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Dalhousie Law Journal

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Category: environmental law

Using the Fines in Corporate Corruption Cases to Provide Victim Redress

By: Joanna Harrington
Professor, Faculty of Law, University of Alberta

Introduction

I am delighted to have this opportunity to share my research and writing on corruption, corporate accountability, and victim redress with the wider Dalhousie Law Journal community.

My article on “Providing for Victim Redress within the Legislative Scheme for Tackling Foreign Corruption” arose from a concern that much more needed to be done in law and policy for the foreign victims of acts of corruption committed by Canadian corporations. Canadian courts have long recognized that corruption is not a victimless crime. Corruption diverts funds from those in need of public services, and as stated unanimously by the Supreme Court of Canada in 2016: “Corruption is a significant obstacle to international development.” And yet, even in cases where there was a mandatory imposition of a victim surcharge, it was not evident that those funds were used to provide assistance to the foreign victims of the crimes of Canadian corporations.

Two prominent cases concerning the corporate commission of foreign bribery under Canada’s Corruption of Foreign Public Officials Act (CFPOA) attracted my initial interest. Both cases were concerned with the overseas activities of Alberta-based companies in the natural resources sector. In one case, Niko Resources negotiated a plea deal to settle a charge of paying bribes to secure concessions in Bangladesh. In the other case, Griffiths Energy International negotiated a plea deal to settle a change of paying bribes to influence the award of resource development rights in Chad. In both cases, the corporations involved paid a hefty fine, as well as a victim surcharge, with sums that attracted media attention. Griffiths Energy paid a fine of CAD $9 million and a victim surcharge of CAD $1.35 million, while Niko Resources paid a fine of CAD $8.26 million and a victim surcharge of CAD $1.239 million. There was, however, the unanswered question of how these victim surcharges were to be used to help the victims of the crimes, who were based in Bangladesh and Chad respectively.

The victim surcharge was made payable to the Alberta treasury, but without any direction to use the funds for victim assistance activities of some relevance or connection to the foreign victims of foreign bribery. Indeed, it now appears that many of these funds have gone unused, with the Alberta government recently suggesting that the multimillion-dollar surplus that exists in the province’s victims-of-crime fund could be used to hire more police and prosecutors.

SNC-Lavalin

And then along came the SNC-Lavalin scandal in 2019, involving allegations that a Canadian company had committed fraud and foreign corruption to secure lucrative work in Libya. This scandal provided the prologue for my article, with politicians and the media having focussed their attention on the impact of SNC-Lavalin’s potential prosecution on employees, pensioners, and shareholders, with barely a mention of the employees of the companies that had lost out if the award of a contract had been rigged. There was also never a mention made of the foreign victims of the crimes, with post-civil war Libya clearly a country in need of development assistance.

The SNC-Lavalin scandal also drew attention to a new tool available to prosecutors to address corporate wrongdoing, with the legal regime for what is called a “remediation agreement” embracing an intention to provide “reparations for harm done to victims or to the community.” While similar to its American cousin, the deferred prosecution agreement, Canada’s remediation agreement is more akin to an English model involving judicial oversight, which came into force in 2014. This link provided a basis for conducting comparative research, with the UK’s Serious Fraud Office (SFO) having undertaken efforts to ensure that the interests of the overseas victims of economic crime are taken into account. The SFO has also steered a path that aims to ensure that the overseas victims of bribery, corruption, and economic crime are able to benefit from asset recovery proceedings and compensation orders made in England and Wales.

A Fund for Foreign Victim Redress

My final research angle of note was inspired by the recognition that insights can be gained from examining other areas of law, in this case, environmental law. The Government of Canada has long had a specified purpose account known as the Environmental Damages Fund (EDF) into which are paid monies obtained from court orders, negotiated settlements, and voluntary payments relating to the commission of environmental offences. The funds in the EDF are then used to support projects aimed at environmental rehabilitation and wildlife conservation. I argue in my article that one might build on this idea by creating a similar fund to support development assistance projects overseas, using some portion of the huge fines paid by Canadian companies in the settlement of foreign corruption charges, possibly as part of a negotiated deal.

Such a fund would be one means for providing for victim redress for acts of foreign corruption, using the word victim in its broadest sense. This proposal comes at a time when foreign aid globally remains on the decline, with cutbacks in development assistance evident in so many states, including Canada. I also suspect that the need to strengthen international cooperation in support of asset recovery and the return of the proceeds of crime will be an important focalpoint at the United Nations General Assembly Special Session against corruption in 2021.

An Emerging Corporate Risk – Climate Impacts to Critical Energy Infrastructure

Rudiger Tscherning, Assistant Professor, Faculty of Law, University of Calgary

Click here to read this article in issue 42-2 of the Dalhousie Law Journal.

Introduction

Canada’s 2009 National Strategy for Critical Infrastructure considers infrastructure as critical where the asset is essential to the “health, safety, security or economic well-being of Canadians.” Examples in the energy sector include electricity generation and transmission infrastructure, oil and gas industry infrastructure, maritime ports, and rail infrastructure related to energy transportation. All of these classes of assets are vulnerable to the anticipated and unanticipated effects of climate change impacts from extreme weather and climate events, which are predicted to intensify. These impacts may affect both the physical infrastructure of the asset and their operations, as well as the business continuity of the owners and operators of the asset.

This blog, based on “Corporate Risk and Climate Impacts to Critical Energy Infrastructure in Canada”, examines climate impacts to critical energy infrastructure assets from a corporate risk perspective. It focuses on the importance of undertaking climate adaptation to critical energy infrastructure as a corporate risk-mitigation strategy. For clarity, adaptation to the effects of climate change can be considered a process of adjustments in natural and human systems to actual or expected climate impacts and their effects (see, for example, Article 7 of the Paris Agreement, 12 December 2015, FCCC/CP/2015/L.9/Rev.1).

Climate Impacts as a Corporate Risk

Consider the role of infrastructure in the following climate impact scenario. Sustained strong winds have fueled a series of wildfires in the vicinity of the city of Fort McMurray. Over the course of several days, the fire has grown and spread through the city, severely damaging the electricity transmission infrastructure. On a narrow view of the critical infrastructure, the impact may appear to be localized and relatively containable both from an economic and operational perspective. The owner of the asset will suffer an economic impact. But what about the communities, and industrial or agricultural operations who depend on the transmission infrastructure for their supply of electricity? In the highly networked and integrated energy infrastructure sector, particularly in a large country such as Canada, interconnected and integrated operations mean that a localized climate event can quickly result in broader service interruptions. A climate impact may therefore cause widespread economic, social, and environmental effects beyond the impact on the critical energy infrastructure asset itself. This has the potential to significantly expand the corporate risk landscape with respect to the critical energy infrastructure asset.

Climate impacts on critical infrastructure thus raise serious challenges for a corporation. Failure to adequately take climate adaptation risks into consideration at a corporate level, or to undertake appropriate adaptation to the infrastructure asset, could significantly expose the corporation and its officers to liability. Failure to adequately disclose climate related risks, e.g. as a “material risk”, or the withholding of information of these risks from regulators, may also raise legal issues by way of corporate disclosure obligations and securities regulation. The US$1.6 billion investor fraud litigation against ExxonMobil Corporation in New York State in regard to the disclosure of carbon asset risks, although ultimately unsuccessful, is a case in point.

Corporations and their officers should therefore be mindful of the linkages between energy infrastructure assets and the wider climate change liability debate. To date, climate change litigation against corporations has predominantly focused on arguments of climate change mitigation and tort liabilities arising from a failure to undertake adequate mitigation efforts. Corporate focus has also been on the risk of the energy infrastructure becoming a so-called “stranded asset” (an asset that has lost its usefulness prior to the end of its expected economic life) as a result of global climate mitigation efforts. Liability arising from a failure to adequately adapt critical infrastructure assets against the actual and anticipated effects of climate change has not yet been the targeted focus of litigation against corporations. It can be anticipated that this may soon change.

In my recently-published article, I argue that the potential damage to critical energy infrastructure assets as a result of climate impacts requires an expanded risk awareness by corporations. This would place adaptation of the critical asset as the central objective in any corporate risk management response to climate change. Currently, the management of climate impacts on an asset is predominantly viewed from a narrow corporate risk perspective, which focuses on narrow economic risks associated with climate impacts on the asset alone. In contrast, by applying an expanded understanding of the asset’s relevant context, the critical infrastructure asset would be viewed as existing within a broader economic, social and environmental geography. This approach would broaden the scope of corporate risk arising from possible climate impacts on the corporate asset.

Resilience and Adaptation of Critical Infrastructure

Canada’s National Strategy for Critical Infrastructure recognizes that the objective of climate adaptation is to achieve “resilience” of the infrastructure in “an economic and ecological context” (author’s emphasis). In the event that the asset suffers a climate impact, the geographical context within which it is located may be affected. But how can “resilience” of the critical infrastructure asset be achieved? For this, the United States Federal Energy Regulatory Commission may provide helpful guidance, defining resilience as “[t]he ability to withstand and reduce the magnitude and/or duration or disruptive events…”. On this understanding of resilience, physical resilience would be achieved by decreasing the vulnerability of the asset to climate impacts. The critical question, from the perspective of corporate risk management, is therefore what type of resilience should adaptation achieve? Should resilience be limited to direct physical climate impacts on the asset, in other words only economic resilience (focusing solely on the objectives of the corporation)? Or, should the asset be considered within its broader social and environmental geography, thereby requiring an understanding of resilience that goes beyond direct impacts on the asset? For purposes of developing an adaptation strategy and managing corporate risk arising from climate impacts, this is a key point of decision for the corporation.

If the adaptation strategy adheres to a narrow focus on economic corporate risk management, it will be correspondingly limited and the broader geographical context will not be adequately weighted. When the objective of achieving resilience is broadened, however, the focus of the adaptation strategy will be wider in scope. The strategy will inevitably start with the narrow consideration of the economic effects resulting from a climate impact on the asset. It will then move beyond the asset itself to consider the broader economic, social and environmental consequences resulting from the climate impact on the asset.

Ultimately, it may be in the corporation’s interest, from a risk management perspective, to take such a broader view of resilience. This may shield the corporation from potential future liabilities arising from a climate impact on its critical energy infrastructure. It may also be required to respond to increasing public influence (including governmental regulation) on what resilience and adaptation of the critical infrastructure asset should entail.

Responding to the Emerging Corporate Risk

As I explore further in my article, viewing the infrastructure asset in its broader geographical context may widen the risk analysis and potentially create a new corporate risk. Taking a more expansive approach to achieving resilience by way of adaptation will necessarily lead to increased public involvement in the adaptation discussion. Governmental presence is also likely to increase, and the question of responsibility for climate adaptation may arise. Governments and the public are likely to expand their influence over what adaptive measures are required of a corporation to ensure resilience of its assets. Questions related to the allocation of responsibilities (including who should pay) for undertaking adaptation of critical energy infrastructure may inevitably complicate the corporate risk landscape.

The key starting point for corporations seeking to develop an adequate adaptation strategy to manage corporate risk from climate impacts is to assess the infrastructure asset within its broader geography. I recognize that doing so may widen the risk analysis, including managing emerging risks from increased public involvement, and expand the adaptation responses required by a corporation. Nonetheless, this would allow corporations to better plan for and manage a broader array of risks arising from anticipated and unanticipated climate impacts on their assets.

Sustainable Development and Community Content in the Oil and Gas Industry

Ibironke T. Odumosu-Ayanu, PhD

Local content measures are being advanced as mechanisms that foster achievement of the sustainable development goals (SDGs). The oil and gas industry as represented by IPIECA, “the global oil and gas association for environmental and social issues”, has situated itself within the SDGs, outlining the industry’s “potential to contribute to all 17 SDGs” in a report developed in partnership with the United Nations Development Program and the International Finance Corporation and presented at the United Nations High-Level Political Forum in 2017. As the executive summary to the joint report – “Mapping the Oil and Gas Industry to the Sustainable Development Goals: An Atlas” – notes, “oil and gas production can foster economic and social development by providing access to affordable energy, opportunities for decent employment, business and skills development, increased fiscal revenues, and improved infrastructure. However, oil and gas development has historically contributed to some of the challenges that the SDGs seek to address – climate change and environmental degradation, population displacement, economic and social inequality, armed conflict, gender-based violence, tax evasion and corruption, increased risk of certain health problems, and the violation of human rights.” Local communities that host and/or are impacted by natural resource extraction are at the fore of the impacts that these challenges generate. This contribution, therefore, focuses on the inequalities that result within countries as a result of the activities of the oil and gas industry and which endure in spite of the local content policies that are adopted. Without endorsing local content as a legal/policy option that captures the position of local communities regarding the oil and gas industry, it argues that it is necessary to clarify the definition of local content because if the scope of local content is unknown, there is a likelihood that it will remain difficult to determine whether goals are being met especially with regard to host and impacted communities.

Local content policies and requirements vary across jurisdictions and so does the definition of local content. Usually, local content is mostly understood as local content requirements (“LCRs”) that are mandated by government through legislation or policy or included in investor-state natural resource contracts. Countries adopt LCRs in order to “maximize the gains” of FDI “through the promotion of local participation in FDI and the use of local raw materials”. LCRs usually require local procurement of goods, local service provision, employment of citizens of host states as well as active participation of local companies. Some commentators regard local content as measures that extend beyond government mandated requirements. In their definition of local content, these commentators mostly outline the government mandated view of LCRs but also note that “[l]ocal content may even refer to the provision, by the oil company, of infrastructure (schools, medical facilities) that is not an input into its own production but intended for the benefit of the local populations (either of the nation generally or the neighborhood of the installations).” While local content is now mostly viewed through the lens of a “compliance regime”, these authors argue that many oil and gas companies adopted the view that local content is part of CSR.

As the Nigerian Oil and Gas Industry Content Development Act demonstrates, LCRs mostly have a national focus which, in Nigeria’s case, involves the promotion of “Nigerian content”. Beyond the national view of local content, it has been argued that community development agreements (“CDAs”) formed between host and impacted communities and extractive companies by which the companies pledge to provide benefits, including infrastructure development, to host and impacted communities form part of local content. The Nigerian Content Development and Monitoring Board specifically incorporates these CDAs, known in Nigeria’s oil and gas industry as the Global Memorandum of Understanding, as part of its local content monitoring work. Commentators also regard community content, a set of government mandated requirements akin to LCRs but which focus specifically on host and impacted communities, as part of local content. Beyond commentary, the Nigerian Content Development and Monitoring Board has adopted a set of community content guidelines.

The broad view of local content then includes government mandated LCRs that operate nationally (including government incentives to facilitate local content), mandatory community content measures, CDAs, and voluntary CSR initiatives. However, the dominant view of local content remains the government mandated LCRs. Many Third World countries that adopt the government mandated model of LCRs do so to foster economic development. However, LCRs have been critiqued as being  “both a mechanism for promoting large-scale economic development and at the same time a mechanism for the elite to capture oil rent by legitimising policies that play favourites and privilege particular capitalists.” While relevant for economic development, LCRs may not generate the necessary benefits for local communities and are not panacea for the challenges that pervade natural resource extraction. Hence, community content has garnered some traction.

In Nigeria, the Nigerian Oil and Gas Industry Content Development Act requires that all entities involved in Nigeria consider “Nigerian content” as an “important element” of their “management philosophy.” Nigerian content is the philosophy that currently drives the execution of projects and other activities in Nigeria’s oil and gas industry. The Act defines Nigerian content as “the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry.” It focuses on “Nigerian” content with almost no specific references to host and impacted communities. It is the recently adopted community content guideline that turns its attention toward host and impacted communities. Viewed from the perspective of government-required guidelines such as Nigeria’s community content guideline, community content is a set of measures that seek to effect LCRs in host and impacted communities. The purpose for which these measures are adopted is not only to further economic development in the communities but also somewhat problematically to serve as a mechanism for industry’s acquisition of a social license to operate and mitigating conflict in oil-producing areas. Nigeria’s community content guideline requires that host and impacted communities receive preference regarding employment, training, procurement and other relevant areas of LCRs. Community content remains within the shadow of local content, broadly defined, making it difficult to assess whether references to local content in the policies of governments, international institutions and extractive companies include community content initiatives or only refer to measures that do not yield direct benefits to host and impacted communities.

The joint report referenced in the first paragraph of this contribution outlined several aspects of the SDGs that are impacted by the broad definition of local content in the oil and gas industry. SDG 1 (end poverty in all its forms everywhere) in this view would require inter alia investment in “local development” and CDAs while SDG 4 (ensure inclusive and equitable quality education and promote lifelong learning) would require the establishment of “company strategy for local content to promote sustainable development”, which would in turn facilitate acquisition of the social license to operate. For its part, achievement of SDG 8 (promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all) is interpreted to require, inter alia, local procurement and supplier development as well as local employment – a more traditional view of local content. SDG 10 (reduce inequality within and among countries) and SDG 16 (promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels) would involve communication with local communities, and community engagement and consent respectively.

Clearly, the report severally incorporates the range of issues that are regarded broadly as ‘local content’ and often references them individually. However, in its discussion of SDG 17, it states that “[t]ransparency around plans and policies, particularly related to such issues as the environment and local content, can also be important for communicating with local stakeholders, managing risk and maintaining a social licence to operate”. Here, local content could mean any of the measures discussed above and does not necessarily suggest a focus on the host and impacted communities, who often mostly encounter the challenges that the SDGs seek to address at a scale that is more severe than those encountered by citizens outside these communities. Hence, clear articulation of policies and measures directed to respond to challenges that host and impacted communities encounter cannot be overemphasized. And even where a measure, such as CDAs, is directed towards host and impacted communities, while it is convenient to easily brand them as contributing to the SDGs, it remains necessary to critically assess their place as measures that, according to Kenya’s Endorois community, reflect communities’ “choice and self-determination” and reflect the view that development is “an increase in peoples’ well-being, as measured by capacities and choices available.” This also exposes a fundamental consideration for which even the SDGs do not necessarily provide a robust response. While building schools, ensuring that community members have employment preference or implementing other measures that assist industry actors in the acquisition of a social license to operate are laudable initiatives that could foster achievement of the SDGs, host and impacted communities’ choice and self-determination mostly remain elusive.