Ottawa's crackdown on foreign graft riles corporate Canada

In taking a bold approach against commercial corruption overseas, the Harper government looks to have stumbled into a muddle where it may be equally difficult to move forward as to retreat.

It is a case where Stephen Harper's well-known penchant for punishment is sending a serious chill through some of Canada's biggest corporations, as well as large foreign ones that have become important government suppliers.

What's more, pushback is coming from a source a Conservative government does not usually take lightly a coalition representing 250,000 Canadian businesses in such large associations as the Canadian Council of Chief Executives, the Canadian Manufacturers and Exporters association and the Information Technology Association of Canada.

This group wants Ottawa to temper its new anti-corruption rules, which threaten both Canadian and foreign firms with strong punishments including a 10-year ban from doing business with the federal government for any bribery attempts proven anywhere in the world.

These new rules, instituted in March, seem to put Canada well out in front of its main trading partners, including the U.S., the U.K., Germany and Japan, and could open Canada up to trade retaliation on a serious scale, the business groups say.

Based on the shocked executive suite reaction, the new framework rules appear to have been rushed into place over the past two years by Public Works and Government Services Canada without serious consultation with the firms that trade overseas and are most affected.

The critics say it's one thing to stand tall against corruption, quite another to recklessly emerge as the toughest billy club-swinging cop on the block with a swagger that will cost Canada investment opportunities and manufacturing jobs.

"This really needs to be given some serious thought," said John Manley, the former Liberal finance minister and president of the Council of Chief Executives who is spearheading the fight against the new rules.

From laggard to swaggerer

You can see what an embarrassment this showdown might be for the Harper government.

The opposition to the new rules is coming from influential, blue chip voices, so any retreat would make the government seem to have been either inept in the first place or caving in now to corporate pressure.

What's also surprising is that Canada has never been a natural leader in the global anti-corruption drive. More a notorious laggard, actually.

Only three years ago, Ottawa was publically shamed for its chronically lax enforcement and weak penalties against bribery abroad by no less than the Paris-based Organization for Economic Co-operation and Development.

While we are generally seen as among the least-corrupt countries within our borders, we have never been seen to have cracked down on what our businesses do abroad, something that has regularly earned us criticism from international legal experts.

It was widely pointed out that in the first decade of Canada's Corruption of Foreign Public Officials Act, launched in 1998, Ottawa recorded just one conviction on bribery charges committed overseas.

Canadian governments seemed to feel that bribery was so endemic in most developing countries that it would be near impossible to operate there entirely free of favours-for-business.

But attitudes are changing, and more leading industrial nations, including the U.S. and Britain, are trying to coordinate stronger sanctions against entrenched corruption in the hope of establishing new global standards.

This is encouraging because, as I noted recently, global corruption is arguably more cancerous than terrorism because the estimated $1 trillion siphoned away from developing countries through bribery, bid-rigging, tax evasion and other financial crimes leads to any number of horrors.

• Global corruption a bigger scourge than terrorism

Recklessly harsh?

What's baffling in this particular instance is the way this government, obviously stung by the criticism for being weak on enforcement, has suddenly pirouetted around with little public discussion to a position now being criticized in trade circles as recklessly harsh.

New amendments to the original act now permit punishment of Canadian companies and citizens deemed to have made any form of corrupt payment to gain business, regardless of where it takes place.

Limits were taken off the fines for overseas bribery, and potential prison terms were nearly tripled to 14 years. At the same time, the RCMP is reportedly pursuing at least 35 cases of Canadian bribery abroad with vigour.

The clincher is the intent to ban companies, foreign multinationals too, from selling any products or services to the Canadian government for a full decade if at any time in the last 10 years they or even their loose foreign affiliates were found to have bribed or somehow "facilitated" graft anywhere abroad.

Under the so-called integrity framework, as many as five international companies, including such important suppliers as Hewlett-Packard, Siemens and BAE systems, are facing a potential 10-year ban because of actions committed abroad by certain employees.

The fact that no Canadians may have been involved at any level in these bribes makes no difference.

If the ban is enforced, the CCCE says that it could lead to tit-for-tat retaliation by countries where these foreign firms are based, countries that could bar Canadian corporations from competing for contracts in their backyard because they would view a Canadian ban as a restrictive trade practice.

Something's probably got to give, but so far Public Works has shown no intention of replacing the most contentious rules.

If this becomes a more public issue, as business intends, it's fair to assume many Canadians will have mixed feelings.

The country may decide the corporate sector is crying wolf and discount the threat to Canadian firms.

Harper, however, may conclude his own officials underestimated the risks to our trade relations and that it is time to pull back before a giant legal test raises a storm of controversy on the economic front, for which he is supposed to be the best manager.