Canada’s real corruption scandal: How Ottawa bungled a flawed OECD code and triggered the SNC crisis
|National Post 15 Mar 2019 at 08:19|
There would be no corruption in a perfect world. The global economy would be a clean zone, free of crooked politicians, bribing corporations, sleazy grifters and sophisticated influence peddlers trolling through the underworld economy, skimming cash from taxpayers, citizens and shareholders.
The opening words of the Organisation for Economic Co-operation and Development (OECD) anti-bribery convention, ratified by Canada in 1999, describe bribery as “a widespread phenomenon in international business transactions, including trade and investment, which raises serious moral and political concerns, undermines good governance and economic development, and distorts international competitive conditions.”
It’s a watery description of purpose that could encompass most routine government policy-making. But the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was portrayed in 1997 as the cornerstone of a new global effort to rid the world of corporate bribery and corruption.
Fritz Heimann, legal counsel to General Electric Co. and a prime corporate lobbyist for the convention, even called it the “most significant achievement to date” in the move to reform international business.
But after more than two decades in operation, the convention has left a trail of dubious results and negligible achievement. Its major impact internationally has been to install a prosecution regime that shakes down international companies for billions of dollars in penalties, as if corporations were the cause of the corruption that engulfs most of the world’s nations.
Government enforcers in the United States have nailed 170 companies with US$9 billion in settlements over the past decade. In Canada, the OECD convention threatens to bring down engineering giant SNC-Lavalin Group Inc. — and Justin Trudeau’s Liberal government to boot.
Adding to the perception that the Government of Canada may be guilty of wrongdoing, the OECD on Monday issued a condescending statement , saying it was “concerned” and will “closely monitor” future developments in the SNC-Lavalin case.
Unfortunately, nobody seems to be closely monitoring “with concern” the OECD’s anti-bribery regime. The 36-member organization’s massive and escalating enforcement efforts against western corporations have done little, perhaps even nothing, to reduce bribery and corruption where it matters: the real world, where most nations are in various stages of corrupt disrepair.
Rather than receding, national corruption levels remain unchanged since 1997 and may even be increasing, according to Transparency International’s annual corruption index. Indeed, most of the world is beset by corruption, aside from Canada, the U.S., the United Kingdom, Australia and a few European countries.
But Canada’s recent arrival in the global corruption spotlight is mainly a product of the OECD convention and its bungled adoption by Ottawa under lobbying pressure from activists and some U.S. corporations. The first major bungle was by the Stephen Harper Conservatives in 2013/14, followed by the Trudeau Liberals in 2017/18.
Its deeper origins, however, can be found in the bowels of Washington politics in the post-Watergate era. The OECD convention was concocted after U.S. politicians discovered their anti-corruption crusade of the 1970s — which led to the creation of the Foreign Corrupt Practices Act in 1977 — left U.S. corporations out of the running for international business deals.
It’s useful to recall that corruption has a rich history around the world, including in the U.S. In light of this week’s college bribery scandal, it also exists in surprising forms.
Rather than receding, national corruption levels remain unchanged since 1997 and may even be increasing
In his 1984 book Bribes: The Intellectual History of a Moral Idea, the late John Noonan sifted through thousands of years of history to document bribery as a legal and routine practice dating back to at least 1500 BC.
Among the anecdotes in his 700-page work, Noonan describes the plight of Francis Bacon, the 16th-century father of the scientific method, who fell from political grace after his conviction for having enhanced his 3,000-pound income as England’s Lord High Chancellor with a bribing system that bought in 12,000 to 16,000 pounds a year from litigants.
Samuel Pepys, the famous 17th-century diarist and reputed founder of the British civil service, was a “bribe-taker on a grand scale,” Noonan writes. Despite a salary of only 350 pounds, Pepys managed to accumulate a stash worth 7,000 pounds in only seven years.
Through the 19th century, U.S. politics was rife with corruption. “Bribery was a way of life in this country,” Noonan states. A serious crackdown on bribery in the U.S. only began in the 20th century after a series of scandals, including the 1939 conviction of Martin Manton, a New York judge, for accepting US$186,000 from various corporations, including American Tobacco Co.
The U.S. anti-corruption crusade that launched a chain of events leading to Canada’s current SNC-Lavalin crisis was triggered by the Lockheed Aircraft Corp. bribery scandal of the 1970s. Unlike previous bribery cases that involved only local officials, Lockheed had paid foreign politicians and other international fixers and greasers to secure sales of its aircraft.
Other companies, including Gulf Oil, Northrop Corp. and Exxon Mobil, were also subject to high-profile congressional badgering for paying large sums to foreign politicians and officials.
These U.S. multinational corporations allegedly roamed the world sowing corruption. Among the recipients were officials in West Germany, Japan, Italy, Holland, Honduras and Saudi Arabia. The key Saudi cash collector was arms dealer Adnan Khashoggi, who received more than US$100 million from Lockheed during the 1970s.
During the congressional hearings, which became classic anti-corporate circuses, chief executives from scores of U.S. corporations were subject to grandstanding inquisition from politicians. New companies and foreign countries were added to the headlines: United Brands Co., Ashland Oil Co., Venezuela, Ecuador, Bolivia and Peru, among others.
Throughout hearings in 1975 and 1976, the message was clear: “Corruption is the dry rot of the capitalist system,” said New York Senator Clarence Percy. Senator Frank Church, who headed what became known as the Church Committee, also saw corruption narrowly as a U.S. corporate problem.
At the end of the congressional parade, the U.S. produced the Foreign Corrupt Practices Act. Signed into law by then president Jimmy Carter, the FCPA set a global precedent.
“The FCPA was a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign market,” Southern Illinois University (SIU) law professor Mike Koehler wrote in an Ohio State Law Journal article in 2012.
A less charitable description is that the FCPA is an attempt by the U.S. to impose its laws extraterritorially and an attempt to criminally punish bribery that fails to go after the real source of the problem — a problem identified at the time by numerous government officials.
A state department legal adviser, Mark Feldman, told the politicians that it would “not be advisable” to adopt an FCPA that essentially required the U.S. to hold corporations responsible for practices that were normal abroad.
“That kind of legislation we would oppose,” the adviser testified, “not because we differ with the moral imperatives involved but we feel that the enforcement of such legislation would involve us in the surveillance of activities taking place in foreign countries, including the behaviour of foreign officials, and would fundamentally intrude our moral views into foreign societies which may have different conditions.”
There were alternatives to the FCPA, Feldman said, such as leaving the main responsibility for enacting and enforcing criminal laws against corruption with the foreign state. The U.S. has an important role to play cooperating with other countries, but it should not be acting alone, he added.
Another state department official said there were many advantages to a “multi-lateral approach” based on international agreements rather than U.S. unilateralism.
But congressional leaders had little patience with an international initiative that could take years, even decades. They wanted action in 1977. The U.S., Senator William Proxmire said, has “a very, very serious corruption problem” that needed immediate attention. Whether they would succeed was not the issue.
As a result, by 1997 — 20 years after adopting the FCPA — not much had changed internationally, except that major U.S. corporations began to complain they were losing out in international competitions to corporations from other countries — France, Germany and elsewhere — that seemed to turn a blind eye to corporate misbehaviour abroad.
In other words, global corruption continued without the participation of U.S. corporations, which were losing business adhering to U.S. law.
Enter the OECD, backed by some key U.S. corporations such as GE, as well as World Bank chief James Wolfensohn and the anti-corporate NGO Transparency International (TI).
TI co-founder Frank Vogl, in Waging War on Corruption: Inside the Movement Fighting the Abuse of Power, describes some of the lobbying campaign that led to the 1997 OECD anti-bribery convention.
The campaign landed in Ottawa, where Vogl and Wesley Cragg, TI Canada president and a York University professor, met with senior Canadian government officials “to encourage them to take an active lead in securing an OECD agreement and become the first government to pass a national law to ratify. Top Canadian businessmen from mining company Placer Dome, GE Canada and Bell Telephone Canada joined our presentation to senior Canadian politicians and officials. One official encouraged us hugely: then Canadian aid agency head Huguette Labelle.”
Huguette Labelle in 2012. Chris Mikula/The Ottawa Citizen
Labelle, who headed the now-defunct Canadian International Development Agency, went on to become a chair of Transparency International and an active campaigner for the OECD convention.
Canada ratified the anti-bribery convention in 1999 by passing the Corruption of Foreign Public Officials Act. Since then, the OECD’s Working Group on Bribery has ritually hounded Canadian officials for failing to live up to the convention.
In 2011, the working group delivered a 70-page critique of Ottawa’s anti-corruption activity that said a lack of resources was preventing Canada from prosecuting cases, pointing out that only one company had been pursued. The critique also noted Canada told the working group that “it is willing to consider providing for automatic debarment in the case of foreign bribery.”
Therein lies the first OECD trap that ensnared SNC-Lavalin.
Over the next few years, the Department of Public Works and Government Services adopted a series of administrative integrity provisions that penalized companies prosecuted for foreign corruption. Companies would be “debarred” from government contracts for 10 years if charged, let alone convicted.
Debarment, in effect, became an administered double-jeopardy penalty imposed above and beyond any legal penalties set by a criminal court at the end of a trial. Corporate law firms called such moves a “game changer” in the world of corporate law.
Global corruption continued without the participation of U.S. corporations, which were losing business adhering to U.S. law
Michael Osborne at Toronto-based law firm Cassels Brock & Blackwell LLP said the debarment policy is fundamentally flawed because it makes no allowance for corporate reform and contrition. SIU professor Mike Koehler agrees. “I’ve long felt that Canada has a debarment issue … that should be addressed,” he said in an email.
Despite legal criticisms that the integrity regime measures were, among other things, retroactive and possibly unconstitutional, the OECD-led changes to Canada’s corporate prosecution regime were enthusiastically adopted by the Harper Conservatives.
As the rules were brought in, and before SNC-Lavalin was charged in 2015, nobody appears to have noticed that Ottawa had set in motion a process that could destroy companies. It was also a penalty other countries did not impose.
But an RCMP commissioner outlined the seriousness of the allegations against SNC-Lavalin later that year: “Corruption of foreign officials undermines good governance and sustainable economic development.” One suspects OECD tentacles may have reached a little too deep into the Canadian legal fabric when the RCMP announces that laying charges to protect “sustainable economic development” is a criminal priority.
After the SNC charges were disclosed, a slow political panic set in. Canada had apparently buckled under OECD pressure for tougher enforcement and debarments, even though other countries, including the U.S. and Britain, did not install debarment under their foreign corruption rules.
Instead, the U.S. and Britain had established Deferred Prosecution Agreement (DPA) regimes that allowed companies to settle corruption charges without trial and the risk of debarment. DPAs would allow companies such as SNC-Lavalin to negotiate their way out of a foreign corruption prosecution.
To fix this gap in the Canadian anti-bribery regime, Ottawa held consultations and, contrary to some commentary, the final move was not buried in a federal budget bill. The changes to the criminal code were based on dozens of intervenor comments in a report supporting made-in-Canada DPAs. It seemed like a way out for Trudeau.
In its nagging note to Canada on Monday, the OECD warned Ottawa against breaching Article 5, even though both the U.S. and Britain appear to do so without reprisal
Unfortunately for the Liberals and SNC-Lavalin, the new DPAs were mostly constructed along guidelines set out by the OECD’s anti-bribery regime. Under Article 5 of the OECD convention, DPAs cannot be granted if the objective is to protect “the national economic interest.”
In its nagging note to Canada on Monday, the OECD warned Ottawa against breaching Article 5, even though both the U.S. and Britain appear to do so without reprisal.
For example, Koehler believes the US$800-million DPA settlement Britain extracted from Rolls-Royce PLC in 2017 violated the OECD national economic interest rule. More recently, Koehler said the U.S. violated the rule when it launched an action against Chinese companies that “compete with American businesses.”
By erratically following the OECD’s flawed, ineffective and ultimately troublesome attempt to rid the world of bribery and corruption, successive Canadian governments have bungled Ottawa into a needless scandal and a political crisis. And the world is no closer to corruption-free perfection than it was 40 years ago.
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