Canada: Update on DPAs (Deferred Prosecution Agreements) in Canada

Business ethics and anti-corruption world

Deferred Prosecution Agreements and Non-Prosecution Agreements

Deferred Prosecution Agreements (DPAs) are sentencing agreements negotiated between a prosecution authority and a corporation charged with an offence, usually in the context of white collar crime. A typical DPA will include an admission of wrongdoing and of the relevant facts giving rise to the criminal charges, payment of a financial penalty, waiver of statutory limitation periods, cooperation with future investigations, fulfilment of strict compliance and remediation requirements, and restraint from issuing exculpatory media statements.

Using a DPA, the prosecuting authority will file criminal charges at court along with a concurrent request to defer or suspend the prosecution. If the corporation fails to fulfill the terms of the DPA agreed to, the prosecutor can proceed with the charges at a later date because the company has waived the statutory limitation periods as part of the DPA. Where a company successfully fulfills the terms of the DPA, the relevant authority will move to dismiss the charges, which has the effect of avoiding a conviction.

Non-Prosecution Agreements (NPAs) are similar sentencing tools to DPAs, except that charges are not registered at court.

Effects of the Unavailability of Deferred Prosecution Agreements in Canada

While DPAs are frequently used to settle white collar crime cases in the United States (US), and will soon be available in the United Kingdom (UK) pursuant to the Crime and Courts Act 2013, they are not yet available in Canada.

The unavailability of DPAs in Canada has a significant impact on Canadian companies and Canadian subsidiaries as enforcement of corporate crime statutes continues to increase in Canada. This is particularly true in regard to the Corruption of Foreign Public Officials Act (CFPOA), which has seen heightened enforcement and was recently strengthened to include provisions similar to US and UK legislation and which will likely result in even more enforcement. However, Canadian prosecuting authorities and defendants have not been given the same tools as are available in the US and soon in the UK to settle cases in a manner that permits authorities to obtain adequate remedies, while permitting companies to mitigate the adverse effects of convictions, including debarment from entering into government contracts.

Canada Should Have DPAs

Because Canadian corporations do not benefit from DPAs, they must choose between defending potential charges in court, while incurring legal fees and facing uncertain results, or pleading guilty, which guarantees a conviction and the consequential results of that.

The lack of DPAs means that Canadian corporations are at a disadvantage compared to corporations in the US, and soon in the UK as well. While a corporation may decide to disclose wrongdoing jointly to authorities in the US in the hopes of negotiating a DPA, there is no such prospect in Canada. For multinational corporations, this poses a problem as a disclosure in the US that also requires a disclosure in Canada could lead to a DPA in the US, but there is no such mechanism in Canada.

A guilty plea to a CFPOA offence can have serious consequences in Canada. Corporations which plead guilty or are convicted of offences under the CFPOA face large fines, and must operate with a criminal record. Corporations may only apply for a record suspension (formerly a pardon) 10 years following the completion of their sentence. It should be noted that directors, officers or employees who are found guilty also face fines and a criminal record, and can be imprisoned for up to 14 years.

After pleading or being found guilty, and prior to a record suspension, public companies may be required to disclose their conviction if it is viewed as a material change or a material fact as part of their disclosure requirements under provincial securities legislation. Corporations may also be disqualified from bidding on certain government contracts where disclosure of criminal charges is mandatory. In Quebec, for example, An Act Respecting Contracting by Public Bodies requires automatic debarment from the public sector bidding process where a corporation, or a majority shareholder, director or officer of the corporation, has been found guilty of prescribed offences in the 5 preceding years, including CFPOA offences. The Act Respecting Contracting by Public Bodies applies to contracts relating to construction, supply or rental of goods or services, and public-private partnerships where public funds are spent, and authorization to participate in the tendering process may be refused for a number of other reasons.

A criminal conviction also brings greater public scrutiny, along with the potential for costly shareholder class actions and possible consequences in foreign jurisdictions based on the Canadian conviction, including a range of sanctions by international organizations.

Moreover, Canadian affiliates are at greater risk of prosecution where an American or UK parent company or subsidiary admits in a DPA to incriminating facts relating to a Canadian entity, or where a corporation admits to facts in relation to a charge in one country that implicates violations in others. Canadian authorities may also work closely with investigation and prosecution authorities in other countries, as they did in the Niko Resources investigation. A corporation may be able to enter into DPAs in the US or the UK in relation to one set of facts, but Canadian prosecutors would be required to decide whether or not to prosecute based on that set of facts in Canada.

As such, voluntary disclosure and selfreporting in Canada is not as beneficial as it can be in the US, specifically because Canadian prosecutors do not have clear authority to defer prosecution and enter into DPAs. DPAs would offer a mutually beneficial solution to Canadian corporations and prosecutors alike. There would be a greater incentive to self-reporting which would reduce substantial investigation and prosecutorial costs incurred by authorities, while also reducing the costs and risks involved for corporations.

With the strengthening of the CFPOA, Canada should also consider providing investigators and prosecutors with new tools. The benefits of implementing DPAs in Canada are clear. DPAs are an efficient means of increasing corporate compliance and encouraging selfreporting, while minimizing expenses incurred by investigators, prosecutors, and corporations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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