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Canada needs new tools to fight corporate wrongdoing

John Manley is president and chief executive officer of the Canadian Council of Chief Executives.

For more than a year, public policy experts across Canada have hotly debated the federal government's strict anti-corruption rules, which are aimed at ensuring that Ottawa does business only with ethical suppliers.

I'm among those who believe the so-called "integrity framework" is unfairly harsh and denies due process, so I welcomed the government's recent announcement that it plans to introduce a new integrity regime that fosters ethical business practices while protecting the rights of all concerned.

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While we're at it, let me suggest that this would be an ideal time for a more wide-ranging discussion about how Canada investigates, punishes and deters corporate wrongdoing.

The vast majority of corporate crimes are committed by a single individual or a handful of employees acting in their own self-interest. It's therefore vital to create an environment that encourages employers to come forward, report what they know and co-operate with investigators.

In Canada today, prosecutors have just three options if they believe a corporate executive or company has engaged in unlawful conduct. They can try to negotiate a guilty plea, go to court in hopes of securing a conviction or opt not to bring charges.

There's an obvious problem with this limited menu of choices. A guilty plea or a conviction can preclude a company from doing business with key customers in government, the private sector and international organizations, both in Canada and elsewhere. As a result, there is a strong disincentive for firms to report corruption or co-operate with authorities.

A number of other advanced economies – most notably the United States and Britain – have adopted a different approach that, to my mind, makes far more sense. Prosecutors in those countries have an additional tool at their disposal when faced with wrongdoing: They can negotiate a settlement with the corporate defendant for crimes committed by its employees, subject to specified and onerous conditions.

These "deferred-prosecution agreements" allow charges against a corporate defendant to be stayed, provided that the firm pays a substantial penalty, implements new compliance measures and avoids future wrongdoing.

If a company subsequently fails to abide by the settlement terms, prosecutors can easily revive the charges and press for a conviction. On the other hand, if they are satisfied that the company has lived up to its commitments, they can choose to eventually drop the charges.

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Deferred prosecution agreements and similar alternative-enforcement mechanisms act as powerful incentives for firms to disclose ethics breaches and co-operate with authorities – co-operation that leads to higher levels of enforcement.

In today's complex and interdependent global economy, corporate crimes are increasingly difficult to detect, deter and prosecute. This is particularly true when the alleged wrongdoing involves multiple jurisdictions, each with its own laws and enforcement procedures.

The challenges are compounded when some countries provide alternative enforcement mechanisms and others do not. A company that wishes to co-operate with prosecutors in one jurisdiction may think twice if the information it discloses could be used against it in another country where the enforcement regime is more draconian.

Canada's failure to provide prosecutors with alternative enforcement tools therefore serves as an obstacle to law-enforcement authorities in other countries, to the benefit of corporate offenders. If Canada is serious about fighting corporate crime, we must align ourselves with our major economic partners. Until we do, Canada will remain at a competitive disadvantage in terms of attracting foreign investment from companies that do not want to expose themselves to an uncertain enforcement regime that creates additional legal risks.

The use of deferred-prosecution agreements increased significantly in the U.S. after the Enron Corp. scandal, which led to the collapse of the accounting firm Arthur Andersen LLP and the loss of thousands of jobs. The lesson was obvious: When companies are convicted for the actions of rogue employees, innocent people suffer.

The case for alternative enforcement mechanisms has nothing to do with corporate offenders being "too big to fail" or "too big to jail." Rather, they can be a much-needed addition to Canada's anti-corruption arsenal – a means of combatting corporate crime and punishing the guilty without hurting others who have done nothing wrong.

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