpability under the CFPOA resulted both from the COCL consulting agreement under which the $2-million dollar payment was made as well as from the earlier consulting agreements, even though no payments were actually made pursuant to those agreements. This serves as a clear reminder that the CFPOA prohibits mere offers or promises made to, or for the benefit of, foreign public officials and not only actual payments made to or for the benefit of such officials.
Although the Crown acknowledges that that the $2-million payment made by Griffiths’ past management to COCL is beyond the reach of the Court, forfeiture proceedings in respect of the seed share issuances to the Wife and her nominees are understood to have been initiated and were scheduled to be heard by the Court on Feb. 15, 2013. The experience of Griffiths may therefore serve as the first instance in Canada of the seizure of assets tainted by foreign corrupt practices.
It should not be lost on companies with overseas operations that engaging third-party agents even with the best of intentions can be fraught with uncertainty and represents one of the most significant areas of anti-corruption risk facing Canadian business.
The experience of Griffiths and its new management and directorship emphasize the need for Canadian companies with overseas operations or business partners to implement and enforce comprehensive anti-corruption policies and procedures customized to their particular circumstances in a proactive manner. This will best place an organization, as well as its management and directors, to detect and prevent potential violations of the CFPOA, and to quickly respond accordingly. As the RCMP and Crown have now made abundantly clear, with approximately 35 ongoing CFPOA investigations, the Canadian business community now operates in a new and aggressive era of anti-corruption enforcement.
Click here to read the full article, with citations.
Paul Michael Blyschak is an associate in Calgary and John W. Boscariol is a partner in Toronto with McCarthy Tétrault.
Copyright/Droit d'auteur © 2013 The Canadian Bar Association/L'Association du Barreau canadien
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