THE CANADIAN CORPORATE CRIMINAL LIABILITY REGIME Guy Pinsonnault

I. Introduction § Bill C-45 An Act to Amend the Criminal Code (Criminal Liability of Organizations) § In 2004, Canadian Parliament amended the Criminal Code: Purposes: • Facilitate the conviction of organizations for offences committed by their representatives by replacing the identification theory developed by the common law. • Prompt organizations to take additional measures to protect their employees and the public. § The first decision in which a court applied the provisions brought by the 2004 amendments was rendered in 2013 in R. v. Pétroles Global (gas price-fixing cartel in Quebec) mcmillan. ca l 2

II. Bill C-45 Criminal Liability of Organizations (a) The Identification Theory § Before 2004, the criminal liability of corporations used to be established through the identification theory developed by the common law. § Initially adopted to establish corporate criminal liability through a sufficiently rational connection between the organization and the offence committed by a natural person. § Attempted to connect the liability of the “directing mind” to that of the corporation, rather than establishing corporate criminal liability for the acts committed by any employee of the corporation. § Canadian Dredge & Dock Co. v. The Queen, [1985] 1 SCR 662: Supreme Court of Canada rejected the vicarious liability model advocated by the US Supreme Court in New York Central R. Co. v. United States, 212 U. S. 481 (1909). mcmillan. ca l 3

II. Bill C-45 Criminal Liability of Organizations (a) The Identification Theory (Cont’d) § R. v. Pétroles Global, 2012 QCCQ 5749, [2012] JQ no 5437. § Summarized the following principles applicable before the coming into force of Bill C-45 in respect of the criminal liability: • The identification theory attributes to the legal person the mens rea and actus reus of its directing mind and engages the liability of the legal person; • Several directing minds may exist within the same legal person; • The title of the employee within the organization is immaterial; what is considered is the functions that such person performs; • The concept of directing mind is no longer limited to the executives; • The directing mind is a person who is capable of exercising decision-making authority. mcmillan. ca l 4

II. Bill C-45 Criminal Liability of Organizations (b) The 2004 Amendments § In 2004, Canadian Parliament amended the Criminal Code to provide that an organization’s criminal liability for subjective mens rea offences (including fraud antitrust offences) is established where: “[…] one of its senior officers, • (a) acting within the scope of their authority, is a party to the offence; • (b) having the mental state required to be a party to the offence and acting within the scope of their authority, directs the work of other representatives of the organization so that they do the act or make the omission specified in the offence; or • (c) knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measures to stop them from being a party to the offence. ” mcmillan. ca l 5

II. Bill C-45 Criminal Liability of Organizations (c) Definitions § (i) Organization § Broad definition, which includes associations without legal personality that meet three criteria: I. Created for a common purpose; II. Have an operational structure, and III. Hold themselves out to the public as associations. § Encompasses not only legal persons, such as corporations, but also any “public body, body corporate, society, company, firm, partnership, trade union or municipality”. § Includes both profit and non-profit organizations. § Defined broadly to include not just officers and employees, but also agents and contractors. § Not the business title, but the duties performed by the a person which demonstrate if one acts as a representative of the organization. mcmillan. ca l 6

II. Bill C-45 Criminal Liability of Organizations (c) Definitions § (i) Organization § Criminal liability does not extend to entities that exercise de jure or de factor control over its affiliates § Piercing the corporate veil ≠ not possible § The Criminal Code would need to explicitly provide that the parent organization is liable mcmillan. ca l 7

II. Bill C-45 Criminal Liability of Organizations (c) Definitions § (iii) Senior Officer a) Representative Who Plays an Important Role in the Establishment of the Organization’s Policies; b) Representative Responsible for Managing an Important Aspect of the Organization’s Activities; c) Director, Chief Executive Officer and Chief Financial Officer of a Body Corporate. § (iv) Recent Case Law on the Definition of “Senior Officer” § R v. Pétroles Global inc. (2013) i. ii. First case to apply the new provisions brought by the 2004 amendments. The Court held that evidence demonstrated that Global’s General Manager was a “senior officer” within the meaning of the Criminal Code, as he managed an important aspect of the company’s activities. The Court considered the following factors: iii. • • • He supervised over 200 service stations in Québec; Was the third highest-paid employee of Global; Ensured implementation of the economics developed by senior management. mcmillan. ca l 8

II. Bill C-45 Criminal Liability of Organizations (d) Subjective Mens Rea Offences § (ii) Intent to Benefit the Organization The organization is considered to have participated to the offence where its senior officer has acted “with the intent at least in part to benefit the organization”. § § (iii) Participation, Influence, or Omission by Senior Officer § Under s. 22. 2 Cr. C subjective mens rea offenses are established through participation, influence of representatives or omission by a senior officer. § The legislature rejects the restrictive approach according to which a criminal act had to be committed within the “scope of employment”. § Willful blindness could suffice to implicate the organization’s culpa in omittendo where a senior officer fails to take necessary measures. • Factors such as industry standards, risk management techniques help the court determine the scope of the “reasonable measures”. mcmillan. ca l 9

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing § Section 718. 21 Cr. C § Sets out ten aggravating and mitigating factors for sentences to be imposed on organizations. § The only possible sentence is a fine, which may be accompanied by a probation order. § The fine imposed must be proportionate to the seriousness of the offence and degree of responsibility of the offender in accordance with s. 718. 1 Cr. C, “whatever weight a judge may wish to accord to the objectives”. mcmillan. ca l 10

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § Advantage realized: • Section 718. 21(a) Cr. C provides that courts must consider the “advantage realized” by the organization as a result of the offence committed by its senior officer. • Important to analyze all of the consequences for the organization, negative and positive when determining if the organization did in fact realize an advantage. • E. g. : monetary advantages, damaged reputation, decrease in share price, loss of clients etc. ). § Mc. Namara Construction et al. v. The Queen [1977] 2 SCR 654, 75 DLR (3 d) 273. • The Supreme Court of Canada ruled that the fact that a cartel did not work out as planned is immaterial. § R v. Maxzone Auto Parts (Canada) Corp, 2012 CF 1117. • The Federal Court held that for price fixing, the objective of deterrence commands that a court must consider the “expected gain” of the cartel and not the gain that was actually obtained, together with “the level of the multiple required to render negative, in approximate terms and on average, that gain. ” mcmillan. ca l 11

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § a. Advantage realized under the Competition Act • For criminal offenses the first factor of s. 718. 21 cannot be reduced by the damages suffered by the organization due to the disclosure of the crime to the public. § R. v. Constructions GTRL (1990) inc. 2012 QCCS 4755, [2012] JQ no 9667. • The Supreme Court of Canada ruled that the fact that a cartel did not work out as planned is immaterial. § R v. Maxzone Auto Parts (Canada) Corp, 2012 CF 1117. • The Superior Court of Québec refused to take into consideration negative publicity suffered by an organization as a mitigating factor, ruling that it constituted “[TRANSLATION] the price to pay for the crimes committed clandestinely and against public interest. ” mcmillan. ca l 12

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § b. Complexity, Planning, Duration • Important for the courts to consider the complexity and the duration of the offense and the degree of planning involved. In the words of the Department of Justice: • “careful planning shows a deliberate breaking of the law and should be punished more than a case where the senior officers took advantage of an unexpected opportunity to make a quick, illegal profit. ” § c. Concealment and Conversion of Assets • An attempt by an organization to conceal or convert its assets to avoid payment of a restitution or fine is an aggravating factor. • The Ontario Court of Justice has further held that hiding assets justifies a restitution order. • With respect to civil matters, the Superior Court of Québec has once considered the concealment of assets as an aggravating factor in the awarding of punitive damages. mcmillan. ca l 13

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § d. Economic Viability and Continued Employment • The organization’s economic health and continued employment of its employees was deemed to be a relevant factor prior to the 2004. • The Court must therefore ensure that the fine punishes the organization financially, without endangering its financial sustainability or continued employment of its employees. • As the Court of Appeal of Alberta stated in R. v. R. L. Thorpe Sales Ltd. , [1983] 49 AR 354, AJ No 999 (CA): “[t]he penalty must be more than a slap on the wrist but less than a fatal blow. ” • When the evidence shows that the organization realized most of its profits from the criminal activity, a fine onerous to the point that it could cause the business to go bankrupt may be justified. § e. Costs Investigation and Prosecution • The Court may adjust the fine depending on the amount of fees incurred by the government with respect to investigations and prosecutions initiated against the organization. mcmillan. ca l 14

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § f. Imposition of Regulatory Penalties • Following the commission of an offence, an organization that imposes internal disciplinary penalties on the offenders may obtain a reduction of its fine. • The purpose it to prompt organizations to take steps to prevent recidivism by taking disciplinary measures. Canada v. Maxzone Auto Parts (Canada) Corp. • The Federal Court refused to recognize a fine of $43, 000 imposed in the US on Maxzone Canada’s parent company as a mitigating factor. § g. Prior Conviction for a Similar Offence and Regulatory Penalties for Similar Conduct • May constitute an aggravating or mitigating factor. mcmillan. ca l 15

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § h. Imposition of Penalties on Representatives • Paragraph (f) of s. 718. 21 should be interpreted to include only regulatory penalties. • Imposition of a prison sentence on an organization’s president does not bar the imposition of a heavy fine. • Such penalties should have a direct connection with the actions that led to the commission of the offence. § i. Restitution of Voluntary Indemnification • Encompasses two criterion: 1. supplements paragraph (d) by ensuring that the organization is not sentenced to pay an amount that might affect its economic viability; 2. encourages organizations to indemnify the victim voluntarily. mcmillan. ca l 16

II. Bill C-45 Criminal Liability of Organizations (e) Sentencing (Cont’d) § (i) Factors § j. Measures to Prevent Recidivism • Adoption of such measures by an organization may help reduce its sentence. • The Competition Bureau provides guidelines to assist businesses in developing compliance programs. five “essential components” 1. Senior management must truly support the program; 2. Compliance policies must be easily understood by employees; 3. Organization must provide adequate training to its employees; 4. Essential that the company establishes monitoring, auditing and reporting mechanisms; 5. Organization must ensure that it has consistent disciplinary procedures in place with respect to dismissal, demotion, suspension and even legal action against employees who do not comply with the policies. mcmillan. ca l 17

US and European jurisdictions § USA § Unlike in the USA, Canadian courts have rejected the recognition of corporate criminal liability based on a vicarious liability simpliciter model. § Under such a regime, any person who is a part of the corporation, regardless of his/her position, may engage the organization’s liability. § Adopted by the Supreme Court of the USA more than a century ago, the vicarious liability simpliciter model applies the tort doctrine of respondeat superior (‘let the master answer’) to criminal law. § A corporation may be held criminally liable where an individual, acting within the scope of his employment or authority, commits a crime with a view (at least in part) to benefit the corporation. mcmillan. ca l 18

US and European jurisdictions (Cont’d) § Europe § Corporate criminal liability ranges from not attributable to pure vicarious liability. § EU jurisdictions that follow an approach similar to that of the USA include Belgium, the Netherlands, Poland, Slovenia, and Romania. § Germany’s Criminal Code, which includes anticompetitive offences, namely bid -rigging (s. 298) and taking and offering bribes in business transactions (s. 299), only applies to natural persons. § Jurisdictions which have adopted a system that considers the position of the offending agent within the organization in order to establish criminal corporate liability include Luxembourg, France, Spain, and the Czech Republic. mcmillan. ca l 19

US and European jurisdictions (Cont’d) § UK § The UK has a system fairly similar to that of Canada pre-2004 Criminal Code amendments, with the courts applying the identification theory to mens rea offences. § Since the coming into force of the Bribery Act in 2010, an ‘organization’ conducting ‘part of a business’ in the UK may also be held criminally liable for failure to implement adequate procedures to prevent bribery. § Under the Indian law, a corporation can be liable for the acts of its officers/directing minds and NOT any employee. mcmillan. ca l 20

Conclusion § The entry into force of the Bill C-45 amendments significantly changed the face of criminal law with respect to the criminal liability of organizations: § Increased the risk of prosecution and conviction § Risk of a heavy fine § Broader definition of “senior officer” mcmillan. ca l 21

For More Information Guy Pinsonnault Ottawa 613. 691. 6125 Montréal 514. 987. 5063 guy. pinsonnault@mcmillan. ca l 22 22

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