Analysis, Anti-Corruption & Bribery, Anti-Money Laundering & Terrorist Financing, Canada, Europe

London Calling – The case of Skansen and UK Jurisdictional Reach for Corporate Bribery

The is a guest blog post by Nick Johnson, Q.C., from Exchange Chambers & Bright Line Law, London.

Southwark Crown Court is a designated centre for many of the UK’s serious fraud and white-collar crime jury trials. It is a drab building in a stunning location. There’s a spectacular view of Tower Bridge and the Tower of London over the river, obscured only by HMS Belfast, a WWII cruiser permanently moored as a museum and which, last Christmas, flew the Canadian flag in tribute to the participation of the Royal Canadian Navy in the Battle of North Cape. Hundreds of Canadian sailors served on British ships in the north, including eighty on the Belfast.

As the Maple Leaf flew, I acted for the MD of Skansen Interiors Ltd, a London based fit-out and refurbishment contractor, in a bribery case which concluded last April. The company itself and two of its directors faced charges under the Bribery Act 2010 (“UKBA”), relating to making improper payments in order to secure contracts for two City of London office refurbishments worth about £6m.

The case was a legal first in the UK in that the company, despite having carried out an internal investigation and self-reported to the UK National Crime Agency, then faced a Section 7 UKBA prosecution before a jury in the Crown Court. Section 7 has an unusually wide reach. A company itself is guilty of a criminal offence where a person associated with it bribed another, even where management might be completely unaware of the bribe. It is a rare form of corporate criminal strict liability, subject to a defence where the company can prove, on a balance of probabilities, that it had in place adequate procedures to prevent such conduct. Of course, the legislation is aimed at compelling a change in corporate culture when it comes to effective anti-bribery measures. Quite apart from the interesting questions the case posed as to what may amount to “adequate procedures” and why it was that an entirely co-operative company was not offered a UK Deferred Prosecution Agreement, the focus upon the Section 7 requirements was a clear reminder of how even a non-UK corporate could well end up in a UK criminal dock.

Continue reading »

Analysis, Anti-Corruption & Bribery, United States

Training Executives On Anti-Corruption Laws – Best Practices

This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.

Good strategists manage uncertainty by playing the probabilities, but too many executives use wishful thinking when it comes to anti-corruption compliance. Playing the probabilities means understanding the odds of success. Just 1 in 12 companies manages to Mitigate Reputational Risk Exposure resulting from non-compliance and therefore this result in a High Level of Reputational Risk Exposure.

Non-compliance seriously increases risk and liability; depreciates M&A and joint venture value; potentially damages the brand; undermines and reduces trust and confidence; increases the potential for prosecution; and threatens sustainability. Executives must be pro-active and continuously diligent in their efforts to mitigate individual and organizational risks.

Corporate board members devote significant time to financial oversight and strategy, while ignoring steps needed to protect and promote its most important intangible asset – its culture and reputation. Corporate boards are due for a rude awakening – compliance expectations and competing stakeholders are demanding increased more effective oversight. Directors need to learn how to carry out these important functions.

When training executives on anti-corruption laws we need to make them realize that Boards and senior executives need to do substantially more than a once-a-year “flyover” of their anti-corruption compliance programs if they expect the DOJ to conclude that their program meets the government’s definition of “effective.”

Boards need to be well-versed in all elements of the anti-corruption compliance program, regularly interact with compliance and legal personnel, and receive timely briefings on the program and the personnel responsible for its stewardship and operationalization. Directors and senior executives must understand that any compliance failures are something that they may have to answer to.

The existence of adequate policies and procedures does not provide a full defence against bribery charges but can be a useful tool for negotiating with authorities or avoiding proceedings against corporate entities. Further, because liability can also be founded on ‘wilful blindness’, the existence of anti-corruption policies and procedures can be helpful in rebutting any inference that a company or its executives ignored bribery.

There is still a place for tone at the top. The board and senior leadership must set the right tone in their communications across the company and outwardly. But tone needs to be paired with persistent actions on the part of the board and senior leadership signaling that ethics and compliance are a top priority and that the company is committed to doing business the right way and is prepared to back up its words with actions, including walking away from business and relationships that are not in alignment with the company’s organizational ethos. That is how tone at the top becomes conduct at the top.

When training Boards and senior executives on anti-corruption laws, we also need to make them realize that they cannot control the integrity of individuals, but they can certainly influence it. An organization’s culture influences the integrity of those employees that are either on the fence or would rationalize wrongdoing when the culture promotes willful blindness, permits ignorance of policies and controls, or encourages the avoidance of those controls through unreasonable business goals and rewarding success by any means.

Finally, Boards and senior executives need to be aware that no controls, compliance program, or business culture can eliminate or totally prevent people without integrity from doing wrong, but the absence of those factors greatly increases the capacity of wrongdoers to operate with impunity, while the strong presence of those factors greatly increases the likelihood of preventing and detecting wrongdoing, as well as providing a foundation to mitigate its impacts and consequences on the organization.

Canada

CRA Can Examine Items Seized During Criminal Investigation Before Validity of Search Warrant Confirmed

By Anastasia Reklitis and Jenny P. Mboutsiadis

The Canada Revenue Agency (“CRA”) can examine and make copies of items seized by the Royal Canadian Mounted Police (“RCMP”) pursuant to search warrants issued during a criminal investigation without having to wait for a determination of whether the warrants were valid.  This was confirmed by the British Columbia Supreme Court in Canada Revenue Agency v. Royal Canadian Mounted Police, 2016 BCSC 2275.  The CRA has not appealed the decision.

In this case, the CRA applied to the court under subsection 490(15) of the Criminal Code, RSC, 1985, c. C-46, for access to items obtained by search warrants.  The search warrants had been issued based on the belief that those named in the warrants (“Named Persons”) had committed criminal offences, such as laundering proceeds of crime, possession of property obtained by crime, and importing and trafficking in a controlled substance.  The items seized included large amounts of cash, numerous documents and computers, and other electronic devices and media containing business, accounting, and tax records.

The CRA argued that it was permitted access because it is a person “who has an interest in what is detained”, thereby satisfying the applicable Criminal Code provision.  The Named Persons opposed the CRA’s application on numerous grounds.  The RCMP took no position.

The Named Persons’ first argument was that a determination that the seizure is lawful is a pre-condition to the CRA’s entitlement to access any materials.  The Named Persons had already commenced the process in the Provincial Court that could possibly lead to the quashing of some or all of the search warrants and argued that, therefore, the CRA’s application should be adjourned until the validity of the warrants is determined from that process.  The court rejected this argument and explained that the warrants were presumptively valid and the Named Persons have the burden to establish otherwise.  A mere challenge with vague possibilities was not enough to satisfy the court that the warrants were invalid.

The Named Persons’ second argument was that the CRA’s application should fail because it did not have an interest in the seized items.  The court found to the contrary:  the CRA did have an interest because the items could be relevant to various tax investigations in which it was involved, which were independent of the RCMP investigations.  In particular, the items were relevant to determining potential tax offences involving some or all of the Named Persons, including tax evasion and the filing of false tax returns.

The Named Persons’ third argument was that any order allowing the CRA access should contain specific restrictions relating to privacy, privileged material, and relevance.  The court refused to place any restrictions as it did not find it appropriate to limit the examination of the evidence.

The CRA’s application was allowed and access to the seized items was granted.  In doing so, the court stated that there is nothing inherently wrong with law enforcement officials cooperating and sharing legally-obtained information.  Preventing the CRA from accessing the RCMP gathered information would delay the CRA’s investigation, thereby prejudicing its effectiveness and the likelihood of charges arising from it.  The court’s view was that it is in the public interest that the RCMP and CRA investigations proceed concurrently as they concern offences arising from the same search warrants.

 

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.

Continue reading »