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Thursday Thinkpiece: Kaiser on Civil Liability for Corporate Crime

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Corporate Crime and Civil Liability
Gordon Kaiser
Toronto: LexisNexis Canada, 2012

Introduction

The past 20 years have seen a dramatic increase in corporate crime (or at least the detection and prosecution of corporate crime) such that this area now concerns virtually all corporate lawyers. This concern is heightened by civil litigation that invariably follows criminal prosecutions spurred on by class-action lawyers.

There are a number of corporate crimes. This book concentrates on four of them: fraud; competition law; securities; and anti-bribery. The first two have been around for many years. The Competition Act was first enacted in 1889, one year before the United States Sherman Act. Fraud has been around as long. More recent is securities legislation. The modern legislation was first enacted in Ontario in 1945 and the other provinces followed.

The newest legislation consists of anti-bribery laws. This initiative began in the U.S. when the Foreign Corrupt Practices Act was enacted in 1977. Serious enforcement activities only began five years ago but the U.S. Department of Justice and the Securities and Exchange Commission (“SEC”) quickly made up for lost time. A more modest version of the U.S. legislation came in the form of the Canadian anti-bribery legislation in 1999. However, in 2011 the United Kingdom Bribery Act was enacted with extensive extraterritorial reach, with more jurisdictions following suit. The Mexican Senate passed legislation in April 2012 and the European Union is drafting anti-corruption laws that will make it illegal for oil, gas and mining companies to bribe officials in resource rich countries. The book considers the significant liability of Canadian corporations under U.S. and U.K., and foreign laws in some detail.

In addition to providing a comprehensive analysis of the four areas of corporate crime identified above, the book analyzes the resulting civil liability that has grown dramatically in recent years. We have now reached the point where the monetary penalties corporations face for certain offences are greater in civil judgments than criminal fines.

There is often a relationship between Canadian legislation and American legislation, as well as in court decisions applying that legislation. In many cases the American laws were enacted first and the enforcement has been more aggressive. Both anti-trust and securities law followed this pattern. Similar results can be expected in the anti-bribery area, given recent initiatives in the U.S. The book discusses the interaction of Canadian and American laws in the area of corporate crime and evaluates the impact of American judgments.

The increase in the importance of corporate crime can be traced to six factors: an increase in the scope of offenses; increased penalties; increased detection procedures; increased civil actions; increased individual liability; and increased territorial reach.

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[3] Increased Detection

Much of the increased enforcement of corporate crime in the last 20 years can be traced to enhanced detection procedures. These include immunity programs, whistleblowing, wiretapping and increased international co-operation.

Immunity programs are at the top of the list. There is no better example than antitrust law in the U.S. and competition law in Canada. The Americans invented the immunity programs when the U.S. Department of Justice (“DOJ”) Corporate Leniency Program was introduced in 1978, but it was not until it was reformed in 1993 that a significant number of immunity applications were received. The U.S. program is credited with disclosing cartels involving vitamins, graphite electrodes, marine construction, fine art auctions, nucleotides and DRAM. Many of these cases found their way to Canadian prosecutors.

The essence of the program is that those who first disclose the illegal conspiracy will not be prosecuted. Generally this is restricted to the first party to disclose and requires that the party provide evidence against the co-conspirators. An added incentive was introduced under the American “Immunity Plus” program which also gave leniency to parties that were second in, a concept the Canadians adopted.

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[7] In Summary

This book compares the different criminal statutes to analyze the growing civil liability that results from those statutes.

The catalyst is class-actions. Where corporations commit securities and competition law offences which involve consumers or investors across the nation the potential for huge damages arises. The relationship between the U.S. and Canada in both marketing and investment decisions often leads to parallel actions in both countries. The American litigation often leads the process and that offers Canadian litigants advantages in terms of discovery particularly where, as is often the case, the government acts first using its considerable resources. A close examination of the penalties at both the civil and criminal level, suggests that the civil judgments may now exceed the level of criminal fines.

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