“There is no solution that does not involve interference” — this is what Gerry Butts, the former principal secretary to Prime Minister Justin Trudeau reportedly told the chief of staff to then attorney general Jody Wilson-Raybould, about helping SNC-Lavalin. Wilson-Raybould testified at the justice committee that the prime minister’s staff wanted her to intervene to arrange for a remediation agreement, to avoid SNC-Lavalin going to trial on corruption charges that could result in it being banned from obtaining federal contracts for years.
Butts’ statement was untrue. There is a solution that does not involve political interference with an ongoing prosecution. And it does not require any legislative or regulatory changes. All the government has to do is reform an administrative policy officially known as the Ineligibility and Suspension Policy, usually called the debarment policy.
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THE PROBLEM WITH DEBARMENT
If SNC-Lavalin is ultimately tried and convicted on corruption charges, the debarment policy will prevent it from bidding on federal government contracts for 10 years (reducible to a minimum of five years). This, it is claimed, might mean thousands of people losing jobs at SNC-Lavalin, one of Quebec’s industrial champions, possibly before a federal election that the prime minister almost certainly needs Quebec’s support to win.
The solution the prime minister reached for, however, namely suborning the criminal justice system to achieve a political/economic objective, is the wrong one. Remediation agreements are a useful tool in the prosecutor’s toolbox, but they do not solve the underlying problem, which is that the debarment policy is fundamentally misconceived. Indeed, remediation agreements are not available for conspiracy offences under the Competition Act such as price fixing and bid rigging. That results in a situation where companies that pay bribes have a way to potentially avoid debarment, while those that conspire to fix prices or rig bids do not. Surely bribery is no less reprehensible than big rigging.
The debarment policy is part of the federal government’s Integrity Regime, which was introduced in 2015 with the goal of ensuring that “the government does business only with ethical suppliers in Canada and abroad.” It provides that convictions for a variety of offences of dishonesty, such as bribery of Canadian or foreign government officials, bid rigging, price fixing, and lobbying offences, automatically lead to a determination of ineligibility, or debarment, from Public Works and Government Services Canada (PWGSC) contracts for 10 years. By entering into an administrative agreement with the government, a supplier can have its period of debarment reduced by as much as five years (except in the case of suppliers convicted of certain more serious offences). The policy includes a public interest exception that allows the government to waive debarment in certain cases, including where debarment would have a “significant adverse impact on the health, national security, safety, public security or economic or financial well-being of the people of Canada or the functioning of any portion of the federal public administration.” Thus firms that are considered too big to fail (perhaps SNC-Lavalin) might draw a get-out-of jail-free card, while firms considered less important face a minimum five-year sentence, which may amount to corporate capital punishment.
There are a number of problems with the debarment policy. Most fundamentally, automatic debarment with no hope of reinstatement for five years is not the best way to advance the stated goal of the policy, which is to safeguard the use of public funds by ensuring that the government only does business with ethical suppliers. Certainly a supplier that has been convicted of an offence of dishonesty should face a searching inquiry from anyone proposing to do business with it. The question should be, however, whether the supplier can demonstrate that it has reformed itself sufficiently that it should now be trusted. Since companies only act through individuals, if the individuals responsible for the offence have left, and the new managers have truly committed themselves and the company to clean business, there is no reason to presume that the corporation will not be an ethical supplier.
Second, debarment as it is presently structured is really a further punishment layered on top of whatever the court has ordered in convicting the company. In our criminal justice system, a judge imposes a sentence commensurate with the offence after hearing evidence and submissions from both sides in open court. The judge is required to weigh a series of factors, including whether the corporation has taken steps to avoid the repetition of the offence. Debarment is an additional sentence imposed, not by a judge, but by civil servants, using administrative policies that do not afford either procedural fairness or transparency. The penalty itself may be wildly disproportionate to the offence, since in practice debarment can amount to corporate capital punishment whose impact will be felt by innocent employees and shareholders.
Third, debarment creates an unintended consequence for criminal prosecutions. Most corporations facing criminal charges just want to get it over with. They will frequently plead guilty to offences even when their lawyers tell them they stand a very good chance of succeeding at trial. Executives typically consider it a higher priority to quickly put the matter behind them and get on with business. However, a corporation that depends upon government contracts has no choice but to fight to the very end, essentially for its life, no matter what its chances are.
This, in turn, creates a fundamental unfairness: a firm that self-reports, pleads guilty, and amends its ways suffers debarment. A firm that rolls the dice, goes to trial, and is acquitted, does not.
A REVISION COULD MAKE IT WORSE
In mid-October 2018, the federal government released a draft revised debarment policy for comment, providing an unusually short one-month comment period. The government indicated then that it intended to implement the new policy in early 2019. Yet it still remains under consideration today.
The new policy will increase the discretion available to PWGSC bureaucrats in determining the period of debarment. But not only does it not go far enough towards addressing the shortcomings of the current policy, it makes the policy worse in some respects.
Under the new policy, being convicted of certain offences, including corruption offences and Competition Act offences, will automatically result in a determination that the supplier is ineligible to do business with the federal government. Troublingly, the new policy greatly expands the scope of offences that will trigger debarment. Added to the list are not just Competition Act offences, but also violations of provincial laws, securities offences, certain environmental offences, and violations of the Canada Labour Code. The policy will thus be triggered by relatively trivial infractions such as failing to register a business name (an offence under Ontario’s Business Names Act). Instead of being focused on offences of dishonesty, the new policy will debar companies that have committed minor regulatory infractions that are not even criminal offences.
While debarment remains automatic, there will no longer be any minimum period of ineligibility. Rather, the assistant deputy minister of Public Services and Procurement, who bears the title of “Registrar” under the policy, determines the debarment period after weighing the seriousness of the offence against steps taken by the supplier to address the conduct. Unfortunately, the policy does not make it clear whether the goal of the process is to impose a penalty, or to determine whether the supplier should be trusted. The policy does hint at the latter: “The Registrar will need to be convinced that the circumstances leading to the debarment have been addressed.” The process is opaque. The supplier is not entitled to a hearing or even to make submissions; it is only entitled to provide “written certifications, declarations or other information.”
The new policy empowers the Registrar to enter into “administrative agreements” with an ineligible supplier, which can suspend the period of ineligibility. There is no restriction on when the Registrar can initiate these discussions, but an ineligible supplier must wait three years before requesting an administrative agreement. Moreover, while the policy allows that a remediation agreement can be considered to be an administrative agreement, the policy does not provide for negotiation of an administrative agreement before a company pleads guilty.
A SIMPLE SOLUTION
Businesses tend to prefer outcome certainty to taking a chance in court. The Competition Bureau’s leniency program, for example, has an established track record of encouraging firms to self-report, negotiate a fine, plead guilty and clean up their act. Firms know that courts will almost always agree to impose the fine negotiated by the parties. The program thus allows firms to determine their exposure to fines relatively early on. There is no reason why a similar program could not be effective with corruption offences. Yet the current debarment policy undermines attempts to encourage companies to settle criminal charges because it creates a powerful incentive not to settle. The new debarment policy still fails to provide outcome certainty, which is what businesses need in order to agree to plead guilty. A firm cannot know, before agreeing to plead guilty, whether that guilty plea will allow it to move past its misconduct, or will doom it to failure.
There is a solution that does not involve political interference with prosecutions. It does not involve any legislative or regulatory changes. All the government has to do is overhaul the debarment policy to make it fair for all firms — not just those that are too big to fail.
Originally published by Financial Post
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