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The USMCA & Corruption
The USMCA’s new, but familiar, anti-corruption requirements.
BY JAMES M. KOUKIOS
AND RUTI SMITHLINE
On July 1, 2020, with relatively little fanfare, the United States-Mexico-Canada Agreement (“USMCA” or “Agreement”) officially replaced the North American Free Trade Agreement (“NAFTA”) and established the new trading relationship between the three geographic neighbors.
The USMCA, unlike NAFTA, includes a chapter on anticorruption. What does the new chapter provide, and what changes will it bring for companies doing business in the USMCA countries? We explore both questions in this article and conclude that, given the consistency between the USMCA’s anti-corruption requirements and other international conventions and domestic anti-bribery laws already in place, not much will change for companies in the near future. Rather, the USCMCA’s anti-bribery chapter is more of a symbolic statement that the Parties are committed to clean business practices in their trade with one another and an affirmation of the commitment of the global community to combat corruption.
THE NEW CHAPTER ON ANTI-CORRUPTION
Chapter 27 of the USMCA addresses anti-corruption compliance and enforcement, with the stated aim to “prevent and combat bribery and corruption related to any matter covered by” the Agreement (Art. 27.2). The obligations under the pact fall to the signatory countries and do not impose any direct obligations on corporations or individuals. To this end, Chapter 27 requires each Party (the member nation) to adopt or maintain anti-bribery legislation and other measures designed to combat corruption (Art. 27.3), promote integrity among public officials (Art. 27.4), promote the participation of the private sector and society in anti-corruption efforts (Art. 27.5), apply and enforce anti-corruption laws (Art. 27.6), and cooperate with each other in anti-corruption enforcement efforts (Art. 27.9). Chapter 27 also addresses other multilateral anti-corruption conventions to which the three countries are parties (Art. 27.7) and provides a mechanism for resolving disputes relating to certain matters covered by the chapter (Art. 27.8). Because NAFTA had no such requirements, all of the requirements described above are, in a sense, brand new. But given the existing anti-corruption conventions and domestic laws, the three countries will not be starting with a blank slate.
THE USMCA AND OTHER MULTILATERAL ANTI-BRIBERY AGREEMENTS
Long before the introduction of Chapter 27 of the USMCA, the three member countries were already bound by anti-corruption obligations under their respective participation in various multinational agreements, including the Inter-American Convention Against Corruption (“IACAC”), the UN Convention Against Corruption (“UNCAC”), and the Organization for Economic Cooperation and Development Anti-Bribery Convention (“OECD Convention”). Chapter 27 of the USMCA acknowledges the Parties affirmance to adhere to these three treaties and expressly confirms that none of the USMCA provisions affect member countries’ rights and obligations under them.
While the USMCA may, in certain instances, be more detailed than prior treaties about the anti-corruption obligations to be undertaken by the Parties (for example, providing specific promotional measures to be adopted), on a practical basis, there is little the USMCA requires of the Parties that is not otherwise already covered by the prior multinational agreements. For example, Chapter 27 of the USMCA was lauded for including a provision recognizing the importance of cooperation and coordination among law enforcement of the respective members in order to combat corruption. The USMCA, however, does not provide a mechanism for such cooperation and instead encourages the Parties to “strengthen cooperation” and follow established international cooperation standards set forth in existing treaties, including the IACAC, UNCAC, and OECD Convention.
One instance where the USMCA does differ from prior anti-corruption multinational agreements is with respect to its enforceability for noncompliance by the Parties. Chapter 27 provides that the Parties can rely on various mechanisms outlined in Chapter 31, including consultation, conciliation, or mediation, to resolve disputes that affect trade or investment between the Parties. Theoretically, this could mean, for example, that Mexico could bring Canada before an international panel to adjudicate and hold Canada accountable for failure to comply with certain of its anti-corruption obligations. By contrast, the other multinational anti-corruption agreements do not have such a dispute mechanism. Rather, enforceability of these agreements is primarily accomplished through review and evaluation. Most notably, the OECD’s rigorous peer review process has prompted signatories’ compliance through public shaming for failure to live up to the agreement’s obligations.
While novel, it is questionable whether the dispute settlement mechanisms included in the USMCA are likely to be impactful in the fight against corruption. Notably, Chapter 27 expressly excludes from the dispute resolution process claims against another Party for failure either to enforce its own anti-corruption laws or to comply with the cooperation provisions. These exclusions were likely necessary to avoid sovereignty concerns, as well as the risk of politicization of the dispute mechanisms. Moreover, because the mechanisms for resolving disputes are limited to the Parties, they cannot be used to enforce anti-corruption compliance by or against companies. It is, therefore, not likely that companies operating in member states are likely to see a direct impact from the inclusion of the dispute mechanisms in Chapter 27.
THE USMCA AND EXISTING DOMESTIC ANTI-BRIBERY LAWS
Article 27.3 requires each Party to enact a number of “Measures to Combat Corruption.” The Parties must criminalize the bribery of domestic and foreign officials and embezzlement and misappropriation by public officials in matters that affect international trade or investment and must adopt or maintain measures to prohibit companies from various accounting practices—such as the establishment of off-the-books accounts or the creation of false or misleading account entries—for the purposes of engaging in such bribery. The Parties must ensure appropriate sanctions for such offenses, provide protections for whistleblowers who report such matters to the competent authorities, disallow tax deductibility of bribes and other illegal expenses, and provide for corporate liability for the bribery and accounting offenses. Finally, the Parties must take steps to discourage the use of facilitation payments.
In practice, all three countries have existing domestic legislation that meet these requirements, at least in part. For example, all three Parties have existing legislation that criminalizes the bribery of foreign officials in order to obtain or retain business—the United States’ Foreign Corrupt Practices Act (“FCPA”), Canada’s Corruption of Foreign Public Officials Act (“CFPOA”), and Article 222 bis of Mexico’s Federal Penal Code. Other anti-corruption laws—such as the federal “honest services” wire fraud offense in the United States—will likely capture much of the domestic bribery described in Chapter 27. Thus, Chapter 27 will not likely require wholesale changes to the Parties’ existing anti-corruption laws.
That said, Chapter 27 could require changes at the margin. For example, Chapter 27 requires a prohibition on the bribery of an official of a public enterprise, defined as an enterprise over which a government or governments may, directly or indirectly, exercise a dominant influence, meaning majority ownership, control of the majority of votes attaching to shares issued by the enterprise, or the ability to appoint a majority of the members of the enterprise’s administrative or managerial body or supervisory board. This definition of a “public enterprise” is arguably broader—and certainly much clearer—than the test used to determine whether an employee of a state-owned enterprise qualifies as a foreign official under the FCPA. As a result, the United States could be required to seek a legislative fix to bring the FCPA into conformity with this part of the USMCA.
In some instances, the USMCA appears to have been written to obviate or at least minimize the need to change existing laws. For example, the USMCA provides that, for the United States, its prohibition on improper accounting practices only applies to publicly traded companies, which is consistent with the limited reach of the FCPA’s accounting provisions. Similarly, recognizing the limitations imposed by the federal systems in the United States and Mexico, the USMCA provides that its whistleblower protection requirements apply “only at the central level of government.”
THE USMCA AND CORPORATE COMPLIANCE PROGRAMS
Companies looking to assess the impact of Chapter 27 on their operations should focus on Article 27.5, which outlines the Parties’ responsibilities for promoting the private sector’s role in preventing and combatting corruption. While nothing in the USMCA directly obligates a company to act, it is noteworthy that the USMCA recognizes that companies have a key role to play in the fight against corruption through the implementation of risk-based compliance programs. By including this acknowledgment, the USMCA echoes regulatory expectations in the member states and standards set forth in various existing anti-corruption laws and multinational treaties.
The USMCA’s recognition of the benefits of a compliance program underscores the international communities’ consensus that companies are expected to be proactive in the fight against corruption and the risks of noncompliance with such expectations. Although the USMCA does not create a direct obligation on companies, the inclusion of these provisions in the agreement unequivocally signals to companies operating in the member states of the importance of proactively implementing a risk-based compliance program.
CONCLUSION
The inclusion of an anti-corruption chapter in the USMCA is important symbolically, as it reflects the Parties’ commitment to clean business practices within the USMCA’s trading zone. Moreover, the fact that the anti-corruption chapter was included in the first place—particularly when its predecessor NAFTA was silent on the topic—is a reflection of the growing importance of anti-corruption in the international community. The chapter’s practical effect, however, will likely be somewhat limited, given the other anti-corruption laws and conventions already in place. Over time, the chapter could spur certain legislative, enforcement, and public outreach changes on the margins, but those would likely not be felt by companies doing business in the USMCA countries for some time.
James Koukios is co-chair of the Securities Litigation, Enforcement, and White Collar Defense Group at Morrison & Foerster and serves as Global Co-Head of the FCPA + Anti-Corruption Practice. Ruti Smithline is co-chair of the firm’s Investigations + White Collar Criminal Defense group and co-chair of the Latin America Desk. They wrote this article for Latinvex.
The authors wish to thank Rommy L. Flores and Lauren M. Gambier for their invaluable assistance.
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