When the Regulator comes calling: How to prepare and respond to search warrants, regulatory ‎inspections and other crises

Government agencies have a wide range of powers to search, inspect, investigate and obtain information and documents from corporate entities, individuals and organizations. An organization’s readiness for – and its responses to – governmental inspections and investigations can be crucial.

Examples of urgent, unannounced regulatory visits include the following:

• Competition Bureau officers appear at your offices first thing in the morning – a “dawn raid” – and execute a search warrant.
• Provincial Ministry of the Environment agents appear at your company’s manufacturing facility and start interviewing low-level employees.
• Occupational Health and Safety Act inspectors arrive at a company facility immediately after an employee is seriously injured or killed in an industrial accident.
• Revenue Canada agents show up at your company headquarters and demand that a company executive speak with them.

In this article, we will address ways in which a company’s executives, in-house counsel, and employees can prepare themselves to respond to unannounced governmental visits.

Government powers with respect to inspections and investigations

Regulatory legislation is concerned with the protection of the public welfare. Government agencies accomplish this by carrying out inspections to ensure regulatory requirements are complied with, making orders or directions to bring entities into compliance with the regulations, and investigating and prosecuting non-compliance.

To carry out their investigative function, governmental agencies are provided with broad inspection powers through provincial and federal regulatory legislation, such as the Environmental Protection Act, Occupational Health and Safety Act, Income Tax Act, Securities Act, and (with prior judicial authorization) the Competition Act. These broad inspection powers often allow government agencies to:

• enter a company’s premises;
• review, copy and seize physical and electronic documents and date;
• interview and examine employees;
• require testing of equipment;
• review, copy and seize documents; and
• require the company to produce records and answer questions in writing.

Search warrants are not required for government agencies to exercise these powers. However, as is discussed later in this article, these broad inspection powers do not apply to investigations. To the contrary, during investigations, government agencies must produce warrants to carry out similar powers. 

Responding to an unannounced government visit

Not all government visits are the same. The scope of authority of the government agency will vary depending on whether the agents are conducting an inspection or an investigation. As previously mentioned, a search warrant is not required for an inspection, but it is required for an investigation. In addition, some legislation provides the enforcement agency with the ability (which might require court approval) to subpoena records, conduct interviews under oath and require answers to questions.

The purpose of an in-person inspection is to ensure a company is complying with a specific statute. While government agents must act within statutory authority, their powers on an inspection are very broad and the company has an obligation to cooperate.

An in-person investigation, on the other hand, is an attempt to gather evidence to support the prosecution of a suspected offence. To conduct an investigation under a search warrant, a government agency must have reasonable and probable grounds to believe that an offence has been committed or that there are otherwise grounds to make an order under the relevant legislation.

The distinction between an inspection and an investigation is an important one. An agency typically has more focussed and less wide-ranging powers during an investigation, and the Canadian Charter of Rights and Freedom is engaged. An inspection crosses the line and become an investigation “when the inquiry engages the adversarial relationship between the individual and the state.”

When government agents attend at your premises, you should notify a member of the organization’s leadership team and in-house counsel immediately and engage experienced investigation counsel to attend on site. You will also want to gather some important information right away. You should identify which government agency is present, try to identify which government agent is in charge – typically called the lead agent – and determine whether the agency is purporting to conduct an inspection or an investigation.

If the government agent is conducting an inspection, you should ask periodically if the visit has turned into an investigation. If the agent is conducting an investigation, obtain a copy of the search warrant (if one is being used) to send to legal counsel so they can assess the scope of the warrant. You should also ask the agent to stop the investigation until your investigations counsel arrives. However, you cannot force government agents to stop their investigation if they choose not to wait for counsel.

It is also important during both inspections and investigations to manage your employees. All personnel at all levels should be instructed to preserve (and not destroy) all physical and electronic records, and to keep the fact of the search confidential, not to be discussed outside of the company. You should consider sending any non-essential employees home, since their work will almost certainly be disrupted by the execution of the inspection/investigation. If government agents appear to be detaining employees, ask whether the employees are under arrest or free to go.

Employees should be carefully reminded of their rights. You can advise employees that the decision whether to speak with a government agent is up to them and that if they do choose to speak, they can set conditions on the interview – such as the presence of counsel, either corporate or individual. To avoid any misunderstandings, it is best to provide this advice to employees in writing. 

Role of outside counsel

Outside counsel can provide expert knowledge to guide you through a government investigation or inspection. Outside counsel can help in many ways, including by:

• ensuring that the government agents do not exceed their authority;
• orchestrating document review and disclosure, including dealing with confidential and privileged documents;
• assessing if the company has exposure to areas that the government is investigating/inspecting;
• preparing public comments to reporters;
• helping to prevent accidental interference with government efforts;
• providing a buffer between the company and government agents; and
• maintaining a legal privilege over internal investigations.

Outside counsel can also assist with conducting internal investigations to determine any issues of concern. Internal investigations are useful tools for helping your business respond to future investigations or inspections. First, they help you assess the operational areas that would be subject to an investigation or inspection. They also reveal action items that require immediate attention and help develop company procedures for the future. As an example, experienced investigations counsel can advise whether an internal investigation has disclosed information that it would be in the company’s interest to voluntarily disclose to the appropriate regulator. Finally, internal investigations can assist with determining the liability of directors, officers or employees.

Conclusion

When the regulator comes calling, you want to make sure that you and your company are prepared.  Although inspections and investigations can be extremely disruptive, by preparing employees and engaging experienced counsel, a company can minimize that disruption so it can continue to carry on business as usual.

If you have questions about this article or would like further information on the right compliance program for your company, please contact the authors or any members of our Canada Corporate Crime, Compliance & Investigations team.