ARTICLE
17 January 2024

2023 Year In Review: White Collar Defence And Investigations

GW
Gowling WLG

Contributor

Gowling WLG is an international law firm built on the belief that the best way to serve clients is to be in tune with their world, aligned with their opportunity and ambitious for their success. Our 1,400+ legal professionals and support teams apply in-depth sector expertise to understand and support our clients’ businesses.
As has been the trend in the last few years, 2023 cannot be considered a robust year for the prosecution of white collar matters in Canada, particularly in the areas of foreign corruption...
Canada Criminal Law
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As has been the trend in the last few years, 2023 cannot be considered a robust year for the prosecution of white collar matters in Canada, particularly in the areas of foreign corruption, competition or quasi-criminal securities prosecutions. However, there were a few notable developments and decisions over the past year which we will highlight in this year-end review.

Notably, foreign interference has been a consistent concern in the past year amongst regulatory agencies amid reports of alleged Chinese interference in Canadian elections. As such, Canadian regulators and enforcement agencies have continued to heavily scrutinize international transactions and foreign investments. Regulation geared at addressing foreign interference risk in various areas is likely to increase.

In addition, Canadian regulators and government bodies have responded to allegations of improper and unethical business practices by launching several Serious Fraud Office (SFO) and Canadian Ombudsperson for Responsible Enterprise (CORE) investigations, amendments to the Competition Act and increased whistleblower protections.

To ensure compliance with the complex framework of laws, regulations and governance, it is imperative that businesses take a proactive stance by consulting a team of legal professionals with national and international capabilities and experience. Gowling WLG's White Collar Defence and Government Investigations Group has a breadth of experience in assisting clients navigate prosecutions and investigations.

Table of contents

  1. Concerns of foreign interference lead to increased scrutiny of international transactions
  2. Canada's prosecutions under the Corruption of Foreign Public Officials Act
  3. The Superior Court of Quebec clarifies the remediation agreement approval process
  4. Amendments to Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act regime
  5. Amendments to the Competition Act criminalize wage-fixing, no-poach agreements and drip pricing
  6. The SFO launches several investigations into scams targeting Canadians
  7. Bill 79 amends the maximum fine for a corporation under Ontario's Occupational Health and Safety Act
  8. Occupational health and safety: Increase exposure to "owners"
  9. Lowering criminal interest rates
  10. CORE launches investigations into Canadian companies' use of forced labour

1. Concerns of foreign interference lead to increased scrutiny of international transactions

The federal government reviews investments in Canada by non-Canadians with a view to national security pursuant to the Investment Canada Act. Extended national security reviews have seen a sharp rise since 2020, with 23 being reported between 2017 to 2020 and 80 being reported between 2020 and 2023.1

Regulation is likely to continue to increase amidst persistent concerns of foreign interference, with increased scrutiny of investments by non-Canadians in Canada, particularly with respect to investors from China and Russia.

2. Canada's prosecutions under the Corruption of Foreign Public Officials Act

While Canada was slow to enforce the Corruption of Foreign Public Officials Act (CFPOA), since 2011 there has been a sporadic and moderate increase in enforcement.

  • In 2011, Niko Resources Ltd. pleaded guilty under the Act and was sentenced to a $9.5-million fine and three years of corporate probation.
  • In 2013, Griffiths Energy, a Canadian oil company operating in Chad, Africa, was sentenced to a $10.25-million fine under the Act.
  • Also in 2013, Nazir Karigar was convicted for bribes paid to the Indian minister of civil aviation and employees of Air India to influence the sale of facial recognition software. Karigar was the first individual to be convicted under CFPOA. He was sentenced to three years in jail.
  • In July 2017, Karigar's conviction was upheld by the Ontario Court of Appeal.
  • In late 2018, two individuals, Robert Barra and Shailesh Govindia, were convicted of agreeing to bribe a foreign public official, contrary to the CFPOA. In March 2019, the two were sentenced, each receiving a 30-month custodial sentence.
  • In 2020, Sami Bebawi, former vice-president of an international corporation, was found guilty on five counts relating to fraud, corruption of foreign officials and laundering proceeds of crime and sentenced to over eight years in prison.
  • In 2023, Damodar Arapakota was found not guilty of bribing a foreign official. The Crown initiated an appeal of this decision in May 2023.

These prosecutions, coupled with recent increased activity by CORE, described below, demonstrate a trend towards the prosecution of corporate corruption abroad. Nonetheless, a report released in October 2023 by the OECD Working Group on Bribery in International Business Transactions pointed out deficiencies in Canada's foreign bribery framework and provided recommendations to enhance the detection and enforcement of foreign bribery.

International Developments

On December 14, 2023, the United States Congress passed the Foreign Extortion Prevention Act (FEPA), which allows for the prosecution of foreign public officials who demand or receive a bribe from Americans or American businesses while in the US. The US joins the UK, Germany and France in criminalizing such behaviour.2 Whether Canada follows suit remains to be seen.

3. The Superior Court of Quebec clarifies the remediation agreement approval process

In 2018, the federal government amended the Criminal Code to institute a remediation agreement regime to address corporate criminal wrongdoing. Known as deferred prosecution agreements in other jurisdictions, remediation agreements in Canada are prosecutorial tools available for combatting economic crimes. They are legal contracts between prosecutors and offending parties whereby charges are laid, stayed and subsequently dropped if the terms of the agreement are met.

This regime allows prosecutors to negotiate remediation agreements for certain economic criminal offences, such as bribery, frauds on the government, municipal corruption, fraudulent manipulation of stock exchange transactions, secret commissions and money laundering, where it is in the public interest to do so. It is intended to promote voluntary disclosure of criminal wrongdoing and ensure corrective measures are implemented to develop a compliance culture within the organization.

In order for a court to approve a remediation agreement, three conditions must be met:

  1. The organization is charged with an offence to which the agreement applies.
  2. The agreement is in the public interest.
  3. The terms of the agreement are fair, reasonable and proportionate to the gravity of the offence.

Since 2018, only two companies have received approval for a remediation agreement.

In May 2022, a provincial Crown Prosecutor's Office entered into the first remediation agreement under the new regime in relation to charges laid of fraud and bribery. The agreement required payment of monies with respect to forfeiture, penalty, victim surcharges and reparations to victims, as well as the appointment of an independent monitor to review and evaluate an integrity program.

In May 2023, the Superior Court of Quebec published its judgment relating to the approval of a remediation agreement between the Public Prosecution Service of Canada (PPSC) and Ultra Forensic Technology Inc. (UEFTI). UEFTI had been charged with one count of defrauding the government of the Republic of the Philippines and two counts of bribing Filipino officials, contrary to section 380 of the Criminal Code and section 3 of the Corruption of Foreign Public Officials Act, respectively. The acts underlying the charges were alleged to have occurred between 2006 and 2018 and were intended to secure the procurement of a ballistic identification system to the Philippine National Police.

The effect of the remediation agreement is to stay the charges. The charges will be withdrawn once UEFTI fulfills its obligations under the agreement, which include a monetary penalty, surcharge and forfeiture of any proceeds obtained from the wrongful conduct.

UEFTI must also cooperate with any investigation or prosecution related to the offences, report to the PPSC on the implementation of the agreement and abide by the terms of an anti-bribery and corruption program under the supervision of an external auditor.3

In considering the remediation agreement between the UEFTI and the PPSC, the Court clarified that the principles set forth by the Supreme Court with respect to joint submissions in R v Anthony-Cook, 2016 SCC 43 and R v Nahanee, 2022 SCC 37 applies to remediation agreements. Namely, that the court is to take a deferential approach in considering the remediation agreement.

4. Amendments to Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act regime

On October 11, 2023, the Government of Canada released the final version of three regulations that amend Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) regime, as published in the Canada Gazette Part II Volume 157, Number 21.

Among other things, these amendments (the Amendments) bring more entities within the purview of the PCMLTFA and impose anti-money laundering (AML) and anti-terrorist financing (ATF) compliance obligations, as regulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Two regulations, SOR/2023‑193 and SOR/2023‑194, amend existing regulations under the PCMLTFA, and a new regulation, SOR/2023‑195 was made under the PCMLTFA, which is entitled the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations.

The Amendments affect the following sectors:

  1. Mortgage sector: As of October 2024, businesses and professionals involved in the mortgage sector, specifically mortgage administrators, brokers and lenders, will have AML/ATF obligations. FINTRAC describes the compliance obligations in its sector-specific guidance for mortgage administrators, brokers and lenders.
  2. Correspondent banking: Starting in October 2024, financial entities entering into a correspondent banking relationship will have additional AML/ATF requirements.
  3. Armoured car currency transport: As of July 2024, businesses transporting currency and negotiable instruments will have AML/ATF obligations. FINTRAC describes the compliance obligations in its sector-specific guidance for armoured cars.

As part of the Amendments, FINTRAC will implement a new funding model for its operations. Beginning on April 1, 2024, FINTRAC will charge the following reporting entities for the annual cost of its compliance program:

  1. Federally regulated banks, trust and loan companies, and life insurance companies.
  2. Other reporting entities that submit 500 or more threshold transaction reports during the fiscal year.

To date, FINTRAC has been funded through appropriations. The Amendments prescribe a formula for FINTRAC to assess the expenses it incurs in the administration of the PCMLTFA against reporting entities that are sizeable enough to absorb these costs collectively. The apportionment formula for each contributing entity is designed to be proportional, adjusting the entity's contribution according to the value of the entity's assets in Canada, among other factors.

This cost recovery regime is specified in the new Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations made under the PCMLTFA. Generally, this change aligns FINTRAC with the approach of other federal regulators that recover their costs from their regulated entities, in particular the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.

This change also began in BIA1 2021, but the new FINTRAC cost recovery regime was not in force pending the present Amendments, which prescribe the entities that are subject to the new cost recovery and assessment regime and set out the parameters for the assessment regime.

For additional information, see Final PCMLTFA Regulations Released: New Anti-Money Laundering Obligations For The Mortgage Sector, Correspondent Banking Relationships And Armoured Car Currency Transport

5. Amendments to the Competition Act criminalize wage-fixing, no-poach agreements and drip pricing

As of June 23, 2023, wage-fixing and no-poaching agreements are illegal under section 45 of the Competition Act (the Competition Act).

Wage fixing and no-poaching agreements

The amendments to the Competition Act added subsection 45(1.1), which is directed at "naked restraints" on wages or job mobility. [4] The new subsection provides that every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges either:

  1. To fix, maintain, decrease or control salaries, wages or terms and conditions of employment.
  2. To not solicit or hire each other's employees.

The amendments require proof beyond a reasonable doubt to establish guilt. A person found guilty of an offence under subsection 45(1.1) may be imprisoned for up to 14 years or subjected to a fine at the discretion of the court, or both.

In addition, all fines for offences under the conspiracy provision, including agreements to fix prices, allocate markets, restrict supply, fix wages or refrain from hiring, are unlimited and will be determined at the court's discretion. Under the previous provision, fines were capped at a maximum of $25 million.

Section 45(4) makes the defence "ancillary restraints" available, requiring a person to establish on a balance of probabilities that the conspiracy, agreement or arrangement is ancillary to a broader or separate agreement or arrangement and is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement.

Drip pricing

"Drip pricing," or offering a product or service at a price that is unattainable because additional fees are required to buy it, is now explicitly recognized by amendments to the Competition Act. 5 The Competition Bureau (the Bureau) has taken action against drip pricing for many years, notably in the car rental and online sporting and entertainment ticketing industries.

Most recently, the Bureau has commenced a proceeding against Cineplex before the Competition Tribunal for advertising misleading ticket prices.6 The Bureau is seeking, among other things, for Cineplex to stop the deceptive advertising, to pay a penalty and to issue restitution to affected consumers.

Additional amendments aimed at modernizing the Competition Act came into force on December 15, 2023. These amendments include an increase to the administrative monetary penalties that may be imposed for violations of the abuse of dominance provisions of the Competition Act. The penalties will now be the greater of $25 million (up from $10 million) for the first violation and up to $35 million (up from $15 million) for any subsequent violation, or three times the value of the benefit derived from the anti-competitive practice. If that amount cannot be reasonably determined, three per cent of the company's annual worldwide gross revenues.

The amendments also include a restructured legal test for a prohibition order to be made in the case of the abuse of dominant position. Whereas previously all three elements (dominance, anti-competitive intent and anti-competitive effects) needed to be established, the amendments allow the Competition Tribunal to make a prohibition order if a party is dominant and either the anti-competitive intent or the anti-competitive effects element is met.

6. The SFO launches several investigations into scams targeting canadians

The uptick in fraudulent schemes targeting Canadians led the Ontario Provincial Police to establish the SFO in 2018 to coordinate police and prosecutorial services for investigations into white-collar crime.

Though the SFO's investigations have not resulted in a plethora of charges, there was an uptick in charges laid in 2023.

In 2023, the SFO investigated and charged five people who allegedly used "fictitious or ineligible" businesses to apply for COVID-19 relief programs.

An SFO investigation also resulted in charges being laid against two men in connection with a $300 million procurement project for the St. Michael's Hospital Redevelopment Project. The SFO found evidence of fraud through the offering or receipt of secret commissions at the time the project was awarded in 2015.7

The fraud trial against David Murray, owner of EcoLife Home Improvements, continued in 2023, having been started on March 8, 2021. Murray was charged with 35 counts of fraud over $5,000 that allegedly took place between May 7, 2016 and March 8, 2019. The alleged frauds total to an estimated $800,000 and are related to a scheme to take deposits for home and building improvements.

7. Bill 79 amends the maximum fine for a corporation under Ontario's Occupational Health and Safety Act

On October 26, 2023, Ontario's Bill 79, Working for Workers Act, 2023 received royal assent. Bill 79 amended the Ontario Health and Safety Act (OHSA) to increase the maximum fine for a corporation, if convicted under the OHSA, from $1.5 million to $2 million. These amendments came into force on the same date as Bill 79 received royal assent, on October 26, 2023.

In the spring of 2022, Ontario also increased the maximum fine for corporate directors and officers from $100,000 up to $1,500,000, a 1500 per cent increase. Directors and officers also are subject to a penalty, upon conviction under the OHSA, of 12 months imprisonment.

Ontario has the highest maximum corporate fine under the workplace safety laws in Canada. More than ever, corporations must have an effective health and safety management system, which will help to prevent incidents and establish a due diligence defence.

For more information on Bill 79, see More Changes Ahead For Ontario Employers: The Working For Workers Act, 2023.

8. Occupational health and safety: Increase exposure to "owners"

On November 10, 2023, the Supreme Court of Canada released a split decision in the case of R v Greater Sudbury (City), 2023 SCC 28, which has the potential to significantly increase the risk of legal exposure to "owners" of construction projects, as well as of employers of large, multi-faceted projects with multiple participants. Delegating control to another party will not necessarily shield a party from liability where a contravention of the OHSA occurs.

The City of Greater Sudbury (City) had contracted with a general contractor with respect to road and watermain repairs (the Project). While the City employed quality control inspectors to monitor the Project, it did not manage the Project.

In September 2015, a pedestrian was struck and killed by a road grading machine operated by the general contractor.

The City was subsequently charged under section 25(1)(c) of the OHSA for failing to ensure that certain safety requirements of the Construction Projects regulation had been met. Section 25(1)(c) states that employers shall ensure that the measures and procedures prescribed are carried out in the workplace. The City denied that it was an "employer", as it had delegated control of the repair work to the general contractor.

Martin J, writing for the plurality, agreed with the Ontario Court of Appeal that the City was an "employer" and had breached its duty under section 25(1)(c). Martin J held that "control" was not a relevant consideration in an analysis of whether the City had breached its obligation as an employer under section 1(1) and 25(1)(c). However, control is relevant in determining whether a defence of due diligence (found in section 66(3)(b) of the OHSA) applies such that an employer is not liable.

A full analysis of the Supreme Court of Canada's decision in R v Greater Sudbury can be found here, while a full analysis of the Ontario Court of Appeal's decision can be found here.

9. Lowering criminal interest rates

Section 347 of the Criminal Code establishes a criminal interest rate equivalent to a 48 per cent annual percentage rate (APR). In 2021, the federal government announced its intention to launch consultations on lowering the criminal interest rate. Consultations took place throughout 2022 and 2023. In 2023, section 347 was amended to lower the criminal interest rate to 35 per cent APR.

Proposed regulations regarding the criminal interest rate were released on December 23, 2023. The proposed regulations create exemptions for certain pawnbroking loans and certain business and commercial loans, such as where the amount of credit advanced is more than $10,000 but less than or equal to $500,000 and the APR does not exceed 48 per cent, or where the amount of credit advanced is more than $500,000.

The proposed regulations also set a 14 per cent limit on the total cost of borrowing under a payday loan agreement. The consultation period regarding these proposed regulations will end on January 22, 2024.

10. CORE launches investigations into Canadian companies' use of forced labour

CORE is a state-based, non-judicial dispute resolution mechanism that receives and reviews complaints alleging possible human rights abuses committed by Canadian garment, mining, oil and gas companies abroad.8 The Ombud may investigate and make recommendations to companies in order to remedy human rights abuses and may make recommendations to Canada's Minister of International Trade.9

CORE released its report on child labour in the apparel supply chain, entitled, Respect for Child Rights and the Risk of Child Labour in the Global Operations and Supply Chains of Canadian Garment Companies in early 2023.10 CORE's recommendations include, amongst other recommendations, the following:

  1. Using the regulatory power under the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act) to make regulations requiring government institutions and Canadian business entities report on each level of production (specifically garment, fabric, fiber and raw materials production) when reporting on the steps taken to prevent and reduce the risk of forced or child labour.
  2. Adopting mandatory human rights and environmental due diligence legislation.

Also in 2023, CORE announced its intent to launch investigations into Guess?, Nike, Levi, Zara, Walmart Canada, Hugo Boss, Diesel, Ralph Lauren and mining companies GobiMin and Dynasty Gold Corp, following allegations of Uyghur forced labour in their supply chains. 11

The Act came into force on January 1, 2024 and implements reporting requirements regarding the steps taken by entities to reduce the risk that forced labour or child labour is used in the production or importation of goods into Canada. Individuals and entities are liable to a fine of up to $250,000 for failing to comply with the Act's reporting requirements, knowingly making a false or misleading statement or providing false or misleading information. The Act further establishes liability of directors and officers for contraventions of the Act.

Regulations have yet to be enacted under the Act. It remains to be seen whether and how CORE's recommendations will be implemented.

Footnote

1. Innovation, Science and Economic Development Canada, Annual Report 2022-2023.

2. Foreign Extortion Prevention Act Factsheet.

3. Superior Court of Quebec Publishes Remediation Agreement For UEFTI

4. Enforcement Guidelines on wage-fixing and no poaching agreements

5. Competition Bureau sues Cineplex for allegedly advertising misleading ticket prices

6. Competition Bureau sues Cineplex for allegedly advertising misleading ticket prices

7. Two charged with fraud in $300M St. Michael's hospital project

8. CORE, Respect for child rights and the risk of child labour in the global operations and supply chains of Canadian garment companies study.

9. CORE, Respect for child rights and the risk of child labour in the global operations and supply chains of Canadian garment companies study.

10. CORE, Respect for child rights and the risk of child labour in the global operations and supply chains of Canadian garment companies study.

11. CORE News Releases

Read the original article on GowlingWLG.com

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.

ARTICLE
17 January 2024

2023 Year In Review: White Collar Defence And Investigations

Canada Criminal Law

Contributor

Gowling WLG is an international law firm built on the belief that the best way to serve clients is to be in tune with their world, aligned with their opportunity and ambitious for their success. Our 1,400+ legal professionals and support teams apply in-depth sector expertise to understand and support our clients’ businesses.
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