2 nd Annual Public Procurement Round Table Here Comes the Bribe! (When does gift-giving go too far?)

1. 2nd Annual Public Procurement Round TableHere Comes the Bribe!(When does gift-giving go too far?) Ron Lunau Phuong Ngo Catherine Beaudoin Stephanie Pearce Gowling Lafleur Henderson LLP - Ottawa Public Procurement Group www.governmentcontracting.ca

2. Bribery Offering, giving or receiving something of value for the purpose of influencing the action of an official in the discharge of his or her public legal duties

5. 2004 investigation into bribery allegations relating to Saudi defence contracts: “Fraud Office Launches Inquiry Into … Saudi Arms Deal” The Independent November 4, 2004 “The Serious Fraud Office disclosed yesterday that it has launched an investigation into suspected false accounting involving dealings between … Britain’s biggest defence contractor, and two other companies in connection with the £20bn Al Yamamah arms-for-oil deal with Saudi Arabia. … The investigation concerns allegations that [the company] set up a £60m “slush fund” which was used to provide members of the Saudi royal family and government officials with luxury cars, exotic holidays, gold cutlery canteens …. News of the investigation, which is being conducted jointly by the SFO and the Ministry of Defence Police, hit [the company’s] shares, sending them 3 per cent lower.”

6. “Former GOP member pleads guilty to fraud charges” Washington Post 06-03-2008 “John C. Albaugh pleaded guilty to accepting gifts – including tickets to sporting events, concerts by groups such as the Wiggles and Disney on Ice show – in exchange for helping lobbyists and their clients, according to prosecutors. … Ring and Abramoff or Abramoff’s lobbying firm gave Albaugh tickets to concerts by musicians George Strait and Tim McGraw, and to Washington Redskins football games, according to the filings. They also say that the lobbyists wined and dined Albaugh at restaurants and delivered dinner to him and other aides when they were working late one night on a transportation bill.”

7. It began small: “Man Took Navy Vendors’ Bribes” The Virginian Pilot 05-30-2008 “At first, the bribes consisted of NCAA basketball tickets and a Sony PlayStation 3. Then they turned into cash. … Doggett, who was in charge of purchasing industrial lubicrants and cleaners for various Navy commands, admitted that he began accepting gifts from an unidentified vendor in November 2006. The gifts included $3,400 worth of NCAA basketball game tickets and a $650 PlayStation 3. Doggett then requested cash payments. … In return, Doggett gave the chemical supplies vendors preferential treatment and inflated orders.”

8. All in the family: “Ex-Pentagon Official Gets 9 Months for Conspiring to Favor Boeing” New York Times October 2, 2004 “A former top Air Force official was sentenced to nine months in prison on Friday after acknowledging that she had favored the Boeing company in multibillion – dollar Pentagon contracts while seeking employment at the company for herself and family. … Ms. Druyun said that Boeing would not have been selected for some military projects or would have received lower pay if not for her efforts to obtain jobs for herself, her daughter and her son-in-law.”

9. Use of “consultants” abroad to carry out illicit activities – creating false invoices to cover up: “Monsanto Fined $1.5M for Bribery” BBC News Friday, January 7, 2005 “The US agrochemical giant has agreed to pay a $1.5m (£799,000) fine for bribing an Indonesian official. Monsanto admitted one of its employees paid the senior official two years ago in a bid to avoid environmental impact studies being conducted on its cotton. … A former senior manager at Monsanto directed an Indonesian consulting firm to give a $50,000 bribe to a high-level official in Indonesia’s environment ministry in 2002. The manager told the company to disguise an invoice for the bribe as “consulting fees”.”

10. Bribery is not something that just happens in other countries: “US Diplomat to Canada Charged in Visa-Bribery Scandal” Bell Globemedia Interactive 2006 “TORONTO – A U.S. State Department official in Toronto is accused of taking strippers on holidays and choosing jewelry for his wife as payment to push through visa applications, in a bribery scandal that suggest U.S. border security was breached by one of its own. … The indictment alleges Mr. Agarwal would give Mr. O’Keefe the names of the STS Jewels employees who needed visa interviews. Mr. O’Keefe would then schedule meetings outside the regular times and, when he could, he would make sure that he was conducting the interview. According to the indictment, after Mr. O’Keefe received one gift – a $3,000 (U.S.) ring – he emailed Mr. Agarwal to lament the fact he’d had to pay $262.65 in Canadian customs and duties ….”

11. Something of value?: “Councillor Wants to Hire Ethics Watchdog to Monitor Staff, Council” The Ottawa Citizen June 14, 2007 “The city needs an integrity commissioner to help prevent public officials from accepting inappropriate gifts, like Ottawa Senators playoff tickets, says a city councillor. … Last week, the city’s auditor general, Alain Lalonde, began investigating after senior city employees and some councilors were found to have taken free Senators playoff tickets from companies that do business with the municipality.”

12. Federal LegislationCriminal Code Section 119 of the Criminal Code creates offences which apply to both the person who accepts a bribe and to the person who offers a bribe. The offer, the acceptance, the agreement to accept or the attempt to obtain make out the full offence. It is an element of both offences that the offer, acceptance or solicitation must be done corruptly and there must be an attempt to influence the office holder in his or her official capacity. The seriousness of this offence is recognized by the maximum sentence of 14 years imprisonment. Applies to judicial officers, MPs and MPPs.

13. Criminal Code– Bribery of Public Officers Section 120 of the Criminal Code targets those involved in the administration of criminal law (which may include some provincial offences). It creates offences for both a person offering a bribe and the person who accepts or agrees to accept it. The acts need not involve the officers in their public capacity. However, the intent must be interfere with justice, making it easier for another person to commit an offence or to protect an offender from detection or punishment.

14. Criminal Code – Frauds on the Government Section 121 creates a number of offences relating to frauds on government and is aimed, in part, at influence peddling. It creates offences for government employees and “officials” or their family members, and the person offering a bribe. The offences extend to offering benefits, even if the benefits cannot be delivered, in return for government business or benefits, or the offer of government business or benefits. It also covers government employees or officials who demand a benefit, and a person pretending to have influence who demands a benefit. It specifically references tenders (using bribery for someone to withdraw from a tender call) and offering campaign contributions in return for contracts.

15. Criminal Code –Punishments “121. (3) Every one who commits an offence under this section is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years.” “122. Every official who, in connection with the duties of his office, commits fraud or a breach of trust is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years, whether or not the fraud or breach of trust would be an offence if it were committed in relation to a private person.”

16. Criminal Code – Selling or Purchasing Office Section 124 creates the offence of agreeing to sell or purchase an appointment to, or resignation from, a public office. Section 125 prohibits attempts to influence or negotiate appointments, or resignations, from office for a benefit.

17. Criminal Code – Disability to Contract A person convicted of certain corrupt crimes against the Crown is disqualified from ever contracting with (directly or indirectly) or being employed by the Crown again, unless, on application, a restoration of capacity is granted by the Governor in Council Applies to offences under: • Criminal Code - s. 121 (fraud against Gov’t) and s. 124 (sale or purchase of public office) • Financial Administration Act - s. 80(1)(d) (falsifying records) and s. 80(2) (fraud against the Crown)

18. Financial Administration Act– Where Bribes Offered or Accepted Criminal offences are set out in sections 80 and 81 of the FAA. For the most part, they pertain to corruption of public officials and falsification of records. Section 81 creates offences which apply to the person who accepts or receives a bribe and the person who offers a bribe. This section applies to officers or persons acting in any office or employment connected with the collection, management or disbursement of public money. Requires intent to influence to decision or action of that person on any question or matter that is pending or may be brought before him; or to influence that person to commit, or aid and abet in committing fraud on the revenue, or to connive at, collude in or allow any opportunity for the commission of such fraud; Punishable by imprisonment of up to five years.

19. Scenario 1 Mr. X worked for a provincial Department of Transportation as an engineer. Mr. Y was an owner of a company that entered into contracts to build roads for the province, some of which were supervised by Mr. X. Mr. X’s wife was hired by Mr. Y as a back-up worker. She did receive a salary, but was never called in to perform any active duties. Mr. X was aware that his wife was getting paid but not working. • Did Mr. X do anything that should attract criminal sanction? • Did Mr. Y do anything wrong?

20. Scenario 2 Mr. Grantor is employed by the federal government and was in charge of approving grant applications. Mr. Grantee was the owner of a company who planned to apply for government grants. He arranged a meeting with Mr. Grantor about whether his company would be eligible for the grants program. They met and discovered a shared interest in horses and developed a close friendship. Over time, Mr. Grantee invited Mr. Grantor for dinner, fishing trips, and 4 trips to Mr. Grantee’s Florida ranch, which included their wives and other friends. Mr. Grantee’s company financed these trips. Sometime between the second and third trip to Florida, Mr. Grantee’s grant applications were approved, one by Mr. Grantor and one by his supervisor. • Should Mr. Grantor be found guilty of conferring an advantage or benefit on a government official or should this be seen as a case of close friends with an interest in common? • Would your opinion change if Mr. Grantor had been friends with Mr. Grantee before Mr. Grantee approached Mr. Grantor regarding the grant applications?

21. Corruption of Foreign Public Officials Act – Bribing a Foreign Public Official Specific legislation applicable to foreign public officials Section 3 creates an offence to give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official (or anyone else for the benefit of the foreign public official) • As consideration for an act or omission by the official in connection with performance of official’s duties or functions; OR • To induce the official to use his or her position to influence acts or decisions of the foreign state or public international organization for which the official performs duties of functions.

22. National Defence Act Section 117 of the National Defence Act creates an offence for any person who demands, accepts or receives certain benefits or advantages: • Compensation, consideration or personal advantage in respect of the performance of any military duty or matter relating to the Department or Canadian Forces • Any gift, loan, promise, compensation or consideration (money or otherwise) for assisting or favouring a person in the transaction of business relating to the Forces (or the mess, canteen or institute operated for the benefit of the forces) • Compensation, consideration or personal advantage for convoying a vessel entrusted to his care

23. Lobbying Act – Prohibitions for Lobbyists and Clients Lobbying Act prohibits contingency fees for consultant lobbyists. Consultant lobbyistsshall not receive any payment that is in whole or in part contingent on the outcome of • Attempts to arrange a meeting with a public office holder and any person • Attempts to communicate with a public office holder on a variety of topics, including the awarding of any grant, contribution, other financial benefit or contract by or on behalf of her Majesty in right of Canada

24. Conflict of Interests Act A “conflict of interest” is the exercise of an official power to further one’s private interests or any other person’s private interests. This Act does not apply to public servants. It applies only to “public office holders” as defined in the Act. Note the definition is different than that in the Lobbying Act. Public office holders (POHs) include: • Ministers and parliamentary secretaries • ministerial staff and advisors, including those who work part-time or do not receive compensation • some cabinet appointees

25. Conflict of Interests Act Prohibits POHs from accepting gifts that “might reasonably be seen to have been given to influence” the POH • exceptions for gifts from family members and friends, gifts under the Canada Elections Act and gifts received “as a normal expression of courtesy or protocol” Prohibits POHs who are parliamentarians and their families from accepting travel on a non-commercial chartered or private aircraft Parliamentary POHs cannot have an interest in a partnership or a private corporation

26. Conflict of Interests Act Reporting POHs must disclose to the Commissioner if: • RPOH or his/her family member receives “gifts or other advantages” from one source whose total value exceeds $200 in a 12-month period. • RPOH receives a firm offer of outside employment. Reporting POHs must make a public declaration re: • Accepting gifts or other advantages having a value of $200 or more • Accepting travel from any source

27. Scenario 3 The Executive Assistant to the Minister of Fisheries obtains a free oil change and car tune-up from an auto body shop, as a reward for being a loyal customer. The owner of the auto body shop subsequently bids on an RFP issued by the DFO. • Did the Executive Assistant do anything wrong? What about the owner of the shop? • Does anything change if it is a series of free car maintenance services?

28. Scenario 4 ABC Co. is a Canadian company with significant operations in the United States, requiring its employees to cross the border frequently. To try to assist with difficulties encountered with US immigration officials, ABC hired a US immigration officer as a consultant, who assisted employees with the best way to fill out their applications and talk to immigration officers. Over time, the consultant independently began to collect information on ABC’s competitors, and used that information to make it more difficult for the employees of ABC’s competitors to cross the border. Eventually the consultant gave the information he collected to ABC. • Should ABC be held responsible for its consultant’s actions? • Should ABC be found guilty of violating Canadian law?

29. Values and Ethics Code for the Public Service Public servants cannot: • Solicit or accept transfers of economic benefit. • Step out of their official roles to assist private entities or persons in their dealings with the government where this would result in preferential treatment to the entities or persons. • Knowingly take advantage of, or benefit from, information that is obtained in the course of their official duties and that is not generally available to the public. • Accept or solicit any gifts, hospitality or other benefits that may have a real or apparent influence on their objectivity in carrying out their official duties or that may place them under obligation to the donor. • This includes free or discounted admission to sporting and cultural events arising out of an actual or potential business relationship directly related to the public servant's official duties.”

30. Values and Ethics Code for the Public Service Public servants may accept gifts, hospitality and other benefits if the gifts, etc.: • Are infrequent and of minimal value (low-cost promotional objects, simple meals, souvenirs with no cash value); • Arise out of activities or events related to the official duties of the public servant concerned; • Are within the normal standards of courtesy, hospitality or protocol; and • Do not compromise or appear to compromise in any way the integrity of the public servant concerned or his or her organization.” Public servants shall seek written direction from their Deputy Head where: • It is impossible to decline gifts, hospitality and other benefits that do not meet the principles set out above, or • It is believed that there is sufficient benefit to the organization to warrant acceptance of certain types of hospitality.

31. Code of Conduct for Procurement Public Servants: • Must not solicit gifts, hospitality, other benefits or transfers of economic value from person, group or organization in private sector who has dealings with government • Must not accept gifts, hospitality or other benefits that may have a real or apparent influence on their objectivity in carrying out duties or that may place them under obligation to the donor Concurrent obligations from vendors not to induce, or offer inappropriate gifts and hospitality Contracts now include integrity provisions and vendor must certify compliance with the Code. False certification of compliance with the requirements of the Code • Bid disqualification • Bid Exclusion • Termination of contract • Exclusion from future work

32. Ontario LegislationMembers’ Integrity Act, 1994 Prohibits members from: • Accepting a “fee, gift or personal benefit” that is connected with his or her official duties, unless it is compensation authorized by law, or is received as an incident of protocol, custom, or social obligation that is normal in the context of their office. • Using (for personal purposes)promotional awards or points from airlines, hotels and other commercial enterprises as the result of travel for which he or she is reimbursed by the Government of Ontario. Requires members to file a disclosure statement when they: • Receive a gift or benefit whose value exceeds $200 or • Receive gifts or benefits if the total value from one source exceeds $200 in a 12-month period

33. Public Service of Ontario ActO. Reg. 381/07 and O.Reg. 382/07(Conflict of Interest Rules for Public Servants) Prohibit public servants from accepting gifts from: • Persons, groups, or entities that have dealings with the Crown; • Persons to whom the public servant provides services in their official duties; • Persons who seek to do business with the Crown; where those gifts could influence the public servant in their official duties. Exception to this rule: • Public servants are able to accept gifts of “nominal value given as an expression of courtesy or hospitality if doing so is reasonable in the circumstances.” Any public official who receives an inappropriate gift must notify his or her ethics executive. Prohibit a public servant from accepting a gift, either directly or indirectly, in exchange for disclosing confidential information the official has obtained in the course of their employment.

34. Provincial Public Bodies Public servants may be covered by the public body’s own conflict of interest rules (as approved by the Commissioner). Examples of some public bodies that have published Conflict of Interest Rules: • Royal Ontario Museum  • Alcohol and Gaming Commission of Ontario • Ontario Municipal Board  • Environmental Review Tribunal   • Ontario Securities Commission  More online: http://www.coicommissioner.gov.on.ca/en/coi_publicbodiesrules.html

35. Scenario 5 Mr. Bureaucrat, a mid-level employee at Canadian Heritage develops a friendship with a mid level employee at Technology Inc, Mr. Music.  The friendship is developed while Technology Inc. is performing a contract for Canadian Heritage.  Mr. Music provides Mr. Bureaucrat with discounted tickets to Technology Inc's MusicFest. • Has Mr. Bureaucrat done anything wrong? • What about Mr. Music?

36. Red Flags • Sometimes bribes are openly solicited • Most bribery agreements are covered up and difficult to detect • Some indicators: • Unusual or poorly substantiated payments, false expense reports • Warning signs such as: • Contract splitting to avoid open bidding • Complex business links and invoicing arrangements to hide payments

37. Red Flags (cont’d) • Warning signs such as: • Employing intermediaries and paying contingency fees (kickbacks) • Inflated or false invoices – payments very high in relation to quality of output • Deviations from normal contracting rules/procedures • One person controls access to project bidding • Internal procurement guidelines not being followed • Absence of fiduciary checks and balances • Orders are directed to a limited supplier base

38. Red Flags (cont’d) • Warning signs such as: • Close personal relationships with contractors • Fictitious subcontractors or shell companies • Payments made to companies that have common ownership or control • Payments made/gifts given to relatives or family members • Personal benefits provided: • work carried out free of charge or at reduced price • gifts • entertainment • hospitality

39. Red Flags (cont’d) • Facilitating and Encouraging Reporting • Most investigations arise from a complaint or information provided by individuals, bid protests by competing parties or newspaper articles • Some are found by contract audit/internal investigations • Internal whistle blowing procedures allow people to come forward with information • Consider establishing a fraud hotline for submitting information anonymously • Establish a compliance officer responsible for receiving information and investigating

40. Red Flags (cont’d) • Facilitating and Encouraging Reporting • Public officials also have to be alert to their responsibility to report irregularities • Cooperation with authorities • Information Collection • Maintain a database of small, repeated transactions to detect patterns of irregularities • Watch for clusters of contract awards made to the same groups of companies • Contracts being rotated among the same companies • Officials clearly living beyond their means

41. Visit our website at www.governmentcontracting.ca

42. Thank you. Ron Lunau Phuong Ngo Catherine Beaudoin Stephanie Pearce Gowling Lafleur Henderson LLP Tel: (613) 233-1781 Fax: (613) 563-9869