Why it’s important to keep accurate books and records

Canada’s signature legislation regulating offshore bribery and corruption, the Corruption of Foreign Public Officials Act (the “Act” or “CFPOA”), has come a long way since its introduction on February 14, 2009. The current iteration of the Act now also includes key provisions such as Section 4 – Accounting, colloquially known as the “Books and Records Offences” section.

In the words of Mark Sills, a Toronto practitioner in the area of anti-bribery and corruption,

“Canada can now boast of having anti-bribery legislation in force which is among the strictest in the world.”

On February 5, 2013, the Government of Canada introduced Bill S-14, also known as the Fighting Foreign Corruption Act in the Senate. Bill S-14 was approved by the Senate and the House of Commons without amendment and upon receiving Royal Assent on June 19, 2013, became law.

The subsequent amendments introduced three principal unique provisions that are significant to this article:

  1. The Addition of Documents and Records Provisions
  2. Expansion of Jurisdiction to Include Offences Committed Outside Canada
  3. Elimination of the Facilitation Payments Exception

The provisions of the first version of the CFPOA, permitted a facilitation payment (“FP”) if the FP was made to expedite or secure the performance by a foreign public official of any act of a routine nature that was part of the foreign public official’s duties or functions.

As of October 31, 2017, FPs are now considered offences under the Act. Further, the introduction of the Books and Records clauses creates an offence under the CFPOA for any person who engages in improper accounting practices in order to commit an offence under the CFPOA or to conceal such a violation.

Where instances of false accounting are alleged, other provisions of Canadian law may also apply, such as

    Canada Business Corporations Act 22

  1. Section 155 of the (financial disclosure)
  2. Canadian Criminal Code

  3. Section 361 (false pretences)
  4. Section 380 (fraud)
  5. Section 397 (falsification of books and documents)

Specifically, the following accounting practices are now prohibited, if they are employed for the purposes of committing an offence under the CFPOA or concealing such a violation:

  1. Establishing or maintaining accounts that do not appear in any required books and records
  2. Making transactions that are either not recorded in required books and records or are not adequately identified in those books or records
  3. Recording non-existent expenditures in required books and records
  4. Entering liabilities in required books and records bearing an incorrect identification of their object
  5. Knowingly using false documents
  6. Intentionally destroying required books and records earlier than permitted by law.

The maximum penalty for such an offence under this section is imprisonment for a term of up to fourteen years. This is in addition to any penalty that may be levied in respect of the illegal payment itself. Impact on Canadian Business Canadian directors and managers, either head-office based or domiciled offshore, who choose to turn a blind eye towards the corrupt practices of their companies and the employees they supervise, may become accountable and face criminal liability for permitting the company’s books and records to be faked, altered or concealed in respect of bribes or FP’s, irrespective of whether they are engaged or not in the actual payments themselves.

From a forensic accountant’s perspective, the updates to the Books and Records offences of the Act brings an additional layer of responsibility for Canadian companies doing business outside of Canada. These companies now need to ensure that their agents or employees are not bribing foreign government officials in the first place, but also that bribes or FPs have not been covered up using false documentation or inappropriate accounting.

While the Books and Records offences have not been individually targeted by Canadian regulators to date, the US authorities have experienced significant prosecution success with respect to the FCPA Books and Records provisions, which are generally easier to prove. This is expected to generally widen Canadian law enforcement’s investigative and prosecutorial nets and success rates.