Nazir Karigar, a former agent of an Ottawa high-tech company was sentenced on May 23, 2014 to a penitentiary term of three years for conspiring to bribe several Indian government officials in the first Corruption of Foreign Public Officials Act (the “CFPOA” or the “Act”) case to go to trial. The conspiracy to bribe had as its purpose the winning of a tender for a multi-million dollar contract to sell facial recognition software to Air India, a state enterprise. Facial recognition software may play an important role in preventing the boarding of planes by unauthorized persons. 1. Sophisticated bribery schemes result in jail sentences Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issues the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”. In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.” 2. The importance of corporate compliance The sentence imposed on Karigar is a reminder of how important compliance systems are. It is essential that the tone from the top reject the notion that bribes are a cost of doing business. Agents cannot be used as vehicles to improperly achieve objectives. Canadian companies must be ever vigilant in monitoring and, where appropriate, auditing the process of negotiations and agreements made with agents and third parties who may be interacting with government officials on their behalf. Individuals must realize that they can and will go to jail for bribery offences. Compliance programs will have enhanced importance where an individual employee or agent commits an offence. For example, in April of 2012, Garth Peterson, a former managing director for Morgan Stanley’s Real Estate Group in the People’s Republic of China, pleaded guilty to conspiring with others to circumvent Morgan Stanley’s internal controls in order to transfer a multi-million dollar ownership interest in a Shanghai building to himself and a Chinese public official. Peterson was sentenced to nine months in jail despite the government’s request for a five to six year sentence, and the SEC announced civil charges and a settlement with Peterson. In the Morgan Stanley case, the U.S government declined to bring any enforcement action against the company related to Peterson’s conduct given that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials. Morgan Stanley had voluntarily disclosed the matter and cooperated throughout the DOJ’s investigation. 3. Background to the Karigar case On August 15, 2013, Justice Hackland found that Karigar had conspired to distribute at least $450,000 in bribes to decision-makers at Air India, a state-owned entity, as well as to an Indian government minister. There was, however, no evidence as to whether funds were actually offered or paid to a foreign public official. This demonstrates the power of the conspiracy provisions as imported from the Criminal Code into the CFPOA. The Court found that section 3(1) of the Act criminalizes the act of one who “… directly or indirectly gives, offers or agrees to give or offer … an advantage or benefit of any kind”. The use of the term “agrees” imports the concept of conspiracy into the Act. In doing so, it meets Canada’s obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions to criminalize conspiracies to give or offer bribes to foreign public officials. An unusual aspect of the case is that Karigar described the scheme in an e-mail sent under a pseudonym “Buddy” to the Fraud Section (FCPA) of the US Department of Justice stating he had information about US citizens paying bribes to foreign officials and inquired about reporting the matter. Karigar ultimately admitted that he was “Buddy”. 4. Aggravating factors Justice Hackland identified a number of aggravating factors including the following: i) This was a sophisticated and carefully planned bribery scheme intended to involve senior public officials at Air India and an Indian Cabinet Minister. If successful, it would have involved the payment of millions of dollars in bribes and stock benefits, over time; ii) Karigar’s participation in the bidding process involved other circumstances of dishonesty such as the entry of a fake competitive bid to create the illusion of a competitive bidding process and the receipt and use of confidential insider information in the bid preparation; iii) Karigar candidly related to a Canadian trade commissioner that bribes had been paid and then urged the Canadian Government’s assistance in closing the transaction; and iv) Karigar personally conceived of and orchestrated the bribery proposal including providing the identity of the officials to be bribed and the amounts proposed to be paid as reflected in financial spreadsheets he helped to prepare. 5. Mitigating factors The following mitigating factors were identified by Justice Hackland: i) There was a high level of co-operation on Karigar’s part concerning the conduct of the prosecution. Karigar exposed the bribery scheme to the authorities following a falling out with his co-conspirators. He unsuccessfully sought an immunity agreement. A great deal of trial time was avoided as a result of Karigar’s extensive admission; ii) Karigar was a respectable businessman all of his working life, prior to his involvement in this matter. He had no prior criminal involvements, is in his late 60’s, and not in the best of health; and iii) Of considerable importance was the fact that the entire bribery scheme was a complete failure. 6. Similar cases Justice Hackland observed that the jurisprudence under the CFPOA is minimal and that the previous cases such as Griffiths Energy and Niko involved corporate accused and were resolved by way of guilty pleas. The Court distilled from these cases the general theme that bribery of foreign officials must be viewed as a serious crime and the primary objectives of sentencing must be denunciation and deterrence. The sentence is consistent with the sentences handed to those who commit large scale frauds in Canada. A further parallel to domestic bribery and corruption under the Criminal Code shows that sentencing must be a deterrent to others. By Kenneth Jull and Cherrine Chow (first published on www.canadianfraudlaw.com)
Ken Jull is a member of Baker & McKenzie's White Collar Crime Steering Committee. Mr. Jull practices in the area of risk management strategies to promote regulatory and corporate compliance, which includes internal investigations and litigation of disputes which have a compliance component, including trials involving allegations of fraud and breach of fiduciary duty. He is a frequent contributor to Canadian Fraud Law.