when bad things happen to good...

November 27, 2014 Wendy Berman Jeffrey Roy Cassels Brock & Blackwell LLP Peter W. Armstrong KPMG Forensic Inc. Inspector John Shoemaker RCMP "O" Division GTA Financial Crime

When Bad Things Happen to Good Companies: Risks and Pitfalls of Internal and External Investigations of Corporate Misconduct

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What is your Company facing?

● Current environment: heightened scrutiny and public mistrust

● Evolving legal regimes and enforcement trends

● Increased domestic and international collaboration

● Corporate and D&O liability ● Liability for actions of senior employees

OSC COMPANY

(and/or its directors and

officers) R

CM

P

Criminal Charges

Mu

ltip

le c

ivil

pro

ceed

ing

s

What is your Company Facing?

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What’s your Company Facing: Criminal and Regulatory Enforcement Regime

● Multiple Canadian securities regulators

● Police Agencies ● Specialized units

● Enforcement priorities

● Fraud related offences ● Corrupt practices ● Market manipulation ● Disclosure violations ● Insider trading

● Increased domestic and international agency collaboration (JSOT, IMET)

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What’s Your Company Facing: Anti-Corruption Regime

CANADA Corruption of Foreign Public Officials Act

UNITED STATES Foreign Corrupt Practices Act

UNITED KINGDOM Bribery Act

Offence

• Offers or makes a bribe to a foreign public official, directly or indirectly • Failure to maintain proper books and records or hiding evidence of bribery

• Offers or makes a bribe to a foreign official • Failure to maintain reasonably detailed book s and records • Failure to establish appropriate internal controls

• Offers or makes a bribe to a foreign public or private official • Requesting or accepting a bribe • Failure of an organization to prevent bribery by those acting on its behalf

Facilitation Payment

Exemption slated to be removed

Permitted in the context of routine governmental action

Not permitted

Jurisdiction • Canadian citizens, residents or companies, regardless of where the unlawful act is committed • “Real and substantial connection” to Canada

• U.S. issuers, domestic companies, and residents regardless of where the unlawful act is committed • Anyone, with exceptions, acting in U.S. Territory

• Any organization that has a demonstrable business presence in the U.K. and associated persons

Penalty Fine: Unlimited Prison Term: 14 years Other: Debarment

Fine: (Criminal) $2 million per occurrence or twice the benefit gained/loss avoided Prison Term: 5 years Other: Debarment

Fine: Unlimited Prison Term: 10 years Other: Debarment

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What’s Your Company Facing: Securities Regulatory Regime

● Disclosure violations (ss. 75, 77 and 78 Securities Act)

● Insider trading (s. 76 Securities Act)

● Fraud related offences (ss. 122 and126 Securities Act)

● Books and records offences (s. 19 Securities Act)

● Conduct contrary to the public interest (s. 127Securities Act)

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What’s Your Company Facing: Impact

Investigation Costs Penalty Griffiths Energy International

$5 million $10.35 million

SinoForest Corporation $50 million Not determined Bankrupt SNC-Lavalin $50 million to date Not determined

(subject to debarment from World Bank funded projects)

Wal-mart Stores Inc. $439 million Not determined Avon Products Inc. $344 million Not determined Siemens AG $1 billion (including

implementation of revised internal controls)

$1.6 billion (US and Germany)

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Prevention and Detection of Wrongdoing

● Multiple triggers for detection ● internal surveillance ● external surveillance ● whistleblowers ● media stories ● competitors ● social media ● grassroots community organizations

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Prevention and Detection of Wrongdoing

● Implementation of robust compliance regime ● Culture of compliance and “tone from the top” ● Policies and practices ● Effective training

● Effective due diligence, monitoring, detection and response protocols

● Implications, risks and challenges

● Practical considerations for smaller organizations given resource constraints

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How to Respond: Critical First Steps Internal investigations of potential wrongdoing

● Assess nature and scope of issues at play ● Assess key risks

● Reputational ● Criminal, regulatory and/or civil liability ● Disclosure obligations ● Internal controls and governance ● Organizational

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How to Respond: Critical First Steps Internal investigations of potential wrongdoing

● Communications strategy – internal and external

● Early response and risk mitigation strategy ● Develop investigation plan

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Step 1: Investigation Plan

● Structure, mandate and scope of internal investigation

● Independent or not?

● Assess need for external advisors

● Privilege protocol and considerations

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Step 2: Internal Investigations: Gathering information

● Documents and electronically stored information ● Scope, costs and time constraints ● Challenges relating to locating and securing data in multiple

jurisdictions for multiple custodians ● Challenges relating to local laws or culture

● Risk of inadvertent or deliberate destruction of information

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Step 3: Internal Investigations: Witnesses and other sources of information

● Witnesses ● Interview protocol ● Challenges relating to local law and culture

● External sources of information ● Confidentiality

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Step 3: Strategy for Dealing with Government Authorities

● Consideration of whether, when and how to open a dialogue with regulators and police

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External Investigative Powers

Securities Regulators Police Agencies Document production requests (ss.11, 13, 20,21 Securities Act)

Document Production Orders (s.487.012 Criminal Code)

Voluntary and compelled interviews (s.13 Securities Act)

No ability to compel interviews

Wiretaps (Part 6 Criminal Code) Wired informants (Part 6 Criminal Code) Search Warrants (s.487 Criminal Code)

Restricted sharing with police agencies (Jarvis implications)

Full ability to share with other police and enforcement agencies

Confidentiality requirements (ss. 16 and 17 Securities Act )

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Strategy for Dealing with Government Authorities: Key Developments

● “Sea change” for police investigations

● Increasing use of more aggressive techniques, including search warrants, wiretaps and wired informants

● use of external advisors ● Involvement of Crown counsel in investigative stage ● Increasing number of voluntary witness interviews

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External Investigations: Strategy for Dealing with Government Authorities and Key Considerations

● Determining who is target – company and/or individual(s)

● Cooperation protocol and terms ● Self-reporting calculus and credit for cooperation

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External Investigations: Strategy for Dealing with Government Authorities and Key Considerations

● Parallel or cross-border investigations ● Assess lead agency and level of coordination ● Differing legal regimes and jurisdictional considerations ● Differing approaches, funding, tools, and resources

● Protecting privileged information

● Use and sharing of information

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The End of the Road? Completion of the External Investigation

● Protocol for referral to prosecution ● Key steps and considerations ● Reporting to Crown counsel

● Protocols or regimes for negotiating global resolutions

● Ad hoc or formal? ● Practical considerations

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The End of the Road? Completion of the Internal Investigation

● Reporting internal investigation results ● Disclosure obligations ● Privilege and confidentiality considerations

● Mitigation and Remediation strategy

● Organizational changes ● Policy and practices changes ● Litigation risk ● Reputational and financial risks

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When Bad Things Happen to Good Companies

“That’s another fine mess you’ve gotten me into”

Laurel and Hardy

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This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult legal counsel for advice regarding the matters discussed herein.

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