Category Archives: Corporate Criminal Liability and Enforcement

Canadian Corporate Criminal Liability

by Lincoln Caylor and Nathan Shaheen

Introduction

In Canada, corporate criminal liability is increasingly becoming an area of focus for regulators, law enforcement officers, and the public. As stories of corporate wrongdoing have generated media and public interest, key stakeholders have been trying to develop various tools and mechanisms to properly apportion fault and determine liability in often complex and highly public scandals. One merely has to read about the SNC-Lavalin matter that has generated controversy and the calls for a public inquiry in the highest echelons of the Canadian executive branch to understand the importance of carefully managing corporate criminal liability. This blog posts reviews Canadian corporate criminal liability, setting out some new developments in the law and highlighting key areas of concern for corporations undertaking either an internal investigation or being investigated by a regulator.

Overview Of Canadian Corporate Liability Doctrine

In Canada, corporate criminal liability is narrow in scope. Unlike in the United States, Canada does not apportion criminal liability under the doctrine of respondeat superior. Rather, corporate liability is generally apportioned to the employees or individuals involved in the wrongdoing, instead of the actual corporations themselves.[1]

Unlike American precedent, Canadian jurisprudence has historically upheld the ‘identification doctrine’, an organizing principle of corporate liability wherein an “identity” is established “between the directing mind and the corporation, which results in the corporation being found guilty for the act or the natural person, the employee”.[2] The identification doctrine will only be used in narrow circumstances to hold the corporation accountable. It will not be engaged if the employee/individual who committed the alleged acts is not a ‘directing mind’ of the corporation, or if there was fraud on the corporation. Additionally, judges retain the residual right to not apply the doctrine depending on the circumstances of the case. Continue reading

Protecting Attorney-Client Privilege and Respecting Fifth Amendment Rights While Cooperating with the Government

by John F. Savarese and Carol Miller

In 2018, two cases illustrated the potential hazards that can arise when companies’ efforts to cooperate with the government later provide a basis for individuals questioned during internal investigations to claim that their Fifth Amendment rights against self-incrimination were compromised.  While these cases, which we summarize below, have the greatest impact in connection with the representation of individuals in such investigations, companies responding to white collar inquiries need to keep these new developments in mind, particularly in conducting internal investigations and working in a cooperative mode with the government.  Companies and their counsel must be mindful of these issues both to insure that individual employee rights are protected and to protect as much as possible the confidentiality and integrity of the company’s review. Continue reading

Financial Institutions Alert: Marijuana-Related Businesses Developments in the Marijuana Industry and the Implications for Financial Institutions

By Sharon Cohen Levin, John F. Walsh, Paul M. Architzel, Franca Harris Gutierrez, Matthew T. Martens, Michelle Nicole Diamond, Emma Bennett, and Zachary Goldman

The myriad—and conflicting—state, federal and international laws governing the burgeoning marijuana industry have created a complicated legal landscape for financial institutions. In the United States, most states have legalized some form of marijuana use, but the manufacture, sale and distribution of marijuana nevertheless remains illegal under federal law. As a result, in providing financial products and services to US marijuana-related businesses (MRBs), a financial institution could risk violating the Controlled Substances Act (CSA), 21 U.S.C. § 841. Moreover, engaging in or facilitating transactions that contain proceeds from US marijuana sales could create liability under the money laundering laws.

Further complicating matters, Canada became the first major world economy to legalize recreational marijuana in October 2018. Because the US narcotics laws generally do not apply to activity that is legal abroad, providing financial products and services to Canadian MRBs would not violate the CSA or implicate the US money laundering laws. However, that is not the case in many European countries. The European Union recently passed a law expanding the extraterritorial scope of member countries’ money laundering laws with respect to certain narcotics-related offenses. These laws could now criminalize the transfer of funds from activity that is legal in the foreign country (e.g., marijuana sales in Canada) if that activity would be illegal in the home country.

Below we discuss the fragmented legal and regulatory landscape governing the marijuana industry as well as notable recent developments and their implications for global financial institutions. Continue reading

Detoxing Corporate Culture: How To Assess Toxic Cultural Elements

by Benjamin van Rooij, Adam Fine, and Judy van der Graaf

All views here represent the authors’ own views and not their organizations.

There is a cultural moment in the world of corporate compliance. Following recent major corporate scandals, there is now growing recognition among corporate boards and beyond  that truly changing corporate misconduct means addressing the toxic elements within cultures.

The central question for companies and regulators is how to assess toxic cultural elements.

Toxic corporate culture exists when organizations, whose chief business and business means are legal, develop structural violations of rules over a period of time.

Our recent paper (PDF: 1.06 MB), published in Administrative Science,  offers an in-depth analysis of what toxic cultural elements played a role in three major corporate scandals: BP’s polluting and unsafe oil exploration practices, VW’s diesel emission cheating practices, and Wells Fargo’s fake and unauthorized accounts schemes. In all three cases, the illegal behavior spanned over a decade and investigators concluded that corporate culture was to blame. Yet in all three cases, no one had yet systematically sought to understand what toxic cultural elements sustained the illegal conduct. We developed an analytical framework to examine toxicity in organizational cultures on three levels: structures, values, and practices (see Table 1 below[1]). Continue reading

Firm Reputation Following Accounting Frauds: Evidence from Employee Ratings

by Christos A. Makridis and Yuqing Zhou

Intangible capital is becoming an increasingly important determinant of firm value. For example, the ratio of intangible capital to the United States’ GNP is totaling 1.7, according to McGrattan and Prescott (2010).[1] Companies are further prioritizing their brand and perception among consumers and the media, which can affect the way they do business by influencing corporate strategy and investment. In this sense, how employees and/or the general public think about a company can ultimately influence the company’s ability to retain and attract talented employees, which is an integral determinant of firm value.[2]

While there are many different circumstances that firms find themselves in, some can be particularly damaging. For example, the public revelation of a cyber security breach can have lasting reputational effects when a company prides itself on privacy and security, as was the case with Equifax and their 2017 breach.[3] Much like data breaches, the public revelation of an accounting fraud can have a lasting effect on a company’s reputational capital. If employees and/or the public do not trust senior leadership, then employee engagement and retention will quickly dwindle. No one wants to work for an infamous company, especially skilled workers, given their ability to find alternative options in the labor market. Continue reading

DOJ Tells Tech Companies to Develop “Responsible Encryption”

by Laura Goodall, Michael Mugmon, and John F. Walsh

On November 29, 2018, in a speech at the Georgetown University Law School, Deputy Attorney General Rod Rosenstein renewed his call for tech companies to build into their products the means for law enforcement to legally access decrypted data, the development of so-called “responsible encryption.”[1] Mr. Rosenstein analogized such encryption to requirements that buildings disable elevators in the event of a fire but still retain firemen’s access, and he beseeched the private sector to work with the government to mitigate the security threats posed by rapid technological advances.

Summary of Mr. Rosenstein’s Address

Detailing the threat of ransomware, Mr. Rosenstein warned that the “malicious use of technology will be more pernicious and pervasive tomorrow than it is today, and even more difficult to combat.” To “forestall those ominous consequences,” he proposed three steps: Continue reading

New DOJ Policy Revises “Yates Memorandum”

by Michael W. Peregrine and Rebecca Martin

A new Department of Justice policy (the “Policy”) modifies critical elements of the prominent 2015 “Yates Memorandum” on individual accountability. Introduced on November 29 by Deputy Attorney General Rod J. Rosenstein (the “DAG”), the Policy is manifested, in part, by specific revisions to Justice Manual (previously referred to as the U.S. Attorneys’ Manual).

The Policy clarifies the relationship between the scope of a defendant’s disclosures regarding individuals and qualifying for cooperation credit, particularly in the context of civil litigation. In so doing, it also raises critical compliance oversight issues for corporate governance. Continue reading

France Boosts Tax Fraud Prosecution

by Antoine F. Kirry, Frederick T. Davis, Eric Bérengier, Alexandre Bisch, Robin Lööf, Aymeric D. Dumoulin, Alice Stosskopf, Fanny Gauthier, and Line Chataud

On October 23, 2018, the French Parliament enacted a law aimed at combatting fraud (the “Law”).[1] The most innovative provisions of the Law change key procedural aspects of tax law enforcement, which is likely to result in an increased number of criminal tax fraud prosecutions against both individuals and legal entities. The Law also addresses customs and social security frauds.

Tax Fraud Prosecution: Open the Floodgates Continue reading

Getting Comfortable with Collective Knowledge

by Mihailis E. Diamantis

Doctrines for attributing knowledge to corporations seem to be stuck between doing far too little and the risk of doing far too much.  Respondeat superior forces plaintiffs and prosecutors to find a single corporate employee with all the relevant knowledge.[1]  This means corporations automatically win against knowledge-based allegations when, as will predictably happen, knowledge is dispersed across corporate personnel.  The familiar solution is to introduce some way to aggregate knowledge.  But the doctrine that does just that—the collective knowledge doctrine—has met with widespread skepticism.[2]  The worry is that the collective knowledge doctrine treats corporations as knowing too much by triggering knowledge-based penalties for mere negligence in maintaining lines of communication.[3]  As a result, few courts have adopted the collective knowledge doctrine since it was introduced more than thirty years ago.[4]

If judges and scholars are ever going to get comfortable with moving beyond respondeat superior, they need to think hard about the informational logic of the collective knowledge doctrine.  As I argue in a working paper, The Corporation and the Epistemologist,[5] that logic is poorly understood.  Discussions vacillate without warning between two versions of the doctrine: one of which is entirely toothless, the other of which is worryingly permissive.  Once these two versions are distinguished, the search for a happy compromise can begin. Continue reading

What’s in a Name? That Which We Now Call the Justice Manual Has a Familiar, But Distinctive, Scent

by Katya Jestin, David Bitkower, Matthew D. Cipolla, Anne Cortina Perry, and Jessica A. Martinez

On September 25, 2018, Deputy Attorney General Rod Rosenstein announced the rollout of the “Justice Manual” – a revised and renamed version of the U.S. Attorneys’ Manual, a long-used reference for Department of Justice (DOJ) policies and procedures.[1] The most significant changes appear to be confined to anticipated codifications of well-publicized new policies (although one such policy was, puzzlingly, omitted). But some other changes have not been previously addressed by Department leadership, and may provide insight into the Department’s mindset in light of recent events.

The recent rollout was the culmination of a yearlong review and overhaul of the Manual, the first in more than 20 years.[2] This initiative to streamline DOJ policies and revamp the U.S. Attorneys’ Manual was announced by Deputy AG Rosenstein last October in a speech at NYU. Rosenstein explained in his initial announcement that the project would work to identify redundancies, clarify ambiguities, eliminate surplus language, and update the Manual to reflect current law and DOJ practice, including through the incorporation of outstanding policy memoranda.[3] According to DOJ’s recent announcement, the name change from “U.S. Attorneys’ Manual” to “Justice Manual” not only reflects this significant undertaking by DOJ employees, but also emphasizes the applicability of the Manual to the entire Department, beyond the U.S. Attorneys’ Offices.[4] Continue reading