Category Archives: !Jurisdiction

Analysis, Canada, Sentencing & Deferred Prosecution Agreements

Corporate Compliance to Prevent Criminal Liability in Canada

Introduction: 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.

Continue reading »

Analysis, Anti-Corruption & Bribery, Europe

New French Anti-Corruption Law Provides for DPAs

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.

Continue reading »

Analysis, Tax Fraud & Evasion, United States

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

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.

Continue reading »

Analysis, Canada

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

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.

Africa, Analysis

White Collar Crimes: a menace to South African businesses

The slow rot of the private and public sector

Since the early 2000s, there have been numerous news reports in South Africa indicating that white collar crime is on the rise. From 2014, despite police statistic reports indicating an 11% decrease in economic crimes, independent studies conducted by PwC indicate a burgeoning increase in fraud, money laundering, corruption, collusion and bribery by senior management in companies and by politicians in high ranking government positions.[1]

South Africa has the potential to increase the number of its successful prosecutions if a greater emphasis is placed on the importance of prosecuting white collar crimes.

Economic crime is constantly evolving and becoming a more complex issue for organisations and economies.  In South Africa, more than two thirds of South African organisations have experienced economic crime.[2] The overwhelming cause of the increase in white collar crimes is that detection methods are not keeping pace, local law enforcement agencies place little to no emphasis on white collar crime, bundling together a broad range of illicit activity, including insider trading and credit card fraud together with public procurement fraud and private sector corruption, and there is a general failure to prosecute and punish these crimes effectively. Further, many individuals facing charges of fraud, corruption, money-laundering or insider-trading have the ability to delay prosecution by launching numerous appeals and other actions.[3]  This accompanied by South Africa’s back-logged High Court system, the inability of the National Prosecuting Authority (The NPA) to prosecute economic crimes and the poor levels of investigation by police services, in no way serves to deter individuals from committing such crimes.

Continue reading »