Addressing corporate wrongdoing

  • December 14, 2017
  • Ann Macaulay

Corporate WrongdoingThe federal government’s plan to enhance the Integrity Regime for corporations, including the possible introduction of deferred prosecution agreements, is being welcomed by lawyers in the field.

The existing rules were designed to help the government conduct business with ethical companies and give suppliers an incentive to maintain strong ethical standards and effective compliance frameworks. A conviction can have disastrous results for a company that wants to do business with government.

Competition lawyer John Bodrug of Davies Ward Phillips & Vineberg LLP in Toronto says the proposed changes appear to be “a response to business and industry concerns about the very severe consequences for companies that rely heavily on government contracts, who are subjected to debarment under the Integrity Regime.”

Bodrug was one of several lawyers who provided feedback to the government on the proposed changes on behalf of the Canadian Bar Association. Being disqualified under a strict and inflexible system poses a very serious threat to a company, says Bodrug. He adds that the key message in the CBA’s commentary is that “greater flexibility in the program is warranted and the deferred prosecution agreements are another mechanism that would add to that flexibility.”

The CBA submission responds to several questions, including the key advantages and disadvantages of DPAs in addressing corporate criminal liability in Canada, which offences they should be available for, the role of courts, and the factors that should be taken into account in offering a DPA.

The consultation document recognizes that innocent people who had nothing to do with any wrongdoing can be harmed by a company’s debarment, including “other employees, shareholders, and frankly, even taxpayers,” says Bodrug, “insofar as there’s been less competition for government contracts going forward.” Although there is an understandable desire to punish corporate wrongdoing, “I think it’s worthwhile to re-examine whether the Integrity Regime is really an appropriate mechanism to do that, particularly where a corporation has responded appropriately by removing or disciplining the relevant employees and making any appropriate revisions to its compliance program and making any restitution.” Often by the time a company is convicted of one of these offences, the people who were involved in the conduct aren’t there anymore and in some cases the conduct was done by a subsidiary or affiliate that the senior people weren’t even aware of. “It seems disproportionate to be imposing a really draconian consequence like debarment on a company in those circumstances.”

One issue raised in the consultation document is the proposal to expand debarment to a broader array of corporate offences, which currently include corruption offences, such as bribery, and Competition Act offences, including bid-rigging and price-fixing. There’s a suggestion that it “should be extended to other types of corporate offences, like environmental offences and labour offences,” says Bodrug, which would potentially broaden the scope of companies that would be debarred.

Bodrug believes it’s important to ensure that the Integrity Regime is consistent with other government policies. For example, if a company has received immunity for disclosing an offence, it should be clear that it isn’t going to be disqualified under the Integrity Regime and debarred.

Similar legislation has been in effect for some time in the U.S. and the U.K., says Grace Hession David, Chair of the Ontario Bar Association’s Criminal Justice section, who worked on the CBA’s submission. “It’s had a fair amount of success in the U.S., and we know in the U.K. it’s only been used in three instances, but successfully,” she says. “If it’s implemented properly, I can see it being extremely useful.”

The CBA’s submission “strongly recommends that we follow the British model, which is that this not be available for any kind of situation which involves serious bodily injury or death,” says Hession David. She points out that a DPA would not be appropriate for a situation like the 1992 Westray Mine disaster, in which 26 miners lost their lives. The company was found to have failed to follow proper safety and health audits. “If a DPA was allowed as a possible alternative where there’s been loss of life, then the very thing we hoped to avoid would happen, which is that people say they bought their way out of that. We don’t want that.”

The submission points to other instances in which a DPA would not be appropriate, including when the conduct raises national security or foreign affairs issues, or where it would not be in the public interest generally; where the company only exists as part of a criminal enterprise; or where it’s been warned, sanctioned, or criminal charges have been laid with no substantial changes that would prevent such future conduct.

The U.S. model gives the prosecutor in a case total discretion, while the U.K. model provides the prosecutor a great deal of discretion but, in the end, the deal is brought before the court for its approval. Hession David prefers the U.K. model. “I think it’s good to have another set of eyes looking at it and a person who has more authority – a final arbiter if you like.”

One advantage of a DPA is that it can “encourage voluntary disclosure and foster a compliance culture and offer more flexibility to prosecutors,” says Hession David, and could also “reduce negative consequences for corporations, for shareholders.”

While Hession David is hopeful that the suggested changes won’t be seen as an easy way out for a corporation, it would mean avoiding “a huge, ugly public trial and (going) straight to the sentencing aspect of the process.” It would give a corporation an opportunity to come forward with information it has discovered and contact a prosecutor “and really lay their cards on the table under the guise of a privileged conversation and say this is what we’ve discovered, these are the actions we’ve taken, and this is what we propose going forward.”

Ann Macaulay is a frequent contributor to PracticeLink.