Canadian companies can be held criminally liable for the wrongful actions of their middle managers, even when the head office has no knowledge of the misconduct. So says a recent ruling by the Quebec Superior Court, which imposed a $1 million fine against Global Fuels for engaging in a price-fixing scheme carried out by its managers.
The April 17 decision in the case R. v. Global Fuels by Justice François Toth “mark[s] a fundamental change, if not a revolution, in the law of corporate criminal liability,” Kenneth Jull, a partner with law firm Baker & McKenzie in Toronto, wrote in a client alert. “It will no longer be necessary for prosecutors to prove fault in the boardrooms or at the highest levels of a corporation: the fault even of middle managers may suffice.”
The core of the case focused on the question of which individuals within a company can cause it to become criminally liable through their actions and intentions. Under Section 22.2 of Canada’s Criminal Code, a company can be held liable for the acts of its “senior officers.”
The Criminal Code defines “senior officer” as “a representative who plays an important role in the establishment of an organization’s policies or is responsible for managing an important aspect of the organization’s activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer.” It broadly defines “representative” as a “director, partner, employee, member, agent, or contractor of the organization.”
Global Fuels owns and manages gas stations in Eastern Canada and is responsible for setting the retail gas prices sold at those stations. The case concerned allegations that a regional manager for Global Fuels, and two territory managers who reported to the regional manager, conspired to prevent or lessen competition in the retail gasoline market by fixing prices between 2005 and 2006. The company argued that it shouldn’t be held criminally liable for the actions of the individuals involved.
Tôth disagreed. According to the court’s decision, the regional manager qualified as a “senior officer,” because he was responsible for the management of an important field of activity at Global Fuels, and he knowingly allowed the territory managers to participate in the collusion without interference. Accordingly, the court convicted Global of the charges.
Toth’s ruling effectively affirms a 2012 lower court ruling in Global Fuels that the intent of the Canadian government in enacting the amendments to the Criminal Code was “to merge the guilty mind of a middle manager with the guilty mind of the corporation itself,” Jull wrote.
To mitigate the risk of such offenses from the outset, Jull advised that companies take the following steps:
Identify who will qualify as senior officers;
Develop written policies or codes of conduct;
Institute compliance training at the senior officer level;
Conduct risk assessments of the potential for illegal conduct;
Implement the appropriate level of auditing in accordance with the risk assessment; and
Design compensation systems to reward compliance as a factor that is weighted along with profit maximization.
Canadian companies now appear to face the risk of criminal liability based on the actions of a far wider range of individuals. To minimize that risk, companies must ensure that their risk management processes—training, monitoring, auditing—take into consideration this wider group of individuals who may now qualify as senior officers.