Category Archives: Analysis

Analysis, Canada, Sentencing & Deferred Prosecution Agreements

Features of Canada’s New DPA Scheme

The Canadian Government has announced that it will be moving forward, albeit slowly, with a Deferred Prosecution Agreement (DPA) system. The recent announcement from the Government of Canada came on March 27, 2018, in a “Backgrounder” under the heading “Remediation Agreements and orders to Address Corporate Crime.”

Canadian DPAs will be known as the Remediation Agreement Regime (“RAR”). The federal government’s long awaited move towards DPA’s have several specific but not unique features. First,  a RAR would be a voluntary agreement between a prosecutor and an organization accused of committing a criminal offence. A corporation cannot be force into. RARs would set out an end date and would need to be presented to a judge for review and approval.

Second, before approving the remediation agreement, the judge would need to be satisfied of the following:

  1. The agreement is in the public interest; and
  2. The terms of the agreement are fair, reasonable and proportionate.

Third, when these criteria are met, the judge would issue a judicial order approving the RAR. While an agreement is in force, any criminal prosecution for conduct that is covered by the agreement would be suspended. If the accused organization complied with terms and conditions set out in the RAR, the prosecutor would apply to a judge for an order of successful completion when the agreement expires.

The legislation is proposed to have the following terms and conditions: the corporation has accepted responsibility for, and stop, their alleged wrongdoing; it has agreed to pay a financial penalty; it has been disgorged of any benefit gained from the wrongdoing; it has enhanced its  compliance measures; and has made restitution to any victims, including overseas victims, as deemed appropriate in the circumstances.

Fourth, the criminal charges would then be stayed in Court at the request of the prosecutor, and no criminal trial or conviction would follow. The stated purposes of the RAR include the following:

“a. To denounce an organization’s wrongdoing and the harms that such wrongdoing has caused to victims or to the community;

b. To hold the organization accountable for the wrongdoing;

c. To require the organization to put measures in place to correct the problem and prevent similar problems in the future;

d. To reduce harm that a criminal conviction of an organization could have for employees, shareholders and other third parties who did not take part in the offence; and

e. To help repair harm done to victims or to the community, including through reparations and restitution.”

Fifth, however, if the accused did not comply with all of the RAR, the criminal charges would be revived and the accused could be prosecuted and potentially convicted. In other words, all bets are off and the corporation will be prosecuted to the fullest extent of the law.

Sixth and finally, the RAR program will come into effect 90 days after the Budge Implementation Act, is passed into law and given Royal Assent (yes, the Queen’s representative still have to approval all Government of Canada’s new laws. Strangely, the RAR legislation is already being considered by Parliament as part of the Budget approval process, internally and without public hearings.

Analysis, Canada, Health & Safety Enforcement

Jail Term for Construction Superintendent Upheld by Court of Appeal

On January 20, 2018, the Court of Appeal for Ontario released its decision in the Appeal of Vadim Kazenelson (“Kazenelson”) both his conviction and sentence appeal.  Kazenelson was the Project Superintendent/Manager for the Metron Construction Incorporated (“Metron”) project in Toronto that went terribly wrong on December 24, 2009.  Tragically four workers died, and one was seriously injured, when two swing stage scaffolds broke apart, and five out of the six workers who were not attached to a lifeline that was anchored to the building, fell to the ground, over 100 feet below.  Kazenelson had been at the project at the time of the accident and allegedly aware of workers not using fall arrest lanyards at the time of the accident.

Kazenelson was prosecuted for five counts of criminal negligence under the Criminal Code Amendments, often referred to as the Bill C-45 or Westray Mine Disaster Amendments to the Criminal Code.  Kazenelson argued at trial that he was not guilty because he was not the direct supervisor of the crew, he had ensured that the workers had been properly trained and provided with fall arrest protective equipment, that he did raise the concern of workers not being provided with lanyards, when he was on site prior to the accident.

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Analysis, Europe, Sentencing & Deferred Prosecution Agreements

The French system of law is changing through DPAs.

This week, White Collar Post features a guest post from Frédéric Ruppert(1) and Maria Lancri(2)

One year after the enactment of the Sapin II Law, that set up the French Anticorruption Agency “AFA” and authorized Deferred Prosecution Agreements “DPA” à la française, the first DPA was approved by the Paris Tribunal.

Although the investigation started years before the Sapin II Law enactment and the matter involved money–laundering of tax evasion proceeds rather than corruption, this French DPA is being watched with attention as a guidance for future settlements.

It was brought together by i) the French National Financial Prosecutor “NFP,” who contributed to the Sapin II law and the DPA, with a clear understanding that business requires a dedicated and efficient tool against white–collar crimes, and ii) the negotiations with the defendant’s lawyers, after the Sapin II Law enactment.

The DPA statement of facts state that HSBC group and particularly its Swiss affiliate HSBC Private Bank (Suisse) SA “PBRS,” sent its salespeople to France to prospect new French clients or offer new products to existing clients. Most, also French tax residents, did not declare their Swiss accounts, contrary to French legal requirements. PBRS thus assisted them in illegally concealing these assets from the French tax administration. A judicial investigation was then opened; PBRS was indicted for unlawful financial and banking solicitation and aggravated money–laundering of tax evasion proceeds.

As PBRS admitted to the facts and accepted their legal characterization, which was necessary because an investigation was opened, the NFP proposed a DPA that the Tribunal approved.

Because the Justice Ministry has not yet issued any guidelines, the HSBC/PBRS DPA is valuable in understanding how authorities determined the fine paid by PBRS. It describes i) PBRS’ activity in France, ii) the number of its employees, iii) the value of the undeclared assets managed for its French clients, iv) its profits, and v) its profits derived from assets managed for French clients. From this, the authorities calculated a €86,400,000 fine for disgorgement of profits.

The compliance program of HSBC group at the time, is described by the DPA as less developed than today. It also notes that its subsidiaries, including PBRS, were allowed to conduct their business quite independently. HSBC group has since overhauled its compliance program, increased its control over its subsidiaries, withdrawn from certain markets and implemented strict financial crime, regulatory and compliance standards. At PBRS’ level, most managers were replaced, a transparency policy was implemented, some services were no longer offered and numerous clients were dropped.

Until the Sapin II Law enactment, PBRS was uncooperative, as the law did not permit settlements in such criminal matters. However, afterwards, the NFP recognized PBRS’ cooperation with authorities.

Given the seriousness of the matter, the DPA imposed an additional €71,575,422 fine, bringing PBRS’s total to the maximum available at law.

PBRS also had to indemnify the victims per the Sapin II Law, including the French Government, which was awarded damages for its €142,024,578 tax loss.

Altogether, PBRS paid €300,000,000, which HSBC Holdings guaranteed.

The advantage of DPA procedures over regular procedures is that defendants are not prohibited from participating in public procurement processes.

Incidentally, this is the major difference with World Bank procedures. It debars companies engaged in corruption or collusion from participating in any World Bank financed public procurement market. This was the case for the French company Oberthur Technologies SA., debarred for 2.5 years. It was also debarred from procurements issued by other development banks as part of the cross–debarment procedure.

(1) Frédéric Ruppert, Avocat à la Cour, Attorney at Law, California State Bar, Frederic’s practice is mostly focused on M&A and Private Equity and also extends to other corporate and business matters and Corporate Governance. https://www.linkedin.com/in/frederic-ruppert-2218767/ Email:  ruppert@frlaw-avocats.com

(2) Maria Lancri, Avocat à la Cour, has had a career in both private practice and in-house. She is currently of Counsel at GGV, a Franco-German law firm and specializes in Compliance matters and Data Protection and also advises companies in France on how to set up their Compliance programs: http://gg-v.fr/equipes/maria-lancri/ Email: lancri@gg-v.net

Analysis, Anti-Corruption & Bribery, Canada

Canada takes a further step to combat international human rights violations and corruption

The Justice for Victims of Corrupt Foreign Officials Act

Overview

On October 4, 2017, the House of Commons has unanimously voted to pass Bill S-226, the Justice for Victims of Corrupt Foreign Officials Act (the “Act”),[1] that is commonly known as the Magnitsky law.[2]  The law is named after Sergey Magnitsky, a Moscow lawyer who uncovered a large tax fraud and was detained and died in a Moscow prison on November 16, 2009.  Bill S-226 received Royal Assent on October 18, 2017.

The Act imposes various sanctions, including freezing of assets and travel bans, on foreign nationals responsible for gross violation of internationally recognized human rights and significant corruption.  Among other things, the Act permits issuing orders against anyone in or outside Canada who are dealing, directly or indirectly, with the property or financial affairs of the foreign national that is the subject of an order or regulation under the Act.

On November 3, 2017, regulations under the Act were enforced combating the activities of 52 foreign nationals who are believed to have been engaged in gross human rights violations or significant corruption activities.  The majority of the named individuals are the nationals of the Russian Federation, in addition to the nationals of Venezuela and South Sudan.  The Russian government has not welcomed the law.  It retaliated with its own list banning the entry of various Canadians into Russia.  As part of the retaliatory measures, Russia’s officials stated that the government viewed the law as yet another attempt to exert pressure on Russia.

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Analysis, Canada

Canadian DPA? Cross-country consultations begin

Government of Canada Launches Consultations

More than two years ago, in the context of its procurement modernization initiative designed to ensure that it was doing business with ethical suppliers, the Government of Canada introduced a government-wide “Integrity Regime”. The Government is now seeking to review whether its objectives have been achieved. On September 25, 2017, it launched a consultation to seek stakeholders’ views on its “Integrity Regime” and took the opportunity to seek the public’s opinion on a potential deferred prosecution agreement (DPA) regime as well. The Government has published a Discussion paper entitled “Expanding Canada’s Toolkit to Address Corporate Wrongdoing: the Deferred Prosecution Agreement Stream Discussion Guide in relation to the consultation process. Stakeholders may provide their responses and comments until November 17, 2017.

DPA Regime

A DPA regime is like a diversion program that provides an alternative to criminal proceedings. Instead of going to trial, the prosecutor can make an offer to the accused to hold off on criminal charges, while the person enters into a program designed to rehabilitate them. If the accused does not comply with the terms of the agreement, the prosecution is resumed. In Canada, diversion programs are currently made available to individuals only. A DPA regime is a diversion program made available to corporations. It is often – but not always – available only for specific offences related to economic crimes.

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