Author: Norm Keith

Norm Keith

About Norm Keith

Mr. Keith is a senior partner and member of the White Collar Defence practice group in the Toronto office of Fasken Martineau and the author of 12 books, including Insider Trading in Canada (Lexis Nexis, 2012). Contact him at +1 416 868 7824 or nkeith@fasken.com.

ISO 37001: The New Anti-Corruption International Standard

The International Organization for Standardization (ISO) has recently entered the fray by establishing an ISO certification standard 37001 specifically addressing anti-bribery in corporations by providing a structure for organizations to assist them in the implementation or management of anti-bribery managements systems.  So what is ISO 37001?  Simply put, it is an international standard for anti-bribery management systems.  The beauty of ISO 37001 is the global acceptance of the standard for anti-corruption compliance.

Obviously an anti-bribery system is to prevent bribes from being given or offered by corporate individuals representing business interests of the organization.  As with all ISO certification standards there are specific elements that must be met by the organization in order to be certified.  The system is set up that there is a consistent review of the system in order to ensure compliance and continual improvement.

While national laws may differ regarding anti-corruption compliance, the idea, as with any standard, is to provide a common ground where all global branches of an organization, no matter the location, have the same basis for compliance.  Keep in mind that ISO 37001 only addresses bribery.  Other white collar compliance issues such as fraud, ant-trust offences and other types of corrupt practices activities are not within the scope of this standard.

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Inside Baseball: Former Baseball Star Convicted of Insider Trading

The phrase “inside baseball” took on new meaning for a former baseball star, Doug DeCines, who was recently convicted on insider trading and securities fraud charges.  Inside baseball is a term that usually refers to a detail-oriented approach to any subject, which requires a specific knowledge about what is being discussed, with nuances that are not easily understood by outsiders.  This term became reality for DeCinces when he was convicted on Friday, May 12, 2017 of illegal insider trading for a stock buy that earned him more than $1 million.

DeCines was no stranger to white collar crime allegations. On August 4, 2011, DeCinces, along with three others, was charged with securities fraud by the Securities and Exchange Commission (SEC).  The SEC alleged that DeCinces and his associates made more than $1.7 million in illegal profits when Abbott Park, Illinois-based Abbott Laboratories Inc. announced its plan to purchase Advanced Medical Optics Inc. through a tender offer. Without admitting or denying the allegations, DeCinces agreed to pay $2.5 million to settle the SEC’s charges.

Then in November 2012, DeCinces received a criminal indictment on insider trading in a related matter and was charged with securities fraud and money laundering.  Evidence at trial was that DeCinces was tipped off in 2009 that a Santa Ana-based medical device firm, Advanced Medical Optics, was going to be sold. The information came from the company CEO, James Mazzo, who was DeCinces’ neighbor in Laguna Beach, California, prosecutors argued. DeCinces bought more than 90,000 shares in the company days before Abbott Laboratories bought the firm, and he sold the shares for a profit of about $1.3 million, prosecutors said.[1]  On May 12, 2017, after a nearly two-month trial, a federal court jury in Santa Ana, California found him guilty on 13 charges.[2]

DeCinces, who is now 66 years old, will remain free on bail until sentenced. A hearing date was not immediately set for sentencing.  At the time of the merger, Advanced Medical Optics had seen its stock price plunge from more than $30 to under $10 in the wake of the 2008 Wall Street crash. It more than doubled after the merger was announced.

Canadian insider trading laws have not been as aggressively enforced as those in the U.S. The epic failure of the Ontario Securities Commission to secure a conviction in the prosecution of John Felderhof arising from the Bre-X Minerals scandals has now gained notoriety in the Hollywood movie Gold.[3]  There has only been one prosecution for insider trading under the Criminal Code, resulting in a guilty plea and a 39 month jail term for Stanko Grmovsek.[4]  Canada’s team, the Toronto Blue Jays major league baseball franchise, have been largely scandal free and is celebrating their 40th season in Toronto.

[1] http://www.nydailynews.com/newswires/sports/ex-baseball-star-doug-decinces-guilty-insider-trading-article-1.3160385

[2] Hannah Fry, Former Angels player Doug DeCinces found guilty of insider trading, Los Angeles Times (May 12, 2017). Retrieved on May 13, 2017.

[3] https://en.wikipedia.org/wiki/Gold_(2016_film)

[4] See, Insider Trading in Canada, 2nd Edition, 2017, Lexis Nexis, N. Keith, pp. 88-94

Workplace Manslaughter Charge Going To Trial Says Quebec Superior Court

 

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The Quebec Superior Court recently released a decision with broad implications for corporate employers, owners, managers and supervisors across Canada.  In R. c. Fournier,[1] Justice Villemure held that an individual’s  contravention of provincial health and safety legislation was an “unlawful act”, under section s. 222(5)(a) of the Criminal Code (“Code”) and therefore a basis for committal to trial under a criminal charge of manslaughter.  This case involved the owner of a small construction company, who is now personally being charged with manslaughter arising from a workplace fatality. This is the first decision of its kind in Canada.

The decision must not only have been a shock for Mr. Fournier, the owner of a small construction firm, who had lost a worker in a tragic workplace accident, but also for criminal lawyers across Canada, since this is the first time this issue has been considered by the courts.  It  will be even more shocking for individuals, supervisors and employers, and others, bound to comply with provincial, strict liability health and safety laws.  Since there were 852 workplace fatalities in Canada in 2015 – there were 852 potential opportunities for a contravention of health and safety laws to give rise to criminal manslaughter charges.[2]

What Happened in this Case

According to the Superior Court’s decision the facts of the case include the following:

  • Lévesque and Mr. Fournier were working together at a construction project replacing in-ground sewer and water main lines;
  • The Quebec Safety Code was applicable to the excavation that was taking place;
  • Fournier and Mr. Lévesque were both working in an excavation on the day of the fatality;
  • The walls of the excavation were not shored, and dirt and other material removed from excavation was placed too close to the edge of the excavation;
  • Lévesque died when the walls of the excavation collapsed. He was working alone at the time of the collapse.[3]

Mr. Fournier was charged with two counts under the Code — criminal negligence for breach of the duty of persons directing work under section 217.1 thereby violating s. 220 of the Code, and manslaughter by unlawful act under section 222(5)(a) of the Code. There is no mention in the Superior Court decision about whether strict liability offences under the Quebec Safety Code were also laid against Mr. Fournier and what the outcome, if any of those charges were.

Following a preliminary inquiry, a judge committed Mr. Fournier to stand trial on both charges.  Mr. Fournier challenged the committal to stand trial on the manslaughter charge.

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Corruption in the Aviation Industry? “Please Say it Isn’t So!”

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The international aviation industry is highly competitive, international, and yes, known for allegations of corruption. Whether buying, selling, maintaining, servicing or supplying an aircraft, an airport, or the supply chain or related needs, corruption risks associated with the aviation industry is well documented. Companies and individuals involved in the industry face pressures and temptations to flout the law to gain business advantage. However, the legal and business consequences of airline corruption includes, but is not limited to, criminal investigations, prosecutions, convictions, penalties, reputations being destroyed, disgorgement of profits, shareholder losses from the drop of share price, careers ruined, civil law suits launched by investors, loss of confidence by the investment community, legal fees, fines, and jail terms for individuals involved.  Several examples illustrate the serious risks and consequences of corruption in the global aviation industry.

In June 2012, Brazil-based Embraer S.A., the world’s third largest commercial aircraft manufacturer, indicated in its Form 6-K (Report of Foreign Private Issuer) filed with the United States Securities and Exchange Commission (“SEC”), that the company had received a subpoena from the SEC inquiring into certain operations concerning sales of aircraft. In response to this SEC-issued subpoena and associated inquiries into the possibility of non-compliance with the U. S. Foreign Corrupt Practices Act (“FCPA”), Embraer retained outside legal counsel to conduct an internal investigation on transactions carried out in three specific countries.

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Corporate Compliance to Prevent Criminal Liability in Canada

tie-690084Introduction: The Bill C-45 Initiative

Effective corporate compliance to prevent regulatory risk requires a foundation of legal understanding. While corporate accountability and criminal liability has been a recent focus of legislation, law enforcement and regulatory agencies, the modern legislative framework for holding corporations criminally responsible for the wrongdoing[1] was enacted over a decade ago with the passing of Bill C-45 – An Act to Amend the Criminal Code (Criminal Liability of Organizations).

These amendments to the Criminal Code (“Code”) expanded the range of individuals whose acts and omissions could result in corporate criminal liability from those who were “directing minds” to the current standard descried in the Code as “senior officers”. Somewhat surprisingly, there have been few cases interpreting the new Code provisions and considering the scope of individuals that may be “senior officers” for the purposes of the Code. The limited jurisprudence does affirm the increased risk of criminal liability for corporations arising from the Bill C-45 amendments. Decisions from the Courts of Appeal for Ontario and Quebec[2] indicate that courts will interpret the term “senior officer” broadly, encompassing certain lower level managers as well as those employees who manage an important aspect of the corporation’s business.

Replacement of “Directing Mind” with Statutory Formula

The historical and political impetus for Bill C-45 was the 1992 Westray mine disaster, where 26 miners were killed in Pictou County, Nova Scotia. No individuals or corporate employer was ever convicted of a criminal or occupational health and safety regulatory offence. In response to a public inquiry, failed legal proceedings and union lobbying, Bill C-45 was passed to amend the Code to facilitate the conviction of organizations for criminal offences.

Under the former identification theory, a corporation faced criminal liability for the criminal acts of a “directing mind” of the corporation. At common law, the directing mind was defined as a person with:[3]

authority to design and supervise the implementation of corporate policy rather than simply to carry out such policy. In other words, the courts must consider who has been left with the decision making power in a relevant sphere of corporate activity.

The amendments were designed to remedy the inherent limitations of the attached to the “directing mind” paradigm and to better align the Code with the reality of modern, large corporations. As a result, Bill C-45 introduced the defined term “senior officer”. Under the Code, “senior officer” is:

  • a representative who plays an important role in the establishment of an organization’s policies; or
  • is responsible for managing an important aspect of the organization’s activities; and,
  • in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer.

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New French Anti-Corruption Law Provides for DPAs

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On Tuesday, November 8, 2016 France passed its new anti-corruption legislation, to improve its commitment to business ethics, the prevention of fraud and prohibiting the bribery of foreign public official.  The new anti-corruption law, which has taken over a year to revise and implement, is intended to reach the same standards and levels of enforcement as the United Kingdom’s Bribery Act (“BA”) and the American Foreign Corrupt Practices Act (“FCPA”). The most interesting aspect of the new law is that it permits corporate defendants to enter into negotiated resolutions, in a form that is commonly known as Deferred Prosecution Agreements (“DPAs”).

France has long been criticized for its weak anti-corruption law and enforcement activities.  The Organization for Economic Cooperation and Development (“OECD”) working group on bribery said recently that about 24 new corruption cases were opened in the past two years by French authorities yet no French corporation had been convicted of any foreign bribery offence.  In 2014, however, the United States Department of Justice (“DOJ”) secured three of the ten biggest Foreign Corrupt Practices Act (“FCPA”) enforcement actions against French companies by means of DPAs.  French corporate giants Alston paid $772 million, Total SA, paid $398 million and Technip SA, paid $338 million.  France is the only country whose corporations have appeared on the DOJ’s FCPA top ten list, three times.

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U.S. Appeals Court Upholds 180 Month Prison Term for Tax Fraud

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In a case that demonstrates the remarkable contrast between the American and Canadian enforcement of tax rules, the United States Court of Appeals, for the Second Circuit, recently upheld a conviction in a sentence of 180 months imprisonment for seven counts of tax fraud and evasion. The severity of the penalty assessed against Paul M. Daugerdas (“Daugerdas”), can only be matched by the huebris of the defendant himself. The case is a cautionary tale for Canadian tax planners in an age of growing tax evasion and fraud enforcement.

Daugerdas was a certified public accountant and tax attorney, first at Arthur Anderson, then at two law firms. Throughout his career, Daugerdas developed, sold, and implemented a variety of tax reduction strategies for wealthy clients. His specialty was the so-called “short sale shelter, short option shelter, swaps shelter, and the HOMER shelter”.[1] Deugerdas’ tax planning and shelters covered a period from 1994 through to 2004.  In August of 2000, the Internal Revenue Service announced that transactions like those being offered by Dougerdas no longer provide the favourable tax treatment that he offered to his clients.  In response, Deugerdas and his colleagues developed similar transactions with different elements and strategies.

Deugerdas’ huebris was exposed in the appeal decisions when the evidence reveled that part of his tax planning strategy involved intentional back-dating documents to attempt to gain tax advantages for his clients.  Also, had his law firms issue “more-likely-than-not” opinion letters falsely stating that the tax shelters had a reasonable possibility of producing a profit, but it was clear that they would not. The letters were held to be entirely dishonest.

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Securities Regulatory Authorities Release Results of Gender Diversity and Term Limit Disclosure Review

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This post was originally published on Timely Disclosure (a Fasken Martineau blog) and authored by Tracy L. Hooey.

Securities regulatory authorities in Ontario and nine other provinces and territories of Canada published CSA Multilateral Staff Notice 58-308 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices on September 28, 2016.  The staff notice summarizes a review of the gender diversity and term limit disclosure of 677 non-venture issuers (being those listed on the Toronto Stock Exchange with year-ends between December 31, 2015 and March 31, 2016).  As a result, these statistics do not include data regarding most banks.

Key findings of the gender diversity disclosure review include:

  • there are more women on boards than last year. Of the 215 issuers with over $1 billion market capitalization, 18% of board seats are held by women (up from 10% last year);
  • only 21% of issuers adopted a policy relating to the identification and nomination of women directors (up from 15% last year) and issuers with such a policy had higher average female board representation (18%) as compared to those with no policy (10%);
  • only 9% of issuers set a target for the representation of women on boards (up from 7% last year) and those issuers with targets had a greater number of women on their boards (25%) than those without a target (10%);
  • 66% of issuers disclosed that they consider the representation of women on their boards as part of their director identification and nominating process (up from 60% last year);
  • board and executive officer representation by women varied significantly by industry.

Key findings of the board renewal disclosure review include:

  • 20% of issuers adopted director term limits (up from 19% last year);
  • of those issuers with term limits, 48% set age limits, 23% had tenure limits and 29% had both;
  • the most common reason cited for not adopting board renewal mechanisms was that term limits reduce continuity or experience on the board.

This release follows Ontario Securities Commission Chair and CEO Maureen Jensen’s call for leadership on women on boards.  Chair Jensen highlighted the low number of women filling board vacancies.  She noted that “of the 521 board seats vacated during the year, just 15% were filled by women” and “without an improvement in the vacancy fill rate, we will never reach 30% female board representation”.

Proposed Amendments to CBCA

In addition, the Government of Canada released proposed amendments to the Canada Business Corporations Act which, among other things, would require that distributing CBCA corporations identify the gender composition of their boards and senior management and disclose their diversity policies or explain why none are in place.

Pat McCann on high profile white collar crimes, the media and the Canadian judicial system

Patrick McCann, a key member of Fasken Martineau’s White Collar Defence and Investigations Group, is featured on the cover of the latest issue of the Canadian Bar Association’s National Magazine. Pat comments in the magazine on the role of the media in high profile cases and its impact on the public and the justice system. Pat, who is an editor of the White Collar Post and counsel to Fasken Martineau, has himself been involved in many high profile criminal cases.

Head over to the National magazine to read the full article.

Anti-Bribery & Corruption Enforcement Protects Immunity of Whistleblowers

The international landscape on the law with respect to whistleblowing is changing dramatically and quickly. The Supreme Court of Canada is the first national high court in the world to recognize and protect the role of whistleblowers, their identity, and immunity, from disclosure and criminal prosecution.  In its decision involving the World Bank Group,  it addressed the subject of whistleblower immunity in an international case.

The opening paragraph of the Supreme Court Judgment, delivered by Justices Moldaver and Cote, reads as follows:

“Corruption is a significant obstacle to international development.  It undermines confidence in public institutions, diverts funds from those who are in great need of financial support, and violates business integrity. Corruption often transcends borders.  In order to tackle this global problem, worldwide cooperation is needed.  When international financial organizations, such as the appellant World Bank Group, share information gathered from informants across the world with the law enforcement agencies of member states, they help achieve what neither could do on their own”.[1]

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