USMCA endeavours to prevent and combat corruption

After months of negotiation, the long-awaited “new NAFTA” made its entrance on September 30, 2018, as the United States-Mexico-Canada Agreement (USMCA). Though still unsigned by the nation parties, USMCA is planned to replace and modernize the current North American Free Trade Agreement (NAFTA) on January 1, 2020.

An important addition to USMCA are provisions on anti-bribery and anti-corruption (ABC). USMCA dedicates the entire Chapter 27 to the subject, which did not appear in NAFTA and is substantially similar to Chapter 26 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Among other requirements, USMCA places restrictions on foreign public officials in each country and mandates the adoption of strong rules and regulations to prevent and combat corruption.

USMCA’s key anti-corruption provisions

USMCA’s chapter on anti-corruption will require the countries to (1) adopt measures to combat corruption, (2) effectively enforce these measures, (3) promote integrity among public officials, and (4) promote the active participation of the private sector in the fight against corruption in international trade.

Measures to combat corruption

In an effort to combat corruption in international business, the parties will adopt or maintain laws making it a criminal offence:

• to bribe a government official (or accept a bribe as a government official) in matters relating to international business, or to aid, abet or conspire to do so; and

• for a public official to embezzle anything of value entrusted to him or her by virtue of his or her position.

The parties also agreed to adopt measures to ensure sound accounting and auditing standards that prohibit recording “off-the-books” accounts, non-existent expenditures, and similar transactions.

Recognizing the need to detect and deter corruption, USMCA requires the adoption of measures that protect whistleblowers who report these offences in good faith from unjustified reprisal. For Canada, this requirement only applies to the measures within the scope of the Public Servants Disclosure Protection Act, which establishes a confidential procedure for disclosing wrongdoings in the federal public sector and provides legislated protection against punishment for reporting wrongdoing.

Effective enforcement of anti-corruption measures

USMCA makes it clear that adopting the above measures without adequate means of enforcement will not suffice. Although the agreement allows the parties to exercise their discretion in enforcing their unique ABC laws, it also contemplates the cooperation between law enforcement agencies in each country to better prevent, detect, and deter bribery and corruption.

Promoting integrity among public officials

USMCA aims to promote integrity, honesty, and responsibility among public officials. The countries’ obligations include adopting measures and procedures to adequately select and train public officials considered to be vulnerable to corruption, promote transparency, manage actual or potential conflicts of interest, and facilitate the reporting of corruption and bribery. This section mandates the adoption of codes of conduct for the proper performance of public functions and sanctions for violating such codes or ABC laws.

Promoting the active participation of the private sector

A notable feature is the focus on the interaction and cooperation between the public and private sectors in the fight against corruption in international business. To that end, the countries have agreed to promote the active participation of the private sector in fighting corruption. The parties must also take measures to raise public awareness about the risk of corruption and must “endeavor to encourage” private enterprises to adopt internal auditing controls to help prevent and detect corruption.

Canada and USMCA’s anti-corruption obligations

Canada is well positioned to comply with USMCA’s anti-corruption obligations. The Corruption of Foreign Public Officials Act (CFPOA) makes it a criminal offence in Canada for individuals and organizations to bribe a foreign public official as consideration for the official agreeing to act (or not act), or to induce the official to use his or her position to influence acts or decisions of the foreign state.

The CFPOA also goes further than USMCA for its “books and records” offences. Whereas USMCA requires the parties to “adopt or maintain measures as may be necessary” regarding the maintenance of books and records, the CFPOA creates accounting offences that make it a criminal offence to manipulate accounting records to facilitate or conceal the bribery of a foreign public official.

USMCA also requires parties to “recognize the harmful effects of facilitation payments” and encourages enterprises to prohibit or discourage such payments. Facilitation payments are payments made with the goal of expediting or securing the performance of a public official’s “routine acts” that do not require the official to exercise his or her discretion. Facilitation payments have been an offence under the CFPOA since October, 2017.

Take-away

USMCA’s anti-corruption provisions demonstrate concrete and laudable efforts undertaken by the United States, Mexico, and Canada to address the real risk of corruption in international business and to promote transparency.

While USMCA has not yet been signed by the nation parties and may be subject to changes, the ABC chapter provides valuable insight into the future of international business as both the public and private sectors are taking firmer stances against corruption. Public or private entities engaged in international business should therefore be aware of their obligations not only under their domestic ABC laws, but also concerning their country’s broader expectations in international trade, as outlined in USMCA, to actively prevent and combat bribery and corruption.