McGill Law Journal Revue de droit de McGill
CORPORATE LIABILITY FOR FOREIGN CORRUPT
PRACTICES UNDER CANADIAN LAW
Paul Blyschak*
Compliance with, and risk management in
respect of, foreign anti-corruption law has
quickly become a priority for Canadian corpora-
tions with international operations or assets.
This article tracks this rapid evolution in Cana-
dian corporate culture and compliance through
a broad examination of corporate liability for
foreign corrupt practices under Canadian law.
Rather than merely conduct a review of the law
governing corporate liability for foreign corrupt
practices under Canadian law, however, this ar-
ticle also highlights a number of unresolved,
problematic, or more complex areas of such law.
This review does not purport to the exhaustive;
nor does it presume offer definitive answers to
the numerous questions posed. Rather, given
the recent acceleration of the enforcement of the
CFPOA by Canadian authorities, the aim of this
article is to contribute novel legal analysis to an
increasingly important area of corporate law
and practice.
la corruption
La conformit avec les lois concernant la
lutte la corruption ltranger et la gestion
des risques associs cette problmatique sont
rapidement devenues des priorits pour les so-
cits canadiennes qui oprent ltranger ou
qui y dtiennent des actifs. Le prsent article
retrace cette volution rapide dans la culture
dentreprise canadienne en se penchant sur le
droit de la responsabilit des personnes morales
pour
ltranger. En plus
dexposer ltat du droit canadien, cet article
identifie plusieurs questions irrsolues et as-
pects problmatiques et complexes de ce do-
maine de droit. Lanalyse ne se veut pas ex-
haustive et lauteur ne prtend pas apporter de
rponses dfinitives aux questions souleves.
Larticle vise plutt contribuer lanalyse ju-
ridique dun domaine du droit canadien des so-
cits qui prend rapidement de lexpansion, no-
tamment par la rcente acclration de la mise
en uvre de la Loi sur la corruption dagents
publics trangers par les autorits canadiennes.
* Blake, Cassels & Graydon LLP. Paul Blyschak is called to the bar in Alberta, New
York State, and New South Wales. He would like to thank Alison Wegner and Ryan
MacIsaac for their assistance in the research and preparation of this article.
Citation: (2014) 59:3 McGill LJ 655 Rfrence : (2014) 59 : 3 RD McGill 655
Paul Blyschak 2014
656 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
Introduction
I.
The CFPOA and its Prohibitions
II.
Bill C-45 and Section 22.2 of the Criminal Code
III.
IV.
V.
VI.
Corporate Liability under the CFPOA and
Criminal Code Sections 22.2(a) and 22.2(b)
Corporate Liability under the CFPOA and Criminal
Code Section 22.2(c)
Corporate Liability for the Corrupt Practices of Third
Party Agents
A. Third Party Agents and Foreign Corrupt Practices
Risk
B. R. v. Briscoe and the Doctrine of Wilful Blindness
C. Conscious Avoidance and United States v. Kozeny
D. Wilful Blindness and Criminal Code Section 22.2
Corporate Liability for the Corrupt Practices of Acquisition
Targets
A. Share Acquisitions and Nationality Jurisdiction Versus
Territorial Jurisdiction
B. Asset Acquisitions and the Doctrine of Successor
Liability
VII. Corporate Liability for the Corrupt Practices of Subsidiaries
Conclusion
657
659
660
662
666
672
672
673
676
679
684
685
692
698
704
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 657
Introduction
Compliance with, and risk management in respect of, foreign anti-
corruption law has quickly become a priority for Canadian corporations
with international operations or assets. Although enacted in 1999, the
Corruption of Foreign Public Officials Act (CFPOA)1 sat largely ignored
by Canadian federal officials for over a decade until growing international
criticism prompted a revision of policy.2 Federal action has been swift
since this time, with details of new arrests and prosecutions regularly
making the news, and approximately thirty-five investigations reportedly
underway in 2013.3 The watershed moment was the guilty plea of Niko
Resources Ltd. to the bribery of a Bangladeshi energy minister in June
2011.4 Since that time, other highly recognizable tribulations have likely
been those of Griffiths International Energy Inc. and SNC-Lavalin.5
Faced with this sea change in the Canadian enforcement landscape,
Canadian corporations with international operations have rushed to en-
sure compliance with the CFPOA and its prohibitions, including through
the adoption of anti-corruption policies and procedures. These typically
1 Corruption of Foreign Public Officials Act, SC 1998, c 34 [CFPOA].
2 See Julian Sher, OECD slams Canadas lack of prosecution of bribery offences The
Globe and Mail (28 March 2011) online: The Globe and Mail
3 See Theresa Tedesco, OECD praises Canadas anti-corruption efforts Financial Post
(27 May 2013) online: Financial Post
4 See Greg McArthur, Niko Resources: Ottawas corruption test case The Globe and
Mail (25 August 2011) online: The Globe and Mail
5 On 25 January 2013, Griffiths International Energy Inc. was convicted of bribing the
Chadian Ambassador to Canada in connection with Griffiths pursuit of oil and gas as-
sets in that country. See Carrie Tait, Griffiths to pay millions in African bribery case
The Globe and Mail (22 January 2013) online: The Globe and Mail
been under investigation by Canadian and other international authorities in connection
with its operations in numerous jurisdictions, including Libya and Bangladesh. See
Greg McArthur & Claudio Gatti, SNC bribery probe widens to Algeria The Globe and
Mail (21 February 2013) online: The Globe and Mail
is also defending a class action against investors in connection with alleged non-
compliance with securities law. See SNC-Lavalin Group Inc. Securities Class Actions,
CNW (7 February 2013) online:
Lavalin have been charged.
658 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
include the appointment of officers charged with the oversight and en-
forcement of such policies and procedures, mandatory employee training,
and special purpose audit and accounting practices and reviews. The re-
sult has been a rapid evolution in the corporate culture of Canadian com-
panies previously unaccustomed to conducting business in the shadow of
vigorously enforced anti-corruption legislation.6
This evolution remains ongoing. In June 2013, Bill S-14 became law,
amending the CFPOA to significantly expand the reach of the CFPOA by
replacing the stricter standard of territorial jurisdiction with that of na-
tionality jurisdiction; and to impose a books and records provision pro-
hibiting accounting practices intended to conceal corrupt practices.7 The
prosecution of foreign corrupt practices by Canadian authorities is also be-
ing supported by complementary efforts in related legal regimes, includ-
ing in securities law.8
This article tracks this rapid evolution in Canadian corporate culture
and compliance through a broad examination of corporate liability for for-
eign corrupt practices under Canadian law. Rather than merely conduct a
review of the law governing corporate liability for foreign corrupt practic-
es under Canadian law, this article also highlights a number of unre-
solved, problematic, or more complex areas of such law. Following a brief
review of the prohibitions of the CFPOA (Part I), this paper moves to a
multi-tiered consideration of section 22.2 of the Criminal Code,9 which is
the provision controlling those circumstances in which a Canadian corpo-
ration may be held criminally liable for the acts of its human agents (Part
II). This Part includes a review of the legislative purpose of section 22.2,
as well as an examination of the three separate avenues pursuant to
which a corporation may attract CFPOA liability based on the actions or
inactions of one or more of its senior officers. Part III offers an analysis
of the interaction of the doctrine of wilful blindnessthe doctrine pur-
suant to which persons may be held criminally liable for acts committed
6 Note that Canadian companies with US subsidiaries that have international opera-
tions, as well as companies that are either listed or dual-listed on a US stock exchange,
will likely be far more familiar with such considerations due to the comparatively long-
standing active enforcement by US federal officials of the Foreign Corrupt Practices Act
(15 USC 78dd-1 (2012) [FCPA]). Note also that British companies have been experi-
encing a similar learning curve thanks to the recent passage of the Bribery Act 2010
((UK), c 23).
7 Bill S-14, An Act to amend the Corruption of Foreign Public Officials Act, 1st Sess, 41st
Parl, 2013 (assented to 19 June 2013), SC 2013, c 26 [Bill S-14].
8 See John W Boscariol, Brenda C Swick & Zachary Masoud, Canada Announces New
Initiative for Disclosure of Payments to Governments (13 June 2013) online: McCarthy
Tetrault
9 RSC 1985, c C-46 [Criminal Code].
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 659
on their behalf with their passive approval, that is, in circumstances in
which the person suspected the intended activity but consciously side-
stepped additional investigation out of fear of what would be discovered
with the prescriptions of section 22.2 of the Criminal Code. Finally, in
Part IV, this article considers corporate liability for foreign corrupt prac-
tices in the context of other business transactions and structures, includ-
ing corporate liability for the acts of acquisition targets and for the acts of
foreign subsidiaries.
This review does not purport to be exhaustive; nor does it presume to
offer definitive answers to the numerous questions posed. Rather, given
the recent acceleration of the enforcement of the CFPOA by Canadian au-
thorities, the aim of this article is to contribute novel legal analysis to an
increasingly important area of corporate law and practice.
I. The CFPOA and its Prohibitions
Generally speaking, the CFPOA imposes criminal and civil liability on
individuals and entities that engage in bribery or other corruption of for-
eign public officials. Section 3(1) is the centrepiece of the Act.10 It pro-
vides that:
(1) Every person commits an offence who, in order to obtain or retain
an advantage in the course of business, directly or indirectly gives,
offers or agrees to give or offer a loan, reward, advantage or benefit
of any kind to a foreign public official or to any person for the benefit
of a foreign public official
(a) as consideration for an act or omission by the official in con-
nection with the performance of the officials duties or functions;
or
(b) to induce the official to use his or her position to influence any
acts or decisions of the foreign state or public international or-
ganization for which the official performs duties or functions.11
In addition, Bill S-14, enacted and effective as of 19 June 2013, adds a
corresponding books and records offence to the CFPOA.12 This enact-
ment makes it a criminal offence for an individual or entity to, for the
purpose of bribing a foreign public official … or for the purpose of hiding
that bribery, engage in any of the following accounting practices:
10 Canada, Department of Justice, The Corruption of Foreign Public Officials Act: A Guide
(Ottawa: Department of Justice, May 1999) [CFPOA Guide] at 3.
11 CFPOA, supra note 1, s 3(1).
12 Bill S-14, supra note 7, cl 4.
660 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
(a) establish[ing] or maintain[ing] 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) mak[ing] transactions that are not recorded in those books
and records or that are inadequately identified in them;
(c) record[ing] non-existent expenditures in those books and rec-
ords;
(d) enter[ing] liabilities with incorrect identification of their ob-
ject in those books and records;
(e) knowingly us[ing] false documents; or
(f) intentionally destroy[ing] accounting books and records earlier
than permitted by law.13
Therefore, generally speaking, a corporation may be liable for corrupt
practices under the CFPOA both where the corporation provides, offers to
provide, or agrees to provide something of value to a foreign public official
to induce that official to use the her authority or influence to obtain or re-
tain a business advantage for the corporation; and where the corporation
engages in accounting practices designed to disguise such corrupt activity.
II. Bill C-45 and Section 22.2 of the Criminal Code
What does it mean for a corporationrather than an individualto be
liable for corrupt practices under the CFPOA? Pursuant to section 22.2 of
the Criminal Code, enacted in 2004 by Bill C-45,14 a corporation may only
be held criminally liable in certain prescribed circumstances. Specifically,
section 22.2 provides that:
In respect of an offence that requires the prosecution to prove fault
other than negligencean organization is a party to the offence if,
with the intent at least in part to benefit the organization, one of its
senior officers
(a) acting within the scope of their authority, is a party to the of-
fence;
(b) having the mental state required to be a party to the offence
and acting within the scope of their authority, directs the work of
other representatives of the organization so that they do the act or
make the omission specified in the offence; or
13 CFPOA, supra note 1, s 4(1). Note that a violation of the books and records provision of
the CFPOA may also attract liability under substantively similar provisions of the
Criminal Code, supra note 9, including sections 361 (false pretences), 380 (fraud), and
397 (falsification of books and documents).
14 Bill C-45, An Act to amend the Criminal Code (criminal liability of organizations), 2d
Sess, 37th Parl, 2003, cl 22.2 (assented to 7 November 2003), SC 2003, c 21.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 661
(c) knowing that a representative of the organization is or is
about to be a party to the offence, does not take all reasonable
measures to stop them from being a party to the offence.15
Prior to Bill C-45 and section 22.2, the common law provided that a corpo-
ration could only be held criminally liable if illicit acts were committed by
an individual held to be the directing mind and will of the entity.16 Alt-
hough this inquiry took into account the nature of the charge, the rela-
tive position of the officer or agent and the other relevant facts and cir-
cumstances of the case,17 this approach set a relatively arduous standard
to satisfy. As discussed by Justice Iacobucci in Rhone v. Widener, at least
a modicum of executive control over the policies and operational practices
of the corporation would be required:
[O]ne must determine whether the discretion conferred on an em-
ployee amounts to an express or implied delegation of executive au-
thority to design and supervise the implementation of corporate poli-
cy rather than simply to carry out such policy. In other words, the
courts must consider who has been left with the decision-making
power in a relevant sphere of corporate activity.18
Bill C-45 and section 22.2 were intended, in part, to replace this
standard, as well as to generally modernize the law with respect to the
criminal liability of corporations.19 As acknowledged by the Plain Lan-
guage Guide to Bill C-45 published by the Department of Justice, howev-
er, section 22.2 does not entirely dispose of the directing mind concept.20
Given section 22.2s introductory language, the concept remains relevant
to the analysis in that it is a senior officer who must participate in the
commission of the crime in one or more of the three avenues outlined by
subsections (a), (b), and (c). The Guide explains that the term senior of-
15 Criminal Code, supra note 9, s 22.2 [emphasis added].
16 See Kent Roach, Criminal Law, 5th ed (Toronto: Irwin Law, 2012) at 23132; see also
Halsburys Laws of CanadaBusiness Corporations (McGuinness) (2013 Reissue, Lex-
isNexis) [Halsburys] at HBC-32.
17 Ibid at HBC-32. See also Roach, supra note 16 at 232; Canada, Department of Justice,
A Plain Language Guide: Bill C-45Amendments to the Criminal Code Affecting the
Criminal Liability of Organizations, online: Department of Justice
18 Rhone (The) v Peter AB Widener (The), [1993] 1 SCR 497 at 521, 101 DLR (4th) 188
[Rhone]. See also Canadian Dredge & Dock Co v The Queen, [1985] 1 SCR 662, 19 DLR
(4th) 314 [Dredge & Dock].
19 Bill C-45 Guide, supra note 17 at 2. See also Norm Keith, Corporate Crime and Ac-
countability in Canada: From Prosecutions to Corporate Social Responsibility (Mark-
ham, ON: LexisNexis Canada, 2011) (a growing consensus determined that the identi-
fication theory was inadequate to address the modern, complex corporation at 46);
Roach, supra note 16 at 23233.
20 Bill C-45 Guide, supra note 17 at 5.
662 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
ficer captures every individual who plays an important role in setting a
corporations policies or managing an important part of a corporations ac-
tivities; and that it is the latter limb which represents the true extension
of potential corporate criminal liability under section 22.2.21 Significantly,
this modification focuses on the function of the individual, rather than on
any particular title.22 In addition, the definition of senior officer elimi-
nates any inquiry into the managerial function or authority of certain
specified individuals, namely a corporations directors, chief executive of-
ficer, and chief financial officer. Stated differently, regardless of the man-
agerial function or authority of these individuals, they will be automati-
cally deemed to be a senior officer based merely on their titles.23
III. Corporate Liability under the CFPOA and Criminal Code Sections
22.2(a) and 22.2(b)
Much about the marriage of section 22.2 with the CFPOA is relatively
clear. The most straightforward manner for a corporation to attract crim-
inal liability for corrupt practices is for a senior officer to be a direct party
to the corrupt act pursuant to section 22.2(a):24 for example, for the officer
to either offer or pay a bribe to a foreign public official himself or herself,
either directly or through a third party agent.25 Here, the required crimi-
nal intent or mens rea is attributed to the senior officer, either due to his
or her actual knowledge, or through imputed knowledge under the doc-
21 Ibid at 5. See also Roach, supra note 16 at 23536; R v Tri-Tex Sales & Services Ltd,
[2006] NJ No 230 (QL) at para 42, 70 WCB (2d) 512 (NL Prov Ct) [Tri-Tex], in which
the court describes Bill C-45 and section 22 of the Criminal Code as having effected a
fundamental change, if not a revolution, in corporate criminal liability (quoting The
Hon Todd L Archibald, Kenneth E Jull & Kent W Roach, Regulatory and Corporate Li-
ability: From Due Diligence to Risk Management, looseleaf (consulted on 31 January
2014), (Toronto: Canada Law Book, 2013) vol 1 at 5:10 [Archibald et al]).
22 Bill C-45 Guide, supra note 17 at 5.
23 Ibid.
24 Ibid at 7. Section 22.2(a) has been called a codification of the common law identifica-
tion theory (ibid). See also Keith, supra note 19 at 72; Paul Dusome, Criminal Liabil-
ity under Bill C-45: Paradigms, Prosecutors, Predicaments (2008) 53 Crim LQ 98 at
128.
25 Note also that under section 22.2(a) the senior officer does not necessarily have to [be]
the person who actually commits the offence. This is because section 22.2(a) only re-
quires that the senior officer is a party to the offence, which may include aiding and
abetting under sections 21(b) and 21(c), common unlawful intent under section 21(2),
and counselling the commission of an offence under section 22. Therefore, a corporation
may be liable for a subjective intent offence under section 22.2(a) on the basis that its
senior officer intentionally assisted or counselled a representative of the corporation to
commit the offence (Roach, supra note 16 at 240). Note also that section 3(1) of the
CFPOA, supra note 1, captures both direct and indirect corrupt practices.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 663
trine of wilful blindness.26 Similarly, a senior officer will attract criminal
liability to his or her corporation under section 22.2(b) if that officer in-
structs or directs another representative of the corporation to engage in
corrupt practices; for example, if the officer directs another representative
of the corporation to bribe a foreign official, direct a third party agent to
bribe a foreign official in the representatives stead, or engage in account-
ing practices designed to disguise such corrupt acts.27 Again, the required
mens rea springs from the mind of the senior officer, and no comparable
criminal intent in the mind of the representative is required.28
The most significant analysis in each case would likely be whether the
relevant individual in fact qualifies as a senior officer of the corporation
under the Criminal Codewhether because the individual plays an im-
portant role in determining the corporations policies, the individual man-
ages an important part of the corporations activities, or the individual is
a director or the CEO or CFO of the corporation. To this end, recent case
law indicates that courts are inclined to interpret the definition of senior
officer expansively. In Tri-Tex, for example, the court held that the
bookkeeper of a small company involved in supplying and servicing elec-
tronic equipment for fishing vessels clearly constituted a senior officer
given that finances are an important aspect of a companys activities.29
In R. v. Metron Construction Corp., on the other hand, the Ontario Court
of Justice noted that Bill C-45 clearly extends the attribution of the crim-
inal corporate liability to the actions of mid-level managers.30 In this
case, a small Toronto construction company was held criminally liable for
the negligent actions of its site supervisor after four men (including the
supervisor) died, and another was seriously injured, when a swing stage
carrying the men down from a fourteenth floor concrete balcony col-
lapsed.31
26 For further discussion of the doctrine of wilful blindness, see Part VI, below.
27 Note that it has been argued that section 22.2(b) is largely redundant, as it essentially
duplicates what is already achieved by section 22(1) of the Criminal Code. See supra
note 25; Roach, supra note 16 at 24041; Darcy L MacPherson, Extending Corporate
Criminal Liability?: Some Thoughts on Bill C-45 (2003) 30:1 Man LJ 253 at 261.
28 See Bill C-45 Guide, supra note 17 at 7; Dusome, supra note 24 at 128.
29 Tri-Tex, supra note 21 at para 39. Note, however, that the allegation that a bookkeeper
qualified as a senior officer was not contested by the company.
30 R v Metron Construction Corp, 2012 ONCJ 506 at para 15, 1 CCEL (4th) 266, affd 2013
ONCA 541 (available on CanLII) [Metron], citing MacPherson, supra note 27 at 259.
31 Metron, supra note 30 at para 2. Note, however, that whether the site supervisor quali-
fied as a senior official was not contested and that the Crown and the defendant had
agreed that this standard was satisfied by the facts at hand. See ibid at para 7.
664 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
R. v. Ptroles Global Inc. provides the most thorough consideration to
date of the scope of the Criminal Codes new standard for classifying
someone as a senior officer.32 The judgment follows an investigation by
the Competition Bureau into allegations of retail gasoline price-fixing
committed by the company in eastern Quebec. The alleged senior officers
were two territorial managers, as well as the general manager for Quebec,
who together were responsible for managing various service stations in
the province. Their responsibilities included hiring and training station
operators, overseeing maintenance and repairs, and implementing vari-
ous corporate policies. The Quebec Superior Court began by recognizing
that Bill C-45 has the effect of displacing the requirement that a senior of-
ficer have decision-making authority in the adoption of policies.33 Im-
portantly, the court then proceeded to reject the companys assertion that
the term senior requires that the individual have some autonomy in ex-
ercising his or her decision-making authority. Applying this reasoning to
the facts at hand, the court did not hesitate in holding that the general
manager was responsible for an important aspect of the companys activi-
ties and therefore qualified as a senior officer, particularly given that he
supervised more than 200 service stations in Quebec, he was the third-
highest pay earner within the company, and he was authorized to approve
expenses exceeding $1,000 before recommending them to senior manage-
ment.34 Furthermore, he was authorized to approve these expenses re-
gardless of the fact that various other expenses required the prior approv-
al of the companys vice-president.
What will be the most important considerations in the application of
this broadened standard of corporate liability to foreign corrupt practices?
One will likely be the degree to which an allegedly senior officers respon-
sibilities include interacting with foreign public officials on the corpora-
tions behalf. In the case leading to the conviction of Niko Resources Ltd.,
for example, at issue were the improper gifts and hospitality provided to
the Bangladeshi energy minister by the company and several of its (and
its subsidiarys) high-ranking officers in the form of a luxury vehicle and
an international vacation.35 Niko provided these gifts following an explo-
sion at one of its drill sites which resulted in significant property damage.
32 R v Ptroles Global Inc, 2013 QCCS 4262 (available on Azimut), leave to appeal to CA
granted, 2013 QCCA 1604.
33 Ibid at paras 4243.
34 Note that the Quebec Court of Appeal did not go on to determine whether the two terri-
torial managers also qualified as senior officers (see ibid at para 211).
35 R v Niko Resources Ltd, 2011 CarswellAlta 2521, 101 WCB (2d) 118 (Alta QB) [Niko
Resources]. Note that the guilty plea and conviction does not expressly address which
individuals within the company constituted senior officers for the purposes of the com-
panys criminal liability.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 665
Presumably, the gifts were granted in order to obtain favourable govern-
ment treatment following this incident, as well as favourable government
treatment in the context of ongoing contractual negotiations between the
company and a state-owned energy company. The conviction of Niko for
these activities indicates, then, that where a company operates in an in-
dustry that is heavily regulated or heavily dependent on government con-
cessions, permits or licences, or both, it may be difficult to argue that an
official charged with regulatory matters or government relations does not
manage an important aspect of the corporations activities. The same may
also be held in the case of an individual charged with international cus-
toms and clearance matters in an industry heavily dependent on the im-
port or export of heavy equipment machinery or goods (for example, drill-
ing service providers); or an individual charged with ensuring operational
compliance in an industry in which government inspections or certifica-
tion, or both, are a common occurrence or material requirement (for ex-
ample, an individual involved in the manufacturing, processing, or dis-
posal of hazardous substances).
That said, it would be incorrect to assume that an individuals respon-
sibilities will always be required to expressly include interaction with for-
eign public officials in order for that person to attract corporate liability
for foreign corrupt practices as a senior officer. Rather, all that may be re-
quired is either that the corporate policies over which the individual has
important discretion, or the important corporate activities that the indi-
vidual manages, bring the individual into a position to interact with one
or more foreign public officials in the course of his or her duties. Griffiths
Energy International Inc., for example, pled guilty to a violation of the
CFPOA over a series of illicit consulting agreements executed by the com-
pany at the direction of its former management in pursuit of oil and gas
production sharing contracts in Chad.36 In these circumstances, what may
have been important is less that these individuals came to interact with
Chadian public officials, and more that such interaction was a direct re-
sult of these individuals important managerial responsibilities at the
company, namely material business development in the form of soliciting
oil and gas exploration and development opportunities. The same may be
true in the case of a regional or divisional sales manager of a product or
service provider whose customers or clients include foreign government
bodies or agencies or state-owned entities. Stated differently, while re-
sponsibility for interacting with foreign public officials at some level may
be an indicator that an individual plays an important role in corporate
36 R v Griffiths Energy International, [2013] AJ No 412 (QL), Action No 130057425Q1 (AB
QB). As in Niko Resources, neither the agreed statement of facts nor the conviction deal
in any meaningful detail with which individuals qualified as senior officers of the com-
pany for the purposes of the companys criminal liability.
666 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
policy setting or manages an important part of a corporations activities,
the absence of such responsibility may not disqualify the person from con-
stituting a senior officer. Instead, what is likely of importance is the sig-
nificance of the role and authority of the individual, considered in light of
the corporations wider business operations and structure.
IV. Corporate Liability under the CFPOA and Criminal Code Section
22.2(c)
The relationship between the CFPOA and section 22.2(c) of the Crimi-
nal Code is slightly more ambiguous than the CFPOAs relationship with
Criminal Code sections 22.2(a) and 22.2(b). The term representative is
defined by the Criminal Code, in respect of a corporation, to include a di-
rector, partner, employee, member, agent or contractor of the corpora-
tion.37 Therefore, a plain language reading of section 22.2(c) provides that
a corporation will attract criminal liability for corrupt practices where one
of its senior officers knows that a partner, employee, member, agent or
contractor of the entity is or is about to engage in a violation of CFPOA
section 3(1), and the senior officer does not take all reasonable measures
to prevent the representative from doing so. In many instances, this for-
mula will not present any difficulties in application. For example, a corpo-
ration will likely be criminally liable if its CEO, CFO, or one of its direc-
tors knew that a low-level foreign worker intended to bribe a foreign offi-
cial in connection with the corporations efforts to secure a government
contract or licence, and the CEO, CFO, or director took no action to pre-
vent this from occurring.
This is an important development in the evolution of corporate crimi-
nal liability in Canadian law. Unlike the previous common law identifi-
cation theory, as explored and defined by the Supreme Court in Rhone v.
Widener and R. v. Canadian Dredge & Dock Co.,38 section 22.2(c) requires
no active participation in the offence by anyone acting in any sort of man-
agerial capacity or control position.39 Stated differently, whereas under
the identification theory a corporation would only attract criminal liability
if a directing mind of the corporation was actively involved in the offence,
pursuant to section 22.2(c), liability may accrue where any senior officer is
merely passively involved in an offence through inaction or omission. Fur-
thermore, the result is the same regardless of the position of the repre-
37 Criminal Code, supra note 9, s 2.
38 Rhone, supra note 18; Dredge & Dock, supra note 18.
39 MacPherson, supra note 27 at 262. See also Tri-Tex, supra note 21 at para 43.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 667
sentative, that is, whether the position is that of an administrative assis-
tant or member of the janitorial staff.40
However, section 22.2(c) also poses a number of complex organiza-
tional questions when paired with a contravention of the CFPOA com-
mitted by a non-senior officer or remote corporation representative.41 Sim-
ilar to the analysis conducted with respect to Criminal Code sections
22.2(a) and 22.2(b), 22(c) first requires confirmation that the individual,
who was allegedly aware of the relevant corrupt acts, qualifies as a senior
officer of the corporation. As Archibald, Jull, and Roach highlight, while
there will obviously be knowledge of the corrupt acts at some level of
the corporation, the real question remains how far up the organizational
chain this knowledge goes.42 However, two additional, and potentially
more problematic, criteria must also be met. First, it must be proven that
the senior officer knew that the representative was or was about to engage
in the corrupt acts. It must also be proven that the senior officer did not
take all reasonable measures to prevent the representative from engaging
in the corrupt acts.
At what point can a senior officer be said to have knowledge that a
bribe or other corrupt practice is or is about to be committed by a repre-
sentative of a corporation for the purposes of section 22.2(c)? Archibald,
Jull, and Roach suggest that the corrupt act must be at least reasonably
foreseeable.43 But it is difficult to pinpoint exactly what this means in real
world, practical terms in the context of foreign corrupt practices. Does it
mean that the senior officer must have knowledge of specific corrupt acts
to be performed by a specific representative targeting a specific foreign
public official? Or does it merely mean that the senior officer must have
general knowledge that any number or class of representatives may be in
a position to engage in corrupt practices of some kind targeting any num-
ber or class of foreign public officials? Or is it something in between these
very widely placed goal posts? Prudence dictates that Canadian corpora-
tions with overseas operations would assume that the latter, more liberal
standard is operative, and is the standard that Canadian courts would
apply. However, reason also dictates that this standard goes well beyond
the plain wording of section 22.2(c) by extending the requirement of a
pending or highly probable violation by a representative of the corporation
to a merely potential or possible violation by the representative.
40 MacPherson, supra note 7 at 262.
41 Archibald et al, supra note 21 at 17:30:70. See also Keith, supra note 19 at 74.
42 Archibald et al, supra note 21 at 17:30:70.
43 Ibid at 17:30:20. MacPherson, for his part, suggests that the standard should, at the
very least, be greater than that of recklessness, but also recognizes judicial authority to
support the contrary position (supra note 27 at 267).
668 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
Uncertainty also surrounds the application and effect of the language
of all reasonable measures in section 22.2(c). In particular, it is unclear
whether Parliament intended this terminology to establish a type of quasi
due diligence defence in favour of corporate entities charged with criminal
liability. As noted by Archibald, Jull, and Roach, the reference to all rea-
sonable measures leaves section 22.2(c) a curious combination of the
subjective mens rea standard and the objective standard of fault, in
which the senior officer does not take all reasonable measures to prevent
the corporations representative from engaging in corrupt acts.44 Archi-
bald, Jull, and Roach conclude that systems of due diligence system
based on civil negligence law may be useful in building potential defences,
keeping in mind that the onus always remains on the prosecution to show
knowledge and an absence of reasonable measures.45 They further stress
that the more fulsome a corporations efforts to avoid engaging in cor-
rupt acts, the easier it will be to argue that there were no alternative so-
lutions available to prevent the particular [corrupt practices which have]
occurred.46 However, the authors stop short of expressly asserting that if
a corporation has, with diligence and in good faith, instituted and en-
forced robust anti-corruption policies and procedures, the corporation will
be protected from criminal liability under section 22.2(c) regardless of any
potential contravention by a rogue representative. This analytical re-
straint may only be reasonable. Section 22.2(c) speaks of all reasonable
measures taken by a senior officer, not by the corporation itself. Moreover,
section 22.2(c) refers to such reasonable measures taken in the context of
knowledge of an offence that is being or is about to be committed by a cor-
porate representative, not reasonable measures taken in the context of a
generally anticipated, but not yet specifically identified compliance risk.
These are potentially weighty questions. As jurisprudence under the
United States Foreign Corrupt Practices Act (FCPA)47 teaches us, there
are many instances in which corrupt practices and corrupt agendas
stretch far up the corporate hierarchy.48 When this is the case, there
44 Archibald et al, supra note 21 at 17:20:20. See also ibid at 17:30:70 and Roach, supra
note 16 at 242.
45 Archibald et al, supra note 21 at 17:20:10 [emphasis added]. See also 17:30:20. Similar-
ly, Roach notes that the reasonable measures element of section 22.2(c) is quite close
to the due diligence requirement for strict liability offences[,] and courts may well look
to the multiple factors that are relevant in determining due diligence in order to deter-
mine whether a senior officer took all reasonable steps to prevent a representative from
committing or continuing to commit the offence (supra note 16 at 242).
46 Archibald et al, supra note 21 at 17:30:30.
47 FCPA, supra note 6.
48 In 2009, for example, Halliburton and Kellogg Brown & Root agreed to pay US$579 mil-
lion in combined penalties, which was one of the largest FCPA settlements to date. The
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 669
should be little difficulty in establishing corporate criminal liability under
section 22.2 and one of its three subsections. However, FCPA precedent
also teaches us that there may be instances in which corrupt practices are
initiated by remote representatives, potentially far from the watchful eye
of any senior officer.49 Here, the proper application of section 22.2(c) is
more difficult to decipher, particularly in the current absence of robust ju-
dicial interpretation or application of section 22.2 to varied contexts.50
That said, it is likely only a matter of time before these questions receive
judicial treatment.
A primary response by Canadian corporations to CFPOA enforcement
efforts has been the adoption of anti-corruption policies and procedures.
When instituted prudently, such policies and procedures will reflect a cor-
companies transgressions related to US$6 billion in liquefied natural gas construction
contracts in Nigeria. According to the United States Securities and Exchange Commis-
sion, the bribery scheme included both senior corporate executives and senior Nigeri-
an officials who took actions to insulate themselves from the reach of U.S. law en-
forcement. The companies entered into sham contracts with two agents to conceal
the illicit payments and funnel money to Nigerian public officials. Other records were
deliberately falsified. The companies had also formed a cultural committee to decide
how to carry out the bribery scheme. This included payments to two agents in excess of
US$180 million, payments to high-ranking Nigerian officials funnelled through a Unit-
ed Kingdom agent, and payments to lower-ranking Nigerian officials funnelled through
a Japanese agent (United States Securities and Exchange Commission, Press Release,
2009-23, SEC Charges KBR and Halliburton for FCPA Violations (11 February 2009)
online: US Securities and Exchange Commission
49 In 2006, the Securities and Exchange Commission brought cease and desist proceedings
against Oil States International, Inc. in connection with alleged violations of the books
and records provisions of the FCPA relating to certain payments made by a wholly
owned subsidiary of the company to Petrleos de Venezuela, SA (PDVSA), the state-
owned Venezuelan oil and gas company. In 2000, the subsidiary, an operator of special-
ly designed oil and gas rigs, hired a Venezuelan consultant to interface with employees
of PDVSA on its behalf in the field and at the office level and to follow up on daily
operations, translate information into Spanish, write up tickets in accordance with
PDVSA requirements and submit [the subsidiarys] invoices to PDVSA for payment.
Although the consultant was not involved in the solicitation to obtain business on be-
half of [the subsidiary], and only worked on the [referenced] operational matters, in
late 2003 the consultant was approached by three PDVSA employees about a proposed
kickback scheme pursuant to which the consultant would submit inflated bills to [the
subsidiary] for his services and kickback the excess to the PDVSA employees. Should
the consultant not agree to the proposed scheme, the PDVSA employees threatened to
stop or delay the subsidiarys work. After learning of the proposed scheme from the
Consultant, employees of the subsidiary acceded to and facilitated the improper activ-
ity (Re Oil States International, Inc (27 April 2006), File No 3-12280, online:
ceedings, Making Findings, and Imposing a Cease-and-Desist Order pursuant to Sec-
tion 21C of the Securities Exchange Act of 1934) at 23).
50 See Keith, supra note 19 at 41, 59, 63, 78.
670 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
rupt practices risk assessment focused on the particular management
structure and business operations of a corporation.51 Such an assessment
would consider the corporations areas of greatest risk exposure to corrupt
practices, including but not limited to the corporations current provision
for anti-corruption policies and procedures from a corporate governance
and training standpoint; the geographic, political, and legal circumstances
of the corporations operations; and the corporations various contact
points with government throughout all levels of its business operations.52
The results of a risk assessment would then inform the development of
reasonably customized anti-corruption policies and procedures designed to
mitigate against corrupt practices by the corporations representatives
and expose any corrupt practices the corporations representatives none-
theless engaged in. The policies and procedures would include, but not be
limited to, clear, visible, and vocal commitment by senior management;
training all personnel directly or indirectly exposed to foreign public offi-
cials; whistle-blower provisions allowing for confidential reporting of
suspected violations; and regular compliance monitoring and review.53
Less fulsome risk identification and mitigation strategies for corrupt prac-
tices would lack one or more of these qualities or components.
Therefore, depending on the circumstances, Canadian courts could be
faced with complicated questions regarding the appropriate application of
Criminal Codes section 22.2(c) to the corrupt acts of rogue lower-level
employees. When a senior officer is actually aware of specific corrupt
practices proposed or planned by a representative of the corporation, it is
likely that swift preventative action would be required of the senior offi-
cial to satisfy the all reasonable measures standard instituted by section
22.2(c). Thus, prophylactic action generally targeted at the scheme might
fall short of this mark.54 However, where the specific details of potential
51 Archibald, supra note 21 at 17:10, 17:60, referring to, inter alia, Niko Resources, supra
note 35. See also John Boscariol, Anti-Corruption Compliance Message Received?: Risk
Assessment Is Your Next Step Mining Prospects Law Blog (13 August 2012), online:
McCarthy Tetrault
52 Ibid.
53 See Archibald, supra note 21 at 17:60:10. Other important components of anti-
corruption policies and procedures may include compensation schemes that reward
compliance or strictly discipline non-compliance (ibid at 17:60:20). See also the proba-
tion order of the Court in Niko Resources, supra note 35 at para 21.
54 See Archibald, supra note 21 at 17:30:10, referring to the Ontario Court of Appeal deci-
sion in R v Brampton Brick Ltd (2004), 189 OAC 44 at para 28, 62 WCB (2d) 501 (Ont
CA) [Brampton], where, further to an appeal of the conviction of Brampton Brick under
the Ontario Occupational Health and Safety Act, RSO 1990, c O.1 (for the failure to
take every precaution reasonable in the circumstances for the protection of a worker,
ibid, s 25(2)(h)), the court held that [t]he employer must show it acted reasonably with
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 671
corrupt practices by a representative or class of representatives of a cor-
poration remain unknown or unclear to a senior officer (and to the degree
such circumstances may produce corporate liability under section 22.2(c)),
it is only reasonable that more general preventative measures would be
sufficient to satisfy the all reasonable measures standard. As noted by
Archibald, Jull, and Roach, a pertinent inquiry would likely be whether
sufficient due diligence [has] been taken to avoid the type or category of
particular event that has happened.55 This may include, among other fac-
tors, a comparison of any preventative system implemented to industry
standards or best practices, as well as a consideration of the adequacy of
the personnel, time, and resources dedicated to that preventative sys-
tem.56 However, this analysis should also be undertaken in appreciation of
the fact that anti-corruption compliance efforts are very often both costly
and complicated, and are only one of many governance issues facing com-
pliance departments or personnel.
To this end, Archibald, Jull, and Roach warn of the potential injustices
that may result, in the context of corrupt practices, from too little prosecu-
torial or judicial resistance to that logical flaw referred to by psycholo-
gists as the representative heuristic, namely the tendency of people to
jump to conclusions without considering a statistical baseline.57 In its
most basic interpretation, this caveat draws attention to the possibility
that, just because an event ordinarily occurs in the absence of adequate
preventative measures, the occurrence of the event does not necessarily
mean that adequate preventative measures have been absent.58 Archi-
bald, Jull, and Roach therefore caution as follows:
Applied to the area of anti-corruption, if an improper payment has
been made, it must be asked whether senior officers were aware of
the payment and failed to take reasonable [steps] to attempt to pre-
vent it. Applying benchmarks, it is appropriate to ask context and
regard to the prohibited act alleged in the particulars [and] not some broader notion of
acting reasonably: R. v. Kurtzman (1991), 50 O.A.C. 20; 66 C.C.C. (3d) 161 (C.A.)
(Brampton, supra note 54 at para 28).
55 Archibald, supra note 21 at 17:30:10 [emphasis in original]. Compare the approach of
the Court in Ontario (Ministry of Labour and Ministry of the Environment) v Sunrise
Propane Energy Group Inc, 2013 ONCJ 358 at paras 36368, 77 CELR (3d) 1, in which
it was held that, in the case of an inherently dangerous activity, a successful due dili-
gence defence must demonstrate that a preventative system was in place to guard
against harm, whether or not it was possible to predict the exact manner in which the
harm would occur.
56 Archibald, supra note 21 at 17:20:20, 17:30:10.
57 Ibid at 17:30:10, referring to Chris Guthrie, Jeffrey J Rachlinski & Andrew J Wistrich,
Inside the Judicial Mind (2001) 86:4 Cornell L Rev 777 at 811.
58 Archibald, supra note 21 at 17:30:10, referring also to R v Roks, 2011 ONCA 526 at pa-
ras 13537, 274 CCC (3d) 1.
672 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
time horizons. Is this the first improper payment made in 10 years?
Or is the payment part of a more systemic problem?59
Of course, leniency shown by courts or enforcement authorities toward
corrupt practices committed by representatives in the application of sec-
tion 22.2(c), based on the all reasonable measures standard, may hinge
on the implementation and enforcement of such preventative measures
with diligence and good faith.60 While a number of very strong policy ar-
guments have been advanced in support of affirmative compliance de-
fences to corporate corrupt practices,61 a lingering danger presented by
this approach remains encouraging a false sense of security among corpo-
rations that may result in the failure to adequately customize anti-
corruption policies and procedures to the corporations particular circum-
stances (presumably in reliance instead on generic policies and proce-
dures), and/or in the less-than-diligent and good faith implementation and
enforcement of whatever policies and procedures have been adopted,
whether customized, generic, or otherwise.
V. Corporate Liability for the Corrupt Practices of Third Party Agents
A. Third Party Agents and Foreign Corrupt Practices Risk
The use of third party agents is often unavoidable in international
business transactions. First, many foreign countries require the engage-
ment of a local agent or a local sponsor as a matter of law.62 Second, even
59 Archibald, supra note 21 at 17:30:10.
60 See Eileen Skinnider, Corruption in Canada: Reviewing Practices from Abroad to Im-
prove Our Response (March 2012), online: International Centre for Criminal Law Reform
and Criminal Justice Policy
firmative compliance defence available in certain jurisdictions and referring, inter alia, to
Ellen S Podgor, A New Corporate World Mandates a Good Faith Affirmative Defence
(2007) 44:4 Am Crim L Rev 1537; Mike Koehler, Revisiting a Foreign Corrupt Practices
Act Compliance Defense (2012) 2 Wis L Rev 609.
61 Generally speaking, an affirmative compliance defence provides that a corporation
will not be held liable for a contravention of anti-corruption law by an employee or
agent if the corporation established procedures reasonably designed to prevent and de-
tect such contraventions by its employees and agents. Arguments supportive of such a
defence include that it provides incentives for corporate compliance; contributes to a
more consistent, transparent, and predictable application of the defence … [;] can in-
crease public confidence in enforcement actions … [;] and allow[s] enforcement authori-
ties to better allocate its [investigative and prosecutorial] resources (Skinnider, supra
note 60 at 1617).
62 See Mike Koehler, The FCPA, Foreign Agents, and Lessons from the Halliburton En-
forcement Action (2010) 36:2 Ohio NUL Rev 457 at 459 [Koehler, Foreign Agents]
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 673
where this is not the case, foreign representation is often necessary to ad-
dress deficiencies in an international corporations capabilities, including
by providing an in-depth understanding of the local market and business
culture, as well as connections and contacts with relevant businesses and
business people.63 Foreign agents may also offer valuable expertise in nav-
igating local bureaucracies, regulatory hurdles, and general government
relations.64
To this end, while it is one matter to ensure that ones own house is in
order, it is an entirely different matter to ensure that ones agents and
representatives are strictly adhering to the same anti-corruption princi-
ples. Engaging third party agents or consultants in connection with busi-
ness development or operations can therefore at times be fraught with
uncertainty and can represent the greatest anti-corruption risk faced by
corporations, Canadian or otherwise.65
B. R. v. Briscoe and the Doctrine of Wilful Blindness
Assuming that the great majority Canadian corporations and their
senior officers will not deliberately engage in corrupt practices involving
third party agents, the question becomes at what point a corporation may
incur liability as the result of the conduct of its agents, even when the
corporation does not direct such behaviour. This requires close considera-
tion of the doctrine of wilful blindness under Canadian law, namely the
principle pursuant to which persons may be held criminally liable for ac-
tions taken by others where the person had near knowledge of the intend-
ed activity but deliberately avoided further inquiry in order to claim igno-
rance.66
Notably absent from section 3(1) of the CFPOA is the mental element,
or mens rea, required for conviction. This is at least in part because it was
intended that the offence … be interpreted in accordance with common
(citing Lisa Middlekauff, To Capitalize on a Burgeoning Market?: Issues to Consider
before Doing Business in the Middle East (2008) 7:2 Rich J Global L & Bus 159 at 170).
63 See Koehler, Foreign Agents, supra note 62 at 459; Michael Hwang & Kevin Lim,
Corruption in ArbitrationLaw and Reality (2012) 8:1 Asian International Arbitra-
tion Journal 1 at 26, 3944.
64 See Koehler, Foreign Agents, supra note 62 at 459.
65 Ibid at 45960, 47071.
66 Paul Michael Blyschak & John W Boscariol, Understanding and Mitigating Your
Third Party Corruption Risk Under Canadas Corruption of Foreign Public Officials
Act (22 January 2013), online: McCarthy Tetrault
674 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
law principles of criminal culpability, that is, that the courts will be ex-
pected to read in the mens rea of intention and knowledge.67
Reference must therefore be made to Canadian common law on crimi-
nal culpability. The Supreme Court of Canada in R. v. Sault Ste. Marie
established the mens rea standard for criminal culpability where no
threshold is specified within the governing statute. Justice Dickson (as he
then was) stated:
Where the offence is criminal, the Crown must establish a mental
element, namely, that the accused who committed the prohibited act
did so intentionally or recklessly, with knowledge of the facts consti-
tuting the offence, or with wilful blindness toward them.68
The scope and substance of the wilful blindness doctrine was recently
revisited in detail by the Alberta Court of Appeal69 and the Supreme
Court70 in R. v. Briscoe. At issue was whether wilful blindness could be
used to determine whether a person who was present during the planning
and execution of a murder had the requisite knowledge and intent to be
convicted of the same crime.
The Alberta Court of Appeal confirmed that the doctrine of wilful
blindness is well established in Canadian law.71 Justice Martin cited to
the 1976 Supreme Court ruling in R. v. Sansregret,72 which lays out the
doctrine as follows:
[W]ilful blindness arises where a person who has become aware of
the need for some inquiry declines to make the inquiry because he
does not wish to know the truth. He would prefer to remain igno-
rant. The culpability … in wilful blindness … is justified by the ac-
cuseds fault in deliberately failing to inquire when he knows there is
reason for inquiry.73
Justice Martin went on to explain that wilful blindness is not prem-
ised on what a reasonable person would have done, but requires a finding
that the accused, with actual suspicion, deliberately refrained from mak-
67 CFPOA Guide, supra note 10 at 3.
68 R v Sault Ste Marie, [1978] 2 SCR 1299 at 1309, 85 DLR (3d) 161.
69 R v Briscoe, 2008 ABCA 327, 437 AR 301 [Briscoe ABCA].
70 R v Briscoe, 2010 SCC 13, [2010] 1 SCR 411 [Briscoe SCC].
71 Briscoe ABCA, supra note 69 at para 16.
72 Ibid at para 16, citing R v Sansregret, [1985] 1 SCR 570, 17 DLR (4th) 577 [Sansregret
cited to SCR].
73 Ibid at 570.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 675
ing inquiries because he or she did not want his or her suspicions con-
firmed.74
To this end, the Alberta Court of Appeal importantly clarified that the
knowledge attributed to the accused in determining wilful blindness is
subjective rather than objective in nature and that, as such, wilful blind-
ness is distinct from criminal negligence, which is based on an objective
component that requires a marked departure from the standard of care
expected of a reasonable person in the circumstances of the accused.75
The court cited with approval the decision R. v. Duong, where the Ontario
Court of Appeal explained that [a]ctual suspicion, combined with a con-
scious decision not to make inquiries which could confirm that suspicion,
is equated in the eyes of the criminal law with actual knowledge. Both are
subjective and both are sufficiently blameworthy to justify the imposition
of criminal liability.76
The Supreme Court upheld the decision of the Alberta Court of Ap-
peal. In so doing, the Court summarized the doctrine of wilful blindness
as follows:
Wilful blindness does not define the mens rea required for particular
offences. Rather, it can substitute for actual knowledge whenever
knowledge is a component of the mens rea. The doctrine of wilful
blindness imputes knowledge to an accused whose suspicion is
aroused to the point where he or she sees the need for further inquir-
ies, but deliberately chooses not to make those inquiries… As
Sopinka J. succinctly put it in Jorgensen …, [a] finding of wilful
blindness involves an affirmative answer to the question: Did the ac-
cused shut his eyes because he knew or strongly suspected that look-
ing would fix him with knowledge?77
The Court further stated:
A court can properly find wilful blindness only where it can almost
be said that the defendant actually knew. He suspected the fact; he
realised its probability; but he refrained from obtaining the final con-
firmation because he wanted in the event to be able to deny
knowledge. This, and this alone, is wilful blindness. It requires in ef-
fect a finding that the defendant intended to cheat the administra-
tion of justice.78
74 Briscoe ABCA, supra note 69 at para 21.
75 Ibid.
76 Ibid, citing R v Duong (1998), 39 OR (3d) 161 at para 23, 108 OAC 378 (CA).
77 Briscoe SCC, supra note 70 at para 21.
78 Ibid at para 23, citing Glanville Williams, Criminal Law: The General Part, 2d ed (Lon-
don: Stevens & Sons, 1961) at 159 [emphasis in Briscoe SCC, added by the Court].
676 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
The Supreme Court, following in the steps of the Court of Appeal, also
emphasized that wilful blindness, correctly delineated, is distinct from
recklessness and does not involve departure from the subjective inquiry
into the accuseds state of mind.79 The Court cited to the proposition in
Sansregret that, while recklessness involves knowledge of a danger or
risk and persistence in a course of conduct which creates a risk that the
prohibited result will occur, wilful blindness occurs
where a person who has become aware of the need for some inquiry
declines to make the inquiry because he does not wish to know the
truth. He would prefer to remain ignorant. The culpability in reck-
lessness is justified by consciousness of the risk and by proceeding in
the face of it, while in wilful blindness it is justified by the accuseds
fault in deliberately failing to inquire when he knows there is reason
for inquiry.80
As such, the Court stated that, to prevent confusion with recklessness,
wilful blindness may be more accurately described as a deliberate igno-
rance, wherein the act of being wilfully blind is akin to an actual process
of supressing a suspicion.81
C. Conscious Avoidance and United States v. Kozeny
How will this standard of wilful blindness be applied in the context of
corrupt practices perpetrated on a corporations behalf by a third party
agent? While this question has not yet been considered by Canadian ju-
risprudence, some insight is nonetheless available from US case law ex-
amining the knowledge requirement under the FCPA pursuant to a sub-
stantively similar doctrine American courts refer to as conscious avoid-
ance.
In United States v. Kozeny,82 the defendant, Bourke, appealed his con-
viction of conspiring to violate the FCPA. Bourke was a business investor
who met with Viktor Kozeny in the mid-1990s; Kozeny was an entrepre-
neur known as the Pirate of Prague due to his reputation for engaging
in suspect business dealings.83 At the time, Azerbaijan was privatizing
many of its state industries, and one of the assets being considered for
79 Briscoe SCC, supra note 70 at para 20 [emphasis in original].
80 Ibid at para 22, citing Sansregret, supra note 72 at 584 [emphasis in Briscoe SCC, add-
ed by the Court].
81 Briscoe SCC, supra note 70 at para 24, citing Don Stuart, Canadian Criminal Law: A
Treatise (5th ed) (Toronto: Carswell, 2007) at 241.
82 United States v Kozeny, 667 F (3d) 122 (2011), 87 Fed R Evid Serv 104 [Kozeny cited to
F].
83 Ibid at 127.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 677
privatization was the state-owned oil company SOCAR.84 Pursuant to the
privatization process, the Azerbaijani government issued every citizen a
voucher booklet worth $12. These vouchers could be traded and were used
to bid for shares of the state-owned enterprises being privatized. Foreign-
ers who wanted to participate in the privatization auction had to pair the
vouchers with special options issued by the Azerbaijani government.
Bourke and Kozeny agreed to establish two entities to purchase ap-
proximately $200 million in vouchers.85 Kozeny met with Azerbaijani offi-
cials who stated that an entry fee ranging from $8 to $12 million would
have to be paid to encourage the Azerbaijani President to privatize
SOCAR.86 In addition, the officials requested that two-thirds of the vouch-
ers acquired by the special-purpose entities be transferred to the officials
so that they could receive two-thirds of SOCARs profit following privati-
zation.87 Bourke recruited investors to raise funds for the entities to pur-
chase the vouchers.88 He was aware that Azerbaijan was plagued with
corrupt practices at the time and had specifically discussed FCPA liability
with his attorneys.89 Following these discussions, Bourke established a
separate US company to act as an intermediary with the special-purpose
entities in an effort to shield investors from potential FCPA liability.90
Although SOCAR was never privatized, Bourke was convicted for con-
spiracy to violate the FCPA on the basis that he had knowledge, pursuant
to the doctrine of conscious avoidance, of the bribes to be paid to the Azer-
baijani officials.91 One of the grounds of Bourkes appeal was that the dis-
trict court improperly charged the jury on the doctrine of conscious avoid-
ance.92
The Second Circuit court reviewed the doctrine of conscious avoidance
and determined that the instructions made to the jury at trial were ap-
propriate. The court found that a conscious avoidance instruction may be
given if the defendant asserts the lack of some specific aspect of
knowledge required for conviction, and if the appropriate factual predicate
for the charge exists, that is, that the evidence is such that a rational ju-
ror may reach the conclusion beyond a reasonable doubt that the defend-
84 Ibid at 126.
85 Ibid at 127.
86 Ibid.
87 Ibid at 12728.
88 Ibid at 128.
89 Ibid.
90 Ibid at 12829.
91 Ibid at 130.
92 Ibid.
678 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
ant was aware of a high probability of the fact in dispute and consciously
avoided confirming that fact.93 The Second Circuit further stated that a
conscious avoidance instruction permits a jury to find that a defendant in-
tentionally avoided confirming the fact: in other words, a finding of
knowledge can be made even where there is no evidence that the defend-
ant had actual knowledge.94
On the facts of Bourkes appeal, the Second Circuit held that there
was ample evidence to support a conviction based on the doctrine of con-
scious avoidance. Bourke was aware of the high level of corruption in
Azerbaijan generally, he knew of Kozenys reputation as the Pirate of
Prague, he had created companies as an attempt to shield investors from
FCPA liability, and he had joined the board of the American entity rather
than of the special-purpose entities.95 The court also placed great weight
on tape recordings of a conversation between Bourke and another investor
in which Bourke voiced concerns regarding the possibility that Kozeny
was paying bribes to officials in Azerbaijan and other countries. These
statements included the following:
I mean, theyre talking about doing a deal in Iran … Maybe they …
bribed them, … with … ten million bucks. I, I mean, Im not saying
thats what theyre going to do, but suppose they do that. …
I dont know how you conduct business in Kazakhstan or Georgia or
Iran, or Azerbaijan, and if theyre bribing officials and that comes
out … Lets say … one of the guys at [our special purpose entity] says
to you, Dick, you know, we know were going to get this deal. Weve
taken care of the minister of finance, or this minister of this or that.
What are you going to do with that information?
…
What happens if they break a law in … Kazakhstan, or they bribe
somebody in Kazakhstan and were at dinner and … one of the guys
says, Well, you know, we paid some guy ten million bucks to get this
now. I dont know, you know, if somebody says that to you, Im not
part of it … I didnt endorse it. But lets say [ ] they tell you that. You
got knowledge of it. What do you do with that? … Im just saying to
you in general … do you think business is done at arms length in
this part of the world.96
In addition, the court highlighted that potential investors in the spe-
cial-purpose entities who had access to the same information as Bourke
had determined from their due diligence that investment in these entities
93 Ibid at 132.
94 Ibid.
95 Ibid at 133.
96 Ibid.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 679
entailed too high a level of corruption and FCPA risk.97 The court held
that this constituted evidence that Bourke had refrained from conducting
the same basic due diligence inquiries because he preferred to consciously
avoid confirming his suspicions.98
D. Wilful Blindness and Criminal Code Section 22.2
What are the lessons from R. v. Briscoe and Kozeny for Canadian cor-
porations looking to guard against liability under the CFPOA in connec-
tion with the engagement of third party agents or consultants? Several
possibilities are discussed below.
First, due diligence with respect to all third party foreign agents is of
great importance. Liability under the doctrine of wilful blindness flows
directly from the deliberate refusal to actively pursue additional
knowledge and information when one is troubled by or fearful of the reve-
lations such additional knowledge or information may entail.99 Therefore,
in the context of foreign corrupt practices, liability under the doctrine of
wilful blindness may be rooted in a deliberate decision not to consider the
degree of corrupt practices risk associated with the engagement of a par-
ticular third party agent, not to respond to concerns regarding the poten-
tial of a third party agent to engage in corrupt practices on ones behalf, or
both. Stated somewhat differently, in order to avoid criminal liability un-
der the CFPOA for actions undertaken by a third party agent, Canadian
corporations and their senior officers should arguably be careful to always
conduct due diligence with respect to all third party agents being consid-
ered for a particular mandate, whether related to business development
or otherwise, to ascertain the degree to which corrupt practices may pre-
sent a risk; and they must take preventative measures to mitigate against
the risk of corrupt practices if such risk has been identified.
Due diligence with respect to third party engagement in corrupt prac-
tices would likely include a number of different inquiries.100 General con-
siderations would include the jurisdiction and industry in respect of which
the agent would be engaged, as it is well understood that corrupt practices
are more prevalent in certain countries and industries than in others.101
97 Ibid at 134.
98 Ibid at 135.
99 Blyschak & Boscariol, supra note 66.
100 Ibid.
101 Transparency International, for example, is a well-regarded non-governmental organi-
zation that publishes an annual corruption perception index rating and ranking coun-
tries based on their responses to questionnaires completed by individuals and compa-
nies operating in their subject jurisdictions. See Transparency International Canada,
680 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
Perhaps chief among the individualized inquiries to be conducted would
be confirming that an agent has the requisite resources, qualifications,
and credentials to perform the services being offered. This may include
consideration of the agents educational and professional background as
well as of other clients for whom the agent had performed the same or
similar work. It may also include scrutiny of the proposed fees to be
charged by the agent, including comparison of the proposed fees with
those being charged by agents of similar qualifications in the same indus-
try and market. Verification of the government affiliations of the agent, as
well as the agents ownership structure, may also be essential. Should the
agent be partly or wholly staffed or owned by current public officials, the
very engagement of the agent could constitute a violation of the CFPOA.
It may also be important to verify that the engagement of the agent does
not violate any local laws, as certain jurisdictions actually prohibit certain
contractual arrangements involving government relations or negotia-
tion.102 Lastly, if it is difficult for a Canadian corporation to conduct these
inquiries itself or through its legal counsel, it may be prudent to engage
the services of specialized due diligence agents in the relevant jurisdic-
tion.103
Corporations may take a variety of preventative measures in the face
of third party corrupt practices risk, including various contractual obliga-
tions and rights in favour of the corporation, as may be reasonable in the
circumstances.104 Corporations should avoid success-based fees or lump
sums linked with the receipt of government business, contracts, licences,
or concessions, in favour of monthly fees or other reasonable payment
schedules. They should require agents to make detailed representations
and warranties regarding the agents resources, credentials, and qualifi-
cations, as well as a disclaimer of any affiliations with government or pub-
lic officials except those specifically disclosed to the corporation. An agent
can be asked agree to fulsome covenants not to engage in corrupt practic-
es, not to engage any sub-contractors in connection with the corporate en-
Inc, online:
practices are generally considered to be of greater prevalence, include mining and re-
sources, energy, telecommunications, defence, healthcare, and pharmaceuticals. See al-
so Blyschak & Boscariol, supra note 66.
102 See Hwang & Lim, supra note 63.
103 See Blyschak & Boscariol, supra note 66. Potential advantages offered by such agents
include, but are not limited to, proficiency in applicable local languages and the ability
to conduct in-person interviews or on-site visits.
104 See ibid. For an example of a model international consultant agreement with robust an-
ti-corruption representations, warranties, rights and covenants, see the Association of
International Petroleum Negotiators, 2008 Consultant Agreement for Business Devel-
opment in a Host Country, online: AIPN
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 681
gagement without the corporations prior written consent, and to strictly
comply with all applicable laws. Such covenants may also include the ob-
ligation to promptly inform the corporation should any of the agents cir-
cumstances change in a manner that could affect the accuracy of any of
the agents representations and warranties, including, in particular, those
pertaining to the agents government affiliations. The corporation can also
insist on termination rights should any of the agents representations or
warranties be discovered to be untrue or misleading, or should the agent
breach any of its covenants. Additionally, the corporation may impose on
the agent the obligation to keep detailed financial records in respect of all
monies received by the corporation and the manner in which such monies
have been disbursed or distributed, along with a corresponding right in
favour of the corporation to audit the agents books and records upon no-
tice. Lastly, the corporation can reserve the right to withhold payments to
the agent upon the advice of legal counsel.105
That said, it should be appreciated that not all third party engage-
ments will either afford or warrant the same anti-corruption risk mitiga-
tion opportunities. Put another way, the list of contractual risk mitigation
mechanisms canvassed above represents more of an ideal than a template
of mechanisms that can reasonably be expected to be imposed on third
party representatives in all situations. For instance, simpler engagements
may not customarily be heavily papered, relying instead on simple pur-
chase orders, service orders, or even email correspondence (for example,
in the case of low-level customs or import and export facilitation services).
Other engagements may come with only relatively modest anti-corruption
risk (for example, domestic transportation services faced with the risk of
illegal tolls imposed by the police or military at road blocks). On the oth-
er hand, the more important or expensive the service being provided, as
well as the greater the attendant anti-corruption risk, the better leverage
a corporation will have in requiring robust written anti-corruption risk
mitigation mechanisms.
However, corporations must appreciate that the appropriate due dili-
gence and monitoring of agents will not, in and of itself, provide immunity
from liability under the CFPOA for an indirect violation of section 3(1). A
corporation must also abort any engagement of a third party agent in re-
spect of which significant corruption risk has been identified, so that it
cannot be argued that the corporation or its senior officers were wilfully
blind to any corrupt practices actually engaged in on their behalf by the
agent. The difficulty here, however, is determining with confidence at
what point this threshold is crossed. That is, at what point could it rea-
105 Ibid.
682 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
sonably be argued that a corporation and one or more of its senior officers
were complicit in corrupt practices engaged in by an agent under the doc-
trine of wilful blindness, either by failing to reject the prospective en-
gagement or by failing to terminate an existing engagement?
This determination will involve difficult questions regarding the
amount, frequency, and degree of due diligence and monitoring conducted.
The fact that initial due diligence with respect to an agent does not raise
any concerns does not necessarily mean that further investigation will not
be warranted. On the other hand, business realities limit the amount, fre-
quency, and degree of due diligence and continued monitoring that can
reasonably be expected of a corporation and its senior officers: as men-
tioned above, anti-corruption compliance efforts are often neither simple
nor without significant costs. This determination will also likely be com-
plicated by other, more opaque considerations, including significant cul-
tural and linguistic barriers, which can at times make it very difficult to
interpret or assess the intentions or motivations of a prospective or cur-
rent third party agent.106
In Kozeny, the Second Circuit highlighted a number of concerning
facts relating to the corruption risk of which Bourke was aware, including
the high level of corruption in Azerbaijan generally, that Bourke knew of
Kozenys reputation as the Pirate of Prague, that Bourke had purpose-
fully devised a corporate structure designed to help evade liability for cor-
rupt practices, and that Bourke had decided to refrain from further inves-
tigating his suspicions regarding the possibility that his business associ-
ates would engage in corrupt practices.107 Collectively, these facts consti-
tute a damning portrait of Bourkes state of mind, pointing to his own
clear understanding that Kozeny would likely engage in corrupt practices
on Bourkes behalf. In fact, the Second Circuit essentially acknowledged
that this was the case, stating that the evidence could also be used to in-
fer that Bourke actually knew about the crimes.108 However, the reality is
that [n]ot all potential agent engagements will present such blatant deal
breakers.109
Consequently, legal commentators have reached a consensus on a set
of facts or circumstances that constitute red flags that an agent may be
likely to engage in corrupt practices involving foreign public officials.110
106 See Skinnider, supra note 60 at 17.
107 Kozeny, supra note 82 at 133.
108 Ibid.
109 Blyschak & Boscariol, supra note 66.
110 Ibid. See also Robert W Tarun, The Foreign Corrupt Practices Act Handbook: A Practi-
cal Guide for Multinational General Counsel, Transactional Lawyers and White Collar
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 683
For example, has the agent requested large upfront payments, unusually
high commissions, or success-based payments tied to securing govern-
ment business, licences, concessions, or permits? Has the agent been spe-
cifically recommended to the corporation by a public official or govern-
ment body related to the corporations business in a foreign jurisdiction?
Has the agent resisted providing information regarding its ownership
structure, credentials, or resources, or cooperating in the corporations
due diligence? Has the agent resisted providing contractual representa-
tions, warranties, or covenants regarding corrupt practices, or agreeing to
contractual audit rights entitling the corporation to inspect the agents
books and records on an ongoing basis? Has the agent requested any unu-
sual financial documentation or payment mechanisms, such as payments
to be made to bank accounts in unrelated jurisdictions or offshore ac-
counts? Should it later be discovered that the agent did in fact engage in
corrupt practices involving a foreign public official, the greater the num-
ber of these or other red flags identified prior to, or during the course of,
the engagement, the more difficult it will be to argue that the corporation
and its senior officers were not complicit in such corrupt practices under
the doctrine of wilful blindness.
That said, some red flags are more complicated than others, requiring
greater scrutiny and consideration. Stated differently, what may at first
appear to be a significant red flag may, in fairness, require a more bal-
anced interpretation and treatment. For example, the fact that a prospec-
tive third party agent is a former government employee or foreign public
official may at first blush appear to be a red flag, given that the agent
would have ties to government that could serve as the conduit for an illicit
payment or other unlawful influence. However, it is very common for in-
ternational consultants and business development agentsboth in emerg-
ing markets and in advanced industrialized marketsto be former gov-
ernment officials, as it is this former government employment that often
serves as the very basis of their expertise. Put another way, the value of
the services offered by foreign consultants is often grounded in their pre-
vious experience in government, given that this provides them with both
inside knowledge of regulatory systems and practices, as well as their
networks of government contacts with whom they enjoy good standing
and credibility. From a business perspective, it is therefore very often de-
sirable that a prospective foreign agent have previous government experi-
ence in the subject jurisdiction, making it inappropriate to automatically
interpret the existence of such an affiliation as either evidence of a lack of
Criminal Practitioners, 2d ed (United States: American Bar Association, 2012) at 91
92.
684 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
due diligence or prudence on the part of a corporation, or evidence of the
corporations possible illicit intent.
Overall, while wilful blindness is sometimes considered a relatively
high threshold for the Crown to meet,111 Canadian corporations faced with
the risk of foreign corrupt practices should never continue a suspect
third-party agent engagement in reliance on such a premise.112 Moreover,
the fact that [c]riminal liability (as contrasted with civil liability) for
agents and representatives [has to date been] a [foreign] concept … to Ca-
nadian executives113 does not affect this calculation.114 Canadian corpo-
rate compliance in international operations has entered a new age, and
the widespread engagement of third party agents, coupled with the pre-
scriptions of the doctrine of wilful blindness, represent the front lines of
risk exposure. Yet Canadian prosecutors and courts should not take too
severe or unsympathetic an approach in their application of the doctrine
of wilful blindness in this context. It is reasonable to expect that, when a
concern regarding corrupt practices is raised, that concern will be investi-
gated and, if the risk is not too great, available risk mitigation measures
will be employed. However, it is unreasonable to expect that all third par-
ty agent engagements that present some corrupt practices risk would be
automatically abandoned or aborted. It is also unreasonable to expect that
robust anti-corruption risk mitigation mechanisms will be employed to
counter all identifiable anti-corruption risk. Lastly, it is unreasonable to
presume that, where a third party agent actually engages in corrupt prac-
tices on a corporations behalf in the face of identifiable corrupt practices
risk, such practices occurred as a result of the wilful blindness of the cor-
poration and one or more of its senior officers. Rather, the analysis should
always include consideration of the substance of a senior officers efforts
or omissions to guard against corrupt practices risk, as contextualized by
the cultural and business realities in which such efforts or omissions oc-
curred, including, but not being limited to, the reasonable costs of associ-
ated risk mitigation strategies.
VI. Corporate Liability for the Corrupt Practices of Acquisition Targets
Although it is not always widely appreciated, mergers and acquisitions
activity has played an important role in the development of anti-
corruption practices. In particular, mergers and acquisitions transactions,
and the due diligence of target entities conducted during such transac-
111 Archibald et al, supra note 21 at 17:20:20.
112 Blyschak & Boscariol, supra note 66.
113 Archibald et al, supra note 21 at 17:30:70.
114 Blyschak & Boscariol, supra note 66.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 685
tions, are a common way for suspected anti-corruption transgressions to
first come to light.115 These proven or suspected transgressions may be
relatively minor, and may be met chiefly with bolstered representations,
warranties, covenants, and indemnities, as well as a grinding down of the
acquisition price. Yet sometimes such transgressions may be significant
enough to undermine an entire transaction, collapsing the deal.116
The critical importance of conducting thorough due diligence of targets
pre-acquisition or pre-merger is therefore unquestionable. However, the
analysis does not necessarily end there. Not all acquisitions merit the
same considerations. On the one hand, amendments to the jurisdictional
reach of the CFPOA, effected by Bill S-14 in June of 2013, create a poten-
tially important distinction among the corrupt practices for which Cana-
dian target entities may be held liable. Furthermore, whether and to what
degree liability might follow acquirers in asset acquisition transactions, as
opposed to share acquisition transactions, appears to remain an open
question in Canadian law.
A. Share Acquisitions and Nationality Jurisdiction Versus Territorial Jurisdiction
It is a fundamental principle of corporate law that when one corpora-
tion acquires another through a share purchase, the purchasing corpora-
tion indirectly acquires the liabilities of the target which arose prior to the
acquisition. This was the case, for example, in Sherwood Design Services
v. 872935 Ontario Ltd. In this case, the purchaser of (what the purchaser
thought was) a shell corporation to which certain desired assets had been
assigned was held liable for unrelated and long-forgotten liabilities also
attached to the shell corporation.117
The situation is no different in the context of CFPOA liability. A
change in ownership of the target corporation will not affect anti-
corruption liability it incurred prior to the acquisition. Amalgamations
present the same result. Corporate legislation across Canada explicitly
states that the amalgamated corporation continues to be liable for the ob-
115 See Daniel J Grimm, The Foreign Corrupt Practices Act in Merger and Acquisition
Transactions: Successor Liability and Its Consequences (2010) 7:1 NYU JL & Bus 247
at 30522.
116 See ibid; see also Jeff Gray, Bribery concerns scupper resource mergers The Globe and
Mail (27 June 2013), online: The Globe and Mail
117 See Christopher C Nicholls, Mergers, Acquisitions, and Other Changes of Corporate
Control (Toronto: Irwin Law, 2007) at 56. The law firm used by the purchaser was in
the practice of incorporating and holding shelf corporations that could be easily offered
to clients when needed on an expedited basis.
686 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
ligations of each amalgamating corporation. In other words, an existing
liability is unaffected by the amalgamation, and a civil, criminal, or ad-
ministrative action or proceeding pending against an amalgamating cor-
poration may continue to be prosecuted against the amalgamated corpo-
ration.118 However, the passage of Bill S-14 adds a theoretically significant
wrinkle to this equation by imposing different jurisdictional standards to
the corrupt practices of prospective Canadian targets occurring before and
after the date of passage of the bill. As a result of Bill S-14, section 5(1) to
the CFPOA now provides, as follows:
Every person who commits an act or omission outside Canada that,
if committed in Canada, would constitute an offence under section 3
or 4or a conspiracy to commit, an attempt to commit, being an ac-
cessory after the fact in relation to, or any counselling in relation to,
an offence under that sectionis deemed to have committed that act
or omission in Canada if the person is: …
(c) a public body, corporation, society, company, firm or partner-
ship that is incorporated, formed or otherwise organized under
the laws of Canada or a province.119
Importantly, this additional section has the effect of making Canadian
corporations that engage in corrupt practices involving foreign public offi-
cials subject to the CFPOA regardless of whether such activities take
place inside or outside Canada, and based simply on the fact that the cor-
poration is organized under federal or provincial statute.120 In the context
of a prospective acquisition of a Canadian corporation, the CFPOAs newly
applicable nationality jurisdiction standard therefore means that ac-
quirers should be acutely aware of any suspected or established corrupt
practices occurring after June 13, 2013 which are linked with their Cana-
dian acquisition target, regardless of where such corrupt practices oc-
curred. By contrast, whether corrupt practices engaged in by a Canadian
acquisition target prior to June 13, 2013 can be reasonably framed as hav-
ing taken place in Canada is a question of genuine legal significance.121
As noted by Archibald, Jull, and Roach, prior to the passage of Bill S-
14, [b]y definition, the bribing of foreign officials involve[d] conduct that
118 See e.g. Alberta Business Corporations Act, RSA 2000, c B-9, s 186; Ontario Business
Corporations Act, RSO 1990, c B.16, s 179.
119 CFPOA, supra note 1, s 5(1).
120 See Parliamentary Information and Research Service, Legislative Summary of Bill S-
14: An Act to amend the Corruption of Foreign Public Officials Act by Robin MacKay
(Ottawa: Library of Parliament, 2013) [Legislative Summary].
121 The jurisdictional amendments effected to the CFPOA by Bill S-14 are not retrospective
in application. See R v Karigar, 2013 ONSC 5199 (available on CanLII) at para 35
[Karigar].
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 687
occurs outside of Canada and raise[d] jurisdictional issues about the scope
of Canadian law.122 To this end, while prior to Bill S-14s passage the
CFPOA itself did not directly address issues relating to extraterritorial ju-
risdiction, the official guide to the CFPOA explained that a real and sub-
stantial link between the offence and Canada would be required in order
for Canadian courts to assume jurisdiction over the matter. In particular,
the guide provided that:
Canada has jurisdiction over the bribery of foreign public officials
when the offence is committed in whole or in part in its territory. To
be subject to the jurisdiction of Canadian courts, a significant portion
of the activities constituting the offence must take place in Canada.
There is a sufficient basis for jurisdiction where there is a real and
substantial link between the offence and Canada. In making this as-
sessment, the court must consider all relevant facts that happened
in Canada that may legitimately give Canada an interest in prose-
cuting the offence. Subsequently, the court must then determine
whether there is anything in those facts that offends international
comity.123
This now-outdated explanation of the jurisdictional limits of the CFPOA
was informed primarily by the decision of the Supreme Court of Canada
in R v. Libman and its progeny. The appellant in Libman was charged
with fraud and conspiracy in connection with an investment scam where-
by sales personnel located in Toronto telephoned US residents to induce
them, by a number of material misrepresentations, to purchase essential-
ly worthless shares in two Central American mining companies.124 The
US purchasers had sent their money to Central America, and Libman
therefore challenged his conviction on the basis that the alleged offences
occurred outside Canada.125 After an extensive review of the history and
evolution of English and Canadian precedent on extraterritorial criminal
jurisdiction, the Supreme Court dismissed Libmans appeal. Justice La
Forest articulated the modern Canadian approach to the issue as follows:
I might summarize my approach to the limits of territoriality in this
way. As I see it, all that is necessary to make an offence subject to
122 Archibald et al, supra note 21 at 17:30:90. See also Neil Campbell, Elisabeth Preston &
Jonathan OHara, Foreign Corrupt PracticesThe Growth and Limitations of Canadi-
an Enforcement Activity (2013) 23:1 Ind Intl & Comp L Rev 35 at 43, where the au-
thors note that [f]oreign corrupt practices inherently involve cross-border activity
[Campbell et al].
123 CFPOA Guide, supra note 10 at 7, citing R v Libman, [1985] 2 SCR 178, 21 DLR (4th)
174 [Libman]. As Campbell et al note, section 6(2) of the Criminal Code expresses the
default position that Canada will not assert jurisdiction over an offense which occurs
outside Canada (supra note 122 at 45).
124 Libman, supra note 123 at 181.
125 Ibid at 182.
688 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
the jurisdiction of our courts is that a significant portion of the activ-
ities constituting that offence took place in Canada. As it is put by
modern academics, it is sufficient that there be a real and substan-
tial link between an offence and this country, a test well-known in
public and private international law.126
Turning to the facts of the case at hand, the Court did not have trou-
ble concluding that the real and substantial link standard had been sat-
isfied. It noted that the scheme was devised in Canada, that the whole
operation that made it function was located in Canada, and that the di-
recting minds of the operation were situated in Canada.127
Given the effect of Bill S-14 on the jurisdictional reach of the CFPOA,
a different risk analysis may therefore be applied by corporations consid-
ering the acquisition of a Canadian target with suspected or established
liability for corrupt practices, depending on whether such activities took
place before or after June 13, 2013. In particular, while it can be assumed
without further analysis that corrupt practices engaged in by the Canadi-
an target after June 13, 2013 would attract CFPOA liability regardless of
where the corrupt behaviour occurred, the same assumption is not auto-
matically warranted for corrupt practices the target engaged in at an ear-
lier date. Rather, here the degree to which such corrupt practices can be
reasonably described as having a real and substantial link to Canada
will be of material consequence, potentially warranting further considera-
tion and legal analysis.
Of course, a potential acquirers appetite to engage in such a second
stage of CFPOA risk analysis will greatly depend on the risk tolerance of
the potential acquirer. As noted by Campbell, Preston, and OHara, the
Libman test can result in a reasonably expansive approach to territorial-
ity.128 In this regard, even if a prospective acquirers detailed investiga-
tion and legal analysis of suspected or established corrupt practices by a
Canadian targetpractices that occurred prior to June 13, 2013reveal
minimal or no connections to Canada, a number of factors would caution
126 Ibid at 21213.
127 Ibid at 211.
128 Campbell et al, supra note 122 at 46. Evidence assembled by the authors in support of
this proposition includes that the Canadian Competition Bureau regularly asserts ju-
risdiction over international cartels that involve direct or even indirect sales to Canadi-
an customers on the basis that such transactions have a real and substantial link to
Canada; Canadian courts have accepted numerous guilty pleas on this basis (ibid). See
also Gerald Chan & Nader R Hasan, The Corruption of Foreign Public Officials Act
and Canadas Expanding Jurisdiction Under the Real and Substantial Link Test
(2012) 1:4 Commercial Litigation and Arbitration Review 57 ([t]he Supreme Court of
Canadas definition of real and substantial link has evolved to the point where it is vir-
tually coterminous with nationality jurisdiction at 58).
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 689
the putative acquirer against relying on such an assessment. First, it
cannot be guaranteed that further facts will not later come to light that
alter the geographical matrix of the targets corrupt practices. Second, it
may be difficult to establish with certainty the exact period of time over
which the corrupt practices transpired (and to therefore conclude that
such corrupt practices did not occur in part after June 13, 2013). Finally,
and perhaps most importantly, it cannot be guaranteed that Canadian
prosecutors or judges will interpret the jurisdictional characteristics of the
targets practices in the same manner as does the prospective acquirer.
The recent conviction of Nazir Karigar by the Ontario Superior Court
in August 2013the sole instance to date of a judicial application of ter-
ritorial jurisdiction to the CFPOA should serve as a signal of caution in
this regard. Karigar was charged with a violation of section 3(1)(b) of the
CFPOA for offering or agreeing to offer bribes to Air India officials and to
Indias then-Minister of Civil Aviation in an attempt to influence the
awarding of a security services contract by the airline to Cryptometrics
Canada. Cryptometrics Canada is a company based in Ontario, but also a
subsidiary of Cryptometrics Corporation, which is based in the United
States.129 In 2005, Karigar had reached out to a senior business develop-
ment officer at Cryptometrics Canada, stating that he had contacts at Air
India and advising the officer that the airline was interested in the com-
panys services. After this initial contact, a series of meetings and corre-
spondence took place between Karigar and various senior Cryptometrics
executives, as well as meetings between Cryptometrics executives and Air
Indian representatives, and a series of payments by Cryptometrics to
Karigar and a second intermediary.
In his defence, Karigar highlighted a number of elements of the case
against him which bore little connection to Canada. These included that
the directing minds of the Cryptometrics schemeincluding those indi-
viduals who authorized the release of transferred fundswere based in
New York, and that all dealings between Karigar, Air India officials, and
Cryptometrics representatives, with the exception of two brief meetings in
Ontario, took place in India.130 The Ontario Superior Court disagreed,
holding that territorial jurisdiction is clearly established in this case.131
In particular, the court noted a number of significant connections between
Karigars activities and Canada, including that, at all material times dur-
ing the pursuit of the Air India contract, Karigar was employed by or/and
acted as an agent of Cryptometrics Canada; that Cryptometrics Canada
129 Karigar, supra note 121 at paras 4042.
130 Ibid at para 38.
131 Ibid at para 39.
690 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
was the contracting party to the agency agreement with Karigar; and that
had the Air India contract been secured, Cryptometrics Canada stood to
enjoy the greatest benefit within the Cryptometrics group of companies.132
Importantly, however, the court also stated that the substantial con-
nection test is not limited to the essential elements of the offence,133 and
that it would be incorrect to segregate or otherwise deal with the bribery
as a separate and discrete issue to the exclusion of other legitimate as-
pects of the transaction.134 These are not immaterial pronouncements.
The Supreme Court of Canada in Libman had stated that to make an of-
fence subject to the jurisdiction of our courts … [it is only necessary] that a
significant portion of the activities constituting that offence took place in
Canada.135 As noted above, in Libman, the Court proceeded to conclude
that a real and substantial link had been established, given that the
scheme was devised in Canada, that the whole operation that made it
function was located in Canada, and that its directing minds were situ-
ated in Canada.136 As such, the focus of the Courts attention in Libman
was primarily on the location of the activities constituting that of-
fence.137
The Ontario Superior Court in Karigar was less concerned with such
an emphasis. Rather, by stating that the substantial connection test is
not limited to the essential elements of the offence and emphasizing the
fact that Karigars corrupt activities were committed on behalf of and for
the benefit of a Canadian corporation,138 the ruling of the court in Karigar
implies that all that may be required to contravene the CFPOA under the
territorial jurisdiction standard is to act in furtherance of Canadian in-
terests when engaging in foreign corrupt practices, regardless of the actual
location where the corrupt practices occurred. Leaving aside for a moment
whether such a formulation constitutes an unpermitted expansion of the
territorial jurisdiction standard instituted by Libman, the implications
of this approach to territoriality should serve as a stark warning to a pro-
spective acquirer of a Canadian corporation with suspected or established
foreign corrupt practices occurring prior to June 13, 2013, as it suggests
that the application of territorial jurisdictioncompared to nationality
132 Ibid at para 40.
133 Ibid at para 39.
134 Ibid.
135 Libman, supra note 123 at 213 [emphasis added].
136 Ibid at 211.
137 Ibid at 213.
138 Karigar, supra note 121 at para 39.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 691
jurisdictionin the context of foreign corrupt practices might not yield
significant differences.
Nationality jurisdiction will allow Canadian authorities to exercise
jurisdiction over all … companies that [have engaged in the corruption of
foreign public officials that are incorporated] in Canada, regardless of
where the alleged bribery has taken place.139 However, taken to its logi-
cal (and arguably unreasonable) extreme, the holding by the Ontario Su-
perior Court in Karigar that the substantial connection test is not limited
to the essential elements of an offence, and that courts should not treat
the bribe as a separate and discrete issue to the exclusion of other legit-
imate aspects of the transaction,140 does not arrive at a destination very
distant from the result of the nationality jurisdiction analysis. Consider
the example of a corporate senior officer of a Canadian corporation engag-
ing in corrupt practices in a foreign jurisdiction where the senior officer is
at all times (including the time at which the senior officer devises the cor-
rupt scheme) located in the foreign jurisdiction, the relevant public official
is at all times located in the foreign jurisdiction, and all communication
(including the offer of illicit benefit) between the senior officer and the
public official occurs in the foreign jurisdiction. Pursuant to the ruling in
Karigar, the corporation is arguably liable for corrupt practices under the
CFPOA and section 22.2 of the Criminal Code simply on the basis that
the senior officer is acting further to the interests of a Canadian corpora-
tion, and regardless of the fact that none of the actual elements of the of-
fence occurred in Canada.
This conclusion is also supported by certain case law and commentary
considering the real and substantial link standard in the context of civil
proceedings. The Supreme Court of Canada has previously stated that
there exists a close parallel between the Libman formulation of the real
and substantial link test at criminal law and the test as applied in pri-
vate law.141 Furthermore, in outlining the substance of the real and sub-
stantial link test in the civil context in Club Resorts Ltd. v. Van Breda,
the Supreme Court established four presumptive factors, the satisfac-
tion of any one of which will result in a rebuttable presumption in favour
of a court accepting jurisdiction in the matter.142 These factors are that: (i)
the defendant is domiciled or resident in the province; (ii) the defendant
carries on business in the province; (iii) the alleged tort was committed in
the province; or (iv) a contract connected with the dispute was made in
139 Legislative Summary, supra note 120 at 7.
140 Karigar, supra note 121 at para 39.
141 Morguard Investments Ltd v De Savoye, [1990] 3 SCR 1077 at 1107, 76 DLR (4th) 256.
142 2012 SCC 17 at para 90, [2012] 1 SCR 572.
692 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
the province. As Chan and Hasan note, if applied in the context of CFPOA
liability, the first two presumptive factors may be sufficient to do away
with any territorial limits to jurisdiction for Canadian companies operat-
ing abroad under the real and substantial link standard.143
On the other hand, it seems relatively easy to mount a strong argu-
ment that the ruling in Karigar constitutes an illegitimate expansion of
the territorial jurisdiction standard instituted by Libman, as well as ef-
fectively a judicial repeal of section 6 of the Criminal Code, which states
that no person shall be convicted or discharged … of an offence committed
outside Canada.144. Simply put, how might an offence be legitimately ar-
gued, using the Van Breda presumptive factors, to have been committed
in Canada so as to give a Canadian court jurisdiction, if none of the actual
elements of the offence have a territorial nexus with Canada? Similarly, if
Canadian prosecutors had good cause to assume and expect that the ter-
ritorial jurisdiction standard could be legitimately applied in the expan-
sive fashion described above, what was the motivation for Bill S-14 and
the imposition of the nationality jurisdiction standard? While it might
be unfortunate that lawmakers failed to fully appreciate the enforcement
difficulties that would follow from not attaching the nationality jurisdic-
tion standard to CFPOA offences from the Acts inception, this does not
mean that the appropriate remedy is a creative judicial rewrite of section
6 of the Criminal Code with respect to the CFPOA for the application of
the territorial jurisdiction standard.
B. Asset Acquisitions and the Doctrine of Successor Liability
When a corporation is purchasing the assets of another corporation,
the general rule is that the purchasing corporation is not liable for any of
the debts and liabilities of the selling company, unless they have been
specifically assumed or bargained for in the asset purchase and sale
agreement.145 This segregation of assets from liabilities incurred in con-
nection with the business operation of those assets motivates acquirers
pursuit, in many circumstances, of specific assets rather than the entities
that own them.146
143 Chan & Hasan, supra note 128 at 60. The authors also make a number of policy-based
arguments that the real and substantial link test should be applied less restrictively
in the anti-bribery context than in other contexts (ibid).
144 Criminal Code, supra note 9, s 6 [emphasis added].
145 See Central Sun Mining Inc v Vector Engineering Inc, 2011 ONSC 1439 at para 27
(available on CanLII) [Central Sun]. See also Cominco Ltd v Westinghouse Canada
(1981), 33 BCLR 202, 1 WWR 640 (SC).
146 See Nicholls, supra note 117 at 55.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 693
In the context of liability for corrupt practices, pursuing an asset ac-
quisition rather than the acquisition of the relevant entity therefore rep-
resents a risk mitigation strategy employed by potential acquirers; that is,
acquirers can choose to acquire only the desired assets and not the entity
that currently owns and operates those assets, and which may have at-
tracted an unacceptable amount of actual or potential liability for corrupt
practices. Whether or not such a risk mitigation strategy is viable or prac-
tical will, of course, depend on the particular circumstances, including the
nature of the assets. It should also be noted that, just as purchasers may
prefer asset acquisitions, most targets of mergers and acquisitions prefer
share dispositions, so pushback on this particular risk mitigation strategy
from vendors and targets should therefore be expected.147
Importantly, however, the law of successor liability with respect to as-
set acquisitions in Canada remains an open question.148 Stated differently,
there is at present no guarantee that an asset acquisition taken in place
of a share acquisition would successfully evade liability previously at-
tracted by the vendor in connection with the operation of the assets. Ra-
ther, there is relatively good indication that Canadian courts would con-
sider conducting a fact-dependent, quasi equity-based investigation to de-
termine whether liability, including anti-corruption liability, should in
fact follow the assets to which the liability relates, rather than remaining
strictly with the offending party.
The first Canadian court asked to decide whether liabilities may fol-
low assets was the Alberta Court of Queens Bench in Suncor Inc. v. Can-
ada Wire & Cable Ltd.149 In Suncor, a fire had occurred at a Suncor facili-
ty, leading Suncor to file a civil claim against a number of the engineers
and suppliers involved in its construction. Associated Engineering Group
Ltd. (AEGL), one of the defendants in the claim, applied for summary
judgment on the basis that it had not yet been incorporated at the time
the alleged contractual breaches and tortious acts had occurred, and that
it could not therefore be held liable for these actions.150 Suncor and two
other defendants opposed the application, essentially arguing that a pre-
meditated series of corporate and assets transactions driven by the desire
147 Ibid.
148 See Wayne D Gray, Creditors, Losers Under CBCA Reform but Winners in Judge-
Made Corporate Law (2003) 39 Can Bus LJ 92 at 135, n 166.
149 Suncor Inc v Canada Wire & Cable Ltd, [1993] 3 WWR 630, 15 CPC (3d) 201 (AB QB)
[Suncor cited to WWR].
150 Ibid at para 7.
694 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
to avoid liability rather than for various legitimate business reasons
should not be allowed to protect AEGL from liability for wrongdoing.151
Unable to rely on substantial Canadian jurisprudence for their posi-
tion, the respondents turned instead to US case law, particularly the deci-
sion of the New Jersey Supreme Court in Ramirez v. Amsted Industries
Inc.152 Discussing what has become known as the doctrine of successor li-
ability, the court in Ramirez stated that there are four exceptions to the
general rule precluding liability for companies who have acquired all of
the assets of another corporation. Specifically, the court stated that a
company will be liable for the selling corporations liabilities if the pur-
chasing corporation expressly or impliedly agreed to assume such liabili-
ties, the transaction amounts to a consolidation or merger of the seller
and purchaser, the purchasing corporation is merely a continuation of the
selling corporation, or the transaction is entered into fraudulently to es-
cape the debts or liabilities of the selling corporation.153
The Court of Queens Bench in Suncor reviewed Ramirez favourably.
It held that the Ramirez courts reasoning was persuasive and that it
was correct to recognize that the traditional approach [to liability in re-
spect of asset transfers] narrowly emphasized the form rather than the
practical effect of a particular corporate transaction.154 The Suncor court
further embraced the holding in Ramirez, reiterating the New Jersey
courts summary of US precedent that:
The successor corporation, having reaped the benefits of continuing
its predecessors product line, exploiting its accumulated good will
and enjoying the patronage of its established customers, should be
made to bear some of the burdens of continuity, namely, liability for
injuries caused by its defective products.155
Where such benefits [are] reaped, the Suncor court stated, it would be
improper to allow the form of a transaction to control questions of liabil-
ity in tort.156 The court therefore denied AEGLs application, finding that
the corporate liability of successor corporations … remains an open ques-
tion in this country and that there exists a real possibility that courts in
Canada will adopt the reasoning of the successor liability cases in the
U.S.157 Neither was the court convinced by AEGLs argument that the
151 Ibid at para 17.
152 Ramirez v Amsted Industries Inc, 171 NJ Super 261, 408 A.2d 818 (NJ Super 1979).
153 Ibid at 26869.
154 Suncor, supra note 149 at para 25.
155 Ibid, citing Ramirez, supra note 152 at 817.
156 Suncor, supra note 149 at para 25.
157 Ibid at para 26.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 695
successor liability doctrine espoused in Ramirez was limited to strict lia-
bility and product liability claims, holding that it is not manifestly clear
… that such a limitation is justified.158
Importantly, the ruling of the court in Suncor has received favourable
treatment on a number of occasions since it was issued.159 In particular, in
2011, the Ontario Superior Court in Central Sun Mining Inc. v. Vector
Engineering Inc.160 reviewed US case law subsequent to Ramirez to high-
light how the doctrine of successor liability has evolved since that pivotal
decision, including with respect to how the doctrine treats de facto mer-
gers and situations in which the purchasing corporation is alleged to be a
mere continuation of the selling corporation.161 In this regard, the court
highlighted that the tests for de facto merger and mere continuation have
tended to merge, and that four criteria have become generally accepted
in this context.162 These criteria are: (i) continuity of ownership between
seller and purchaser corporations; (ii) a cessation of ordinary business and
dissolution of the predecessor as soon as practically and legally possible;
(iii) assumption by the successor of the liabilities ordinarily necessary for
the uninterrupted continuation of the business of the predecessor; and (iv)
continuity of management, personnel, physical location, assets, and gen-
eral business operations.163 The Central Sun court also approved of US
courts finding that not all of these factors must be present for a finding
of mere continuation or de facto merger to be made, but that the deter-
mination of whether a predecessor corporation continues to exist for pur-
poses of successor liability is wholly fact specific.164 Lastly, the Central
Sun court endorsed the argument that the continued existence of the pre-
decessor corporation as a shell or gossamer form will not prevent the
application of successor liability pursuant to the theory of de facto merger
or mere continuation, as this would essentially elevate form over sub-
stance.165
158 Ibid at para 27.
159 See Winnipeg Condominium Corp No 36 v Bird Construction Co, [1999] 2 WWR 370,
132 Man R (2d) 32 (QB); Caranci v Huckerby, [2004] OTC 374 (available on CanLII)
(ON SC); Parlette v Sokkia (2006), 151 ACWS (3d) 1059 (available on CanLII) (ON SC),
affd Parlette v Sokkia (2007), 221 OAC 11, 46 CCLT (3d) 161.
160 Central Sun, supra note 145.
161 Ibid at paras 3947.
162 Ibid at para 40.
163 Ibid.
164 Ibid at paras 4244, referring to Milliken & Co v Duro Textiles, 451 Mass 547, 887 NE
(2d) 244, (Mass Sup Ct 2008) [Milliken cited to Mass].
165 Central Sun, supra note 143 at para 45, citing Milliken, supra note 164 at 559.
696 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
That said, it is important to keep in mind that it remains to be seen
how Canadian courts will approach the doctrine of successor liability in
the context of criminal, rather than civil, liability. Ramirez and its proge-
ny all arose in the context of civil litigation, including product liability
cases, as well as cases based on creditor claims.166 The state of the doc-
trine of successor liability in US law in the criminal context is somewhat
murkier,167 and, to the authors knowledge, has yet to be considered in
any fashion by Canadian courts. To this end, the US administrative deci-
sion in Sigma-Aldricha decision that has been heavily criticized168is
widely viewed as providing a key successor liability opinion with respect
to FCPA violations.169 In this case, Sigma-Aldrich Corporation was fined
US$1.76 million for violations of export control laws committed by a new-
ly acquired subsidiary prior to the acquisition. The administrative judge
held that liability for the violations passed to Sigma-Aldrich pursuant to
the mere continuation, or de facto merger, branch of successor liabil-
ity.170 Controversially, in doing so, the judge applied a broadened mere
continuation theory commonly known as the substantial continuity ex-
ception, which eliminates the requirement for a continuity of sharehold-
ers, and pursuant to which a literal purchase of assets is not required
to establish successor liability so long as there is some form of a transfer
of assets.171 With respect to the determination of whether the subject
166 See Grimm, supra note 115 at 285, referring to United States v Mexico Feed & Seed Co,
980 F (2d) 478 at 487 (8th Cir 1992).
167 Grimm, supra note 115 at 286.
168 See ibid at 28991; Aaron Xavier Fellmeth, Cure Without a Disease: The Emerging
Doctrine of Successor Liability in International Trade Regulation (2006) 31 Yale J Intl
L 127 at 151.
169 Ibid at 28792, referring to Re Sigma-Aldrich Business Holdings (29 August 2002), 01-
BXA-06, 01-BXA-07, 01-BXA-11, [archived online at: United States Department of
Commerce, Bureau of Industry & Security
Than You Bargained For: Successor Liability Under the U.S Foreign Corrupt Practices
Act (2009) 35:3 Ohio NUL Rev 959 at 96568; John Barker, Ronald Lee & Michael
Ginsberg, Buyer Beware: Successor Liability for Export Violations and Due Diligence
Measures to Identify and Mitigate Deal Risks (2007) 11:3 The M&A Lawyer 1.
170 Sigma-Aldrich, supra note 169 at 1213.
171 Ibid at 9, referring to, inter alia, Gould, Inc v A & M Battery and Tire Service, 950 F
Supp 653 (MD Pa 1997). Furthermore, though the substantial continuity exception
requires knowledge of potential liability on the part of the successor corporation, the
judge held that it is easy to infer knowledge or notice when the successor holds itself
out as the continuation of the previous enterprise by retaining the same employees, the
same supervisory personnel, the same production facilities in the same location, pro-
duces the same product, and maintains continuity of assets and the general business
operations (Sigma-Aldrich, supra note 169 at 910).
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 697
statutory penalties should be applied to the purchaser of assets rather
than to the originally offending entity, the judge considered a number of
matters. First, the judge engaged in statutory interpretation, finding that
both the language and intent of the IEEPA and EAR strongly suggest
that successors should not be excluded from liability.172 The judge then
affirmed his decision with reference to policy, holding that successor lia-
bility has been imposed to protect the public interest, as well as to prevent
the purpose of federal regulations from being circumvented by corporate
structuring formalities.173
It is unclear whether Canadian law would allow the same bridges to
be built, given that, among other limitations, the purpose of the applica-
tion of the doctrine of successor liability in the context of a CFPOA prose-
cution would be to punish criminal activity rather than to provide claim-
ants access to otherwise unavailable damages, as is the case in the appli-
cation of the doctrine in civil proceedings. To this end, it has been argued
that the decision of the tribunal in Sigma Aldrich rests upon a misappli-
cation of US law relating to these issues. As explained by Fellmeth:
Federal and state courts applying the doctrine of successor liability
have stated consistently that the doctrine is equitable in origin and
nature and, therefore, remedial. As such, successor liability is a
remedy to be applied only to avoid injustice and not to aid the gov-
ernment in seeking to punish, and especially not to punish wrongs
committed by a third party. Absent an express statutory authoriza-
tion, the Supreme Court has long held that that it will not sustain
an action in equity to enforce noncompensatory penalties. Only
when applying a statute can a court resort to successor liability to ef-
fect a punishment, such as punitive damages, under positive law,
and even then courts have attempted to justify the application of the
doctrine as compensatory as opposed to punitive. Where the statute
upon which the government bases its authority does not provide a
legal basis for successor liability and the government seeks noncom-
pensatory damages, courts cannot properly impose liability by fash-
ioning or applying an equitable remedy such as successor liability.174
Other possible limitations to the application of the doctrine of successor
liability under Canadian law are identifiable. As conceded by both the
United States Department of Justice and the Securities and Exchange
Commission,
[s]uccessor liability does not … create liability where none existed be-
fore. … [I]f an issuer were to acquire a foreign company that was not
previously subject to the FCPAs jurisdiction, the mere acquisition of
172 Ibid at 7.
173 Ibid at 11.
174 Fellmeth, supra note 168 at 175.
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that foreign company would not retroactively create FCPA liability
for the acquiring issuer.175
It is only reasonable that the same principle would be applicable under
Canadian law in the context of asset acquisitions. If the owner of assets
engages in foreign corrupt practices in connection with the operation of
those assets but is not subject to the jurisdiction of the CFPOA, it should
not be the case that the transfer of the assets to a Canadian corporation
results in CFPOA liability for the past corrupt practices attached to the
assets.176
VII. Corporate Liability for the Corrupt Practices of Subsidiaries
International business transactions are rarely conducted by Canadian
companies without the use of one or more international subsidiaries.
These international corporate webs are typically the result of risk mitiga-
tion strategies, favourable tax regimes, treaty-shopping strategies, or re-
lated commercial or administrative considerations. They may also involve
a variety of management structures, control schemes, and majority and
minority interests. This reality therefore raises the following question: In
what circumstances may a Canadian parent be held liable for the corrupt
practices of a foreign subsidiary under the CFPOA and the Criminal
Code? The question is a weighty one. If Canadian corporations were per-
mitted to avoid liability for foreign corrupt practices through the mere in-
corporation of a foreign subsidiary, the purpose of the CFPOA would be
significantly undermined.177
According to the US Department of Justice and the Securities and Ex-
change Commission, there are several ways in which a parent corporation
may be liable for corrupt practices engaged in by a subsidiary:
First, a parent may have participated sufficiently in the activity to
be directly liable for the conductas, for example, when it directed
its subsidiarys misconduct or otherwise directly participated in the
bribe scheme.
175 US Department of Justice & US Securities and Exchange Commission, A Resource
Guide to the U.S. Foreign Corrupt Practices Act (14 November 2012) at 28, online:
176 Note that this analysis is separate and distinct from an analysis of whether a part of
the assets or related personal property could be considered proceeds of crime under
Part XII.2 or section 354(1) or both of the Criminal Code, supra note 9.
177 This issue is international in its pertinence. As noted by Skinnider, supra note 60 at 13,
[w]hether the authorities in a parent companys country can take action against the
parent company where one of its foreign subsidiaries bribes a foreign public official is a
priority issue for OECD.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 699
Second, a parent may be liable for its subsidiarys conduct under
traditional agency principles. The fundamental characteristic of
agency is control. Accordingly, DOJ and SEC evaluate the parents
controlincluding the parents knowledge and direction of the sub-
sidiarys actions, both generally and in the context of the specific
transactionwhen evaluating whether a subsidiary is an agent of
the parent. Although the formal relationship between the parent
and subsidiary is important in this analysis, so are the practical re-
alities of how the parent and subsidiary actually interact.
If an agency relationship exists, a subsidiarys actions and
knowledge are imputed to its parent. Moreover, under traditional
principles of respondeat superior, a company is liable for the acts of
its agents, including its employees, undertaken within the scope of
their employment and intended, at least in part, to benefit the com-
pany.178
Although this summary rests on a number of principles somewhat partic-
ular to US law, in practical terms the different avenues to liability of Ca-
nadian corporations for the corrupt practices of foreign subsidiaries under
the CFPOA and section 22.2 of the Criminal Code are generally similar to
what is described above. In fact, it may be the case that Canadian law of-
fers a wider range of means of attributing liability to a corporate parent
for the corrupt practices of a foreign subsidiary than does US law.
First, a Canadian corporate parent may be liable for the corrupt prac-
tices of a foreign subsidiary if the parent either participated in or directed
those corrupt practices. The former may be the case under the Criminal
Codes section 22.2(a), which prescribes liability where a senior officer of
the parent corporation is a party to an offence (that is, where the senior
officer operating within the scope of his or her authority works with the
foreign subsidiary to offer or provide an illicit benefit to a foreign public
official). The latter may be the case under the Criminal Codes section
22.2(b), where liability arises if a senior officer of the parent directs the
subsidiary to engage in the corrupt practices on behalf of the parent. Fur-
thermore, in each case it must be appreciated that the CFPOA prohibits
indirect as well as direct corrupt practices, meaning that the corrupt prac-
tices a senior officer of the parent participates in or directs may involve a
third party or intermediary in addition to the foreign subsidiary.
Second, a Canadian corporate parent may be liable for the corrupt
practices of a foreign subsidiary in various instances in which the parent
has a less than immediate role in the corrupt practices. This may be the
case pursuant to the Criminal Codes section 22.2(c), where liability arises
if a senior officer of the parent knows that a foreign subsidiary is engag-
178 FCPA Guide, supra note 175 at 27 [citations omitted]; see also Tarun, supra note 110 at
49.
700 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
ing, or is about to engage, in corrupt practices for the benefit of the par-
ent, but the senior officer does not take reasonable measures to prevent
the subsidiary from doing so. This may also be the case under section
22.2, which establishes liability where a senior officer of the parent is wil-
fully blind to corrupt practices in which a foreign subsidiary engages for
the benefit of the parent. Again, in each case, the CFPOAs prohibition of
both direct and indirect corrupt practices must be appreciated. This pro-
hibition means that the senior officers wilful blindness or failure to take
preventative measures may involve a third party or intermediary other
than, or in addition to, the foreign subsidiary.
Third, section 5(1) of the CFPOA, added to the Act by Bill S-14, ex-
pands the means through which a Canadian corporate parent may be
found complicit in corrupt practices undertaken by a foreign subsidiary. It
provides that where a Canadian corporation engages in a conspiracy or
attempt to commit, is an accessory after the fact in relation to, or provides
counselling in relation to an offence found in either section 3(1) or section
4(1) of the CFPOA, any such acts or omissions by the corporation, wher-
ever committed, shall be deemed to have occurred in Canada.179 This es-
sentially has the effect of expanding the nationality jurisdiction standard
associated with direct contraventions of the CFPOA to various adjunct of-
fences under the Criminal Code. The result is that a Canadian corporate
parent cannot avoid various forms of liability for its complicity in corrupt
practices that its foreign subsidiarity engages in merely on the basis that
such complicity is grounded in actions taken by the parent and its senior
officers outside of Canada.
These forms of attributing liability to a Canadian corporate parent for
the corrupt practices of its foreign subsidiary are not without areas of un-
certain application. For example, at what point should a court find that a
senior officer is engaging in corrupt practices for the benefit of the parent
(as is required by the introductory language of section 22.2 of the Crimi-
nal Code,), rather than for the benefit of the foreign subsidiary? Or does
this distinction not matter, if it is arguable that any benefit to the Canadi-
an parent, even if secondary in nature to that of the benefit enjoyed by the
foreign subsidiary, is sufficient to attach liability to the parent under sec-
tion 22.2? That said, it remains the case that the combination of section
3(1) of the CFPOA and its prohibition of both direct and indirect corrupt
practices, sections 22.2(a), 22.2(b), and 22.2(c) of the Criminal Code, and
the doctrine of wilful blindness together operate to provide Canadian fed-
eral authorities with a multiplicity of means through which to hold a Ca-
nadian corporate parent liable for corrupt practices engaged in by its for-
179 CFPOA, supra note 1, s 5(1).
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 701
eign subsidiary. In fact, considered in conjunction with the provisions in
sections 21 and 22 of the Criminal Code (which describe liability attached
to attempts, common intention, aiding and abetting, and counselling ac-
cessory parties) and the application of nationality jurisdiction rather than
territorial jurisdiction to such offences by virtue of the CFPOAs section
5(1), the result is an often overlapping statutory web of prohibitions under
which a Canadian parent may attract criminal liability in connection with
the corrupt practices of a subsidiary, whether before, during, or following
the actual commission of such corrupt practices.
This is particularly true given the Ontario Superior Courts expansive
interpretation of the CFPOAs section 3(1) in Karigar. The defendant in
that case argued that that the word agrees in the sections phrase di-
rectly or indirectly gives, offers or agrees to give or offer should be given
its ordinary meaning to connote the agreement of two peopleone to
pay a bribe and one to receive said bribe.180 The Crown, on the other
hand, argued that inc[h]oate offences, in particular a conspiracy to pay
bribes … constitutes a violation of the Act.181 Justice Hackland agreed
with the Crown, holding first that the use of the term agrees imports the
concept of conspiracy into the CFPOA, and second, that such conspiracy
need not include a foreign public official: that is, that the CFPOA is con-
travened where the agreement is merely between business associates.182
In his reasons, Justice Hackland implied that an agreement or conspir-
acy to engage in corruption need not necessarily involve or identify a par-
ticular foreign public official.183 In the context of foreign corrupt practices
contemplated by international corporate families, this interpretation of
the CFPOAs section 3(1) means that a Canadian parent will have violat-
ed the Act simply where it can be said to have agreed with a foreign sub-
sidiary to engage in the corruption of a foreign public official, even if no
specific foreign public official was selected or nominated, and the plan was
never actually put into effect.184
Given this already wide net of liability cast by the interaction of the
CFPOA, the Criminal Code, and the ruling of the Ontario Superior Court
180 See Karigar, supra note 121 at para 22.
181 Ibid at para 24.
182 Ibid at paras 2829, 33.
183 Ibid at paras 2930.
184 This interpretation is not without potentially unexpected results. For example, it is
common for the executives of parent companies to also serve as executives of their for-
eign subsidiaries. If this is the case, pursuant to Karigar, it is arguable that the decision
of a senior officer of a parent company, who is also a senior officer of one of its foreign
subsidiaries, to engage in foreign corrupt practices would constitute an agreement be-
tween the two entities in violation of section 3(1) of the CFPOA, supra note 1.
702 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
in Karigar, it is noteworthy that yet an another avenue of parental liabil-
ity for a subsidiarys actions is sometimes discussed in relation to the en-
forcement of anti-corruption lawsthat of piercing the corporate veil.185
This doctrine is an exception to the fundamental rule of corporate law
that a parent corporation will not be held liable for the acts of its subsidi-
aries (even where the subsidiary is wholly owned).186 The doctrine may be
found to apply, inter alia, where the subsidiary is completely dominated
and controlled by its parent and is being used as a shield for a fraudulent
or improper purpose,187 or where the subsidiary is a mere agent, puppet,
single enterprise with, or alter ego of the parent corporation.188 Interest-
ingly, it may be reasonable to argue that each of these avenues may be
available to pierce the corporate veil to attribute foreign corrupt practic-
es committed by a foreign subsidiary to a Canadian parent, depending on
the circumstances.
In the case in which a Canadian parent incorporates a foreign subsidi-
ary with the intent of using the subsidiary to commit corrupt acts abroad
and in the hope of insulating itself from liability under the CFPOA, a Ca-
nadian court could be justified in piercing the corporate veil to hold the
parent directly liable for the ensuing corrupt acts of the subsidiary. The
court could reasonably find both that the subsidiary was a sham from the
outset, and that there was an improper purpose in the mind of the corpo-
rate parent. In the case where the subsidiary is the puppet of the parent
corporation, a Canadian court could be justified in piercing the corporate
veil to hold a parent directly liable for the corrupt acts of its subsidiary
pursuant to the alter ego doctrine where the subsidiary is organized
and operated as a mere tool or conduit of the parent,189 lacking any inde-
185 See e.g. Archibald et al, supra note 21 at 17:30:90, referring to, inter alia, Niko Re-
sources, supra note 35; William B Jacobson et al, Caveat Emptor: Why and How FCPA
Due Diligence Should be Conducted Prior to Mergers and Acquisitions (2010) 29:1
Corporate Counsel Review 65 at 7778.
186 See e.g. 807608 Alberta Ltd v Medichair Ltd, 2006 ABQB 781 (available on CanLII) at
paras 1113 (discussing Salomon v Salomon & Co (1896), [1897] AC 22 HL (Eng)).
187 See e.g. 642947 Ontario Ltd v Fleischer (2001), 56 OR (3d) 417, 209 DLR (4th) 182 at
para 68 (CA); Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd, 2000
ABCA 116, 189 DLR (4th) 269.
188 See e.g. Palmolive Manufacturing Co v R, [1933] SCR 131, 2 DLR 81; Aluminium Co of
Canada v Toronto (City), [1944] SCR 267, 3 DLR 609 (cited in Phillips v 707739 Alber-
ta Ltd, 2000 77 Alta LR (3d) 302 at paras 159, 20510, CarswellAlta 147 [Phillips]);
Parkland Plumbing & Heating Ltd v Minaki Lodge Resort 2002 Inc, 2009 ONCA 256 at
para 51, 205 DLR (4th) 577 ; Sun Sudan Oil Co v Methanex Corp, [1992] 5 Alta LR (3d)
292 at paras 3443, [1993] 2 WWR 154; Kosmopoulos v Constitution Insurance Co,
[1987] 1 SCR 2 at 10, 34 DLR (4th) 208 [Kosmopoulos].
189 Phillips, supra note 188 at para 207, citing United States v Funds Held in Name of Wet-
terer, 899 F Supp 1013 (EDNY 1995) at 101317, 1020, 1027. Note, however, that the
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 703
pendent mind, operations, finances, or resources devoted to its interna-
tional operations and associated foreign corrupt practices.
Nonetheless, there exist at least two reasons why reliance on the doc-
trine of piercing the corporate veil should not be the first port of call for
Crown prosecutors seeking to attribute the corrupt practices of a foreign
subsidiary to a Canadian parent. The first is that, as is the case with the
doctrine of successor liability with respect to asset acquisitions, the doc-
trine of piercing the corporate veil has historically only been analyzed and
applied in Canadian law in relation to civil causes of action and remedies,
rather than in relation to criminal liability. As such, it is again questiona-
ble whether it would be appropriate under Canadian law to apply a doc-
trine typically employed to prevent a claimant from being deprived of her
rights in a civil context (for example, through the award of monetary
damages) for the purpose of preventing the Crown from being deprived of
its ability to prosecute criminal sanctions.190 The second reason is that
Canadian and English courts appear to be reaching consensus that the
doctrine of piercing the corporate veil should only be applied if there is no
alternative remedy available to assist an aggrieved party.191 Considered in
light of the various other means of attributing corrupt practices of a for-
eign subsidiary to a Canadian parent, this suggests that Canadian courts
may hesitate to resort to this doctrine where alternative means to the
same end are available.192
court in Phillips was careful to highlight that US courts have shown a greater willing-
ness than their Canadian counterparts to treat one company as a mere instrumentality
of another and that, as a result, American jurisprudence on these matters should be
treated with caution.
190 See Kosmopoulos, supra note 188 at 11, where the Supreme Court of Canada stated
that if the veil is to be lifted at all that should only be done in the interests of third par-
ties who would otherwise suffer as a result of that choice, citing LCB Gower et al, Prin-
ciples of Modern Company Law, 4th ed (London: Stevens & Sons, 1979) at 138 [empha-
sis added]. See also Transamerica Life Insurance Co of Canada v Canada Life Assur-
ance Co (1996), 28 OR (3d) 423 at 43334, 2 OTC 146, (Ont Ct J (Gen Div)), affd 74
ACWS (3d) 207 (available on QL) (Ont CA). Note, however, the more general pro-
nouncement by the United Kingdom Supreme Court that the recognition of a limited
power to pierce the corporate veil in carefully defined circumstances is necessary if the
law is not to be disarmed in the face of abuse, and is consistent with the general ap-
proach of English law to the problems raised by the use of legal concepts to defeat man-
datory rules of law (Prest v Petrodel Resources Ltd, [2013] UKSC 34, [2013] 2 AC 415
at para 27, Lord Sumption JSC [Prest]).
191 See Prest, ibid at para 35, where it is held if it is not necessary to pierce the corporate
veil, it is not appropriate to do so, because on that footing there is no public policy im-
perative which justifies that course. Compare XY, LLC v Zhu, 2013 BCCA 352, [2013]
BCJ No 1624 at paras 8697.
192 That said, there remain circumstances in which it is conceivable that the doctrine of
piercing the corporate veil may be of significant utility in CFPOA enforcement. One of
704 (2014) 59:3 MCGILL LAW JOURNAL REVUE DE DROIT DE MCGILL
Conclusion
For a number of different reasons, investigations and prosecutions of
corporations for foreign corrupt practices tend to end early and in plea
agreements, with very few cases proceeding to judicial consideration and
determination. These reasons include the fact that that corporations and
their shareholders generally prefer to put criminal controversies behind
them as soon as reasonably possible, rather than endure prolonged court
battles and the steady stream of headlines that accompany such battles.
Moreover, corporations, unlike individuals, cannot be imprisoned. As a re-
sult, as noted by the United States Federal Court, there [have] been sur-
prisingly few decisions throughout the country on the FCPA over the
course of the last thirty years.193 There is no reason to believe that things
will be markedly different in Canada. The guilty pleas of Niko Resources
and Griffiths International Energy can only support this assumption.
In contrast, given that individuals charged with foreign corrupt prac-
tices do face significant terms of imprisonment, they have a far greater in-
centive to vigorously contest any corruption charges levied against them.
To this end, it is reasonable to expect that, going forward, a greater num-
ber of foreign corrupt practices court decisions will relate to charges levied
against individuals rather than against corporations. The last five years
have witnessed a patent increase in the number of prosecutions against
individuals under the FCPA by the US Department of Justice. With pros-
ecutions of a number of SNC-Lavalin executives likely to follow the con-
viction of Nazir Karigar, Canadian authorities appear to be no less dedi-
cated to this pursuit.
Such case law will continue to provide valuable insight into the scope
and substance of the CFPOAs prohibitions and related areas of law (for
example, the application of the doctrine of willful blindness in the context
of foreign corrupt practices). However, these cases are unlikely to touch
either frequently or meaningfully on legal questions of particular signifi-
cance to Canadian corporations, including but not limited to the appropri-
ate application of section 22.2 of the Criminal Code in the context of for-
eign corrupt practices and the potential application of the doctrine of suc-
cessor liability to asset acquisitions in the context of criminal proceedings.
these circumstances is if it is desirable to move one step further up a chain of Canadian
affiliates, given that the lower level Canadian corporation is a shell company without
significant assets or funds of its own against which to levy monetary penalties for crim-
inal offences. Another is if the prosecution concerns corrupt practices occurring prior to
the passage of Bill S-14 (and is therefore subject to territorial jurisdiction rather than
nationality jurisdiction), and the parents actions have a greater connection to Canada
than do the subsidiarys actions.
193 United States v. Kozeny, 493 F Supp (2d) 693 (SDNY 2007) at 697.
CORPORATE LIABILITY FOR FOREIGN CORRUPT PRACTICES 705
This is less than ideal. Uncertain application of anti-corruption law
can easily result in managerial inefficiencies, increased compliance costs,
and the misallocation of resources. It can also create an unnecessary chill
on international transactions, decreased Canadian involvement in emerg-
ing markets, and decreased competition in those economies that foreign
anti-corruption law is partly intended to benefit. Further discussion and
deliberation on these issues at academic, policy, and professional levels is
therefore worthwhile, and would likely be welcomed by Canadian corpora-
tions and enterprises.
