On February 22, 2018, Public Services and Procurement Canada (PSPC) released the results of its public consultation on corporate wrongdoing and announced impending legislative and policy changes that will reshape Canada's white-collar enforcement landscape.
The consultation focused on the potential introduction of a Canadian deferred prosecution agreement (DPA) regime and the effectiveness of the government-wide Integrity Regime (Integrity Regime). Concurrent with the publication of the consultation findings, PSPC announced that Canada would be introducing legislation to allow for, and govern, the use of DPAs and indicated that enhancements to the Integrity Regime would be forthcoming.
The implementation of DPAs is a welcome development in the evolution of Canadian white-collar enforcement, which should allow for a more nuanced approach that recognizes and accounts for the practical realities and complexities inherent in white-collar prosecutions.
DPAs
DPAs are agreements between the prosecutor and the accused, whereby the accused is granted amnesty, with no criminal conviction registered, subject to the fulfilment of certain requirements. Such requirements may include the implementation of a compliance program, an acknowledgement of wrongdoing, cooperation with enforcement authorities, fines, compensation for victims, or disgorgement of profits. A Canadian DPA regime would apply to serious cases of corporate crime, such as fraud or bribery.
DPAs may also benefit the criminal justice system as a whole, by:
- Providing more certainty and incentive for companies faced with a self-reporting decision, likely resulting in the identification of more corporate crime
- Securing more effective and proportionate penalties for corporate crime by providing increased flexibility for prosecutors
- Reducing negative impacts on innocent third-parties by reducing the impact of expensive and time-consuming prosecutions and criminal convictions upon employees and shareholders with no involvement in the conduct at issue
- Fostering ethical corporate culture by incentivizing compliance and placing a premium on remediation
Canada's white-collar enforcement regime does not currently provide for DPAs or civil resolution mechanisms. Companies charged with an offence typically have three options: plead guilty, proceed to trial, or persuade the authorities not to prosecute.
INTEGRITY REGIME
The Integrity Regime, introduced in July 2015, is administered by PSPC and regulates contracts and real property agreements awarded by the federal government. It is intended to ensure that the government uses ethical suppliers for procurement and to incentivize ethical behaviour and strong compliance programs among suppliers; its primary mechanism to accomplish these goals is the debarment of companies charged with certain enumerated offences.
The Integrity Regime is more flexible than its oft-criticized predecessor (the Integrity Framework), and was amended in April 2016 to provide greater clarity and detail in certain areas (for further information, please see our April 2016 Blakes Bulletin: Amendments to the Integrity Regime – A Step in the Right Direction). Despite these amendments, the Integrity Regime remains inflexible in many ways.
CONSULTATION
The idea of a Canadian DPA regime has been gaining momentum among the compliance community for several years, particularly in light of the success of such systems in other jurisdictions.
In 2017, the Canadian government opened a public consultation, met with over 370 participants and received 75 written submissions from businesses, individuals, the justice sector and non-governmental organizations (NGOs).
PSPC reported that the majority of participants in the consultation process favoured the implementation of a DPA regime. Submissions cited a number of key advantages of DPAs, particularly the encouragement of self-reporting by companies, which would also assist prosecutors in identifying and prosecuting culpable individuals. Other identified advantages include:
- A more stable enforcement structure with increased predictability of results
- Effective and proportionate sentences
- Reduced impacts on innocent third-parties
- The development of cultures of compliance among companies
- Increased public confidence in the government's ability to effectively address corporate crime
- An increased focus on rehabilitation
- Increased flexibility for prosecutors to tailor resolutions to specific cases
- The facilitation of victim restitution
- Justice system efficiencies
Participants noted the potential ability of companies buying their way out of a prosecution as a concern, but the majority of submissions concluded that the potential advantages of a DPA regime outweigh these concerns, particularly with a properly-structured program to guard against this criticism.
In respect of the Integrity Regime, most responses focused on the system's rigidity. While participants supported the regime's objective of ensuring that the government uses ethical suppliers for procurement, many called for additional flexibility. Many participants provided lists of aggravating and mitigating factors to assist in determining debarment periods, such as the severity of the offence, self-reporting and cooperation, the creation and/or implementation of compliance policies and remedial action. The majority of participants also indicated that the current 10-year debarment period should be reduced. Responses were more varied regarding whether the Integrity Regime's scope of application and grounds for debarment should be expanded, with a clear divide between businesses and NGOs. Most participants were opposed to allegations or investigations being used as a basis for debarment, given due process concerns.
IMPLICATIONS
The introduction of a Canadian DPA regime is a welcome development, which should better equip authorities to appropriately deal with the complex realities of corporate criminal enforcement. Although corporations are legal persons and can be held liable under criminal legislation, in reality, offences such as fraud or bribery are carried out by individuals who more appropriately should be the target of enforcement actions. The inflexibility of the current Canadian system can have a chilling effect on cooperation and self-reporting, which hampers the authorities' ability to discover violations. Incentivizing and rewarding self-reporting, with the resultant company cooperation in the collection of evidence, will allow for more cases to be brought more efficiently against culpable parties.
Corporate prosecutions also often have disproportionately severe negative effects on a range of innocent parties, including shareholders and employees. DPAs allow prosecutors to tailor the resolution process to the realities of the situation, focusing on rehabilitation and thereby limiting the effects on non-culpable parties.
While the particulars of the impending changes remain unclear, they will, at minimum, include a DPA mechanism that should increase the flexibility and effectiveness of white-collar enforcement in Canada. As PSPC's announcement indicated that DPAs in Canada will be implemented through judicial remediation orders, we appear to be heading for a regime akin to that of the U.K., where DPAs are concluded under judicial supervision. The U.K.'s requirement of judicial approval helps ensure that prosecutors are meticulous and fair. The reasons underlying each decision are also published, which increases predictability and transparency; this is commonly seen as one of the advantages the U.K. system has over that of the U.S., where the DPA process is more opaque. A preference for a system similar to the U.K.'s was noted by many consultation participants.
The precise nature of the future enhancements to the Integrity Regime are similarly unclear, but based on the consultation feedback, they will likely build in more flexibility to the determination of debarment periods.
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