Corporate crime, compliance and investigations: End of year review 2022
2022 has brought new challenges and risks for businesses, as we entered our second year of the COVID-19 global pandemic. The war in Ukraine caused significant disruption and the markets have suffered. Change has been significant this year for businesses, including in corporate crime, compliance and investigations. In our 2022 Year In Review, we provide a summary of the important updates over the past year, and offer our thoughts on the year ahead.
Canada’s first remediation agreement
On May 22, 2022, SNC Lavalin entered into Canada’s first ever remediation agreement with the Directeur des poursuites criminelles et pénales (DPCP), Québec’s chief prosecutor’s office. The agreement was entered into pursuant to s.715.32(1) of the Criminal Code of Canada. A remediation agreement is an agreement between an organization (not individuals) and a prosecutor that stays proceedings against the organization, contingent on compliance with terms and conditions in the agreement.
Remediation agreements were added to the Criminal Code in 2018 after becoming popular in other jurisdictions. They are intended to encourage organizations to self-report wrongdoing, denounce harmful actions, provide compensation and restitution to victims of crime, and limit the impacts of wrongdoers on innocent parties. Once a remediation agreement has been proposed, it must be approved by the courts and deemed to be in the public interest.
SNC Lavalin’s remediation agreement stayed charges that were filed against the organization in September 2021, in exchange for payment of a fine, payment of restitution, and undertaking of certain compliance and monitoring measures for a period of three years.
SNC Lavalin’s remediation agreement was a desirable alternative to conviction, as the practical effect of a conviction would have meant that the organization could not contract with the government, crown corporations, or public corporations. This would have had a significant impact on employees, customers, shareholders, and other innocent parties. For more information on Canada’s Integrity Regime, please read our legal update here.
There is currently one other remediation agreement in the settlement approval process. Ultra Electronics Forensic Technology Inc. and federal prosecutors reached an agreement to stay charges of bribery of a foreign public official in July 2022. The proposed settlement was heard by the Quebec Superior Court on November 1, 2022 and a decision has yet to be announced.
Despite Canada’s present foray into the use of remediation agreements, it remains to be seen whether they will gain further popularity in Canada as they have abroad. In November 2022, Transparency International criticized Canada’s uptake of its remediation agreement regime, as it was enacted in 2018 but took until 2022 for the first agreement to be entered into. As well, they expressed concerns that there was insufficient transparency with respect to current settlement negotiations, and noted that victims needing to agree with the defendants on suitable compensation is a shortcoming of the regime.
War in Ukraine brings new economic sanctions
2022 has been a watershed year for economic sanctions in Canada. Russia's unprovoked invasion of Ukraine has led Canada to adopt a wide range of economic sanctions aiming to impose a direct, deterring cost to and signal Canada's strong condemnation of the Putin regime's illegal actions in the region.
The sanctions against Russia include a broad range of prohibitions, including:
- Asset freeze and ban on dealings with more than 1,400 individuals and entities
- Prohibitions on transactions in goods and equipment used in activities relating to oil exploration and production, goods and technologies with potential military uses, and luxury goods
- Prohibition on imports of oil, gas, petroleum, and gold products from Russia
- Prohibition on the provision of certain services in relation with the Russian mining, energy and chemicals, and manufacturing industries
The Special Economic Measures (Russia) Regulations have been amended more than 30 times since the beginning of the crisis on February 24, 2022, and with the conflict showing no signs of abating, we can expect this trend to continue in 2023. Vigilance will continue to be required in international dealings to ensure compliance with ever-changing requirements.
While the ongoing war in Ukraine means that the sanctions against Russia have garnered the lion's share of attention, there appears to be a shift in Canada's approach to economic sanctions. Global Affairs Canada appears to be more willing than before to use economic sanctions as a tool to further Canada's international policy objectives. The recent adoption of new sanctions against Iran, in response to the government crackdown on protests following the death of a young woman, and Haiti, targeting financial elites alleged to be financing criminal gangs, illustrate this new approach.
Given these recent developments, we can expect economic sanctions to continue to be an important part of the Canadian legal and regulatory landscape in 2023 and for the foreseeable future. For more detailed information on the sanctions imposed in 2022, please read out legal updates here and here. In addition, our 2022 Symposium handout includes a summary from Canada, US, and Europe.
Release of the Cullen Report
On June 3, 2022, the Final Report of the Public Inquiry into Money Laundering in British Columbia was published (the Cullen Report). This report was issued in response to a Commission of Inquiry established on May 15, 2019, by the British Columbia Provincial Government.
The Cullen Report is critical of a number of actors, agencies, institutions and regulatory bodies, provincially and federally, that have either contributed to, or failed to adequately address, money laundering in British Columbia, and broadly concludes neither the federal nor the British Columbia anti-money laundering regimes effectively curtail the billions of dollars per year laundered through the province.
As a result, the Cullen Report makes 101 recommendations for implementation by the Government of British Columbia which address the overarching need for a robust provincial response to the issue of money laundering in the province. Most notably, the Cullen Report recommended provincial regulation of Money Services Businesses.
In response to the Cullen Report, the Federal Government reaffirmed its intent to establish the Canada Financial Crimes Agency, a new law enforcement agency responsible for enforcing financial crimes in Canada.
You can read more about the Cullen Report in our legal update posted here.
Amendments to anti-money laundering legislation
In early 2022, the so called “Trucker Convoy” overtook our nation’s capital in Ottawa. In response, the Federal Government invoked its powers under the Emergencies Act to respond to the occupation, instituting the Emergency Economic Measures Order and Regulation. These were discussed in our legal update found here.
The Emergency Economic Measures Order and Regulations sought to address and restrict the flow of funds to persons involved in the occupation. In so doing, it included crowdfunding platform, and required them to report to the authorities in the same manner as other entities regulated by Canada’s anti-money laundering legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations.
After the revocation of the Emergency Economic Measures Order, the Government reconsidered the PCMLTFA and made important amendments to include within its scope “crowdfunding platforms”. Additionally, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), being the entity responsible for the PCMLTFA, updated its policy guidance.
Key changes in the legislation and FINTRAC’s guidance include:
- Requirements for “crowdfunding platforms” to register with FINTRAC, implement a compliance program and Know Your Client (KYC) requirements, and comply with various legislative requirements, including reporting and record keeping.
- Retraction of prior FINTRAC policy interpretations that had exempted merchant servicing and payment processing services from the meaning of a money service business (MSBs). With this retraction and further FINTRAC guidance, the scope of businesses required to register as MSBs has significantly expanded.
- Amendments to the definition of “electronic funds transfer” removing the exemption for the payment processing of credit, debit, and prepaid product.
- Regulations requiring the disclosure of the true owners of real property behind trusts, partnerships and other entities.
You can read more about these changes in our legal update found here.
Canada modernizes the Competition Act
Effective June 23, 2022, the Federal Government introduced amendments to Canada’s Competition Act, facilitating more aggressive enforcement and providing the Competition Bureau greater scrutinizing powers. Key changes to the Act include broadened scope of anticompetitive conduct, additional remedies for private parties, heftier fines and penalties, and a new criminal offence for wage-fixing which will come into force on June 23, 2023. Key changes include:
- Criminalization of wage-fixing and no-poach agreements.
- Power of the Competition Bureau to obtain records and information outside Canada for the purpose of carrying out inquiries under the Competition Act.
- Drip-pricing expressly recognized as false or misleading advertising.
- Abuse of dominance provisions are amended, with the definition of anti-competitive conduct is expanded to capture conduct that does not necessarily harm a competitor, but are nevertheless intended to lessen competition overall.
- Private parties can now bring an application to the Competition Tribunal if their businesses are substantially affected by a dominant party’s anticompetitive conduct.
On November 18, 2022, the Federal Government published a discussion paper titled “The Future of Competition Policy in Canada”, which provided a preview of further legislative changes that can be expected, including:
- revision to the definition of dominance to reflect joint dominant behaviour.
- broadening the civil competitor collaboration provisions, criminalizing buy-side agreements.
- enhancing the deceptive marketing provisions to better reflect digital advertising.
- providing the competition bureau with broader enforcement mechanisms and ability to collect more information outside of enforcement.
For more detailed information on these changes, please read out legal update found here and the summary in our 2022 Symposium handout.
Modern slavery legislation on the horizon
After four unsuccessful attempts, 2022 marks the year where Canada nearly passed its first law on modern slavery: the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Modern Slavery Act). The Modern Slavery Act has not yet passed the third reading, but is expected to do so in early 2023 as the Committee on Foreign Affaires and International Development has completed its consideration and has reported it without amendment on November 28, 2022. Therefore, it is expected that the Modern Slavery Act, will come into force on January 1, 2024. Our prior legal update, found here describes the earlier efforts to bring into force Modern Slavery legislation in Canada.
Canada, like the United Kingdom, Australia and California, is opting for a transparency-driven approach to fight modern slavery within supply chains by enacting legislation imposing annual reporting obligations to promote responsible business practices. On May 31 of each year, every reporting entity will be required to produce a report to the Minister of Public Safety and Emergency Preparedness regarding the steps the reporting entity has taken during its previous financial year to reduce and prevent the risk of recourse to forced labour or child labour at any step in the supply chain, including the entity’s due diligence policies and processes related to forced labour and child labour. Annual reports will have to be made available to the public in a prominent location on the reporting entities' website, and sent with their annual financial statements to their shareholders when the reporting entities are federal corporations incorporated under the Canada Business Corporations Act or other federal legislation.
Although the Modern Slavery Act falls short of imposing express due diligence requirements on reporting entities, it is becoming increasingly important for companies exposed to supply chain risk to consider whether they have the necessary policies, third party business partner due diligence procedures and training programs in place to ensure all their company’s supply chain is adequately and consistently monitored.
Our team of seasoned practitioner will release a legal update providing a more detailed analysis of the requirements of this new legislation upon its adoption.
Sharing investigation report with law enforcement
In an Quebec Court of Appeal decision from 2022, the Court confirmed that in certain circumstances, a privileged investigation report can be shared with law enforcement, without any waiver of privilege. This is an important confirmation of the legal principles associated with waiver of privilege, and allows businesses to cooperate more effectively with law enforcement following international investigations. For more detailed analysis of this development, please read our legal update here.
Focus on retention of messages on third party platforms
Ephemeral messaging, also known as self-destructing messaging, refers broadly to any messaging software that automatically erases conversation history between users. In 2022, the use of ephemeral messaging continues to grow by businesses in the ordinary course and those with more nefarious purposes alike; cyber security experts are of the view that ephemeral messaging is likely here to stay and that its use will only continue to expand. However, businesses that employ ephemeral messaging should be cautious of the use of ephemeral messaging applications and award of the potential risks arising from the use of this technology. For example, ephemeral messaging offers advantages to those who intend to engage in civil or criminal misconduct because it leaves behind a limited digital trail.
In Canada, there is limited case law and regulatory guidance on the use ephemeral messaging by businesses. Notwithstanding this lack of guidance, our Canadian team suggests significant caution in the use of ephemeral messaging and clear corporate compliance regarding preservation of third party messaging platform. Our legal update, here provides more detailed analysis.
By contrast, in the United States, federal and state regulators have scrutinized the use of this technology, and the recent “Monaco Memo” explicitly notes that “[a]s part of evaluating a corporation' s policies and mechanisms for identifying, reporting, investigating, and remediating potential violations of law, prosecutors should consider whether the corporation has implemented effective policies and procedures governing the use of personal devices and third-party messaging platforms to ensure that business-related electronic data and communications are preserved.” For more information on the Monaco Memo and the position of the US DOJ, please read our legal update here.
Investigating wrongdoing by “anonymous” internet actors
The anonymous nature of the internet, with the use of assumed usernames, allows serious misconduct to occur from behind a veil of secrecy. However, old remedies are being re-fashioned, to fight against these new developments. In an Ontario case from 2022, the Ontario Superior Court of Justice granted a Norwich order to compel internet platforms and internet services providers (ISPs) to disclosure information which would reveal the true identity of an individual engaged in misconduct through a username. For further explanation of this case and its impacts, please read our legal update here.
We expect 2023 to bring challenges to organizations in complying with the new legislation and amendments noted above. In addition, we expect more remediation agreements to follow the apparent increased interest in this vehicle by law enforcement, as well as the ability of organizations to share investigation findings with law enforcement without waiving privilege. As economic uncertainty kicks of 2023, we expect the pressure to engage in misconduct will grow stronger, and organizations are wise to be on alert to prevent and detect fraudulent conduct.
Please feel free to reach out to any member of our Canadian Corporate Crime, Compliance & Investigations team with any questions relating to these developments.