Proceedings of the Standing Senate Committee on
Legal and Constitutional Affairs
Issue No. 45 - Evidence - May 30, 2018
OTTAWA, Wednesday, May 30, 2018
The Standing Senate Committee on Legal and Constitutional Affairs met this day at 3:15 p.m. to study the subject matter of those elements contained in Divisions 15 and 20 of Part 6 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures; and in camera, for consideration of a draft report
Senator Serge Joyal (Chair) in the chair.
[English]
The Chair: Good afternoon and welcome, honourable senators and invited guests and members of the general public who are following today the proceedings of the Standing Senate Committee on Legal and Constitutional Affairs.
Today we continue our consideration of the subject matter of those elements contained in Divisions 15 and 20 of Part 6 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures.
We are pleased to welcome, on behalf of the Business Council of Canada, John Dillon, Senior Vice President, Policy and Corporate Counsel, Business Council of Canada. Welcome, Mr. Dillon.
We also have, on behalf of Transparency International Canada, Mark Morrison. Welcome, Mr. Morrison.
[Translation]
By video conference, we welcome Norma Kozhaya, Research Vice-President and Chief Economist, Quebec Employers Council.
[English]
You know very well that the sections that concern you are those dealing with the amendment to the Criminal Code. I do not think that the part dealing with the Judges Act is, of course, your purview. You might risk an opinion, but I might predict that you’re going to run into trouble if you do that. I would suggest that you stick with the domain of your competence and experience.
[Translation]
Mr. Dillon, go ahead.
[English]
John Dillon, Senior Vice President, Policy and Corporate Counsel, Business Council of Canada: Thank you, Mr. Chairman and honourable senators. I am pleased to be here to discuss these important amendments to the Criminal Code.
[Translation]
The Business Council of Canada brings business leaders together to shape public policy in the interests of a stronger Canada and a better world. The council is a non-profit, non-partisan organization made up of the chief executives of Canada’s 150 largest corporations, representing every region and sector of the economy.
[English]
Canada’s business leaders place considerable importance on maintaining our country’s reputation for high standards on corporate ethics. We believe the use of remediation agreements will offer an important additional tool to Crown prosecutors and strengthen their ability to deal with cases of corporate wrongdoing.
While we believe there are likely to be cases where the use of this new tool would be appropriate, let me be clear about one thing. If it is apparent that senior management directed or were complicit in the offence, or turned a blind eye to what was going on, the company would not be eligible for a remediation agreement, nor should they be.
I also note there are a number of strict conditions before the use of these agreements would even be considered by a prosecutor. The company must fully cooperate with investigators and turn over relevant information to support the prosecution of responsible individuals, the company would pay a considerable fine and give up any profit or other advantage related to this activity, and there is a requirement that the company compensate anyone harmed by the wrongful conduct and pay a victim surcharge if applicable.
The prosecutor and court must be satisfied that the company has reformed its practices and instituted a comprehensive compliance program to ensure high standards of business ethics going forward. In appropriate cases, the court can impose strict conditions on the company’s practices and appoint an independent monitor to oversee the fulfillment of these conditions.
In most cases, the remediation agreement would be made public, thereby increasing transparency beyond what is available today when dealing with these kinds of offences.
Only after this agreement has been approved by a judge and all those conditions are met could a prosecutor decide to stay a prosecution.
One benefit of these agreements is that they provide a powerful incentive for a company to come forward when it finds evidence of wrongdoing. In many instances, this would reveal cases of illicit conduct that otherwise would go undetected by enforcement authorities. Fraud, bribery, bid rigging and other such offences can be extremely difficult to prove, and the perpetrators can employ complex arrangements that are difficult to detect from outside the company. It is largely for this reason, for example, that the Ontario Securities Commission now offers to pay significant financial rewards to whistle-blowers who come forward with evidence of securities fraud.
The other clear advantage of the use of remediation agreements, or DPAs, as they are sometimes known, is that it puts the focus on the true wrongdoers, often a single or small number of rogue employees acting in their own self-interest, and better protects the innocent.
As a result of the federal government’s Integrity Regime, firms convicted of such an offence can be debarred from government procurement for up to 10 years. They can also be excluded from contracting with other private companies and international institutions. For a major government contractor, this could have significant consequences and even threaten the viability of the firm. Equally important, it could have immediate as well as lasting negative consequences for those who had nothing to do with the crime — employees, pensioners, shareholders, customers and suppliers.
I would note the example of the accounting firm Arthur Andersen in light of the Enron scandal of the early 2000s. Arthur Andersen had been the auditors for Enron. The end result was the demise one of the largest accounting firms in the United States, impacting the livelihoods of thousands of its employees.
Such agreements are used in the United States, the United Kingdom and France and are likely to be adopted in Australia. It is important that our Canadian laws keep pace so that our companies are not at a competitive disadvantage. We want to avoid situations where a Canadian company could lose a contract in another country because foreign competitors are able to impugn the integrity of the firm while corruption charges are pending.
Mr. Chairman, a reputation for sound ethical behaviour is critical to the success of our private sector and ultimately reflects on the Canadian brand itself. As I have noted, the use of remediation agreements can be a powerful incentive for companies to cooperate with authorities, which ultimately leads to a higher level of enforcement, thus reinforcing the Canadian brand.
Thank you for the opportunity to appear today, and I look forward to your questions.
The Chair: Thank you very much, Mr. Dillon.
Mark Morrison, Director, Transparency International Canada: Good afternoon, members of the committee. Thank you for the invitation to address you as Director of Transparency International Canada.
TI Canada is a member of the world’s leading non-governmental, anti-corruption organization, with more than 100 chapters worldwide. For over 20 years, TI Canada has been at the forefront of a national anti-corruption and transparency agenda.
The issue on the table today, the consideration of legislation that would provide for deferred prosecution agreements or remediation agreements, is one which TI Canada has looked closely at.
In July 2017, TI Canada published a paper entitled, Another Arrow in the Quiver?: Consideration of a Deferred Prosecution Agreement Scheme in Canada. That paper will be made available to the committee via the clerk.
The timing of this paper turned out to be rather fortuitous because it was a few months later, that fall, that the Government of Canada announced a public consultation to consider a possible DPA regime in Canada. I note the federal government went with the analogy of expanding Canada’s toolkit. We went with an arrow in the quiver. Both analogies we found are somewhat more provocative but both are somewhat fitting. Our view is that enacting a properly structured DPA regime will lead to additional flexibility and enforcement options that can be utilized to increase white collar and anti-corruption enforcement in Canada.
As I note, though, it’s very important that the regime be put in place with the proper safeguards and fixtures. This view was arrived at after a high degree of consideration by our legal committee, and the legal committee consists of a number of the leading anti-corruption lawyers in the country. We went into this process with no clear set determination as to whether an anti-corruption regime would be a good thing or bad thing in Canada. It was only after a fair bit of study and review that slowly a consensus emerged amongst the TI board and the legal committee. That view was that, if properly structured, DPA regimes can further the cause of transparency and anti-corruption enforcement in Canada.
There are three key prerequisites that we think are fundamental to a DPA regime in Canada.
First of all, it needs to call for real financial reparations. It cannot be seen as simply a cost of doing business. It can’t be an easy way out for companies to buy themselves out of an issue. There needs to be a real financial piece to it. From our review of the proposed legislation, that is accounted for.
Second, DPAs should not be available as a matter of course. Rather, they should be available for companies who have shown sincere compliance reform and a real desire to address a problem, fix a problem and put in place compliance fixes going forward. In that the legislation encourages that mindset, we believe it ultimately promotes better corporate ethics and better corporate integrity in the long term.
Finally, the third prerequisite that we think is key is that the legislation calls for accountability of individual wrongdoers. If you take a step back, a corporation is really an artificial entity. Corporations don’t act; people act. To the extent that there is improper or illegal conduct, it is carried out by individuals within corporations, and in our view those individuals should be held to account and taken to task for their actions. We do note that the legislation does provide for an obligation on companies to identify individuals engaged in the improper conduct. In our view, this is going to lead to the facilitation of prosecution of the actual wrongful actors here as companies will be cooperating in providing information to enforcement authorities.
All this is to say the legislation does hit what we feel are the three key prerequisites, which can, in turn, lead to increased anti-corruption enforcement in Canada.
Very briefly, looking at what we see as the upsides or the potential benefits of this legislation, we do think it will allow for more efficient resolution of what are inherently very difficult, costly and time-consuming investigations and prosecutions. We do think it’s going to provide for more timely and meaningful reparation of victims. We don’t have to wait for these prolonged prosecutions or, right now, what is a real lack of enforcement of these actions. We think that more companies are going to come forward. There’s going to be increased self-reporting which, in turn and in conjunction with the self-reporting provision of evidence to authorities which is going to facilitate resolution, will allow victims to get reimbursed earlier.
We do think there will be more cases because there’s going to be increased certainty for corporations which should, in turn, lead to incentivizing corporate self-reporting. We think that prosecutors will be giving that extra tool or arrow in the quiver, which will allow them to take a more creative approach to the particular circumstances of any case. We did consider the point raised by Mr. Dillon as well, which is that a lot of times the current white collar corporate enforcement regime potentially leads to disproportionate penalties on innocent employees who lose their jobs when contracts are lost and innocent pensioners and shareholders, and through the DPA regime we can tailor some more specific results.
TI Canada does support the proposed remediation agreement legislation as it’s currently set out and thinks that the drafters have addressed our fundamental concerns and risks arising from it.
Thank you, sir.
The Chair: Thank you, Mr. Morrison.
[Translation]
We are pleased to welcome Norma Kozhaya, Research Vice-President and Chief Economist, Quebec Employers Council.
Norma Kozhaya, Research Vice-President and Chief Economist, Quebec Employers Council: Good afternoon. My thanks to the Senate committee for giving the Quebec Employers Council, the QEC, the opportunity to express its views on Bill C-74, in particular on Division 20 of Part 6, which deals with remediation agreements.
First, the QEC represents the interests of more than 70,000 employers of all sizes directly or through the industry associations it brings together. Its mission is to promote a business environment conducive to prosperity and responsible economic development.
The QEC is of the opinion that a middle path should be found between, on the one hand, the need for companies that have engaged in wrongdoing to be accountable and, on the other hand, the importance of not unduly penalizing innocent third parties, primarily those companies’ employees, but also their retirees, shareholders and suppliers. In our view, the remediation agreement regime proposed by Bill C-74 is a step in that direction by ensuring that serious economic crimes committed by businesses are appropriately punished. That is why we support it.
Implementing such a system in Canada would allow us to balance our international competitiveness with that of some of our major economic partners, such as the United States, the United Kingdom and France, which already have this type of mechanism in place.
It is important to remember that a court conviction can have serious consequences for a company, such as denying its access to certain contracts, public contracts in particular, and limiting its opportunities for international growth and expansion. As a result, other players who have done nothing wrong are also severely affected.
More specifically, Canada’s proposed remediation agreement regime would allow for the negotiation of a remediation agreement between a prosecutor and a company accused of misconduct following an investigation. We believe that the proposed oversight is appropriate to ensure that a remediation agreement serves the public interest only. The decision to negotiate a remediation agreement would be subject to the discretion of the prosecutor. The negotiation would require the consent of the attorney general. Any agreement will have to comply with the legislation and receive court approval to confirm that it protects the public interest and that the terms are just, reasonable and fair.
The bill clearly encourages companies to voluntarily report economic crimes to authorities and sanction the employees responsible, while the desire to avoid a criminal conviction can pervert their behaviour and encourage them to hide rather than disclose evidence to investigators.
Before deciding to negotiate a remediation agreement, the prosecutor must consider a number of factors, such as the circumstances in which the crimes committed were reported to the authorities, the seriousness of the crimes, whether the company sanctioned those responsible, and so on.
We believe that the legislation provides a rigorous framework for the terms of remediation agreements. Any agreement requires the company to cooperate fully with the prosecutor and to provide a statement of facts. In addition, the legislation allows for other compliance measures, the appointment of an independent monitor, and the reimbursement of all costs associated with the prosecution and administration of the agreement to be included in the remediation agreement. The agreement also states that the company acknowledges the crimes, gives up the proceeds, pays a fine, and compensates the victims.
In conclusion, the remediation agreement regime proposed in Bill C-74 will encourage voluntary disclosure by businesses, speed up the prosecution and reduce its cost, as well as improve transparency, compliance and corporate culture. It will help achieve the goals of justice — the payment of fines and sanction of those responsible — without harm to employees, shareholders, retirees and innocent third parties.
Finally, if this measure is adopted, it will put Canadian businesses on a level playing field with their competitors elsewhere in the world, such as in the United States and the United Kingdom, and it will prevent us from losing investments and jobs to other regions.
We therefore believe that passing this legislation is in the public interest. Thank you for your attention.
The Chair: Thank you for your presentation, Ms. Kozhaya.
Senator Dupuis: Good afternoon and thank you for being here with us.
I have some very specific questions. Mr. Morrison, you said that the reparation must be real. It must not be seen as simply an additional cost of doing business. What do you mean by real reparation and how effective does the process seem to you in reaching the real victims of this kind of fraud, when necessary?
[English]
Mr. Morrison: Thank you. I have a couple of points to take from your question.
When we talk about real remorse and real development of a compliance program and what the expectation would be, both in the U.S. and the U.K. they’ve put together guidance documents and a fair bit of detail that speaks of the importance of going to the root cause of the issue. Assuming that we’re talking about some sort of corporate wrongdoing, that would be the company taking the steps to identify the root cause in terms of what breakdown in their compliance program there may have been which led to the issue, which individuals were involved, taking conduct to not just identify that root cause but put in place real meaningful fixes to the compliance program moving forward, addressing any individuals from an employee discipline perspective up to and, certainly, if it’s serious behaviour, including termination, and taking steps to show that they’re not talking about a Band-Aid but truly investing in their compliance program going forward.
Those are the kinds of things that we talk about as real compliance reform, which we think in this legislation should be a prerequisite, and, if that is, in fact, the case, that in turn leads to greater transparency and a greater enforcement of corporate ethics going forward.
[Translation]
Senator Dupuis: My question is for our three witnesses today.
In terms of transparency, in the context of a completely confidential process and a final judgment that would recognize the reality of this kind of agreement, do you think companies should be required to make public the fact that they have entered into this sort of agreement?
[English]
Mr. Dillon: Yes, and the legislation lays out some of those circumstances where it might be necessary at a specific point in time to keep the agreement confidential, but I think the anticipation and the expectation is — and we would support is this — that the agreements would become public. Included in that, quite clearly, is a statement by the company, an agreed set of facts — this is the usual course in criminal prosecution — in which the company would obviously have to acknowledge the nature of its wrongdoing. As I say, unless there’s some reason to keep it confidential, which may relate to identifying individuals, harming their privacy rights or in some way jeopardizing the prosecution that is still under way, most of the facts surrounding the agreement should be made public.
Mr. Morrison: As you may guess from our name, which is Transparency International, Transparency International does feel transparency is important and that these agreements, once entered into, should be public and should be transparent.
[Translation]
Ms. Kozhaya: I agree. Once again, unless there are specific reasons why that would not be the case, such as the administration of justice, the bill already provides for the publication of agreements, unless there are specific considerations.
We support greater transparency because it helps businesses know what to expect, whether they have committed wrongdoing or not.
Senator Boisvenu: First, welcome to our witnesses.
Ms. Kozhaya, have you heard about the Jones and Lacroix cases in Quebec?
Ms. Kozhaya: Are you referring to Vincent Lacroix?
Senator Boisvenu: Yes, exactly.
Ms. Kozhaya: Yes.
Senator Boisvenu: I am surprised that I did not hear the word “victim” in your presentation, when this bill attempts — perhaps in clumsy way — to focus on the victims.
Do you think that, if this bill had been in effect at the time, the victims of Jones and Lacroix would have been better treated by the justice system?
Ms. Kozhaya: It’s difficult for me to say. I apologize. I am an economist and I have legal knowledge. Like many people in Quebec, I have followed those two cases. I would just like to draw your attention to a brief we submitted to you today, in which we discuss restitution to victims. I mentioned it briefly.
As to whether the situation would have been different, I cannot comment. However, what I see in this bill is that the obligations to victims are mentioned a number of times, as are reparation and restitution. In that sense, we feel that it helps protect and compensate victims.
Senator Boisvenu: As I said last week, the bill falls far short of recognizing victims’ rights. The text states that the duty to inform is to be applied in a reasonable manner. When we recognize someone’s right, we must apply it in an absolute, not reasonable, manner, because the notion of “reasonable” implies negotiation between the government, which is suing, and the company, which is being sued.
Here is my other question. At the time, the bill provided for a 30 per cent surcharge, whereas now the 30 per cent will be negotiable. That is what we see when we read the bill.
We know that self-disclosure is trendy these days. People opt for self-disclosure, either because they have hidden money in tax shelters or because they have embezzled it. This was the case with the Charbonneau commission; you have certainly heard about it. Don’t you think that, with the principle of self-disclosure, the notion of more room for negotiation, especially in terms of restitution to victims, will suffer? In other words, if a person self-discloses, will they negotiate for less the compensation to which the victims are entitled?
Ms. Kozhaya: Let’s not forget the ultimate goal of this approach, which is to make companies pay for wrongdoing they have committed and to encourage them to cooperate rather than hide the evidence from investigators. In that sense, I believe that the bill is moving in the right direction.
I would like to quickly come back to the issue of victims in the bill. Compared to other cases that we have known and that concern more people in Quebec or in Canada in general, this bill also affects victims who are not necessarily in Canada. Some practical considerations may therefore be more difficult to address, although the government will make the effort to work on the issue. We also need to look at the alternative to criminal prosecution and conviction that will penalize many innocent parties.
As for your question, I think we have to trust the prosecutor and the negotiation process. In any event, the discussions will be public and, if the situation is deemed unreasonable, there will be a way to put things right.
[English]
Senator Jaffer: Thank you for your presentations, which I found very interesting.
My first question is to you, Mr. Dillon. The publication released by the business council expressed disappointment with the bill overall but applauded the idea of the remediation agreements. They say, “The planned introduction of a deferred prosecution regime to strengthen government’s approach to corporate wrongdoing and encourage companies to come forward is a welcome policy measure.”
There has been criticism that the remediation agreements are giving companies a special advantage, but for an accused who has committed a crime, there is also the conditional discharge and the absolute discharge. Do you compare these remediation agreements to a conditional discharge or an absolute discharge? Is this the company’s answer to that?
Mr. Dillon: No, not at all. The reason I say that is, as Mr. Morrison has already pointed out, companies don’t commit acts; individuals commit acts. It’s the individuals that have to be prosecuted, and the company wouldn’t even qualify for a remediation agreement unless it has identified the individuals and assisted in their prosecution.
As well, if a company were to be convicted of one of these offences, what would be the penalties applied to them? A significant fine, which also applies in a remediation agreement, compensation to victims, which may be ordered by the judge when he’s sentencing that company, which also is part of the remediation agreement, and other conditions related to what you might call the equivalent of community service in criminal cases. If there aren’t victims that can clearly be identified, it would be within the scope of the remediation agreement to order the company to do other things to demonstrate its commitment to serving the community.
It’s clear that once the remediation agreement is made public, the hit to the reputation of the company and, arguably, even before that, would be as severe as if they were convicted of a criminal offence.
Senator Jaffer: Mr. Dillon, I’m happy you said that, because it’s not the company that commits the act; it’s individuals. So why do we need the remediation agreements? The individual could get, if need be, an absolute or conditional discharge. Could you explain that?
Mr. Dillon: I think there are two critical reasons mentioned in my brief.
First, the ability to have a remediation agreement means the company can come forward early on, as soon as it realizes that this activity has been carried out by some of its employees, usually without the knowledge and certainly in contravention of the company’s code of business practices. It can come forward and bring those cases to fruition much more quickly than a criminal prosecution and deal with it.
Second, the point all three of us made is that by penalizing the company, we have the federal integrity regime and other schemes in other countries that would bar them from being able to participate in certain kinds of contracts. It’s the company that loses and the employees and shareholders of that company when they’re barred from those kinds of contracts.
Senator Jaffer: Would you like to comment, Mr. Morrison?
Mr. Morrison: I think Mr. Dillon has largely captured the point. I think this legislation does need to be viewed in the context of current enforcement in Canada. The reality is that there is not a lot of white-collar enforcement as against corporations in Canada. When looking at the legislation in terms of the holistic approach to enforcement, to the extent that we can incentivize companies to come forward, they will still be penalized in a significant manner, but they can come forward with some sort of certainty that doesn’t currently exist. We should have increased weapons and an increased arsenal to go after the true wrongdoers. Those to me are why this legislation is very important — when I say me, I mean Transparency International Canada — so long as it’s properly structured in the way earlier mentioned.
Senator Pratte: I would like to go back to the issue of the publication of these agreements. In most cases, they will be published. In some cases, they might not if the court decides otherwise for reasons specified, especially if it’s deemed necessary for the proper administration of justice.
I have one concern. It is that in the bill as it stands now, there’s no provision that indicates that there’s a limit to the non-publication. If a court decides that, for one reason or another, the agreement is not published, and even a decision not to publish, and the reasons not to publish are not made public, there is no time limit to this. I would be reassured if there would be some provision that sets out that eventually it has to be made public. You indicated that you would be favourable to most of these agreements to be made public. I would be interested in hearing why, in your mind, it is important that those agreements be made public in most cases. In my mind, eventually, in all cases.
Mr. Morrison: From the perspective of Transparency International, transparency is important and the publication of these agreements is important. My understanding of the kind of scenario contemplated where the publication of agreements may be harmful, for instance, is if there is an ongoing prosecution of the individuals and the authorities thought it would interfere with their investigation. I’m just throwing out one scenario. In that kind of scenario, we would be in support of your notion of some time limit, some down-the-road publication. There should be good reasons not to publish an agreement, and the presumption should be that they are published.
Senator Pratte: Mr. Dillon, why do you think it’s important those agreements be made public?
Mr. Dillon: We support the idea of transparency. Our members don’t think that corporate wrongdoing should be out of the spotlight. We should know what’s going on. The vast majority of our businesses try very hard, every day, to be ethical businesses, and they don’t want competitors in the business who are not ethical. So we believe that transparency is necessary.
On Mr. Morrison’s point and in response to your question, if there are circumstances in which agreements need to be held confidential for a period of time, such as an ongoing investigation, then certainly once that investigation is concluded and there’s no further risk of prejudice, then it should be made public. There may be other instances in which there are sensitive personal privacy issues that require at least part of the agreement to be kept confidential.
[Translation]
Ms. Kozhaya: Thank you. Yes, as my colleagues, as the previous speakers have mentioned, I believe that reputation, first and foremost, is paramount for businesses. We must avoid the perception that companies that have committed wrongdoing get away with it without paying, without any consequences. So, first, it is a matter of reputation and image and, second, it is for the companies that do not engage in wrongdoing and that comply with regulations and legislation. It may also be important in deterring future wrongdoing and in preventing recidivism. Since we are asking for disclosure of other factors, I believe that those factors can be published, unless, once again, there is reason to believe that it would not be in the public interest to publish them.
Senator Carignan: My question has to do with the remediation agreement, and it may be of a more legal nature. I’ll turn to Mr. Dillon. When an agreement is approved, the prosecutor may appoint a representative for the victims. I am concerned that the agreement may have a res judicata impact on the possible prosecution of victims who are not satisfied with the agreement or who might say that it is partial compensation and wish to take civil action for full compensation. Is there a risk that the company being sued will invoke res judicata as a result of the compensation agreement it has reached with the prosecutor, with the authorization of the court and with the victims’ representative?
Mr. Dillon: Thank you, Senator Carignan.
[English]
This may be getting out of my particular area of legal expertise. The criminal justice system today, I think it’s fair to say, is not ideally set up to try to compensate victims of crimes. Certainly the prosecutors would have, in these cases, some experience and some means of trying to determine who was actually affected by this crime, the nature of that impact on them and what’s an appropriate compensation in those circumstances. The civil collection of damages is a separate procedure altogether, as you know. I don’t see any reason why that shouldn’t still be available. I don’t know that the criminal process is definitive on that issue of who is a victim of this particular crime, and it wouldn’t necessarily preclude a civil remedy further down the road. Mr. Morrison probably has some expertise on that as well.
Mr. Morrison: I think Mr. Dillon has accurately stated it. The criminal track and the civil track are separate tracks. Right now, I think it’s safe to say the criminal track has not been a very effective for reparation of victims. It’s hoped that this act, through remediation agreements, will improve that track record. But certainly my reading of the legislation is such that it would not preclude in any way, shape, or form the separate civil track.
[Translation]
Senator Carignan: You have no concerns?
[English]
Mr. Morrison: No.
Senator Lankin: Thank you very much. I appreciate your presentations.
We had the opportunity yesterday to listen to Senator Wetston speak to this, and he, as a former head of the Ontario Securities Commission, brought a regulator’s point of view. You’re bringing a business perspective and transparency, governance and advocacy perspective.
Are you aware of any other organizational positions that people have put forward with respect to this? I’m interested in the corporate director community. Has the Institute of Corporate Directors, ICD, said anything about this? There are shareholder-based organizations like the Canadian Coalition for Good Governance, the CCGG, and activist shareholder groups. Has there been a dialogue that you can reflect on across interested parties on this, or have people not engaged until the bill actually came forward?
Mr. Dillon: Certainly, the government officials who appeared before this committee previously would have more of the details on the number and extent of those consultations. I do happen to know, because I talk to them on a fairly regular basis, that the Institute of Corporate Directors did file a submission in favour of this provision. I believe they were part of the consultations. I do know people at the Canadian Coalition for Good Governance. I don’t recall off-hand if they were part of the consultation, but I know that other business groups representing different aspects of the business community participated in the consultations. I think the number was something like 40-odd submissions were received specifically on remediation agreements or DPAs.
Senator Lankin: From my network, I believe that there’s general widespread support for this. Are you aware of any detractors, and what issues would they be bringing up and how would you respond to them?
Mr. Morrison: Deferred prosecution agreements have been around in the United States for a long time. They are very actively used in the United States, where there is much more active enforcement.
One of the main critics of DPAs in the United States is a professor in the U.S. who has written and spoken quite actively on the subject. I hope I get his general thesis right, but I think it is that in the U.S. they are used as a strong-arm tactic by the prosecuting authorities to pressure companies to enter into DPAs at times when the government might not in fact have enough evidence to actually prosecute the company. That’s one criticism. I don’t suggest that’s the only one, but that’s one that I’m aware of.
I think that in Canada, given where we are on enforcement, that is not an issue or concern for us. We don’t have a worry about over-enforcement at the moment, nothing close to it. I think that that criticism is maybe a bit more tailored for U.S. audiences.
Senator Lankin: I’m going to come back to it because I want to think how we approach that. Put me on for second round.
Senator McInnis: Thank you for coming. I have a couple of quick questions.
This kind of reminds me of the restorative justice system that was brought in in Nova Scotia, and in many parts of Canada, dealing with youth back in the 1990s. It was controversial at the time because it was seen that the youths were getting off.
I want your opinion on this: Do you believe that there will be a great number of corporations coming forward as a result of this? Today, and currently, it must be challenging to find those that are uncovering these crimes. Currently, are there many corporations and executives that find out about these things and come forward?
Mr. Morrison: I can take this one. I caution that I’m answering a bit more from the perspective of my day job. I lead the business crimes investigations and compliance group at Blake, Cassels and Graydon so I deal with a lot of internal investigations for companies.
I don’t want to suggest there are countless investigations out there, but when companies identify a wrongdoing, the typical play book is we will be brought in to investigate. We will be reporting to the board of director level or senior company personnel level, all of whom, without fail, will obviously never be the people involved in the wrongdoing. These are people who have found out about a problem and want to fix the problem, and we will walk through the menu of options. Under the menu of options, there are options about what you can do to self-report or what you can do to identify the problem, fix the problem and do everything you can to solve things going forward.
Inevitably the question I get is: If we come forward to the authorities, what does that mean? Right now, all I can say is you’ll come forward to the authorities and they will either decide to prosecute you or not prosecute you. It’s a very black and white scenario and, if there’s evidence of wrongdoing, they will prosecute you. So you have to think about the impact of a public conviction on your shareholders and your company. It’s a pretty crude instrument right now with only those two choices.
Senator McInnis: There’s no settlement?
Mr. Morrison: There’s no settlement possibility outside of a criminal conviction.
[Translation]
Senator Dupuis: Mr. Morrison, you conduct those sorts of investigations for organizations. If I have understood correctly, you are saying that the rule should provide for the prosecution of the individuals concerned, meaning those who are behind the crimes or who themselves committed crimes as president, vice-president or director of an overseas service, regardless of their position.
[English]
Mr. Morrison: Certainly, both consistent with what Transparency International’s view is and, quite frankly, that of the companies I work for, when they find out that an individual has engaged in criminal wrongdoing, that individual should be sanctioned and, typically, fired if this is a criminal act. Our view is that the legislation should be such that those individuals should be held accountable, and part of a remediation agreement is the identity of those individuals should be brought forward to the authorities and those individuals should be prosecuted.
[Translation]
Senator Dupuis: Would you agree that the bill clearly indicates that the company’s responsibility includes disclosing the names of individuals when it knows them? The language is a little fuzzy and it could mean that: “I tried to find the individuals in a reasonable manner, but I did not find them.” Should it be clearly stated that the company, in order to avail itself of such agreements, should provide the names of the individuals responsible?
[English]
Mr. Dillon: Yes, absolutely. My view is that the legislation does do that. If not, it should clearly indicate that the company has to identify the implicated individuals and, as Mr. Morrison suggested, deal with them severely if it is a case of a criminal act.
[Translation]
Senator Dupuis: A company may decide to proactively disclose a certain number of problems or crimes. However, in the case of whistleblowers, should the bill set out that they be protected from the company in some way? The whistleblowers provide the information to the prosecutor. Should they be protected by Bill C-74?
[English]
Mr. Morrison: I guess there are two aspects of that. First, the Criminal Code does already include provisions to protect whistle-blowers. It is a criminal offence to retaliate against a whistle-blower. As you know, the securities legislation has certainly built that piece up. I’m not sure that this legislation needs that.
If you’re talking specifically about a whistle-blower who is actually a participant in the criminal act, no, I don’t think that somebody who is engaged in a criminal act should get a “get out of jail free” card just because they whistle blow.
[Translation]
Senator Dupuis: Thank you.
[English]
Senator Eaton: Thank you very much, gentlemen.
I want to ask a question about the transparency of DPAs. I think in the United States, the outcome of the DPA is not published, but we’re a bit more like the U.K. and we will make things public. Can you give me an example? A judge may allow, because I think he has the right to allow or to prohibit publication if necessary. Could you give me an example of where a judge might consider it detrimental to the whole process and prohibit publication of the outcome?
Mr. Morrison: I am speculating a little bit.
Senator Eaton: Of course.
Mr. Morrison: To me, one of the most obvious scenarios would be if the RCMP are in the midst of an investigation, say, which is related to the DPA. It could be the employees of the company. There could be particular sensitivities in the investigation process for which the RCMP or the Crown could say to the judge, “Look, for the integrity of our ongoing investigation, we need you to keep this quiet for a while.” That strikes me as one scenario.
Senator Eaton: So privacy is not really a concern?
Mr. Morrison: If we’re talking about the identity of the company who entered into the DPA, no, I don’t think there’s a privacy issue.
Senator Eaton: I’m for this. I’m just wanting to know whether you agree. Is transparency, by publication of the outcome, a deterrent, do you think, to bad corporate behaviour by other companies? Is it example setting?
Mr. Morrison: Absolutely. Reputational impact is significant for companies and has all sorts of potential implications, including on share value.
Senator Lankin: We’ve spoken about the operation of this section, and you’ve spoken in general to the broad support for it. I’m interested in the context in which this is being introduced. Mr. Dillon, you spoke about this when you talked about enhancing Canada’s brand. I’m interested in knowing: Does not having this provision now place us at a disadvantage? Are there decisions that are taken that this is a counter indication to people to bring their investment or their activity here?
Mr. Dillon: I can’t speak to specific cases because I don’t actually know about them, but I can anticipate that it would be problematic for a couple of reasons.
Number one, if there is a criminal charge that’s pending against a company, that, as I said in my brief, might lead its competitors to impugn the integrity of that company when they’re bidding on contracts, either in Canada or internationally, as long as that charge is pending. As we’ve said, very complex, time-consuming cases may drag on for years. Once the nature of the offence becomes obvious to the company and the people involved, if they’re able to bring that forward quickly and negotiate a remediation agreement, then that potentially solves the reputational problem for many years.
The other aspect is that other international organizations, including projects that are financed by the World Bank, have very strict rules around this. Competitors in the U.K. and in France and in the U.S. might be able to bid on those contracts because they have resolved their problems through DPAs or remediation agreements. Without that tool, Canadian companies are at a disadvantage.
Senator Lankin: Thank you.
[Translation]
Senator Boisvenu: My question is for Mr. Dillon. As you know, Canada recently adopted a Canadian Victims Bill of Rights. Subsection 715.36(3) states, and I quote:
(3) If the prosecutor elects not to inform a victim or third party under subsection (1), they must provide the court, when applying for approval of the agreement, with a statement of the reasons why it was not appropriate to do so in the circumstances.
Don’t you think that this section ignores the victims’ right to be informed of the reasons why they will not be informed?
[English]
Mr. Dillon: I’m afraid I’m not familiar with the specific provision that you’re referring to. What I can say in general terms is that, in many of these cases, the victims may be clear in some instances, but in many cases they’re not. If we’re talking about things like bribery of officials in a foreign country, it may be the government of that country that’s the victim and not anyone identifiable in Canada. I’m not familiar enough with that provision of the bill to be able to say what reason there might be for not notifying the victims, but presumably...
[Translation]
Senator Boisvenu: In the Lacroix case, there were close to 2,000 victims, and in the Jones case, close to 200 victims. In the Lacroix case, since Mr. Lacroix pleaded guilty, this bill will encourage voluntary disclosure. Almost automatically, when you plead guilty in court, the information is still not passed on to the victims. If there is a reason not to inform the victim, the court is informed, not the victim.
There is a philosophical contradiction in the bill, because the victim should be informed at all times, whether there are reasonable grounds or not, don’t you think?
[English]
Mr. Dillon: All I can say is that I think, in principle, we would agree that if there are identifiable victims that suffered real harm as a result of this conduct, there should be — and I think the legislation provides for — compensation for those victims.
There may be circumstances, as we’ve discussed, where it’s very difficult to identify who those victims are or the actual harm to them. There may be, in some of these cases, a potentially large number of victims with relatively small harm. You always have cases of what’s practical in the Criminal Code and in this process. I daresay our prosecutors are not in the habit of trying to get into complex assessments of potentially thousands of victims.
I can’t really comment on what that provision is intended to deal with, but I can say that, in principle, we support the idea that, where there are identifiable victims who suffered real harm, they should be compensated.
Senator Pate: Thank you very much to all of you.
I’m curious what each of you would say to people who might be looking at these types of arrangements and consider the societal perception that a criminal sanction versus a civil type of sanction looks like it’s not taking very seriously the behaviour, whereas someone who was relatively indigent and had fewer resources couldn’t necessarily expect the same sorts of agreements to be available to them. Do you have any concerns about this risking undermining the credibility of the criminal justice system or the legal system in terms of societal perceptions?
Mr. Dillon: All that I would say, senator, is that the difference between a remediation agreement and an actual conviction, in practice, is not that great because we would only have a remediation agreement if the individuals who actually committed the offence are identified and dealt with severely. The company pays a significant fine — it’s up to the court to decide what’s an appropriate fine in that case, and we could be talking about millions of dollars, certainly, in some of these cases — and the compensation to victims and, potentially, a victim surcharge, if that’s appropriate under the Criminal Code. The practical consequences of a company being convicted are essentially the same because those are the penalties you can provide against a company in the case of a criminal conviction.
Mr. Morrison: This is an issue that Transparency International has considered because it is a fair criticism. As I say, we tend to look at it in the totality of what’s going on with white collar enforcement in Canada right now, which is very little enforcement. We do think that the impact, or the upshot, of this legislation is that there will be increased resolutions with companies, there will be more companies coming forward, and there will be increased prosecution of the individuals who actually engage in wrongdoing. So, in consideration of the totality, we either stick with the scenario where no companies are prosecuted or we go to a scenario where we’re going to have companies coming forward with all of the negative implications of doing so and these remediation agreements, plus enhanced prosecution of the individuals involved. So that’s how we’ve considered the scenario.
[Translation]
Ms. Kozhaya: Actually, what is provided for in terms of a fine, restitution or compensation, at any given time, is proportional. So this can apply to large and medium-sized businesses.
Finally, these criminal trials are more expensive, lengthier and less predictable, whereas this regime sets out negotiations that are conducted within fairly short time frames but that lead to significant financial consequences for corporations, in terms of compensation, fines and surcharges. It doesn’t apply to individuals who have committed wrongdoing, only to corporations.
As mentioned, the consequences of a criminal conviction for a corporate entity are borne mainly by its employees and other innocent stakeholders who did not engage in the wrongdoing. For those individuals, then — the employees, the pensioners, the suppliers and the shareholders — this measure is something that will do more to help them, while still providing restitution to victims and penalizing wrongdoing.
I don’t think the measure is it at all contradictory or negative because wrongdoing is met with consequences, major consequences. It is, however, a different approach. I came across a few articles, and it is worth noting that, in the United Kingdom, for instance, this kind of mechanism was adopted for precisely the same reasons and the desire not to penalize innocent stakeholders was an important consideration.
[English]
Senator Pate: I’m curious how many criminal convictions have resulted in conjunction with these types of agreements. I understand from Senator Wetston, one of our colleagues, that there are some convictions for things like securities fraud that actually don’t carry criminal convictions with them, even if a person serves jail time. Is that different in other jurisdictions? Are there things I’m missing that I don’t know about that? It’s not my area of expertise.
Mr. Morrison: At a high level, in the United States, there are literally hundreds of these DPAs and NPAs. Quite frankly, it’s the central tenet of their enforcement of United States Foreign Corrupt Practices Act. Virtually all of their cases result in DPAs.
The U.K., where the legislation is much newer, I believe has three DPAs, including the most recent, which I believe was Rolls-Royce, where the fines are something like 600 million euros or pounds. It’s big money.
The U.S., to use that scenario, has evolved over time. Now, their most recent direction is for a company to engage in a DPA, the company has an obligation to actually turn over all information about all individuals who have engaged in the wrongful conduct. I would say there’s an evolving upshot of prosecution of individuals as a result in the U.S.
In the U.K., there are also a number of individual prosecutions that are being brought. Again, it’s newer legislation in the U.K.
Senator Pate: And they are criminal prosecutions?
Mr. Morrison: Yes, they are.
On your point about securities, a lot of my comments are talking about the anti-bribery legislation, which, in Canada, is the Corruption of Foreign Public Officials Act. There are also other securities offences that are provincial regulatory offences that have criminal-type implications, but they are not Criminal Code cases.
[Translation]
Senator Dupuis: Mr. Morrison, you said that the second requirement of a DPA regime should be that only companies genuinely interested in fixing the problem have access to DPAs. As someone who conducts these kinds of investigations all the time, you may have more specific criteria. How do you determine whether a company is genuinely interested in fixing the problem?
[English]
Mr. Morrison: Yes, that’s a fair comment. I think the words I used or intended to use were “sincere compliance reforms” — a company that wasn’t just going through the motions but was doing what it could to get to the bottom of the issue. They identify the root cause of it, so they’ve gone and conducted a fulsome investigation. They have looked carefully. Typically, they would have third parties like us look carefully at their compliance policies and programs to make sure that they have got a wholesome program that is thorough and diligent and, ultimately, identify where that program broke down and how they fix it.
The way I foresee this legislation carrying out is, in the course of these negotiations with the regulators, the prosecutor is going to have to be satisfied that a company meets those criteria. If they’re not, the legislation calls for imposition of a monitor, and that’s something that’s very common in the U.S. and it’s been brought in the U.K. The imposition of a monitor effectively takes that proactive compliance reform out of the company’s hands and says, basically, “We’re not sure we trust that you’ve done enough, and we’re going to impose at your own cost a monitor to ensure you do.”
I think the legislation will cover that off in terms of ensuring a company that comes forward and truly has shown sincere reform. If that may not be the case, either they won’t qualify for the agreement or they may have a monitor imposed on them, which comes with great cost and inconvenience.
Senator McInnis: I’ll be quick. This is not to do with the witnesses; it’s to do with Division 15, if I may just put a comment on the record.
We are increasing the number of superior court judges in Ontario by six. There are currently nine vacancies. That continues to be the pattern, of nine to 12 vacancies. Appointing judges is costly. This will probably cost us $3 or $4 million extra, over and above all the other costs. I simply don’t understand. I’m sure there’s a lineup of lawyers ready to be judges. There’s a system in place that interviews them, and there’s an inventory of individuals there to be appointed. I simply don’t know why those appointments cannot take place as opposed to bringing in six additional judges. That’s just a comment.
The Chair: Thank you. It’s on the record.
Before I have the pleasure of thanking you, Mr. Dillon, Mr. Morrison and Ms. Kozhaya, I have two questions.
The first one is in relation to the benefit of the regime. Is it not, in fact, for a company a way to, for instance, maintain the permit that the corporation might get from the government, because there might be sanctions? To obtain a permit, you can’t have a criminal record, like anybody who wants to have a job. In some circumstances, you cannot have a criminal record.
Second, is it not also a benefit for a company to remain, for instance, on the list of suppliers of government goods and services, which in some cases might be very important in terms of financial implication? I don’t dare to put on the table any companies’ name, because we have seen them in the media in the last two or three years, but I can think of some of them.
So is it not, in reality, the greatest incentive for a company to try to come to terms with the proposals and regime that Bill C-74 is entrenching?
Mr. Dillon: Absolutely. It’s a big part of the motivation. That’s the way the Integrity Regime works. You can be delisted from the list of eligible suppliers to the government if you’re convicted of one of those offences, as well as, in some cases I mentioned earlier, from international organizations like the World Bank that finance some of these international projects. So that’s a big incentive to come forward.
That’s in addition to simply a much quicker route to rectifying the compliance practices in the company and getting it behind you — the significant reform that might be required and getting on with business.
The Chair: As Senator Eaton has mentioned, the reputation of some companies is one of their essential assets.
My other question is in relation to the list of criminal offences contained in the schedule of the act. Section 380 of the Criminal Code, which is fraud, is covered by the act. My first reaction when I read that is: Could it be open to a company that, for instance, would use tax evasion and all kinds of fiscal manoeuvres to try to avoid paying taxes to then try to organize its business in a way that you defraud the taxpayer and Canadian government of the amount of money you should be contributing to the treasury? As you know, public opinion reacts very negatively to that, because they feel it is unfair, because the average taxpayer can’t avoid paying taxes. The government has the means to reach them, but when it deals with the big companies, there’s always a way for them to get out of it or to have a secret deal with Revenue Canada to pay what was due and so forth and nobody knows about it. And there is that feeling of unfairness in the regime. When I look into the offences that are covered by the act, on section 380, fraud, could it be twinned with other obligations under the Revenue Canada Act to be compelled to have to pay some of the amount of money that would be due to the treasury?
Mr. Morrison: I can take that from a transparency perspective. I think the act does call for reparation of victims and, in a scenario like you postulate where you’ve got a clear identification of, in that case, it would be the Government of Canada, the people of Canada who have been defrauded, my expectation is that that money would be paid back as part of this overall punitive settlement.
The Chair: In other words, it wouldn’t only be the amount of money that was due but the penalty besides that. That’s why people always have as a negative reaction. Not only do they have to pay what is due to the treasury, what they owe to the treasury, but there’s a penalty also, because any one of us who doesn’t pay his taxes on time will face a penalty. I tried to understand how this bill works with the Income Tax Act to be sure that those who defraud the system are answerable in court for that and how this deferred prosecution agreement will come on top of the agreement that the company will sign with the revenue department, where nobody knows about it. That’s, in my opinion, one of the key issues in relation to this bill.
Mr. Morrison: Yes. Our expectation is there would be transparency so there’s no secret deals, and it can’t be a cost of doing business. There needs to be real reparation of victims, and the legislation needs to have teeth and the agreements need to have teeth.
The Chair: Thank you very much, Mr. Morrison, Mr. Dillon on behalf of the Business Council of Canada, and Ms. Kozhaya from of the Quebec Employers Council.
Honourable senators, joining us for our second panel, by video conference, is Professor Alexander Dyck. Professor Dyck is a Professor of Finance and Economic Analysis and Policy. He is the Manulife Financial Chair in Financial Services at the University of Toronto.
Welcome, professor. You know the subject of our concern this afternoon in relation to the deferred prosecution agreement. We will listen to you and, after that, colleagues around the table will have an opportunity to exchange views and question you.
Alexander Dyck, Professor of Finance and Economic Analysis and Policy, Manulife Financial Chair in Financial Services, University of Toronto, as an individual: Thank you for giving me the opportunity to speak before you today.
Let me mention that one of the reasons I’m here is a couple of other activities I’m also involved with here at the University of Toronto. I’m the director of our Capital Markets Institute. I’ve also been an academic director of the Directors’ Education Program that Rotman runs jointly with the ICD since 2004, and I also do some research and teaching in the area of corporate governance. I have particular expertise in the area of corporate fraud and whistle-blowing.
I thought it would be worthwhile to telegraph where my comments will go with a couple of points I will elaborate upon. The points I want to make are that Canada would be far better off with less corporate wrongdoing and that the current system is far from ideal in deterring corporate wrongdoing in the Canadian setting. There are some alternative reforms to DPA that one could consider, such as increasing resources and sanctions for regulators, but these would not move the dial significantly. Remediation agreements, as being considered in the legislation, if properly constructed, I think, will lead to both more detection of wrongdoing and then to a lower level of wrongdoing generally speaking.
There’s a need for more clarity on publication, penalties and sunset clauses, some of which I heard in your questions to the previous speakers that I’d like to touch on at the end and would be happy to elaborate upon in the question period.
To start off, Canada would be better off with less corporate wrongdoing, be it corporate fraud, foreign corruption or anti-competitive behaviour. To be clear, there are costs not only for the firms involved but there are also costs for the economy as a whole.
Capital markets always have to assume there are a certain number of bad actors, and then they impose a penalty on firms when they try to raise external finance for the presence of those bad actors, so a bad actor not only hurts themselves but it makes it more difficult for all firms to raise finance and it makes it more difficult for firm formation. I think focusing on corporate wrongdoing has a true social purpose to it.
The current system, I would say, is far from ideal to deter wrongdoing. I think it’s important to focus on the expected costs of wrongdoing. If the expected costs of wrongdoing are large, then the corporate actors, from the board to the management, will exert significant resources in order to set up processes to deal with those problems. One needs to worry about what those expected costs are.
I would say that under the current regime, the expected costs of wrongdoing, particularly in certain areas, such as foreign corrupt practices and, generally, corporate fraud, are low. That’s because there’s been a lot of focus on the sanctions. We’ve talked today about the presence of criminal sanctions inducing good behaviour but, of course, what corporate actors care about is not only sanctions, but it’s the expected sanctions that they’re likely to face. Those expected sanctions depend upon the likelihood of detection and enforcement, in addition to the penalties that will be imposed. When they’re concerned about sanctions, it’s not just the criminal sanctions but also the reputational harm. I would suggest that if the data and theory would stay in the Canadian context, those expected costs are pretty minimal.
Here is one little bit of data to concentrate your attention. If we focus on foreign corrupt practices, since 1999 in Canada, there have been four cases in which there’s been enforcement against foreign corrupt practices. That’s 0.2 cases per year. If we focus on the 300 largest firms that are part of the index, that means that there’s a 0.07 per cent chance for any one firm to expect that there is going to be a criminal sanction against them in the case of foreign corrupt practices. That’s a startlingly low percentage on the face of it.
If you compare that with data in other jurisdictions, it’s also relatively low. If we take a look at the United States, up through 2013, for example, there were 143 cases that have gone forward. The likelihood of an individual firm that’s been engaged in bribery to see some enforcement action, according to at least one credible piece of research, was about 6 per cent. That’s hundreds of times greater likelihood of enforcement in the U.S. context than we see in the Canadian context.
If I’m a corporate board member, the likelihood of some external actor identifying wrongdoing in my firm is startlingly low. As was also mentioned in earlier comments about the incentives, even if you’re a good director and you find out about some instance of corporate wrongdoing, the likelihood that you’re going to publicize that and publicly chastise the individuals involved is vanishingly small because it brings with it the threat of criminal sanctions and then there are significant penalties that the firm will bear.
In light of that, the path of least resistance, at least according to the directors that I talk to, is that we’d rather deal with the problem, make the person go away — normally they would pay for them to go away — and you end up tainting the corporate culture because there isn’t that kind of accountability. We end up with a further problem, a “pass the trash” scenario, because an individual engaged in wrongdoing, since you don’t publicly disclose them, can get passed on from one corporate actor to another and engage in that behaviour again. It’s not a particularly good situation that we have under the current regime.
My first instinct on the way to resolve this is to provide more resources to the regulators and lawmakers to see if they could then impose a greater likelihood of sanctions and, therefore, a greater penalty associated with that. There are lots of good reasons to say that’s not successful.
I conducted a study with some co-authors at the University of Chicago and Berkeley taking a look at corporate fraud in the United States over a period of about a decade, between 1996 and 2004. This paper was called Who Blows the Whistle on Corporate Fraud? It came out in the top journal on finance. What we found, a bit to our surprise, was that the people who brought frauds to light were not the government actors who were tasked with that. In fact, they accounted only for 7 per cent of the fraud detection. Instead, it was a lot of other folks here.
It turns out that gathering information about corporate wrongdoing, given the incentives to conceal it and distort it, is very difficult. Even if you provide more incentives to people and their job is to detect this fraud, they’re not going to detect many frauds. What needs to happen is those who have access to the information have to be given better incentives to bring that information to light. That’s why, in that context, I’m pleased to see what’s happened here in Ontario with introducing the Office of the WhistleBlower, trying to provide better incentives to bring some of that bad information to light.
The point I want you to take away from this is if you want to focus on just providing more resources to government actors to try to detect this fraud, it’s unlikely to be successful.
That’s why it comes down to remediation agreements. If they’re done right, they should both lead to more detection of wrongdoing and a lower level of wrongdoing. The reason why they should lead to more detection is they do change the incentives for actors inside the firm to bring the information to light. They lower the cost somewhat. It leads internal actors as well as whistle-blowers to being more likely to bring this information to light.
Why should it lead to a lower level of wrongdoing in the end in corporate Canada? Because it lowers the probability of sanctions a little, and if it’s done right, it will raise the probability of detection a lot. This should lead to more corporate resources devoted to processes to solve the problem in the first place. It really helps those actors who are seeking to do the right thing.
I was trying to think of a simple way to illustrate this. Under the current regime where we have these criminal sanctions, we have 0.2 firms per year facing a potentially large penalty, let’s call it 100. At 0.2 times 100, we end up with a penalty of 2. If the remediation agreement works well and we get, say, two firms per year being brought to light here and the penalty is a lot smaller, at 10 as opposed to 100, the expected penalty would be 20. Now, 20 is a lot greater than 2, and corporate actors seeing 20 being greater than 2 will devote more resources to dealing with the problem.
The one point to take away from this here is don’t focus on that small number of folks. Don’t just focus on the ones we would have caught anyway where we could impose a penalty of 100 that we’re now reducing to 10. You have to focus on the much greater number of new firms that you’re likely to catch through this process and the penalties that will be imposed upon them. That will lead to much healthier capital markets as that information is disclosed and digested in the market.
My suggestions are for more clarity to ensure that the math adds up, which I think creates public confidence. If you can credibly say to the Canadian public that we’re exchanging this regime which sounds good but delivers very little in the end for a regime where we’re going to take a little bit off the penalties for some bad actors but, as a result, we’re going to catch many more bad actors, you have to make that credible.
To make that credible, as was discussed earlier, I think it’s important to focus on the publication requirement, because publication is absolutely essential to have the expected penalties. Without publicizing, there are no reputational sanctions. Without publicizing, you can’t get the right corporate culture. You need to have the publication here.
I’m a little bit concerned by some of the language in the legislation and the potential for the system to be abused. The powerful interests, instead of paying a huge penalty, would pay a small penalty and not have it disclosed. I think it’s particularly important given that concern for, at least at some point, all the information around these agreements to become revealed.
Second, I think penalties should be the norm and sufficiently large. It’s been discussed many other times. I found in reading the language that it’s a little bit vague regarding the extent of the financial penalties. In places like the U.S., financial penalties are absolutely the norm. They’re quite significant. I think with some substantial penalties that were revealed to the public, they would think they had made a good trade-off here.
My third suggestion, which isn’t in the language at the moment, is whether you might want to consider the introduction of a sunset provision. I think a sunset provision would be a useful thing. After a certain number of years, the act would go away with an option to renew, because it really forced to make sure there was publication of the wrongdoing and that there truly were financial penalties. When it came up for renewal, you could point to that data.
I think that at least as a citizen myself, my concern is that if we let this process go, there are many examples where it seems that the large powerful interests take advantage of that and actually don’t pay the penalty. Publication, significant penalties and a sunset provision seem to be useful. These comments are reinforced based on my understanding of the experience with no settlement provisions with the OSC and also FINTRAC’s administrative monetary penalty programs.
I have some additional suggestions for consideration that I’d be happy to touch on in further questions.
The Chair: Thank you very much, Professor Dyck.
[Translation]
Senator Dupuis: Thank you, Mr. Dyck. My question is about public perception. Thank you for contributing to our study. If the process is confidential from beginning to end, I can clearly see how corporations would benefit, but not how consumers or members of the public would benefit.
You mentioned whistle-blowers. Are the incentives provided for in the bill enough to convince corporations to come forward, or does experience show that whistle-blowers are the ones who bring information to light?
[English]
Mr. Dyck: That’s an excellent question. Let me see how I can tackle that.
Providing remediation agreements as opposed to having criminal sanctions changes the incentives for corporate actors to bring some information to light, but it doesn’t make them wonderful. If you bring this information to light, you’re going to face some reputational penalties and you’re going to face some financial penalties.
If you think about whistle-blowers, they often want to do the right thing. They don’t want to kill their company and make their company never have government contracts in the future. Under the current regime, I’m speculating that they may not come forward to the government with that information, for example, around foreign corrupt practices, because that could lead to the end of the company and that’s too big a price to pay. However, if you allow this proposal, I imagine it would unlock this other internal information around employee whistle-blowers that they would be more willing to provide information and would be an additional channel in addition to the corporation coming forward with more information.
I must say, I’m interested to see how this would interact with what’s going on with the OSC and the Office of the Whistleblower where they’re providing some financial incentives for whistle-blowers to provide information. Honestly, I’m not sure how this interacts with that.
I am thinking about the impact of these deferred prosecution agreements on whistle-blowers, because that’s the most valuable source of information around this corporate wrongdoing. Certainly that’s what we found in the study that I conducted in the United States as the single most important group having information about corporate wrongdoing. You really need to focus on changing their incentives in order to get that information to be brought to light, and this provision will do that.
Now, whether more could be done, I haven’t thought enough about how this interacts with the OSC whistle-blower program, but perhaps more can be done.
The Chair: Thank you, professor.
[Translation]
Senator Boisvenu: Mr. Dyck, are you familiar with the Rolls-Royce case in England?
[English]
Mr. Dyck: I’m sorry; I have not followed that closely.
[Translation]
Senator Boisvenu: All right. I can’t ask you about it, then. England has similar legislation. Rolls-Royce was prosecuted on various grounds, including executive corruption. None of the executives was prosecuted individually. Given that England has legislation similar to what Canada is considering, how will this bill ensure that directors are prosecuted and incarcerated? Other countries with this kind of legislation have trouble bringing proceedings.
[English]
Mr. Dyck: That’s also an excellent question. In reading the legislation, and I have it here in front of me, section 715.34(1)(c) says “obligation for the organization to provide any other information that will assist in identifying any person involved in the act or omission, or any wrongdoing related to that act or omission . . .” It does seem like there’s something in the legislation you’ve already provided that’s trying to encourage them to identify individuals as part of the agreement to get a remediation agreement. That seems entirely appropriate. If you think there’s a need to enhance the language, I think that’s fantastic. But I agree with you that identifying individuals involved — and therefore that there’s some accountability for that — should be part of the remediation agreement.
[Translation]
Senator Boisvenu: The justice system is peculiar in that it provides little support to victims. In light of corruption cases involving large corporations, how would this bill ensure that the process is fair to victims? Corporations usually have deep pockets to defend themselves in court and delay proceedings. Some major cases have dragged on and on for all kinds of reasons. How would this bill make sure that victims are able to defend themselves against corporations that can afford to circumvent the rigorous administration of justice?
[English]
Mr. Dyck: There are two ways I would like to answer that.
Again, under the current regime, you have to remember — focusing for the moment on the data I have on foreign corrupt practices — that four firms have been enforced in a period of 19 years. So at the moment, they aren’t paying any price at all. I think it is true that for those four firms that you are able to enforce with a remediation agreement, they may get off with paying less than they do under the current regime. But I would encourage you to think about the fact that there will be many more firms that will come forward with information if this remediation agreement regime is introduced, and therefore there’s the potential for more settlements and therefore more restitution for individuals.
Let me give you as an analogy that one can consider what has happened with the OSC. I don’t know if you’re familiar with that. In 2014, Ontario Securities Commission introduced some no settlement provisions and, at the end of 2017, they have had 10 cases where there has been $350 million in aggregate that has been returned to investors. At least in my understanding from talking to folks here in Ontario, it’s likely that money would not have been collected unless they had an alternative regime under which mistakes could be allowed and then settlement could be provided.
So, again, there’s a trade-off here. The trade-off is that there are a couple of cases where you won’t penalize as much, but there are many more cases that you will catch and there’s the potential for many more people to be compensated through that channel. It seems to me, if we take a look at the example of the no settlement provisions with the OSC, that’s a pretty good trade-off.
It’s kind of like my 20-2 example I was talking about before. I think it’s important that this information be revealed to the public so the public understands they’re trading off a loss of 2 for a benefit of 20. How many more cases are actually going to be observed, and how much bigger are those settlements going to be, so there’s going to be more money that’s going to be returned to the victims?
I see great potential to improve the payouts to victims under this regime as long as there is publication, real financial penalties and it’s not just an excuse for the large to hide and get a special deal that’s never disclosed. We saw how badly the lack of disclosure of individual firms were in the case of the FINTRAC administrative monetary penalties program where at one instance they said one bank has been involved in some anti-money-laundering case. They didn’t mention the name of the bank. It besmirched all the banks involved. Eventually, it came out that it was Manulife that was involved. You’re much better off to reveal the firms and have public disclosure than to try to hide it for some other purpose.
Senator Lankin: Thank you, Professor Dyck. As one of your former DEP students and graduates, it’s nice to see you again. I have three very quick questions.
You talked about three conditions for success. You talked about ensuring that there isn’t abuse through more publication. You talked about the sunset provision with the opportunity to analyze data — the record — after a period of time. You didn’t mention, I don’t think, whether you thought three or five years, but you might want to comment on that. Then you talked about significant penalties.
Is there anything in the way in which this piece of legislation is written that, first, gives you concern that publication will be withheld too often or will cause problems? Second, who do you think should be charged with the responsibility of collecting data for the analysis of this at the end of a sunset period? Third, what are your views with respect to what “significant penalties” mean, and do you have cause for concern in terms of how the bill and the government is approaching that or what you know about their thinking about that? Would you comment for us, please?
Mr. Dyck: Senator Lankin, it’s great to see you again. You had three questions. I captured two of them. Can you repeat the first question? I didn’t catch it.
Senator Lankin: It’s about publication. Is there anything about the way the bill is written that gives you concern and you would want to see changed to ensure sufficient commitment to publication?
Mr. Dyck: I am not a lawyer, so I can’t exactly know the loopholes that are available in this. My concern as a citizen in Canada and observing corporate Canada and therefore being a member of the public is that if there’s an opportunity to not reveal, there’s the danger that large corporate actors will take advantage of it.
I can’t recommend specific language that would constrain that. I heard the chairman speak in his questions to the last set of speakers, and I could understand for a limited amount of time that, you may not want to reveal information because of an ongoing investigation, but I see no reason why, in all cases, information should not be revealed after a certain amount of time. That would be one mechanism to give it some teeth. Maybe you get a window of opportunity if there’s some compelling reason, but that the window closes at some specific point. That would be one way to toughen up the legislation, but I would again defer to lawyers regarding specific language to try to do that.
You asked a question about who should be charged with collecting and providing the data. It’s an excellent question. Again, I don’t have a good answer for that. What is important is the data being made publicly available and easily trackable by researchers and others. Again, if you want this to have some reputational harm associated with it, it should be easily accessible and understandable by parties. It helps researchers accessing the information, but it also helps with public actors, and it creates a reputational penalty in addition to the financial penalty. I don’t know which specific government agency would be best posed to do that, but broad public dissemination is helpful.
You also asked if there’s any specific language that could be introduced to ensure that there are significant penalties. Again, I don’t have specific language to suggest. One could imagine minimum penalties or a scale of penalties, but maybe that would also not be particularly helpful. The best way to judge whether the penalties are significant enough is a sunset provision. Then, after a couple of years, we see whether the penalties are actually significant, cause some harm and therefore create the right incentive. They have to be disclosed, and then there has to be some point of accountability.
You mentioned whether a three- or five-year sunset period would be appropriate. In my experience, it takes a while for these regimes to get into action, for people to get their legs underneath them and to get enough data. I would lean more toward a longer period, but it’s not a strongly held opinion; it’s more based on experience in terms of time needed to get enough data so the public could see whether there are actually are more cases and whether there are substantial penalties.
I will also use this opportunity to say something about repeat offenders. One might want to give consideration whether repeat offenders have escalating penalties or maybe at some point they no longer have access to this regime. In the case with the OSC, with the no-settlement provisions, the repeat offenders were not allowed to access that opportunity. That seems a bit punitive to me, but I could see some escalating penalties or fines with repeat offenders to try to discourage this being a revolving door that large corporate actors would be able to take advantage of.
The Chair: Are there any other senators with questions before I take the opportunity to thank Professor Dyck?
I will just put to you the following reflection. In my opinion, a sunset clause means that, after a while, the provision lapses. It just falls and nothing is left. A review clause, of course, compels that, after a period of time, be it five or seven years, there is an obligation on Parliament to review the legislation, analyze its impact and make the proper recommendation. That’s why I was confused when you used the term “sunset” instead of “review.” Do you have the same understanding as me, or am I confused by the use of the two words that are at stake in the proposal you’ve put forward?
Mr. Dyck: Thank you for your question.
It may seem like a semantic difference between a sunset with option for renewal versus a review, but if you actually have a sunset provision, it leads to a more substantial review. Knowing there’s going to be a more substantial review, people work harder in advance. If this is going to go away absent some compelling evidence that this is actually doing its job, then there’s more incentive for those parties, when they’re thinking about how big a financial penalty to impose or how hard to go after actors, to need to prove they’re actually doing their job.
It’s more a question of expectations. I don’t have hard evidence on this, but I think a sunset clause, when it ends with an option for renewal, leads to more concerted action than simply review, which may be more of a bureaucratic exercise. But I take your point.
The Chair: Thank you very much, professor. On behalf of my colleagues around the table, I want to thank you for making yourself available and for contributing to our reflections on those essential elements of Bill C-74. Thank you very much, professor.
Mr. Dyck: Thank you very much.
The Chair: Honourable senators, I understand that our next witness, who happens to be a minister, is caught in the House of Commons with a vote that has already started, so we have probably 20 minutes available to us. I would suggest, with your agreement, that we go in camera to discuss the report. Then, when the minister arrives, we will, of course, resume our sitting. That will give everybody an opportunity to have dinner earlier than our usual schedule.
Before I start, I would ask for your agreement to allow members’ staff to remain in the room during the in camera meeting.
Hon. Senators: Agreed?
The Chair: I also ask for agreement to allow the transcription of today’s in camera meeting, that one copy be kept in the office of the clerk of the committee for consultation by committee members present and committee analysts, and that the transcript be destroyed by the clerk when authorized to do so by the Subcommittee on Agenda and Procedure but no later than at the end of this parliamentary session. Is it agreed, honourable senators?
Hon. Senators: Agreed.
(The committee continued in camera.)
(The committee resumed in public.)
The Chair: It’s my pleasure to welcome the Honourable Carla Qualtrough, M.P., Minister of Public Services and Procurement. She is accompanied by Mr. Marco Mendicino, M.P., Parliamentary Secretary to the Minister of Justice and Attorney General of Canada; from the Department of Justice, Ms. Catherine McKinnon, Senior Counsel, Public Law and Legislative Services Sector; Ms. Ann Sheppard, Senior Counsel, Policy Sector, Criminal Law Policy Section; and from Public Services and Procurement Canada, Ms. Lynne Tomson, Director General, Integrity and Forensic Accounting Management.
Minister, you gave us a surprise. We were expecting your colleague, the Minister of Justice, as you know, but I understand you are responsible for the integrity of the procurement system of the Government of Canada and, as such, of course, your department deals with the companies that supply services and you have an interest in the bill. On that basis, I would invite you to make your opening remarks, and we’ll follow, of course, with our exchange of views on both sides of the table.
Hon. Carla Qualtrough, P.C., M.P., Minister of Public Services and Procurement: Thank you very much. Thank you for having us here today. I apologize. We had a vote in the house, so we were a bit late. I hope we didn’t keep you waiting.
I’m pleased to be here today to speak to you about our plans to expand Canada’s tool kit for addressing corporate wrongdoing. With me is the Parliamentary Secretary to the Minister of Justice and Attorney General of Canada and officials from both Public Services and Procurement Canada and Justice.
Price fixing, influencing contract awards and other illegal acts related to government procurement undermine fair competition, threaten the integrity of markets and shake public and investor confidence.
The Government of Canada has a strong framework of laws, regulations and policies to prevent and deal with this behaviour, which includes the Integrity Regime. This is a policy-based debarment system to ensure that suppliers with criminal charges and convictions for certain crimes, such as fraud, collusion and corruption, cannot get federal contracts.
Last fall, our government conducted a public consultation to hear views on ways to enhance the Integrity Regime and the potential use of a deferred prosecution agreement to hold corporate offenders to account.
Based on what we heard, and as promised in Budget 2018, on March 27, we announced enhancements to the Integrity Regime and the introduction of legislative amendments to create a remediation agreement regime. By moving forward on both of these initiatives now, our government believes it is striking a balance between a more robust approach to business ethics while recognizing the efforts of businesses to disclose and address the causes of wrongdoing.
The enhancements to the Integrity Regime include introducing greater flexibility in debarment decisions; increasing the triggers for debarment; exploring alternative measures to mitigate risk of doing business with organized crime; expanding the scope of business ethics covered under the regime; and ensuring suppliers are tax compliant. These enhancements will be reflected in a revised ineligibility and suspension policy to be released on November 15, 2018, and to take effect on January 1, 2019.
I’d like to take a moment to explain how the Integrity Regime came to be and why our government is seeking to enhance it.
The Integrity Regime was introduced in 2012, around the time of the Charbonneau Commission, to help combat fraud, collusion and corruption in procurement. It was meant to keep government from contracting with companies that engage in these types of behaviours. It applied exclusively to contracts and real property agreements awarded by my department. If a firm or senior official was convicted of a small set of criminal offences, they were ineligible to do business with the department for 10 years. In 2015, a revised regime was introduced government-wide to ensure the integrity of all federal contracts and real property transactions, not just those of my department.
On the basis of what we heard during the consultations and the experience to date, our government is now introducing more flexibility in determining the length of debarment. Currently, it is a fixed period of 10 years no matter the circumstances. Under the enhanced regime, a supplier may be ineligible for contracts or real property agreements on a sliding scale for up to 10 years, depending on a variety of mitigating and aggravating factors, such as the level of co-operation with law enforcement, early self-disclosure and prior behaviour.
Greater flexibility will enable the government to encourage suppliers to self-disclose wrongdoing and cooperate with law enforcement. It will also ensure that debarment decisions are proportionate, reasonable and consistent with practices elsewhere.
Then, by moving to a more reasonable approach to determining the length of debarment, the government will also ensure that the triggers for debarment capture a fuller range of unethical business behaviour.
New triggers that could lead to a supplier’s debarment include additional criminal offences such as terrorist and political financing; fraud-related offences under provincial securities acts and provincial offences that are similar to federal offences; foreign civil judgments for offences that would be prosecuted criminally if convicted in Canada; debarment decisions of other jurisdictions, including Quebec, U.S. and the World Bank; and poor performance on a contract or violating the Code of Conduct for Procurement.
A modest expansion of the scope of business ethics within the Integrity Regime will also introduce new triggers for possible debarment, including criminal offences related to human trafficking under the Criminal Code and the Immigration and Refugee Protection Act; serious offences under Part II, occupational health and safety or part III standard hours —
The Chair: Could you slow down a little?
Ms. Qualtrough: Am I talking too fast?
The Chair: The translators are running and are breathless.
Ms. Qualtrough: I’m excited. I like this stuff. I apologize.
— being named to the Environmental Offenders Registry as a result of a conviction under specified federal environmental laws for serious offences such as intentionally or recklessly causing an environmental accident or where the supplier is a repeat offender.
Allow me now to speak about deferred prosecutions, or, as we have chosen to call them, remediation agreements. Bill C-74 includes proposals to amend the Criminal Code to allow for remediation agreements. A remediation agreement is a made-in-Canada tool for prosecutors to use at their discretion to address corporate crimes of an economic nature that are alleged to have been committed by organizations.
Under a remediation agreement negotiated between a prosecutor and an organization, charges in relation to the offence would be stayed if the organization complied with the agreement, which would need to include terms to be met by the organization such as admitting to wrongdoing, disgorging the profits of wrongful conduct and paying a financial penalty.
In addition to holding organizations to account through effective, proportionate and dissuasive penalties, a remediation agreement could potentially offer many benefits to Canadians and the economy, such as enhancing detection by encouraging self-disclosure, providing reparations to victims and communities, preventing job losses and protecting blameless third parties such as customers, suppliers and pensioners from the consequences of prosecuting and convicting an organization.
A remediation agreement must be approved by a court before it will take effect, and then there would be judicial oversight throughout his lifetime. Court approval would also be required to vary, terminate or declare the successful termination of the agreement.
For transparency, the regime includes a publication requirement with respect to all agreements and court orders made with respect to them.
The benefits of this approach are that it would respond positively to the advantages advanced during the consultations in favour of creating such a regime. Remediation agreements may be more effective than criminal prosecution in improving compliance and corporate culture. It may encourage companies to self-disclose wrongdoing. It may reduce the negative consequences for blameless victims, employees, suppliers and investors. It may provide quicker redress to victims. It may enhance the prospects for prosecuting and holding criminally liable the individuals within the corporation who are responsible for the corporate wrongdoing. It would prevent the company from being disqualified from receiving procurement contracts under conviction-based debarment regimes.
Having laid out broadly the elements of the government’s plan to enhance Canada’s toolkit to address corporate wrongdoing, my colleague and I would be happy to take your questions. And I apologize; we will speak more slowly. When I get excited, I speak fast.
The Chair: Thank you very much, madam minister.
[Translation]
Senator Dupuis: Minister, thank you for making yourself available to meet with us today.
I completely understand why the Business Council of Canada asked you to both reduce the 10-year exclusion period and introduce remediation agreements. I have two big concerns about that. The committee has heard from witnesses that, when this type of regime exists in countries that enforce the law rigorously, it produces results.
In addition, we were told that, in Canada, since 1990, companies have been convicted in four cases. What I’m trying to wrap my head around is the fact that the bill allows for the confidentiality of the entire process leading up to the agreement, including the court’s approval of the agreement. That is hugely beneficial to the organizations implicated but is problematic as far as the regime’s credibility and victims go. The bill requires that reasonable steps be taken to inform any victims, but there is no guarantee that they will be contacted.
First of all, can you confirm that the government will make sure the regime remains public? From the outset, the regime favours organizations when it comes to individuals who are guilty of fraud. Second of all, what assurance is there that the remediation agreement will not prevent proceedings from being initiated under provincial securities laws, say an administrative procedure or civil proceedings that a victim may wish to bring because they were not properly compensated under the agreement?
Marco Mendicino, M.P., Parliamentary Secretary to the Minister of Justice and Attorney General of Canada: Thank you, senator, for your question. That’s a very important point.
[English]
It’s important to start with the presumption that all proceedings in court are open, and the bill enshrines that principle by stating that remediation agreements, once finalized and concluded, must be approved by the court and then published. Now, there are limitations to that openness principle, and they are impacted by a number of considerations that could lead to a publication ban. What are those factors?
One, we want to be sure we are protecting victims. There may be some sensitive, personal and private information in the context of the remediation agreement which may be subject to a publication ban.
Two, we want to preserve the potential ongoing nature of any investigation. You may know, having studied the bill, that one of the mandatory clauses of a remediation agreement is that there needs to be a statement of the facts as well as an admission of responsibility by the implicated corporation. It may not be in the public interest to have all those facts in the domain if there is an ongoing investigation.
Finally, we want to make sure that we are promoting the ongoing reporting of corporate wrongdoing. That, too, may be one of the factors taken into consideration by the court when determining whether or not to implement a publication ban.
Two last comments: One, in the event a court does choose to implement a publication ban, it has to issue reasons. Those reasons will be part of the public domain. It will be known by anyone who is interested in following these proceedings that the court has made a decision to implement a publication ban.
Two, and perhaps most importantly, because I think it addresses one of the underlying premises of your question, it is not in perpetuity. There is the discretion of the court to put a temporal limit on a publication ban. It could be at a particular stage in the proceedings; it could be when charges are laid; it could be at the conclusion of a preliminary inquiry; it could be at the severance if there are multiple accused in the trial, the bifurcation of those proceedings.
There are a number of mechanisms which strike the balance between the openness principle and the need to protect the administration of justice as influenced by the factors that I alluded to.
[Translation]
Senator Boisvenu: Welcome, minister and Mr. Mendicino. Thank you, minister, for clearing your schedule to be here. Last week, we heard from a number of Department of Justice officials, and, in response to many of our questions, they referred us to the Minister of Justice. It’s very unusual to study a bill, especially in the criminal domain, and to not have the minister responsible appear before the committee. I would like to know why the Minister of Justice is not here, herself.
Ms. Qualtrough: Thank you.
[English]
It’s my understanding the Minister of Justice wasn’t available. When they asked me to come and speak to you, I jumped at the opportunity because I’m quite familiar with both the integrity regime and the whole consultation process around our remediation agreement discussions and the submissions by the various stakeholders. While not technically, obviously, representing Justice, supported by the individuals at the table here, I felt myself capable to offer you some perspectives on our government’s position on these matters.
[Translation]
Senator Boisvenu: I have two questions for you. First, did you study the impact this measure would have on Quebec civil law, as well as on the rights of victims of crime?
[English]
Ann Sheppard, Senior Counsel, Policy Sector, Criminal Law Policy Section, Department of Justice Canada: We did not, as I mentioned the other day.
[Translation]
Senator Boisvenu: Second, did you consult victims groups when putting together the bill?
Mr. Mendicino: Thank you for the question, senator. As part of the process, we held extensive consultations, including with victims’ rights organizations.
[English]
I participated in that process along with the minister. As part of that consultation with a number of victims’ stakeholders groups, we feel confident that we have woven into this bill their perspective. You can see that in the measures that do many things for victims, including, by way of example, senator, there’s a requirement that prosecutors take all reasonable steps to give notice to victims in the event that they pursue remediation agreements. There’s an opportunity for victims to give impact statements. Those are just a couple of examples.
[Translation]
Senator Boisvenu: If you consulted victims and took into account the Canadian Victims Bill of Rights, why, then, does new section 715.36 give prosecutors the discretion not to inform victims? Prosecutors are required to provide only the court with their reasons for not informing victims, not the victims themselves.
[English]
Mr. Mendicino: The way I read what would become section 715.36(1) under the Criminal Code —
[Translation]
Under the heading “Duty to inform victims,” the provision says that
. . . the prosecutor must take reasonable steps to inform any victim. . .
Senator Boisvenu: Look at the last sentence. I’ll read it for you. If the prosecutor decides not to inform the victim, the provision says that
the prosecutor . . . must provide the court. . . with a statement of the reasons. . .
Why does the bill not require the prosecutor to inform victims of those reasons, as well?
[English]
Mr. Mendicino: In my humble submission, that enhances the transparency of the exercise of a prosecutor’s discretion independently to not inform victims. Now, there may be good reasons for that.
[Translation]
Senator Boisvenu: I’ll reword my question. The Canadian Victims Bill of Rights, enacted in 2015, recognizes that victims have the right to be informed. In this bill, you indicate that, if the prosecutor has reasons not to inform victims, they won’t be informed. Do you not see that as a violation of the Victims Bill of Rights?
[English]
Mr. Mendicino: No, because the centre that helped develop the Canadian Victims Bill of Rights was consulted, and their views were taken into consideration. As I said before, senator, there are many measures that ensure that victims have access to information. That is one of the pillars of the Victims Bill of Rights, and it is a principle and a value that informs, again, referring to some of the examples that I had mentioned before, but notice and, where not notice, reasons, a victim impact statement, a victim fine surcharge, and most importantly, senator, the opportunity to provide reparations, restitution and compensation to make victims whole. That is one of the hallmarks of this bill, and it is thanks to the centre that developed the Canadian Victims Bill of Rights and their input into this process that we’re proud of those provisions.
[Translation]
Senator Boisvenu: We don’t read the provision in at all the same way. It very clearly states that the court will be informed, but not the victim.
[English]
Ms. Qualtrough: Some of the crimes we’re trying to capture happen abroad and we can’t sometimes identify all the victims, so we can’t in some circumstances name all the victims. This addresses the situation where there are circumstances where we can’t name the victims. Identify, I guess, is the better word.
Senator Lankin: Thank you both for being here, and thank you, officials. I appreciate your contribution to our review.
Mr. Mendicino, you talked about the publication of the settlement agreements. We’ve heard from a number of people who were very supportive of the government’s intent here that one of the important factors to ensure the success of this regime in accomplishing what we hope it will accomplish is the publication and full transparency of these settlements. When I listen to you, I understood that the court can find reasons to put a publication ban on. They have to provide those reasons. They can do it for a temporal period, so it can be a ban until such time.
Is there anything, from your reading of this, that compels at some point in time that the actual agreement will be public? I think it’s one of the things that would help balance the public perception of what’s happening here and the access to these kinds of settlement structures for corporations when they look to see how individuals are treated in the courts, just that balance at some point in time that it must become public. Is that foreseen or is that something that you would be open to if it’s not in the legislation?
Mr. Mendicino: Thank you very much, Senator Lankin, for that thoughtful question.
I think when you look at section 715.42(2), which delineates the requirement of the court’s reasons underlying a decision not to publish, it talks in the last clause about it being necessary for the proper administration of justice. The way the common law has evolved around the court’s discretion around publication bans is that safe and except in very exceptional circumstances, there are temporal limits implemented to ensure we are respectful of the starting point of any discussion around court proceedings, which is that they are open. So the proper administration of justice, which is expressly included as a guiding principle in the court’s exercise of its discretion, I think in the vast majority of cases will guide the court to include a temporal limit on any decision not to publish.
Senator Pratte: Following up on that, I understand your point and I think it’s an important point, but I think it would be, let’s call it, reassuring. It is extremely important that these agreements be made public for the credibility of these agreements because there are a lot of people who will see these agreements as sweet deals for corporations and for individuals involved in these crimes. I don’t see them that way and I support this part of Bill C-74, but I believe that publication of all these agreements, eventually, is essential for their credibility. Therefore, I consider that there should be a guarantee enshrined in this section of the bill so that we are certain that eventually the conditions for the publication ban are extinct so that the publication is guaranteed.
You mentioned earlier that the reasons for a publication ban are made public, but in fact the way the bill is written right now, when a decision is made not to publish, even the reasons and the decision not to publish may not be published, so nothing is known at all.
I think there’s a risk there that these agreements and everything around an agreement may be confidential for a very long period of time, if not in perpetuity. These may be rare cases, but it may happen, and I think people need to be reassured that this will not happen.
Mr. Mendicino: Let me begin by reiterating my first answer, which was that we start with the presumption of openness. I think that’s a respected and enshrined value in the Charter. The bill sets out and enumerates a number of factors which guide the court’s decision, and also by some of the pre-existing cases that have evolved around the discretion of the court to limit the publication of certain facts.
The last thing I would say — and maybe then the minister may want to build on some of these points — is it that there are opportunities for the parties to come back to the court to review these orders, and at that point, based on whether there’s been a material change in circumstances or one of the underlying rationales that was at one point in time a controlling or influential factor in the decision not to publish, that factor no longer exists or is not as pressing, then that too is another way in which for the court to reconsider the need for the limitation on the publication of facts.
Ms. Qualtrough: I was going to add that I absolutely take your point, sir. I think that something we can take back, because there are incredibly important public interests in making these agreements public. I personally believe there’s a strong interest in having the flexibility. There currently are circumstances where, perhaps, an investigation is ongoing and even explaining that the reason we’re not publishing is because an investigation is ongoing can somehow jeopardize that investigation, but that explanation won’t hold water in perpetuity. I think that there is a chance for us to take that under advisement, and I thank you for your counsel.
The Chair: I think your answer addresses essentially the same point that Senator Boisvenu has been raising.
[Translation]
Senator Carignan: There’s an aspect of the bill that concerns me. It has to do with the compensation or remediation agreement as it relates to potential civil proceedings initiated by victims or disciplinary procedures undertaken by disciplinary bodies like Quebec’s Autorité des marchés financiers.
Under this regime, is the government preventing victims who are party to the agreement from bringing civil proceedings? Is the agreement binding on the parties, and thus prevent victims from going to civil court in order to obtain more in the way of restitution?
[English]
Mr. Mendicino: There is certainly no presumption along the hypothetical that there would be an effort to stop victims from pursuing other remedies that are available to them in other forums. One of the benefits of the regime that will be implemented upon the passage of this law is that there is an opportunity for victims to provide input such that they may say that they feel, if the following efforts at reparation are made, then they will be made whole. That is also a possibility.
[Translation]
Senator Carignan: As representatives of the government appearing before the committee, you should realize that the remarks made here will be referred to. When something is unclear, the courts consider the intent of the legislator. They will take into account the evidence heard here, by the committee. I want to make sure that the authority of a final judgment cannot be invoked to prevent victims from pursuing a remedy against the offending organization.
As I understand it, then, in adopting this regime, the government is not trying to limit the remedies available to victims to obtain what they feel they are entitled to, beyond any victim surcharge or other such reparations. Therefore, victims will be able to bring civil proceedings, if they choose.
[English]
Ms. Qualtrough: There is nothing in this law that we intend to estop or impede victims from pursuing other avenues of recourse. We hope that perhaps the reparation they get through this process leads them to feel made whole and not have to pursue, but there is nothing that we intend to put in place to stop them from doing just that.
Senator Jaffer: Thank you very much for being here. We appreciate it. I have a number of questions.
Earlier on, it came up that those who were responsible within the company would be charged. The company would have to give — if I understood — the names of the culprits, and those who were responsible for the illegal act would be charged separately. I would be interested to see how you see that process working.
Mr. Mendicino: One of the realities and the motivations behind the introduction of remediation agreements is how difficult it is to secure successfully a prosecution of corporate wrongdoing. Having worked in the criminal justice system and seen how these cases play out, they take years and they take considerable resources. The idea behind this part of the bill would be to ensure that we hold corporations accountable for wrongdoing but without compromising the potential prosecution of those individuals who were the primary perpetrators of the crimes which visited upon victims some loss. So the two ideas are compatible.
I’ll take the opportunity to point out that this is not just an idea that is being put forward by our government. The OECD has called for Canada to consider this instrument, as has Transparency International, and these are two respected international institutions who see that it’s an area that touches on the criminal law, but also in protecting the integrity of our markets and our economy and ensuring that Canada is competitive with other jurisdictions, like the United States and the United Kingdom, as well as other developed countries who already have this tool in place.
Senator Jaffer: I have a technical question. I see these remediation agreements as imposing a term of probation with the full conviction. It’s like holding it over your head, follow this, we’re still watching you, and we now know how your company operated. What will be the oversight? I’m in favour of this. I know you have studied the U.K. and the U.S. The U.S. doesn’t have oversight. The U.K., I think, has oversight. What kind of oversight will there be?I imagine, for whatever time, whether it’s forever or for a short time or a long time, these companies will be watched. What kind of oversight will you have in place?
Mr. Mendicino: We’re all generous. We’re going to share some of our floor time with our official, Ms. Sheppard.
Ms. Sheppard: There is judicial oversight throughout the lifetime of a remediation agreement. In our proposed regime, it would have to be approved by the court, which would have to find it in the interests of justice and fair and reasonable and proportionate. At the end of the process, unique to the Canadian regime, the prosecutor would have to go to court for a declaration of successful completion. So that would be the end of it.
In addition, there are two other possibilities. One is for the prosecutor to go back to court for variation if they thought more time was needed. There’s also the possibility that the prosecutor could apply for a termination if there was non-compliance.
The court would be involved to key points in the process, possibly two, possibly more. As well, there would be reporting obligations in the agreement itself so that the compliance would be measured. There would be an end date — maybe it might be three or five years — and the company would have to report to the prosecutor. If there was an independent compliance monitor, that compliance agreement would build in reporting as well, so they would report on some of the terms that had to be met.
Senator Jaffer: I’m not familiar with remediation agreements. Would there be a clause to say what happens if there’s not compliance? Maybe then there is no remediation agreement and you would go through the criminal process.
Ms. Sheppard: There is a requirement. There are mandatory conditions and terms that have to be included. One is there’s an obligation to cooperate. Another is to make reasonable efforts to identify individuals. There is also, not only in the agreement itself but in the invitation to negotiate, that the prosecutor may extend. There is a warning that there is a requirement to cooperate throughout the process and that the criminal proceedings may be resumed if that doesn’t happen. So it’s a diversion from the process, but you could find yourself back into the process if you weren’t cooperating and the prosecutor made an application to terminate. Then they could resume the proceedings.
Senator Jaffer: Thank you very much.
Senator Batters: Minister, did you appear before the House of Commons committee dealing with this particular major portion of the budget implementation act? If not, which minister appeared there?
Ms. Qualtrough: I did not. I apologize. Was it the Minister of Finance?
Mr. Mendicino: Just give me one moment. Let me see if we can find the answer to that.
The Chair: Maybe the officers from the Department of Justice would know if their minister appeared. They might have accompanied the minister.
Ms. Qualtrough: It was the Minister of Finance.
The Chair: Only the Minister of Finance?
Senator Batters: Dealing with this particular part?
Catherine McKinnon, Senior Counsel, Public Law and Legislative Services Sector, Judicial Affairs, Courts and Tribunal Policy, Department of Justice Canada: It was before the Finance Committee, and to my knowledge it was just the Minister of Finance.
Senator Batters: How long did that House of Commons committee take to study this particular part of the budget implementation act?
Ms. Qualtrough: Again, I can get you that information. I apologize, I don’t have it off-hand.
Senator Batters: If could you please provide that to us, hopefully as soon as possible, because we’re dealing with this in a very quick timeframe.
Minister, the fact that your government chose to include this very significant change to the Criminal Code of Canada in an omnibus budget bill has attracted criticism from prominent criminal defence lawyer Michael Spratt, and, in fact, Mr. Spratt recently wrote an article about this very portion decrying this situation, in which he ended with this:
When Trudeau was railing against omnibus legislation in the House of Commons, he made a simple wish. He told the Speaker of the House that he hoped that “future prime ministers will not make excessive use of omnibus bills . . . to avoid problematic situations.”
I have the same wish, except I also wish that current prime ministers did the same.
Minister, given this, why did your government choose to do that with this particular portion?
Ms. Qualtrough: We’ve approached corporate wrongdoing writ large as a broader set of policies and decisions that include the criminal law aspect but go beyond into our administrative regime. We believe that the budget is about the economic climate of our country and that corporate wrongdoing has significant implications for the economy, whether it be pensioners, workers or shareholders. The idea is that this is about a broader set of wrongdoing than just criminal wrongdoing and corporate crime, if you will.
That’s why we approached the consultations that way last fall. We worked, PSPC and Justice, together. That’s why we consulted stakeholders that have mutual interests in both the Integrity Regime and in the more criminal side of the spectrum, if you will. We intentionally have approached this more broadly than just Criminal Code revision, if you will, from the beginning.
Senator Batters: Would you say that this allows us — and the House of Commons committee, of which media reports indicated that portion was potentially only studied for 15 minutes at their committee, and we have had only a compressed timeframe to study this massive change to the Criminal Code here — only a very limited scope in which to conduct significant duties to make sure that this legislation is the best that it can be?
Ms. Qualtrough: I absolutely respect and appreciate that perspective. I can simply tell you that the way we’ve approached this is broader in looking at the economy as a whole and corporate wrongdoing as a spectrum of tools we have at our disposal from more policy-minded ones to law. Since last fall, through the public consultations, through our announcements in the budget and then in our announcement again in March, we’ve been looking at this and working with stakeholders and experts in this field nationally and internationally for some time now. We felt the best approach was a whole-of-government approach that included policy and legal changes, if you will.
Senator Batters: One further thing, minister: Your government made the choice in this particular section to make these new Criminal Code remediation agreements only available to wealthy corporations, not to individuals, not to unions and not to other public bodies. Why did you make that choice?
Minister, are you able to answer that?
Ms. Qualtrough: I think it’s best that —
Mr. Mendicino: If you want me to give you the answer, I’m happy to take it. I would just say —
Senator Batters: I usually prefer it from the minister, but —
Mr. Mendicino: Thank you, senator, for the question.
The primary eligibility for remediation agreements is through a scheduling of designated offences rather than categorization of big, small or medium corporations. Things like money laundering, fraud and the kinds of prohibitive conduct that, as the minister said, goes beyond just criminal wrongdoing is the main way in which the decisions to exercise the discretion to pursue a remediation agreement are made.
Senator Batters: Why not individuals?
Ms. Qualtrough: I apologize. I meant no disrespect. I thought you would get a more detailed answer.
From a public policy point of view, we are looking at corporate wrongdoing. The integrity regime is structured to see whether businesses conduct themselves ethically such that they can and should do business with the Government of Canada. The corollary criminal side of it is corporate crime. Putting those two together, the focus has been on the corporations themselves.
[Translation]
Senator Dupuis: Thank you for taking into account the point we raised and agreeing to revisit the issue of the publication and confidentiality tied to the process. It’s an important issue. Entering into these kinds of agreements marks a new direction in public policy, so have you considered building in a provision for review after a certain number of years?
We are going from a regime that does not set out any real process, one that does not help us find the guilty parties or identify those who commit financial crime, to the regime proposed in Bill C-74. Would it not be a good idea to review how this new experience is going and how the regime is performing result-wise, by making it mandatory to conduct a comprehensive review of the legislation and its application and to table a report in each house of Parliament, after a certain number of years?
[English]
Ms. Qualtrough: I’ll begin by saying the strength of this regime lies in its very public nature. The motivation for corporations to make good choices, as I would say to my children, lies in the opportunity they have to continue doing business with the Government of Canada on the integrity side and to not be prosecuted criminally on the criminal side. A hallmark foundational piece of that is the public nature of these agreements.
That being said, as we’ve talked about, there are situations and circumstances under which it’s not in the public interest or it wouldn’t be in the best interests of the public administration and the administration of justice for that to happen. That type of clause could be put into a remediation agreement. There’s not currently a requirement that such be the case, as I understand it. But I think that’s a very prudent piece of advice.
[Translation]
Senator Boisvenu: Minister, our justice system is a major source of frustration to victims in two ways. They are frustrated, first, by the lack of information and, second, by laws they feel favour the wealthy. I think this bill is likely to feed into those frustrations — the government will engage in extensive negotiations with the organization and then make deals when it comes to laying charges against people.
You are familiar with the Charbonneau commission hearings in Quebec. For three years, it was all over the news, but, at the end of the day, very few of the higher-ups were convicted. Look at the case involving Earl Jones or Mr. Lacroix. What frustrated Mr. Lacroix’s victims the most was the fact that they never found out what happened to the millions of dollars in their pension fund. He pled guilty and, under the deal reached with the Crown, once an accused pleads guilty, they can keep mum.
I’m not going to ask a question; instead, I’m going to make a suggestion. Under this bill, the steps taken to ensure a victim’s right to information should be labelled not as “reasonable,” but as “mandatory.” Otherwise, when you introduce a bill that, on the surface, seems to respect victims’ rights, but that is actually flexible towards the offending party, you lose all credibility with victims of crime.
What is more, I was told that very few victims groups were consulted in Quebec. The Charbonneau commission experts were not consulted. I fear the bill will not live up to victims’ expectations.
[English]
Ms. Qualtrough: Thank you for your advice. One of the things I find hopeful about this particular approach is the opportunity to do better by victims. One of the things I turn my mind to is the creativity that these kinds of arrangements can allow for in actually getting down to the people who actually are harmed by these corporate behaviours. At the same time, it’s about trying not to compound that harm by shutting down their business and them losing jobs or whatever the consequence of heavy-handedness would be.
I absolutely hear you on this, senator, and we’re happy to take this advice back. I’m noodling, as I do, the idea of how we address victims who cannot be identified. Maybe there’s a way to do that. But I hear you loud and clear, and I can assure you your message will be conveyed.
[Translation]
Senator Boisvenu: Do you think that, in our justice system, creativity always benefits the accused and never the victim?
[English]
Ms. Qualtrough: I think that’s a little too philosophical for me, but I hope and think that there’s a possibility in these kinds of agreements to reach down into corporations in a way where perhaps there are limits through the criminal justice system and we can actually do these things right for the people who are impacted by this wrongdoing.
The Chair: Before I have the pleasure of thanking you on behalf of my colleagues around the table, I think the point raised by Senator Pratte in relation to having the opportunity at a point in time to make the agreement public applies as much to the victims, because they are the direct stakeholders in it.
Senator Pratte’s point is the general information of the public — the integrity of the judicial process that the public has to be assured of. As Mr. Mendicino mentioned, the objective is to make the procedure public is, of course, a principle of fundamental justice. If you make an exception to it, you have to show at some point in time that you cannot respect the principle of public disclosure.
So what is true for Senator Pratte in terms of the general public, in my opinion, is equally true for the victim. One can understand that, at a point in time, the Crown cannot disclose to the victim the agreement, because they might have a pending investigation against some of the officers or some other investigation. But at some point, they are entitled to know why they were not informed, once the reasons for which the suspension of disclosure has been granted lapses and not seal the file for 50 years, like in the Supreme Court file we heard last week. It seems to me the point raised by Senator Pratte is equally valid for the point raised by Senator Boisvenu. I don’t know if you want to comment.
Ms. Qualtrough: I would just say that I hear you; your message has been received. Thank you all very much for your time this evening on behalf of all of us.
The Chair: Thank you very much. We appreciate your availability, Madam Minister, Mr. Mendicino and the officials from Justice Canada and Public Services and Procurement Canada.
(The committee adjourned.)