Canada to introduce deferred prosecution agreements

Good news for companies headquartered in Canada: Deferred prosecution agreements may soon be coming to the country.

Widely used in the United States—and less frequently in the United Kingdom, France, and Australia—deferred prosecution agreements (DPAs) allow prosecutors to suspend the criminal prosecution of a company if it agrees to fulfill certain requirements, like paying a significant financial penalty and implementing or enhancing compliance measures. Now, it looks like Canada is moving the discussion forward, as well.

Under the current framework of the Canadian criminal justice system, prosecutors have two choices concerning corporate defendants: to prosecute or not to prosecute. But the Canadian government moved the discussion forward on Feb. 22, when it announced its plans to introduce legislation to bring a DPA scheme to the country “to be implemented through judicial remediation orders as an additional tool for holding corporate offenders to account.”

Additionally, the Canadian government announced plans to enhance its Integrity Regime, introduced in 2015 to regulate contracts and property agreements awarded by the federal government. According to the report, most respondents asked for additional discretion and flexibility to be built into the Integrity Regime and, specifically, that there be a fuller consideration of aggravating and mitigating factors in debarment period determinations.

The announcement follows a report published by the government on Feb. 22, summarizing the results of a public consultation it conducted last year, in which it sought input on whether to introduce a DPA regime in Canada and what potential enhancements it should make to its Integrity Regime. To gather insight, government officials met with over 370 participants and received 75 written submissions, mainly from the business community.

The consensus, as summarized in the report, is that the advantages of a Canadian DPA regime would outweigh any possible disadvantages. Many commentators reasoned that the possibility of negotiating a DPA would encourage the self-disclosure of wrongdoing; motivate companies to enhance their compliance programs and corporate culture; and reduce the potential negative impact of a conviction on innocent third parties.

Transparency International Canada (a group heavily funded by corporate interests) is one especially vocal proponent of a DPA regime in Canada, having published a 37-page report on the subject. “In the Canadian context, where enforcement activity levels are chronically low, DPAs, if properly designed and implemented, have the potential to support increased enforcement of anti-corruption laws and increased self-disclosure and compliance by corporations,” Paul Lalonde, chair of Transparency International Canada, stated in the report.

“In the Canadian context, where enforcement activity levels are chronically low, DPAs, if properly designed and implemented, have the potential to support increased enforcement of anti-corruption laws and increased self-disclosure and compliance by corporations.”
Paul Lalonde, Chair, Transparency International Canada

From a risk management perspective, too, DPAs are a way for companies to address alleged wrongdoing, to the satisfaction of law enforcement agencies, without the costs of a drawn-out prosecution and potential conviction.

The clear preference from stakeholders was for Canada to implement a DPA regime that more closely resembles the U.K. model, as opposed to the U.S. model. In the United States, courts play a limited role in the DPA process, whereas in the United Kingdom, courts play a much greater role; DPAs must be approved by the courts and be made public.

Bringing a DPA regime to Canada, however, is not without opposition. Echoing concerns that have been debated in other countries, like the United States, opponents argue that a DPA regime gives companies a false sense of security, making them think they can simply “buy their way” out of trouble through the payment of financial penalties, rather than being held accountable by a court of law.

From a risk and compliance standpoint, the potential disadvantages are that a DPA regime may shield culpable employees by focusing enforcement on the company, rather than on individual offenders; allow corporate monitors too much leeway over their mandates, such that the terms of the DPA go beyond what was intended; and result in wasted effort and resources and potentially compromise a subsequent prosecution in cases where significant time is spent trying, unsuccessfully, to negotiate a DPA.

DPA negotiations. The consultation further considered feedback on what factors should be weighed in deciding when a DPA is appropriate. Relevant considerations that were discussed include:

Whether the company self-reported misconduct and acknowledged wrongdoing;

Cooperation with the Crown;

Whether the company shows a sincere willingness to reform business practices and corporate culture;

Whether the company has a history of misconduct or non-compliance;

The nature and gravity of the offence;

The level of culpability (for example, whether the misconduct was condoned by senior management or constituted the actions of rogue employees);

Whether the company enhanced or adopted a compliance program; and

Whether a conviction would result in significant negative consequences for innocent third parties.

Conversely, commentators also responded to questions as to what circumstances a DPA would not be appropriate. Such considerations mentioned included situations where the company has a history of misconduct or unethical behavior and no evidence of efforts to remedy the situation; the misconduct caused a significant level of harm to the public or to competitors; the company has not cooperated with authorities; or where a DPA would not adequately deter misconduct or serve the public interest.

List of consultation questions

Below is the list of questions that participants were asked to answer in response to whether Canada should adopt a deferred prosecution agreement regime:
Question 1: In your view, what are the key advantages and disadvantages of DPAs as a tool to address corporate criminal liability in Canada?
Question 2: For which offences do you think DPAs should be available and why?
Question 3: What role do you think the courts should play with respect to DPAs?
Question 4: What factors should to be taken into account in offering a DPA?
Question 5: When would a DPA not be appropriate?
Question 6: What terms should be included in a DPA?
Question 7: What factors should be taken into account in setting the duration of a DPA?
Question 8: Under what circumstances should publication be waived or delayed?
Question 9: How should non-compliance be addressed?
Question 10: When should facts disclosed during DPA negotiation be admissible in a prosecution against a company?
Question 11: How should compliance monitors be selected and governed?
Question 12: What use should be made of compliance monitoring reports?
Question 13: Under what circumstances should victim compensation (that is, anticipatory restitution) be included as a DPA term?
Source: Canadian government

Corporate monitors. As part of the consultation, participants also were asked how compliance monitors should be selected and governed. “While some clearly see a role for the courts in the selection process, others thought that this would be more a matter for the prosecution and for the corporation concerned,” the report stated. “It was emphasized that monitors needed to be qualified, objective, free from any potential conflict of interest, and capable of undertaking the task of monitoring the specific terms of the DPA.”

Many commentators said the monitor should be mutually agreed upon (by the prosecutor and the company) and that their mandate should likewise be established jointly. Moreover, some said corporate monitor appointments should be approved by the court. Concerning qualifications, some commented that monitors should be drawn from a roster of qualified candidates, whereas others said the pool of candidates should consist of licensed professionals, like lawyers and accountants.

Responses varied on how compliance monitoring reports should be used. Most agreed that monitoring reports should be reviewed by law enforcement before being relied upon in determining whether the company complied with the terms of a DPA, whereas others commented that this should be a matter for the prosecutor or investigator.

SNC-Lavalin case study. The Canadian government has not yet given a timeline for the legislative changes on the table, but if it does move forward with formally adopting a DPA regime, compliance, risk, and legal executives will want to keep an eye on the case surrounding SNC-Lavalin. Among the most vocal companies in support of a DPA regime in Canada, the engineering and construction company has been fighting federal corruption and fraud charges by Canadian authorities for more than five years.

The Royal Canadian Mounted Police (RCMP), Canada’s national police force, alleges that between 2001 and 2011, SNC-Lavalin and two of its subsidiaries—SNC-Lavalin International and SNC-Lavalin Construction—gave U.S.$38 million to Libyan government officials to use their positions to influence government decisions. The RCMP further alleges during this same period that SNC-Lavalin and its subsidiaries defrauded the Libyan government and other entities of “property, money, or valuable security or service” valued at U.S.$103.7 million.

The company pleaded not guilty and said the charges relate to wrongdoing by former employees who left the company long ago. It has also brought claims against those same executives to recover damages.

During its fourth quarter 2017 earnings call last month, SNC-Lavalin CEO Neil Bruce said he hopes the Canadian government enacts a DPA regime, “and then we would like to be able to engage with the relevant authorities around potentially a form of DPA,” he said. “However, that’s not in our control. So, from that perspective, we really just have to wait and see what happens.”

Bruce added that, if the government does not bring to Canadian businesses a DPA regime, the company does have a workaround plan to reach a resolution. “I think there are alternatives that we could, and we do, look at—but basically, we’d prefer the first option,” he said.