The perils of self-reporting corporate misbehaviour
Nordion slapped with U.S. civil fine after coming clean on Russian bribe
The outcome of the cross-border foreign bribery investigation of Nordion (Canada) Inc. has fuelled the controversy regarding voluntary disclosure as the best alternative for a non-compliant company.
“Self-disclosure was all the rage a few years ago, but companies and counsel in both the U.S. and Canada have become increasingly skeptical about the strategy in recent years,” says Milos Bartuciski of Bennett Jones LLP in Toronto, who represented Nordion in Canada.
The investigation centred on the activities of a Canada-based employee, Mikhail Gourevitch, in obtaining Russian government approval for the company’s liver cancer treatment, TheraSphere.
Gourevitch introduced Nordion to a Russian businessman who the company retained to help with its efforts. It turned out that the Russian, without Nordion’s knowledge, used some of his remuneration to bribe Russian government officials and kick back approximately $100,000 to Gourevitch.
Nordion’s attempt to market its treatment in Russia ultimately failed.
On uncovering the wrongdoing, Nordion acted promptly, spending some $20 million on its internal investigation.
“The facts in this case are very good from the company’s point of view,” says Riyaz Dattu of Osler, Hoskin & Harcourt LLP in Toronto. “Nordion self-reported in both Canada and the U.S. as soon as it realized it had an issue, then fired Gourevitch and put remedial measures in place.”
The U.S. Securities and Exchange Commission imposed a US$375,000 civil fine on Nordion for resolution of the U.S. anti-corruption proceedings. The RCMP, for its part, announced it would not pursue enforcement, reportedly for lack of evidence.
The disparate results have caused some commentators to question whether self-reporting is ultimately a “damned-if-you do and damned-if-you-don’t” scenario.
“There has been real concern that, contrary to the mantra you hear from regulators about the advantages of voluntary disclosure, some of them remain quite happy to take their pound of flesh,” Bartuciski says.
But the lawyer, who says that Nordion’s co-operation was “fundamental” to the outcomes in both Canada and the U.S., says he is “encouraged” by those outcomes.
“It’s important to note that the RCMP did not just leave Nordion hanging, but actually gave the company a pass,” Bartuciski says.
“The fine in the U.S. was a relatively minor civil penalty and no criminal proceedings were taken.”
Ken Jull, an adjunct professor at the University of Toronto’s Faculty of Law, believes things would have gone much worse for Nordion had the company not made the voluntary disclosures.
“Early self-reporting was explicitly acknowledged in the SEC settlement and may have been a factor in the RCMP decision not to proceed with charges under the Canadian Corruption of Foreign Public Officials Act,” he says.
But Dattu suggests the RCMP may have had little choice but to close the investigation.
“We believe that, while Nordion Canada’s voluntary disclosure and full co-operation may have paved the way for the RCMP closing its investigation, there are legal grounds that explain that decision,” he says.
On Dattu’s analysis, Nordion’s disclosure and implementation of extensive remedial measures likely provided credibility to Nordion’s position that Gourevitch’s conduct was that of a “rogue” employee
Self-disclosure was all the rage a few years ago, but companies … have become increasingly skeptical about the strategy in recent years.
whose activities the company would not have condoned.
“In these circumstances it would appear that the RCMP likely believed that the company should not be charged with criminal bribery notwithstanding theories of corporate liability and the existence of provisions in legislation that in appropriate factual conditions allow for the attribution of actions of employees to the corporate employer,” he says.
But at the time Nordion was charged, the RCMP did not have the option of a civil remedy, which was available to the SEC.
“The SEC has a civil enforcement mandate based on books and records and internal control provisions found in the Foreign Corrupt Practices Act,” Dattu explains.
“The Canadian law did not contain these types of provisions until mid-2013, after the acts in issue took place.”
So given Nordion’s denials of criminal intent, buttressed as they were by the company’s actions, it is unlikely the company could have been convicted of bribery. And given the lack of a civil remedy at the time, the RCMP had no basis to proceed as the SEC did.
Clearly, the reputational consequences of not disclosing would have been far worse than the route Nordion chose. From a strict financial perspective, however, the advantages of voluntary disclosure may still be unclear.
“The SEC fine pales in comparison to Nordion’s cost of uncovering the behaviour,” Dattu says.