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Corruption Amnesty – Voluntary Disclosure Benefits

04/02/2013


In January, privately owned Griffiths Energy pled guilty to bribery charges and offered to pay a substantial fine. On Friday, January 25, 2013 Court of Queen’s Bench Justice Scott Booker agreed with the terms of the charges and penalty.

The Griffiths case highlights a potential trend in Canada: voluntary disclosure of corrupt activity to the RCMP. Although Canada does not have a process or program for voluntary disclosure of corruption offenses like it does for tax or competition law offenses, there is a clear benefit for organizations to do so.

Financial Benefits of Voluntary Disclosure

There is a history of leniency in the U.S. for corporations who voluntarily disclose foreign corrupt activity; in Canada however, there have been very few investigations that would concretely indicate that voluntary disclosure leads to preferred treatment. Consider this: Niko Resources reportedly paid $200,000 in bribes to the Bangladesh Energy Minister and was fined $9M, including a 15% victim surcharge (about 50 times the bribe paid). Griffiths pled guilty to paying bribes of approximately $2M which resulted in a total fine (including victim surcharge) of $10.35M (about 5 times the bribe paid). Had the Niko ratio applied to the Griffiths situation, a $95M fine would have theoretically been possible, since the CFPOA fines have no legislated maximum.

Since there are so few examples of fines levied under the CFPOA from either reported or discovered contraventions, it is hard to determine the nature and extent of any preferred treatment. Additionally, there are many other factors which may be considered when a penalty is determined, such as the profits earned as a result of the bribe, the nature of the compliance program in place, the cooperation of the company once the illicit activity was identified and the parties involved within the organization, just to name a few.

It’s important to point out that fines are only one of the costs of such an incident. Griffiths also wrote off $1.8M in costs associated with the IPO that was recalled as a consequence of the situation, and a reported $5M in investigation costs were incurred. As a private company, it is also suffering from significant public damage to its reputation. However, if Griffiths was a public company, it would also suffer a loss in the market price of their shares.

Other Benefits of Voluntary Disclosure

Some theorize that proactively disclosing puts control of the situation in the hands of the company rather than its detractors, and can leave the impression of good governance. Although the IPO was recalled in the Griffiths case, they were able to proceed with private placements, for example.

If the right people are involved in the disclosure, it demonstrates the appropriate tone at the top. Although senior officer liability is somewhat ignored within the CFPOA, the impact of the right tone at the top throughout the company makes for more ethical business practices down the road.

Voluntary disclosure may decrease the instances of future compliance problems because it demonstrates a real life example to those involved as to what can happen, what the costs associated may be and the burden it places on the company. An investigation cost of $5M likely impacted Griffiths’ operations in some detrimental manner; for example, a decrease in employees’ bonuses at the end of the year makes the situation real and tangible to all employees.

Read about the Griffiths case here.