How Canada’s leading the way to compliance with anti-corruption sticks and carrots

25/08/2015

Compliance sticks and carrots

Compliance sticks and carrots

“Your criminal actions raise serious questions as to whether you have the requisite personal integrity and business ethics to be a responsible Government contractor.”

That’s me.

I was debarred from being a U.S. government contractor, and based on my conduct and offense, it was an appropriate and fair decision. The process by which I was suspended and ultimately debarred was also fair and appropriate.

Furthermore, the protocol the government afforded me in terms of providing an opportunity to address the length of the debarment (it was reduced by one year, if my record remains clear) was quite reasonable and objective.

The unintended consequences of debarment

So, what does debarment have to do with trade? Well, I think everything.

Why should an organization or individual who has breached fair trade, either through bribery or export offenses, be entitled to continue to export without some sanction?

While there has been a recent increase in the discourse around debarment, including the recent changes in the Canadian Public Works and Government Services Canada (PWGSC) Integrity Framework, it remains an infrequent sanction tool.

In fact, according to the OECD Foreign Bribery Report, of the 427 cases from which the OECD used as its data set, only two resulted in debarment (of which this author is one). The OECD defines debarment as relating “to the additional non-automatic sanction of provisional exclusion from participation in national public procurement processes for a set period.”

So, why is debarment not being used as an instrument of sanction and deterrence?

As University of Virginia (disclosure, my Masters in Foreign Policy is from UVA) Professor Brandon Garrett states in Too Big to Jail, suspension and debarment “may result in what is effectively a death penalty for a company, and in many cases prosecutors and regulators are right to want to avoid such severe consequences for the entire company.”

Avoiding collateral damage

Agreed. For example, in my own case, would it have been responsible to have my former employer debarred, with potentially catastrophic economic consequences, for conduct attributable to me?

Clearly not, and as Professor Garrett states,

Prosecutors are absolutely right to try to avoid collateral consequences of a corporate conviction.

In his concluding chapter, Professor Garrett argues, “for corporate prosecutions to have real teeth, debarment and suspension should be exercised more clearly and forcefully, particularly for recidivists, to ensure that they implement meaningful compliance,” and he reminds us that prosecutors “can wield the most powerful tools.”

Thus, if the FCPA and other anti-bribery enforcement regimes are proving inadequate, even if essential, in terms of deterring foreign bribery, perhaps the “debarment” tool needs to be taken out of the shed.

Perhaps it should be utilized in a way which, while economically painful, is not catastrophic to the hard-working employees and foreign end-users who play a legitimate and lawful role in the value chain.

Here, I think Canada leads the way, and we will get back to the “why and how.”

Hitting where it hurts on the front lines

As to why I consider debarment to be a fair, appropriate and well calibrated sanction and deterrence tool, well, we need to take a deep dive into the front lines of international business. More specifically to hotels, conference center bars and restaurants where business teams congregate after corporate meetings.

It is in this environment, away from the ears of management, where business personnel are likely to exchange ‘war stories,’ and in this case, frustration with the interruption of business due to debarment.

While criminal and enforcement fines, even massive ones, have financial impact on earnings and balance sheets (but as we have seen, not necessarily to share values), they don’t automatically impact field personnel.

Debarment does, as it disrupts sales opportunities, income streams, revenue models, and finally, incentive compensation potential, to those who have international business development responsibility.

When business teams who have had their forecasts and plans interrupted due to debarment start pressuring peers not to engage in conduct which can “screw up the market,” the thinking might really start to shift.

Those internal pressures should not be underrated. If it is the business teams who are misbehaving, why not have the business teams feel the pain?

Even if the ones who are getting the brunt of the punishment are not the ones who committed the fraud, from my perspective, they will be sure to “share the pain and shame” with their cohorts in a way which just might change the “engage in or refrain from” corruption calculus to everyone’s long term benefit.

Now back to Canada.

The Canadian solution of remediation, rehabilitation and cooperation

As Kristine Robidoux, Partner, Gowling Lafleur Henderson LLP, stated in a recent blog article, entitled The New Canadian Integrity Regime: Compliance Carrots to Join the Sticks,

“The previous Integrity Framework had a number of controversial provisions that led to widespread criticism; in particular, suggestions that the Framework was so draconian, confusing and inflexible as to “drive underground” allegations of corporate wrongdoing, contrary to PWGSC’s stated objective of deterring such wrongdoing.”

As for what Canada did to balance the Regime, as Kristine states, “the Regime now provides for the period of contracting ineligibility to be reduced by up to five years if it can be demonstrated that the supplier has adequately addressed and remediated the causes of the misconduct and has cooperated with enforcement agencies in investigating and resolving the conduct at issue.”

Thus, in addition to the debarment sticks, Canada has introduced the carrots of remediation, rehabilitation and cooperation that can all be used to reduce the debarment period.

As Kristine adds, “it is clear that with the recent changes to the Integrity Regime, the Canadian government is attempting to foster an environment that will encourage cooperation, self-investigation and voluntary disclosure by using inducements to potentially shorten the debarment period.”

So, from my perspective as one who has been debarred, it is a fair and appropriate tool which has real impact on the front lines of business, which is where unethical export practices often occur.

While recognizing the potential disproportionate consequences which might result from its use, I think that Canada gets it right by incentivizing organizations via downward departures in the length of debarment, when they show responsible changes in behaviors, policies and compliance practices.

I hope that other countries will look at Canada’s approach and think about how this tool can have a dramatic impact on those who operate on the front lines of overseas business, as well as to the organizations that ultimately have responsibility to maintain ethical, lawful and compliant business practices.

Do you think Canada’s new anti-corruption measures are a step in the right direction?

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

 

About the author

Richard Bistrong

Author: Richard Bistrong

Richard Bistrong is CEO of Front-Line Anti-Bribery LLC. He consults, writes and speaks about compliance issues from his experience as an international sales VP and conviction for violating the FCPA, where he pleaded guilty, cooperated with international law enforcement, and served fourteen and a half months in prison. He can be reached via his website, twitter and e-mail at richardtbistrong@gmail.com

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