Immunity in the spotlight
As the Competition Bureau seeks to streamline its investigative process and consider its immunity and leniency programs, should changes be made or is it working just fine?
By the standards of any news release, even one by a government agency, it was short and not very detailed. In the fall of 2015, the federal Competition Bureau stated that charges had been stayed against the final defendants in an alleged chocolate price fixing conspiracy that had first come to its attention eight years earlier.
The Bureau noted that the decision to stay charges was made independently by the Public Prosecution Service of Canada. “Today’s decision marks the end of the chocolate price-fixing matter. The Bureau continues to investigate allegations of price-fixing and bid rigging in Canada as a top priority,” the news release stated.
More than two years earlier, price-fixing charges under the Competition Act were laid against three companies and three individuals. The charges were in part based on information provided by Cadbury Canada Inc., which had been granted immunity by the regulator. Hershey Canada Inc. was fined $4 million by an Ontario Superior Court judge, following a recommendation by the Bureau for leniency as a result of the company’s cooperation after search warrants were first executed.
No other company or individual was ultimately sanctioned for what was alleged to be a broad conspiracy to fix the price of chocolate confectionary products in Canada between 2002 and 2008.
The same year, 2015, a jury in Ottawa acquitted six individuals and three companies on all charges stemming from a Competition Bureau-led investigation into alleged bid rigging for federal government technology contracts. The Crown later stayed charges against five other defendants who had elected a trial by judge alone.
Both cases were high-profile disappointments for the Competition Bureau and the Public Prosecution Service of Canada. Since that time, the Bureau and its commissioner have made public changes to its organizational structure to try to improve and streamline its investigative process. Reviews were launched of its immunity and leniency programs along with entering into formal partnership agreements with the RCMP and the Ontario Provincial Police.
Last fall, the proposed changes to the immunity program were made public along with a three-month window for submissions — a time frame that ended in late January of this year. This is just the first stage of a process that is likely to take several months before any amendments become law.
One of the more controversial aspects of the proposals, from the perspective of the corporate sector, is that more internal information may be recorded or be required to be submitted in documentary form at an early stage and could then later be disclosed to third parties.
From the perspective of the regulator and the federal prosecution service, the goal is obviously to encourage companies and individuals to come forward when there is evidence of a conspiracy that has resulted in price fixing or bid rigging. As well, once immunity is granted, the hope is that this information will provide a greater likelihood of convictions against other parties following a prosecution.
The reaction to these proposals though, in terms of whether they are needed and will achieve the desired goals, has been somewhat mixed from those who practise in the competition law sector.
“Are two unsuccessful prosecutions sufficient justification to change the whole program?” asks Donald Houston, a partner in the competition law group at McCarthy Tétrault LLP. “On a global level, this not a welcoming document,” he suggests.
Robert Kwinter, a senior competition law partner at Blake Cassels & Graydon LLP in Toronto, says that the Bureau should be careful not to make it too onerous to be granted immunity. “What is the problem you are trying to solve,” is what Kwinter says should be the focus of the rationale for changes to the process.
While there have been cases that have ended without the outcomes that the Bureau likely hoped for, that does not mean the existing framework has been unsuccessful, suggests Danielle Royal, a partner at Stikeman Elliott LLP, whose practice focuses on commercial and competition-related litigation.
“The current immunity program has been an overwhelming success and has enabled the Competition Bureau to secure guilty pleas, collect significant fines and enforce the cartel provisions of the Competition Act in a cost-effective manner,” says Royal. “It is puzzling why the Bureau is proposing significant changes which may change significantly the risk analysis of a company that discovers potential cartel behaviour and is considering seeking immunity,” she adds. Coincidentally, the immunity program was thrust into the spotlight a few days after the proposed revisions were released last October when George Weston Ltd., the parent company of Loblaw Companies Ltd., issued a public statement. It confirmed that it was part of an industry-wide investigation related to alleged price fixing of certain packaged breads between 2001 and 2015. The statement also disclosed that it was co-operating fully with the Competition Bureau.
The announcements resulted in class action lawsuits being filed against Weston/Loblaw and other grocery store companies. Loblaw has also offered a $25 gift card to customers as part of its response to the class action proceedings and the fallout from the price fixing allegations. [Loblaw declined a request for comment as a result of the ongoing Competition Bureau investigation and class action proceedings].
More details about the scope of the investigation were made public on Jan. 31 after the Ontario Superior Court unsealed the information to obtain in support of search warrants in the case. Weston/Loblaw have been granted immunity and are cooperating with the Bureau and the unsealed document alleges that a total of seven companies — including retailers and suppliers, were part of a lengthy price fixing scheme.
Many of the other companies alleged to be part of the price-fixing issued immediate and strongly worded denials of wrongdoing after the release of the information to obtain document.
The timing of the packaged bread investigation, while coincidental, means that one of the regulator’s more high profile price-fixing cases is going to be proceeding under its existing immunity program at the same time as it seeks approval to revise the framework.
Some of the key aspects of the proposed changes are that automatic immunity would not be provided for all directors, officers and employees. This would be decided on an individual basis.
Immunity, if granted, would originally be on an interim basis until it is determined that assistance is not required any longer.
The proffer process, where a lawyer for a company applying for immunity would set out detailed information about the illegal activity and disclosure that would be provided, might be recorded on audio. Currently, the normal procedure is for a lawyer to read out the details in the proffer, sometimes in the form of a hypothetical, while investigators take notes. “The fact is, at the proffer stage, it has been a paperless process,” says Houston.
“Under the existing immunity program, there is clearly an incentive to participate. It creates a race to be first in. It puts a premium on companies to get to the bureau before it has all the facts [in any investigation of its own],” Houston explains.
Michael Osborne, a partner at Cassels Brock & Blackwell LLP, formerly with Affleck Greene McMurtry LLP in Toronto, says the benefits of the immunity program, for companies engaged in wrongdoing such as price fixing, are not complicated. “You are confessing to Competition Act offences. The goal is to rat out your competitors before they rat you out,” says Osborne, who specializes in competition law.
The proposed changes to the first stage of the immunity program, after a company has contacted the Bureau, provided some information and been granted a marker, are the ones that are of the most concern.
The main issue is whether the new process could result in legal advice to a client or other internal privileged information having to be turned over to the Bureau and ultimately to other parties, either in a criminal prosecution or class action litigation.
Any amendments that turn the initial stage of the program into a “papered process” including recordings of counsel or witnesses could increase the civil exposure to applicants compared to parties that don’t self report or seek leniency, notes Royal. “There is the very real potential for these disclosures to turn around and bite them in other jurisdictions and the risks may just be too high compared to the benefits,” she adds. Kwinter suggests there need to be more details on exactly how this process would work. “My view is that the Bureau should make the requirements clearer than in the past. Immunity applicants are required to produce all the facts. I think there is a distinction between facts and legal advice,” says Kwinter, who acted for one of the successful defendants in the chocolate price-fixing prosecution.
One of the stumbling blocks in that case for the federal Crown was a February 2015 ruling by then-Superior Court Justice Ian Nordheimer (he is now on the Ontario Court of Appeal) over disclosure to the defendants. Some information that Hershey had turned over at the proffer stage to be eligible for the leniency program included details from its internal investigation.
Norhdeimer ruled that there was no privilege in this information once it was turned over and the defendants were entitled to disclosure of it under the rules set out by the Supreme Court of Canada in its ruling in R. v. Stinchombe. “Generally speaking, a party who reveals solicitor and client information to a third party will be found to have waived the privilege that would otherwise attach to the information,” wrote Nordheimer.
That ruling was not appealed and the scope of its application continues to be debated among lawyers in the competition law field. However, they agree it has highlighted a need for caution in terms of what is being requested by the Bureau at the proffer stage. “The more detail they expect, the less likely companies are going to see the benefit,” says Kwinter.
The increased possibility that legal advice and information from an internal investigation that goes beyond what is needed to satisfy the immunity requirement is the red flag raised by these proposals, says Houston. “It may make it less attractive to immunity applicants. Some of these changes could impact privilege and access to counsel’s notes,” he says.
Osborne also wonders about the rationale for recording a proffer by a lawyer for a company seeking immunity. “I am not sure I am comfortable with any recording. It will be produceable as part of the Crown brief,” he says. One other proposal, which would permit the Bureau to ask for the information for a proffer to be produced in less than the normal 30 days after a marker is granted, could be a problem, he says. This time period, which includes identifying the wrongdoing and conducting an internal investigation, is already a challenge for any company. “It is expensive and not an easy process,” says Osborne.
In situations where there are allegations of multi-jurisdictional price fixing and Canada is not the most significant location, even the existing 30-day window may be too short for companies to decide to seek immunity in this country, Kwinter points out.
A more common trend in recent years that does not have to do with the formal framework of the program is that there appears to be an expectation by the Bureau for the company seeking immunity to present a “fuller case” to the regulator, Osborne says. “I am not sure that is a good thing. It is better to have the Bureau, rather than the applicant, put the case together,” he says. That way, the investigation is likely to be more independent and of greater value to the prosecution side, he suggests.
Applicants for the immunity program are not seeking an easy path to avoid a Competition Act prosecution, without the potential for fines, restrictions on bidding for government contracts and any other sanctions that might entail from a criminal conviction, Kwinter stresses.
“The whole point of immunity is that the Bureau is going to use it for a prosecution down the road. This is the single most effective tool to investigate price fixing. Information is going to be disclosed. The whole nature of the immunity process is assisting the Bureau,” he says.
The driving force, though, behind any changes that are ultimately put into place should be increased transparency on exactly what is required, says Kwinter. “They should be encouraging companies to come forward.”
Are DPAs the answer?
The issue of alleged corporate wrongdoing and how to investigate and prosecute it effectively has been front and centre for the federal government in recent months.
Along with the request for comment by the Competition Bureau about proposed revisions to its immunity program, the federal government began its own consultation process on a related subject — deferred prosecution agreements.
The purpose, the government stated, was to determine if it had the “right tools” in place to address corporate crime and whether its “tool kit” should include a deferred prosecution regime.
Its deadline for feedback was last December and while it is still early in the process, there appears to be momentum to move forward with adding this as an option to try to deter illegal corporate conduct.
In short, these types of agreements would suspend a criminal prosecution for a specific period of time. During that period, there would be terms that must be followed such as identifying responsible individuals, enhancing compliance measures and the imposition of financial penalties. At the end of the term of the agreement, if there is full compliance, the criminal charges are withdrawn.
A process in which a company does not have to enter a guilty plea for illegal conduct has obvious long-term benefits, such as reducing the likelihood of prohibitions on bidding for government contracts.
The challenge, though, is to convince the public that this is not another way for corporations to pay financial penalties as the so-called “cost of doing business” without any executives or other high-level employees facing criminal prosecution and the possibility of ending up in prison.
“The availability of another tool makes sense,” says Andrew Matheson, a litigation partner at McCarthy Tétrault LLP in Toronto, who specializes in white collar and securities defence. At the same time, he agrees there is public cynicism about prosecutions of these types of offences. “Critics of DPAs suggest this can diminish the likelihood of the prosecution of individuals and result in shareholders paying most of the cost,” he notes. “Entering into a DPA, though, is no light undertaking. It will involve a lot of time and effort and potentially significant admissions,” Matheson says.
Mark Morrison, a partner at Blake Cassels & Graydon LLP in Calgary, says the public interest can be addressed by ensuring there is a “properly structured” framework in place. “It could lead to more prosecutions rather than less. DPAs should be seen as ensuring genuine compliance reform and as a way to pursue the actual wrongdoers,” says Morrison, who is co-chairman of the firm’s business crimes, investigations and compliance group.
DPAs have been in place in the United States to deal with white collar crime since the early 1990s. In fact, the original concept originated in that country in the 1930s to deal with juvenile offenders. In the United Kingdom, legislation creating this option to deal with corporate wrongdoing took effect in 2014.
The application of these agreements differs significantly in the two countries. In the U.S., they can also be entered into with individuals, which is not the case in the U.K. Under the British model, they apply to specific listed offences such as bribery and money laundering and there is a greater oversight role for the courts.
A report issued by Transparency International (Canada) last summer analyzed the process in place in different jurisdictions and suggested that the framework in Canada should lean more toward the British model. Morrison, who is on the board of the organization, says that “on balance” the U.K. process is more effective.
“For a DPA regime to be effective, there has to be transparency. In the U.S., there is no real third-party oversight,” he says. At the same time, any new framework that is established in Canada should focus on what would be most effective in this country and not simply adopt the model from another country, says Morrison.
Reviewing how these frameworks have played out in other jurisdictions is something the federal government should do carefully, agrees Matheson. The U.S. model, for example, gives a lot of discretion to prosecutors. Any Canadian framework might benefit from a certain amount of judicial oversight, says Matheson, as long as the role of the court is set out clearly.
“I see the argument for enhanced oversight but not adjudication. The court is not being asked to adjudicate as in a contested hearing, only to decide on reasonableness,” he says. In a comparison to a plea agreement in a traditional criminal proceeding, Matheson says the legal threshold “should be at least as high or higher” for a judge to decline to approve the terms of a deferred prosecution agreement.
Some court oversight will assist in addressing concerns that these agreements are in the broader public interest, Morrison says.
The overarching goal of a deferred prosecution framework should be to “incentivize” companies to develop stronger compliance, he states. That requires some benefit in exchange for self-reporting. “Under the current regime, if a company fixes the problem, why would it also die on the sword?” he says.
Immunity program proposed changes
• Automatic coverage under a corporate immunity agreement for all directors, officers and employees will no longer be provided. Instead, individuals that require immunity will need to demonstrate their knowledge of the conduct in question and their willingness to co-operate with the Bureau’s investigation.
• Documentary and testimonial evidence will be provided under an Interim Grant of Immunity. Final immunity will be provided when the applicant’s co-operation and assistance is no longer required.
• Witness interviews may be conducted under oath and may be video or audio recorded. Proffers may also be audio recorded.
• The Bureau may require the applicant to make its proffer early within the 30-calendar-day period and to provide documentary evidence and access to witnesses, which may be taken under oath and may be video and/or audio recorded before the proffer is completed.