White collar, corporate crime and investigations: End of year review 2021
2021 featured the ongoing uncertainty, challenges and risk for businesses associated with COVID-19 pandemic. Despite the challenges, compliance programs, investigations and proceedings continued as close to normal as possible, with adjustments made to adapt the “new normal”. In this 2021 Year In Review, we offer key updates from the year past and offer our predictions on 2022 and beyond.
Virtual investigations are here to stay
Despite considerable wariness and reluctance in early 2020, 2021 has been the year of the virtual investigation. With continued restrictions on face to face meetings, companies and their legal counsel have relied extensively upon the virtual platform to complete internal investigations. The benefits are significant for many investigations, including considerable time and cost savings. Key strategies for successful investigations - which we see continuing into the future - include:
- Smart use of technology: Investigators need to be experts with the virtual platform, from the basics of the audio and video functions, to the challenges of screen sharing. We have found that having a second person available to only handle documents makes for the most efficient and effective process.
- Ensuring confidentiality: Without the witness in the room, we do not know if they have someone else there, or are recording the interview. Steps to address this issue involve written or verbal confirmations before the interview starts.
- Turn on the camera: Investigators want to build rapport and read the non-verbal cues of witnesses. Set the stage in advance to ensure that the witness has the ability to turn their camera on during the interview.
For more information on investigative protocols, listen to our session on “Design and Implementation of Investigative Protocols” or review of the session highlights here.
A win for defendants in Competition Act class actions
Canadian anti-trust class action law continues to develop and be refined. Recently, the Federal Court released a decision that may have significant impact on the test for certification of Canadian anti-trust or Competition Act class actions. In that decision, the Federal Court held that in order to satisfy the test for the existence of common issues with respect to an anti-trust conspiracy, the plaintiff must provide sufficient evidentiary basis (some-basis-in-fact) indicating that a common issue actually exists in fact. A bare assertion in the pleadings is not sufficient. Indeed, the Federal Court stressed that there must be evidence to support the existence of a prohibited agreement giving rise to the conspiracy. Assertions that the products in issue were sold in an oligopoly; that one party published price lists, made them publicly available, and competitors then followed with price increases, and that there was “public signalling”, do not amount to illegal conduct in the absence of an illegal agreement. In such circumstances, a representative plaintiff will not be permitted to pass through the certification gate.
For more detailed analysis on the Federal Courts recent decision, please read our legal update on our website here.
Competition Bureau highlights further enforcement
In an important speech presented in October 2021, the Commissioner of Competition, Matthew Boswell, signalled that the Competition Bureau will draw upon a significant increase in its budget to bolster its teams and increase its capacity to take on new and more complex anticompetitive conduct. In keeping with the Commissioner’s earlier initiatives in detection tools and digital markets, he announced the formation of the Digital Enforcement and Intelligence Branch of the Bureau as a centre of expertise on technology and data. Moreover, the Commissioner called for a comprehensive review and modernization of the Competition Act, noting deficiencies such as weak maximum penalties, gaps in the criminal cartel for agreements between competitors to restrict wages and mobility of workers, and lack of private enforcement for abuse of dominance. The Commissioner aspires to emulate evolving initiatives in the US, UK, Australia and elsewhere, not only to strengthen competition laws but to enhance enforcement of existing laws in order to promote competition and protect consumers.
Cullen Commission at center stage
The Commission of Inquiry into Money Laundering in British Columbia (the “Commission”), led by the Honourable Austin Cullen and announced on May 15, 2019, is a response to the perception, and potential reality, that money laundering is flourishing in British Columbia and has become an issue of public concern. The Commission has a broad mandate to make findings of fact with respect to money laundering activities across British Columbia, including in real estate, gaming, financial institutions, and the corporate and professional sectors. The Commission is also examining regulatory authorities and the barriers to effective law enforcement of money laundering activities. Finally, the Commission will be making recommendations to combat money laundering in British Columbia. The Commission’s findings and recommendations will be set out in a report that will be submitted to the provincial government by May 20, 2022.
Given recent concerning reports stating that hundreds of millions of dollars in illegal cash linked to organized crime were affecting British Columbia’s real estate and gaming sectors, and the Commission’s broad mandate, the Commission’s eventual report may substantially impact AML legislation, and the enforcement thereof, in British Columbia and more broadly across Canada.
Amendments to anti-money laundering legislation
In June, 2021, numerous amendments were brought into force under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations. We wrote about these in our legal update found here. Key changes include:
- Requirements for financial entities to implement compliance programs;
- Increased “know your client” verification requirements for specific types of transactions. Clients can expect their financial institution to make additional inquiries respecting large cash transactions, suspicious transactions, foreign exchange transactions, and other categories of transactions;
- Additional reporting and record keeping obligations on behalf of financial entities;
- The “travel rule”, which requires that financial entities obtain specific detailed information relating to an electronic fund transfer or virtual currency transfer. Again, clients can expect their financial institution to require additional information when they are sending or receiving EFTs or virtual currency.
The Federal Government continues to show a commitment to improving Canada’s response to money laundering. In December, 2021, the Financial Crimes Coordination Centre (FC3) held a large scale conference on anti-money laundering. We expect to see more changes to AML legislation in 2022 with the release of the Cullen Report, as discussed above.
More developments of beneficiary disclosure regimes in Canada
In 2017, the Government of Canada published the Agreement to Strengthen Beneficial Ownership Transparency (the “Agreement”) in which, among other things, “Ministers agreed in principle to pursue legislative amendments to federal, provincial and territorial corporate statutes” to increase beneficial ownership transparency.
In line with the Agreement, the Government of Canada amended certain provisions in the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”) in 2018 to require federal corporations to collect certain information for all individuals with “significant control” of a corporation, and to prepare and maintain a corporate register of those individuals. The CBCA defines an individual with “significant control” as one who holds: (a) any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares; or (b) any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value. The CBCA imposes sanctions and fines for non-compliance with the new beneficial ownership provisions.
In 2020, British Columbia, Manitoba, Prince Edward Island, Nova Scotia, and Saskatchewan proposed or enacted similar amendments to their respective provincial corporate statutes.
In November 2021, Ontario proposed Bill No. 43 which sets out to amend the Ontario Business Corporation Act. Bill 43 received its Third Reading on December 7, 2021, and has not yet received Royal Assent. The Bill proposes a beneficiary disclosure regime in Ontario that follows closely with that of the CBCA.
Beneficiary disclosure regimes play an important role in addressing corruption and money laundering, by making publicly available the beneficial owners of companies. These amendments are important in the global push for greater transparency in beneficially ownership.
Canadian modern slavery legislation proposed…for the fourth time
On November 24, 2021, Bill S-211 (An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff) was introduced in the Senate. Bill S-211 follows three similar bills that have been introduced in the Senate in each of the last three sessions of Parliament. The bill and its predecessors are similar to the Modern Slavery Act 2015 (United Kingdom), the Modern Slavery Act 2018 (Australia), and proposed legislation in other jurisdictions that is intended to address modern slavery, forced labour, and child labour.
If passed in its current form, Bill S-211 would require private sector entities that produce, sell or distribute goods in Canada, or import goods into Canada, to report annually on the steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere. Reports would be maintained in an electronic registry that is made available to the public. The bill would also give the Canadian Minister of Public Safety and Emergency Preparedness the power to make orders requiring entities to comply with their new obligations set out in the bill, and proposes a penalty of up to $250,000 for failing to comply with those new obligations.
Notably, each of the three similar bills that have previously been introduced have failed to make any progress in Senate. For Bill S-211 to become law, it will need to pass a second and third reading in the Senate, and then go to the House of Commons for first reading, second reading, consideration in committee and third reading. We will continue to report on further developments.
Even without the passage of this legislation, companies in Canada must still take appropriate steps to address supply chain due diligence. We note in particular the Supreme Court’s 2020 decision in Nevsun Resources Ltd. v Araya which opened the door to potential civil claims against Canadian companies for human rights violations committed internationally.
Important decision on the elements of bribery under the Corruption of Foreign Public Officials Act
In R. v. Barra, 2021 ONCA 568, the Ontario Court of Appeal has clarified the standard of knowledge required to find an individual guilty under s. 3(1) of the Corruption of Foreign Public Officials Act, S.C. 1998, c. 34 (“CFPOA”). Section 3(1) of the CFPOA provides that an individual who offers or agrees to give a bribe of any kind to a “foreign public official” to obtain or retain an advantage in business is guilty of an indictable offence. Following Barra, the Crown must establish that the individual who offered or agreed to offer a bribe knew that the individual they were bribing was a “foreign public official”.
For instance, in Barra, the accused sought to bribe, amongst others, an employee of Air India. Air India is wholly owned by the Indian government, and therefore, the individual that the accused sought to bribe was performing official “duties or functions” and would qualify as a “foreign public official” under the Act. Since the accused did not know, however, that Air India was wholly owned by the Indian Government he did not know that the individual he was bribing was a “foreign public official” and accordingly, he had not committed the offence.
The decision in Barra adds some clarity to the legal standards applicable to prosecutions under the CFPOA and makes prosecutions under the Act more difficult for the Crown.
More charges against SNC Lavalin: Canada’s first remediation agreement in the works
On September 23, 2021, the RCMP laid fresh charges on two (2) corporate entities of SNC-Lavalin Inc. and SNC-Lavalin International Inc. along with two former employees who were charged with the following offences under the Criminal Code of Canada:
- Forgery (366 C.C.)
- Conspiracy to commit forgery (465/366 C.C.)
- Fraud (380 C.C.)
- Conspiracy to commit fraud (465/380 C.C.)
- Fraud against the government (121 C.C.)
- Conspiracy to commit fraud against the government (465/121 C.C.)
According to the Directeur des poursuites criminelles et pénales (“DPCP”), Québec’s chief prosecutor’s office, the charged SNC-Lavalin entities have been formally invited to negotiate a remediation agreement (also known as a deferred prosecution agreement or “DPA”) pursuant to subsection 715.33(1) of the Criminal Code.
In a press release issued on the same date the charges were laid, SNC-Lavalin emphasized their full cooperation with the RCMP investigation and welcomed the opportunity offered by the DPCP to negotiate a remediation agreement to resolve these charges, making it the first time a Canadian company has received an invitation to negotiate such an agreement. The stage has been set for 2022 to be the year we see Canada’s first ever remediation agreement.
This news was shortly followed by another media statement by the RCMP in the Fall of 2021 confirming that Canadian companies are now self-reporting allegations of bribery and corruption in response to Canada’s 2018 adoption of remediation agreements in the hopes of benefiting from lenient treatment under the new regime.
We anticipate that 2022 will bring new challenges with compliance (including in supply chain), developments in law, and increased enforcement (including Canada’s first remediation agreement).
Please feel free to reach out to any of the members of our White Collar, Corporate Crime & Investigations team with any questions relating to these developments.