This article was originally published in Blakes Bulletin On Litigation May 2005
Canadian legislation provides tools for use by government in conducting investigations, which also prescribes limits on those investigatory powers to protect the legal rights of Canadian citizens. The spectrum of investigatory powers of governments runs from the formal search warrant authorized by a judge, through less intrusive tools such as assistance orders, production orders, inspection powers and "informal" examination, to simply asking questions.
Two Classes of Investigations
The authority of government officials, and the formality and level of review of investigations, can be broken into two classes. There is the classic criminal investigation which is conducted on an apprehension of criminal contravention. It typically requires intrusive investigatory actions being taken under formal instruments such as search warrants and assistance orders. The second class of investigation arises in connection with powers or authority granted under statutes relating to regulated industries. The latter category of investigation is non-criminal and is designed to ensure compliance with the regulatory goals of the statute. Regulatory statutes typically contain broad powers requiring production of documents or material, permission to inspect and the making of inquiries of persons within the regulated industry. This type of regulation is found, for example, under environmental statutes, occupational health and safety statutes and business practice statutes.
The investigatory authority in some regulated areas can be unclear, as there is an aspect which represents simple regulatory review, but which can develop into an investigation involving penal liability and significant sanctions, including imprisonment. This arises under income tax, competition and securities legislation, to give three examples. How can you discern the difference? One method is to ask the investigator.
The distinct character of an investigation with a regulatory objective as against one with a penal objective was the subject matter of the judgment of the Supreme Court of Canada in R. v. Jarvis. This was a decision rendered in 2002 arising out of activities which took place under the authority of the Income Tax Act. The Court considered the distinction between the audit and investigative functions of the Canada Revenue Agency (the CRA), and the consequences for the taxpayer when the CRA exercises its investigative function. The Court determined that compliance audits and tax evasion investigations must be conducted differently. Fundamental to the decision is the proposition that while taxpayers are statutorily bound to co-operate with CRA auditors for tax assessment (audit) purposes (which may result in the application of regulatory penalties), there is an adversarial relationship that crystallizes between the taxpayer and the tax officials when the predominant purpose of the inquiry is the determination of penal liability. When the tax officials exercise this authority, constitutional protection against self-incrimination prohibits CRA officials who are investigating offences from having recourse to the powerful inspection and requirement tools provided for under the Act. Rather, CRA officials who exercise the authority to conduct such investigations must act in accordance with legal rights under the Charter of Rights, such as cautioning suspects and seeking judicially authorized search warrants to inspect or seize documents.
Compliance Or Criminal Investigations?
The determination of when the relationship between the state and the individual has reached the point where it is effectively adversarial is, according to the Supreme Court, contextual, and must take account of all relevant factors. However, the Court articulated a list of factors which may assist in ascertaining whether the line between regulatory compliance and criminal investigation has been crossed. They include, in the context of the Income Tax Act, the following:
One. Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made? Was the general conduct of the authorities such that it was inconsistent with the pursuit of a criminal investigation?
Two. Had the auditor transferred his or her files and materials to the investigators?
Three. Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?
Four. Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?
Five. Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayers' mens rea, is the evidence relevant only to the taxpayer's penal liability?
Six. Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?
Where the investigation has clearly turned penal, individuals and organizations should be vigilant in protecting their rights. Where the authority has secured a search warrant and has come to execute it, production of the warrant should be demanded, and the authorities should be limited to only doing what is permitted under the warrant. However, nothing should be done which represents an obstruction of the authorities in the execution of their duty. It is advisable to request officials conducting a search to wait until counsel has arrived or made contact in order to provide advice, although you cannot insist on this.
A copy of the search warrant should be provided and the search should be monitored to ensure that those persons executing the search respect its limits and also to keep track of those records which are being removed.
Generally, it is not advisable to give interviews or provide explanations, and the appropriate course of action is to instruct employees on the premises not to speak to the officers executing the warrant. It is best to have all communication be conducted through counsel. The investigators are not your friends!
For those documents which might be subject to a claim of solicitor-client privilege, strong and immediate objection should be made. If officers insist on seizing privileged records, then those documents should be immediately sealed (including any documents which are arguably beyond the scope of the warrant or for which some other confidentiality claim may be asserted) and proceedings brought to challenge the right of the authority to review those documents.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We wish to acknowledge the contribution of Paul Schabas to this publication.