Canada’s effort to ease debarment policy for government contracts still falls short

8 July 2015. By Mark Bocchetti.

Recent amendments to Canada’s regime for barring companies guilty of corruption-related crimes from government procurement add needed flexibility but still fall short of providing the sort of incentives for voluntary disclosure available under the US Foreign Corrupt Practices Act.

A key element of the package, announced July 3, would permit reduction of the debarment from 10 years to five when a company has cooperated with law enforcement or “addressed the causes of misconduct.” Such a remediation plan would be subject to monitoring by a third-party governance and integrity expert, who would report on whether the company was living up to the agreed conditions.

The integrity regime covers other offences, as well, including tax evasion, drug trafficking, and collusion and other competition offenses among those drawing a 10-year debarment, and companies convicted of committing fraud against the government of Canada still would be subject to a permanent ineligibility.

Public Works and Government Services Canada, which issued the new policy, notes that the ministry addressed industry concerns because the new policy “encourages suppliers to proactively disclose misconduct as soon as they become aware of it, as the ineligibility period could start as soon as an ethical breach was disclosed, rather than being tied to a bidding process.”

But Milos Barutciski, a partner and co-head of international trade at the Toronto law firm Bennett Jones, said that for a company highly dependent on government business, the reduced penalty of five years could be the equivalent of “capital punishment.” Many CEOs would think twice about voluntary disclosure, he said.

Peter Dent, chair and president of Transparency International Canada, said his organization supports the changes because they encourage companies to adopt the best possible compliance programs. But he noted that even a five-year debarment is still “a rather harsh penalty,” especially without the availability of some sort of appeal of a ministerial determination to improve due process.

The US system of non-prosecution and deferred prosecution agreements permits companies to admit mistakes, take remedial action, pay a penalty and then move forward. Dent observed that it’s difficult for a company operating in many different markets with local personnel ever to eliminate corruption altogether, and the Canadian system does not permit as much discretion as the US system.

However, both Dent and Barutciski applauded the greater flexibility on foreign affiliates. Whereas before, debarment for conviction of a foreign affiliate on a similar offense had been more or less automatic, now Public Works and Government Services Canada would determine whether the Canadian company should be debarred based on whether it had “directed, influenced, authorized, assented to, acquiesced in or participated in” the conduct that led to the conviction overseas.

Companies would be required to retain an independent third party to assess the extent of the Canadian company’s involvement in the actions of an affiliate leading to a foreign offense, with presentation of that assessment to the public works minister.

The revised Integrity Regime introduces third-party assessments and monitoring — at company expense — in connection with several provisions.

Companies seeking a five-year reduction of ineligibility based on a compliance plan would require continued monitoring by the private sector integrity and governance expert. The Integrity Regime also requires a third-party certification when a company that has served its 10 years is seeking to regain access to government procurement. And a monitor would be required if the government elects not to terminate an existing contract upon conviction of a supplier, or decides to grant a public interest exception for a new contract.

Several multinational corporations have faced possible bans from new procurements based on foreign bribery convictions outside Canada, among them Hewlett-Packard, Siemens and Alcatel-Lucent. SNC-Lavalin, the major Montreal engineering and construction company, also faces possible debarment with both the company and several employees charged with various corruption-related offenses.

The revised Integrity Regime may offer flexibility to companies in some cases by permitting the minister to forego a determination of ineligibility “if the supplier/potential supplier or any of its affiliates has at any time benefited from foreign measures that are, in the opinion of Canada, similar to Canadian pardons, conditional discharges, absolute discharges, records of suspension, or restoration of legal capacities by the Governor in Council in respect of that offence.”

	Eliot Gao