Legal, ethical requirements apply in Canada and abroad
By Brian Kreissl
An organization’s code of conduct should prohibit unethical and illegal practices such as bribery, kickbacks, secret commissions and “off the books” transactions. This has important implications for employers doing business both in Canada and abroad.
Such prohibitions are important in the wake of high profile accounting scandals, including the Enron and WorldCom financial collapses caused largely by irregularities in financial reporting. The Sarbanes-Oxley Act (SOX) was passed as a result of those scandals.
While SOX is U.S. legislation, it impacts Canadian companies listed on U.S. stock exchanges. Ontario also has its own version of this legislation known as Bill 198, or “C-SOX,” which amended the Securities Act by introducing SOX-type provisions.
The legislation requires a stringent approach to conducting financial audits and certification by CEOs and CFOs of the accuracy and validity of financial statements. It also includes requirements for companies relating to audit committees.
This has several implications for HR professionals north and south of the border. First of all, the legislation introduced rather strict requirements with respect to any records pertaining to revenues, expenditures or liabilities in publicly-traded companies, including records relating to compensation and benefits.
There are also requirements around the need for appropriate financial controls and reporting. HR has a role to play by assisting in the development and enforcement of applicable employment policies and with respect to training and change management relating to those policies.
Ethics training must be part of any SOX compliance training program, and employees should be required to read the organization’s code of conduct on an annual basis and sign-off that they have read, understood and agree to be bound by the code. As well as codes of conduct, other types of employment policies, such as those governing the use of technology, confidentiality of information and the handling of fraud complaints (whistleblowing), are also within the purview of the HR department and have important implications for SOX compliance.
Sanctions for bribery, corruption outside Canada
Organizations also need to recognize that policies relating to business ethics should govern not only business activities in Canada, but also wherever the organization does business, including jurisdictions where such conduct is condoned or accepted, either tacitly or explicitly, by the law or the authorities.
This applies particularly with respect to corruption of public officials in light of new provisions strengthening the federal Corruption of Foreign Public Officials Act (CFPOA) introduced earlier this year in Bill S-14.
According to law firm Bennett Jones, these changes include the possibility of new criminal charges for corporations, directors, officers and employees. Bill S-14 also increases the maximum penalties for individuals, adds new charges, provides the RCMP with exclusive jurisdiction for prosecuting offences under the CFPOA and clarifies that the act relates to all business activities, whether for profit or not
An exemption for “facilitation payments” (small payments made to foreign public officials for performing routine administrative tasks) is also due to be phased out at some point by cabinet order.
This legislation is also significant because, for the first time, an individual was recently tried and convicted under the CFPOA. The accused was an executive acting as the agent of an Ottawa-based security company in connection with alleged attempts to bribe an official of India’s Minister of Civil Aviation and officials at Air India relating to the sale of facial recognition software.
According to law firm McCarthy Tétrault, the case, R. v. Karigar, is significant for a number of reasons. First of all, there was no evidence the payments were actually made to the officials.
Secondly, the Ontario Superior Court of Justice took a broad approach to the definition of “foreign public official.” According to the court, that could include employees of state-owned or operated companies such as Air India.
It is also significant that the recent amendments to the CFPOA no longer require a “real and substantial link” with Canada to obtain a conviction. The law now simply allows for conviction of Canadian citizens, permanent residents or corporations, regardless of the crime’s connection with Canada.
Therefore, Canadian companies operating abroad can no longer tolerate corruption even where unethical conduct is recognized as being simply part of doing business. And HR has an important role to play in developing, communicating and enforcing policies proscribing such activities.
Brian Kreissl is the managing editor of Consult Carswell. He can be reached at [email protected]. For more information, visit www.consultcarswell.com.
