Embarking on an international M&A transaction can be an exhilarating time for any company, although there are a host of business and legal issues involved in choosing an appropriate target. One issue that often gets overlooked is the target company’s anti-corruption and bribery practices. As Canadian companies continue to grab up international market space, they must be wary of the hidden practices of their partnering company.

Why consider anti-corruption and bribery practices?

According to a PricewaterhouseCoopers article, an increasing number of Canadian companies are looking overseas for expansion opportunities. In fact, 40% of Canadian CEOs see their growth coming from joint ventures, strategic alliances or through M&A, while only 20% of CEOs globally share the same view. As well, Canada’s largest and most prominent companies are leaders in industries deemed most susceptible to bribery by Transparency International: mining, infrastructure development, and oil and gas.

No matter how commonplace bribery and corruption may be in foreign countries, it is illegal for Canadians to be involved in bribery or corruption, and the government is toughening its stance. In 2008, the Canadian government established the International Anti-Corruption Unit, an RCMP task force designed to curb foreign corruption, and it’s been busy. The number of investigations and convictions under the Corruption of Foreign Public Officials Act (CFPOA) has risen and in 2013 the Government amended the CFPOA to increase penalties and provide the RCMP with exclusive authority to lay charges.

A corruption and bribery scandal can cause irreparable harm in foreign markets. Even if charges are not laid, the significant cultural divide can be dangerous for the company. According to David Beatty, Conway Director of the Clarkson Centre at Rotman School of Management, University of Toronto, “getting yourself into reputational hazard by teaming up with somebody who is not quite as clear as you are on what is good practice and what is not can be catastrophic.”

How can you protect yourself? 

The most important thing is to know is who you are partnering with. Pay special attention their industry and region, the level of government involvement, and their past practice. This should help identify some red flags and obvious harmful matches, however, this will never provide the full picture. Both before and after any international partnership it is important to be conscientious and conduct thorough risk-based due diligence regarding anti-corruption and bribery. While it may seem to be enough to comply with local laws and customs, these can often be in direct contrast to the provisions of the CFPOA. Companies need to ensure their partners are compliant with relevant Canadian and foreign regulations.

The author wishes to thank Andrew Bigioni, summer student, for his assistance in preparing this legal update.