A Delaware judge dismissed a lawsuit on May 16 by Wal-Mart Stores Inc.
shareholders who had alleged the corporation's management had
covered up and failed to properly investigate bribes paid by
executives in Mexico, finding that an earlier dismissal by an
Arkansas judge into the same allegations precluded the Delaware
case from going forward.
The dismissal ended litigation stemming from a 2012 New York
Times article alleging Wal-Mart had shut down an internal probe and
failed to notify U.S. or Mexican authorities after its initial
investigation found evidence of suspect payments totaling more than
$24 million. The CEO of Wal-Mart's Mexican subsidiary had
allegedly authorized bribes to quickly secure construction permits,
zoning approvals and licenses with the goal of expanding before
competitors could react.
Although largely decided on procedural grounds, the case
provides a useful reminder of the risks companies face outside a
regulatory framework when faced with allegations of corruption. In
the Wal-Mart case, shareholders brought derivative claims against the
corporation's directors and executives for, among other things,
breach of fiduciary duty, allowing the corporation to violate laws,
and violations of the Securities Exchange Act. Companies
will face similar issues under Canadian law.
In addition to shareholder actions brought on behalf of the
corporation against its directors, a corporation itself may be
liable to shareholders or subject to other sanctions if it fails to
properly investigate or disclose allegations of wrongdoing. The
corporation's continuous disclosure obligations under Canadian
securities legislation may in certain circumstances require
disclosure of potential or ongoing regulatory enforcement in its
public filings, particularly if the enforcement is or could
reasonably be expected to have a significant effect on the
corporation's share prices. Among other things, companies could
face misrepresentation claims from shareholders or potential
sanctions from regulatory authorities for failing to meet their
It will often be difficult to determine whether a particular set
of allegations needs to be included in the corporation's
filings, particularly in the early stages of an investigation.
Anti-corruption allegations may encompass any number of scenarios,
from unsubstantiated allegations asserted by disgruntled employees
to widespread wrongdoing undertaken by management. Whether
potential wrongdoing constitutes a material fact subject to
disclosure obligations under Canadian securities law will depend on
a number of factors, including the scope of the alleged misconduct,
attention from enforcement agencies and the corporation's
assessment of the truth of the allegations following investigation.
As such, corporations should seek advice from their corporate
counsel as to whether and at what stage potential enforcement needs
to be disclosed, and the scope of disclosure that is required to
satisfy the disclosure obligations while at the same time not
prejudicing the corporation's ability to defend collateral
Above all, companies need to vigorously investigate any
allegations received, both to determine the veracity of the
allegations and so as not to be seen as turning a blind eye to any
wrongdoing which has occurred. Such investigations should ideally
be undertaken under the guidance of external counsel, with an eye
to determining the extent of the wrongdoing, remediating any issues
and deciding whether disclosure needs to be made to the regulator.
By properly investigating allegations and undertaking a detailed
analysis of whether they meet public disclosure obligations,
companies can diminish the risk of further legal exposure.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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