Canada: Guidance From Canada's First Remediation / Deferred Prosecution Agreement For Foreign Corruption

The recent Court-approved Remediation Agreement ("RA"), between the Public Prosecution Service of Canada ("PPSC") and Ultra Electronics Forensic Technology Inc. ("UEFTI"), provides important guidance on procedural and substantive issues for future cases. The agreement ("UEFTI Agreement") arises from charges against UEFTI for bribing Philippine officials to secure government contracts. This case should be reviewed carefully by any organization considering the potential negotiation of an RA to avoid criminal conviction in any settlement of allegations or charges relating to foreign or domestic corruption, fraud, insider trading, money laundering or other offences within scope of this RA mechanism.¹

As the first RA in Canada to deal with offences under the federal Corruption of Foreign Public Officials Act ("CFPOA"), and the second RA since the implementation of this mechanism in 2018, the Quebec Superior Court's decision and findings provide valuable insights into how Canada's RA regime works in practice, including:

• The approval hearing is public by default (subject to any tailored confidentiality, redaction, sealing, or other orders justified in the circumstances). The approval hearing will usually not be held in camera unless the general requirements of s. 486 of the Criminal Code ("CC") are satisfied: excluding the public must be in the interest of public morals, the maintenance of order or the proper administration of justice, or be necessary to prevent injury to international relations or national defence or national security. Settlement privilege concepts alone, without more, do not justify holding an RA approval hearing in camera. However, if a Court refuses to approve an RA, the approval hearing will remain confidential and only the order and reasons declining approval will be published.
• While compensation of victims is a central theme of Canada's new RA regime, an RA that does not provide for victim compensation can receive approval if the Court is satisfied that compensation is not practicable and the other statutory objectives are served by the RA.
• As the Court's assessment of an RA is based on the agreed statement of facts jointly presented by the prosecution and defence, there is little room for third parties to object to the terms or factual premises of a proposed RA. In this case, a third party claimed to be a victim, but was characterized by the parties as being involved in the bribery scheme as a local agent of UEFTI, and the Court accepted this.
• When assessing whether the RA should be approved, the Court should consider additional factors, which complement those considered by the prosecutor at the negotiation stage, allowing for a broader contextual analysis of the public interest criterion, including "whether the organization remains commercially viable in order to benefit innocent third parties which could impact positively on our national economy" - a notable contrast to s. 715.32(3) of the Criminal Code which prohibits the prosecutor from considering the "national economic interest" when determining whether it is in the public interest to enter into negotiations for an RA that relates to CFPOA offences.
• Though the Court plays a crucial public oversight role at the approval stage in scrutinizing a proposed RA, an approving Court owes a proposed RA considerable deference, in line with the jurisprudence on joint submissions on sentence.

What's an RA? A Made-in-Canada Deferred Prosecution Agreement

For a more fulsome overview of Canada's young RA regime, see our previous posts, Deal or No Deal - Anticipating the First DPA/Remediation Agreement in Canada and Bridges, Bribes and Possible Bargains: Paving the Way for Canada's First Remediation Agreement.

Briefly, an RA - commonly known as a Deferred Prosecution Agreement in other jurisdictions - is an agreement between a prosecutor and an organization facing charges whereby the accused organization admits wrongdoing and agrees to stipulated remedial obligations. In exchange, the prosecutor stays the charges, and eventually withdraws them upon completion of the remedial steps.

Canada introduced its RA regime in 2018, bringing Canada in line with the United States, the United Kingdom and many other countries. In Canada, RAs are available only to organizations, not individuals. Indeed, much of the enforcement action under the US Foreign Corrupt Practices Act, and more recently under the UK Bribery Act, arises in the context of deferred prosecution agreements.

The intended benefits of an RA regime to the prosecution include the encouragement of voluntary disclosure of wrongdoing, cooperation with efforts to redress past misconduct, and self-reform to avoid future misconduct. Defendants benefit from the eventual withdrawal of charges and from avoiding a conviction, which can lead to severe legal consequences, like debarment under Canada's Integrity Regime, which disqualifies a company from domestic government contracts (for a more detailed explanation of this legal consequence, see the third topic in our previous post, Bridges, Bribes and Possible Bargains: Paving the Way for Canada's First Remediation Agreement). A defendant might also reduce reputational harm by actively cooperating with efforts to remediate wrongdoing.

Both the prosecution and the defence may benefit from avoiding a full criminal trial, which delays accountability to stakeholders and can be complex and expensive. Cases involving alleged wrongdoing abroad, like bribery of foreign officials or unethical sourcing of goods, can be particularly time-consuming and resource-intensive to investigate, prosecute, and defend, making RAs a potentially very attractive alternative to litigation. The UEFTI Agreement marks the first RA in a fundamentally international case, which is an intended use case for the RA regime.

What is the UEFTI Agreement about?

UEFTI is a Montreal company specializing in law enforcement technology and services that match spent bullets and cartridge casings to firearms, and includes the Royal Canadian Mounted Police ("RCMP") among its clients.

On September 20, 2022 UEFTI and four of its executives were charged by the RCMP with the following offences under the CFPOA and the CC:

• Bribery of a foreign public official - CFPOA s. 3(1)a)
• Bribery of a foreign public official - CFPOA s. 3(1)b)
• Defrauding the public - s. CC 380(1)a)

The defendants were alleged to have directed local agents in the Philippines to bribe foreign public officials to influence and expedite a multi-million-dollar procurement contract for a ballistic identification system for the Philippine National Police. UEFTI paid approximately $4.4 million in "commissions" to local agents responsible for disbursing bribes. Some of this money was used to pay bribes, and some was used for legitimate purposes. The amount paid in bribes, and to whom, could not be readily identified. The allegations were admitted by UEFTI in a detailed agreed statement of facts as part of the UEFTI Agreement.

The UEFTI Agreement includes the following conditions:

1. A penalty of $6,593,178; a surcharge of $659,318; and forfeiture of $3,296,589 for the advantage obtained from the wrongful conduct;
2. UEFTI must cooperate with any investigation or prosecution related to the offences;
3. UEFTI must report to the PPSC on the implementation of the agreement; and
4. UEFTI must abide by the terms of an anti-bribery and corruption program under the supervision of an external auditor, retained at UEFTI's expense.

If all conditions have been satisfied after four years, the charges against UEFTI will be withdrawn.

Ruling on in camera request: R. c. Ultra Electronics Forensic Technology Inc. (UEFTI), 2022 QCCS 4401

Before holding the approval hearing itself, the Court dealt with a joint request from the parties that the hearing be held in camera. The new RA regime is silent on the issue, requiring a first-principles analysis from the Court. The Court emphasized the importance of the open court principle, while considering the following factors favouring an in camera hearing:

• A desire to remain out of the public spotlight for as long as possible;
• The uncertainty of the final outcome, both in terms of the agreement's approval and a definite stay of proceedings;
• The extensive disclosure obligations required to obtain the Court's approval, as specified in 715.34(1)and (3);
• In the case of a publicly-traded company, a possible negative impact on its share price or its net worth;
• The detrimental impact of incriminating information on innocent third parties;
• A disincentive to fully share incriminating information;
• The irrelevance of certain information shared with the prosecutor during the negotiation stage of an RA that could end up in the public domain; and
• The less complicated management of sensitive information.

The Court declined to grant an in camera hearing, endorsing a strong view of the public's interest in transparency of judicial proceedings. The Court noted that, unlike the negotiation stage, the approval of an RA requires Court scrutiny. The administration of criminal law is a matter of public order. A Court's approval lends the Court's credibility to the process, and is mandated by the CC. This reassures the public that the negotiated agreement is not the result of the undue influence or weight of "big business" and that wealth does not automatically command a favourable result. With the exception of promoting voluntary disclosure by wrongdoers, the purposes of the RA regime tend to favour public approval hearings: denunciation, accountability, ensuring respect for the law, reparation of victims, and sparing innocent third parties from the consequences of the wrongdoing.

Section 486 of the CC, a general provision outside the RA regime, contemplates in camera hearings in some circumstances. While future RA approval hearings might fall within the purview of s. 486, the UEFTI Agreement did not. Notably, while the UK's RA regime (on which Canada's regime was partly modelled) contains provisions that allow for in camera hearings at two different stages, Canada's does not, and this likely reflects legislative intent.

The Court rejected that settlement privilege entitles parties to an in camera approval hearing, even though the hearing would entail the parties noting their negotiations in order to convince the Court it should approve the proposed RA. The Court was not directed to any case where settlement privilege was found to justify an in camera hearing. The CC expressly contemplates publication of aspects of an approved RA's content and circumstances, in order to achieve public accountability for wrongdoing. If a proposed settlement is not approved, then admissions made under negotiation will remain privileged and can never be used against their maker.

The comprehensive publication ban in force during the approval hearing is generally extinguished once a Court approves an RA. Nonetheless, tailored confidentiality orders may be appropriate at this later stage depending on the circumstances of the case, including focused publication bans and/or redactions to preserve the anonymity of certain victims for safety reasons or to protect the fair trial rights of other individual accused who are awaiting trial on charges related to those filed against an organization (as was the case here).

Approval Decision (as of writing, unreported)

Court approval of an RA is subject to the following statutory conditions under s. 715.37(6):

1. the organization is charged with an offence to which the agreement applies;
2. the agreement is in the public interest; and
3. the terms of the agreement are fair, reasonable and proportionate to the gravity of the offence.

A Court must approve an RA if these conditions are met.

Is the RA in the "Public Interest"?

While the CC is silent on what constitutes the "public interest" at the approval stage, the Court in UEFTI agreed with the approach taken in SNC-Lavalin: an approval hearing Court may draw inspiration from the CC's public interest factors for prosecutors weighing whether to negotiate an RA found in ss. 715.32(2)(a) to (i).² To those enumerated public interest factors, the Court in UEFTI added the following factors to consider in assessing the public interest at the approval stage:

• Whether the organization remains commercially viable in order to benefit innocent third parties which could impact positively on our national economy;
• Whether the agreement avoids a lengthy, complex and expensive criminal investigation;
• whether the agreement avoids lengthy, complex and expensive criminal and/or civil litigation;
• For transnational offences, the extent of collaboration that can be expected from a foreign state at the police investigatory stage;
• The extent and sincerity of the collaboration offered by the organization to state authorities; and
• The degree of confidence and certainty generated by the terms of an RA that further offences will not occur.

The Court held that considering these factors, in addition to the CC's prosecutorial public interest factors, would help the public better understand why RA approval is given or withheld.

Is the RA "fair, reasonable, and proportionate"?

The Court also elaborated on how to assess whether an RA is fair, reasonable, and proportionate. An RA must be fair to all parties directly and indirectly affected by its terms, including the complainant, accused, and community. Reasonableness is assessed according to the standard of a reasonable and informed person aware of all the circumstances of the file. Proportionality must balance goals like denunciation and deterrence without being out of proportion to the accused's moral blameworthiness.

Drawing from criminal sentencing jurisprudence, the Court held an RA should be approved if it:

• Denounces the wrongdoing and the harm caused to victims and the community;
• Imposes effective, proportionate, and dissuasive penalties;
• Imposes corrective measures to ensure respect for the law and to promote a compliance culture;
• Provides reparations to victims or to the community;
• Reduces the negative consequences of the wrongdoing on innocent third parties; and
• Holds responsible individuals who engaged in wrongdoing.

What is the appropriate degree of deference?

The Court noted that the approval hearing is non-adversarial, as the prosecution and defence jointly submit a negotiated RA based on an agreed statement of facts. The process does not contemplate dissenting views or contrary evidence. The Court agreed with the parties, and the previous SNC-Lavalin holding, that a reviewing Court should take a deferential approach to reviewing proposed RAs, on analogy to the stringent test that applies to a joint submission on sentencing.³

Briefly, the Court noted that deference is warranted in these cases because:

• RAs are often arduously negotiated;
• an expectation of approval promotes voluntary disclosure;
• deference respects that the accused has cooperated and divulged information to the prosecution during negotiations which could damage its defence should the matter proceed to trial if the RA is unexpectedly rejected by the Court (the Court emphasized the UEFTI's cooperation was "exemplary");
• in an RA context, a Court is not able to impose terms different from those proposed by the parties; the Court has limited options other than approving or rejecting an agreement; and
• RAs carry many advantages, such as compensation for victims, rehabilitation of organizations, government collection of penalties, and the avoidance of complex and lengthy litigation.

The Court signalled that the degree of deference owed to an RA is high, even when compared to the deference owed to a joint submission on sentence: "When compared to the joint sentence submission context, the accused collaborates by offering a guilty plea; in the joint remediation agreement context, the accused organization collaborates by providing incriminating evidence of criminal activity. The collaboration in the latter context is very significant."⁴

Questions of Victim Compensation and Standing

In reviewing the UEFTI Agreement, the Court confronted two main issues.

First, the Court addressed the unavailability of information relating to quantum of victim compensation. The UEFTI Agreement makes no arrangement for compensation of victims. The CC does not require compensation of victims in an RA, but mandates consideration of this factor, and clearly makes reparations a central concern of the RA regime. The Court accepted the parties' submission that it was too hard to identify tangible losses to specific victims. UEFTI's system is a valuable service that is functioning as intended, even if the contracts were tainted by bribes. It was impossible to determine how much was paid in bribes and to whom. It was impossible to determine the fair value of UEFTI's legitimate business that could have ensued through a fair and unimpeded procurement process. UEFTI's unique services made it difficult to quantify the loss suffered by any competitor disadvantaged by the unfairness of bribing procuring officials.

The Court also explained why it accepted the approximated figures of the forfeited sum and penalty paid to the Government of Canada ($3.3 million and $6.6 million respectively). Regarding forfeiture of ill-gotten gains, Philippine financial statements were unavailable, and it was impossible to disentangle proceeds of bribery from legitimate proceeds. The value of the contracts and the amount paid in commissions to local intermediaries were known approximately ($17 million and $4.4 million respectively) but the amount paid in bribes was unascertainable. The penalty was consistent with sentencing principles and jurisprudence, including that penalties for bribery are usually far greater than the amount paid in bribes. A $660,000 victim surcharge was then fixed by a statutory formula. The Court gave a nod to the principle that the costs imposed by RAs can never be allowed to be seen as "just another cost of doing business", echoing comments made in SNC-Lavalin.

Second, a Philippines-based business, Concept Dynamics Enterprises ("CDE") sought standing to intervene as a victim. However, according to the parties, CDE was complicit in the bribery as a local agent of UEFTI. CDE denied it had engaged in any wrongdoing, claimed it had been misled and used, and was in fact a victim of the scheme. CDE's principal claimed he was coerced into paying UEFTI's bribes.

The parties to the RA submitted that (1) CDE is not a party to the RA and lacks standing, (2) the Court's approval is based solely on the agreed statement of facts and there is no basis to challenge that version of events, and (3) in any event CDE was a willing participant in the bribery and fraud. The Court sided with the parties.

Additional Reflections

This decision confirms that, unlike civil litigation settlement agreements, the RA regime has firmly entrenched publication requirements and in camera approval hearings will not be easily granted. Parties considering an RA should be prepared for this.

Despite the heavy statutory emphasis on compensation of victims, this case shows this is not always straightforward. It is not always clear who, if anyone, is a victim for RA purposes in bribery cases (in this case was it the Philippine public? the Canadian public? UEFTI's competitors who were deprived of a fair bidding process?). While the Court noted that part of the difficulty was a result of the peculiar facts (UEFTI's products/services are very unique and there is no clear competitor who would have otherwise won the contract), ambiguity around victims and loss in bribery cases may be an inherent aspect of the offence, in contrast to, for example, fraud or theft.

The decision does not conclude that there were no victims as a result of UEFTI's bribery of foreign officials, but rather that their identities and the loss they suffered could not be identified with sufficient precision. As bribery of foreign officials appears to be an intended use case for the new regime, difficulty identifying victims and quantifying their loss will continue to be an ongoing challenge in corruption cases going forward, and one that might advantage or disadvantage the accused depending on how penalties are calculated.

Another notable element of the Court's decision approving the RA is its observation that it should consider "additional factors [that] complement those considered by the prosecutor at the negotiation stage" which "allows for a broader contextual analysis of the public interest criterion".⁵ Such factors, according to the Court, include "whether the organization remains commercially viable in order to benefit innocent third parties which could impact positively on our national economy".⁶ The Court's comments in this regard are particularly interesting in light of the public debate that arose when SNC-Lavalin was seeking an invitation to negotiate an RA in connection with CFPOA and CC charges relating to its dealings in Libya (that case ultimately resulted in a guilty plea, not an RA - see our post at SNC-Lavalin Pleads Guilty in Canada's Most Significant Foreign Corruption Case to Date). Section 715.32(3) of the CC prohibits the prosecutor from considering the "national economic interest" when determining whether it is in the public interest to enter into negotiations for an RA that relates to CFPOA offences. This is intended to reflect Canada's obligations under Article 5 of the OECD's Convention on Combating Bribery of Foreign Public Officials in International Business Transactions which provides that investigations and prosecutions of foreign corruption should not be "influenced by considerations of national economic interest". Some, including the OECD Working Group on Bribery, had expressed concern that the Canadian government might consider the impact of national economic interest factors, such as potential job losses, in considering whether to negotiate an RA with SNC-Lavalin. The Court's decision in this case appears to further muddy the waters on how prosecutors and courts should be addressing possible job losses and other factors potentially relating to national economic interest when negotiating and approving RAs in respect of CFPOA charges. By taking into account a company's continuing commercial viability and the resulting benefit to the Canadian economy, is the Court in UEFTI not taking into account "national economic interest", which prosecutors are prohibited from considering in relation to CFPOA cases pursuant to s.715.32(3)? Is it reasonable for the Court to take into account a factor in its approval of an RA that the prosecutor cannot take into account when determining whether to enter into negotiations for that RA?

Finally, we note that in its decision the Court hints that the justification for deference to an RA may be even greater than for a joint submission on sentence. A highly deferential judicial approach to RAs is not without its dangers. For example, an agreed statement of facts is a central component of an RA, and it can be expected to 'point the finger' at individuals allegedly responsible for the offences admitted by the organization. The interests of the party negotiating the agreed statement of facts - the organization - may not align with some or all of the individuals under police suspicion; indeed, this seems likely. While an individual named as a perpetrator or co-conspirator in an agreed statement of facts is not stuck with the organization's admissions, those admissions can create a perspective or momentum about the facts that may be, practically speaking, highly adverse to the individual and, potentially, even unfair or unreasonable to the individual's defence. At what point are the facts in an agreed statement of facts too vague or too unfounded to meet the fairness and reasonableness aspects of judicial approval? These questions remain to be considered in future cases, on other facts.

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Footnotes

1. See Schedule to Part XXII.1 of the Criminal Code.

2. R. c. SNC-Lavalin inc., 2022 QCCS 1967 (CanLII), at para 163

3. Outside of the context of RAs, a joint submission as to sentence by the prosecution and the defence is to be followed unless "the proposed sentence would bring the administration of justice into disrepute, or would otherwise be contrary to the public interest": R. v. Anthony-Cook, 2016 SCC 43 (CanLII), [2016] 2 SCR 204; R. v. Nahanee, 2022 SCC 37 (CanLII)

4. Approval decision, at paragraph 62.

5. Approval decision at paragraph 32.

6. Approval decision at paragraph 31.