The Costs of Ignoring Criminal Due Diligence

Failing to develop policies to minimize criminal risk can have extremely damaging consequences for a business. Even if a criminal allegation does not result in a conviction, or even a formal charge, the allegation itself can pose a significant reputational risk that may damage a business' bottom line and day-to-day operations.

Should a company be convicted of a criminal offence, sanctions can be even more damaging. Hefty fines can weigh down a business, significant changes to day-to-day operations may be required, and some penalties, such as debarment (a lengthy ban from receiving government contracts), may represent a functional death penalty for the company.

Depending on the nature of the misconduct, senior officers within a company may also face personal criminal liability over the course of a criminal investigation into a corporation.

The Wide Road to Corporate Criminal Liability

There are two primary routes to corporate criminal liability in the Criminal Code depending on whether the offence is a negligence offence. Both routes can create significant criminal risks from managerial inaction, and thus require proactive due diligence by organizational management.

Non-Negligence Offences

Under s. 22.2 of the Criminal Code, an organization can be convicted of a non-negligence offence if:

One of its senior officers, with at least the partial intent to benefit the organization,

(a) acting within the scope of their authority, is a party to the offence;

(b) having the mental state required to be a party to the offence and acting within the scope of their authority, directs the work of other representatives of the organization so that they do the act or make the omission specified in the offence; or

(c) knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measuresto stop them from being a party to the offence.

Negligence Offences

Under s. 22.1 of the Criminal Code, an organization can be convicted of a non-negligence offence if:

(a) acting within the scope of their authority

(i) one of its representatives is a party to the offence, or

(ii) two or more of its representatives engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and

(b) the senior officer who is responsible for the aspect of the organization's activities that is relevant to the offence departs "” or the senior officers, collectively, depart "” markedly from the standard of care that, in the circumstances, could reasonably be expected to prevent a representative of the organization from being a party to the offence.

"Senior" Officers

Despite what the name may seem to imply, "senior officers" can be relatively low-ranking employees in the corporate hierarchy.

Section 2 of the Criminal Code defines a "senior officer" as:

a representative who plays an important role in the establishment of an organization's policies or is responsible for managing an important aspect of the organization's activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer.

What constitutes an "important aspect of the organization's activities" in the eyes of the court or prosecutors can be hard to predict, however, the language can and has often been found to capture middle- and frontline management roles. Misconduct, negligence, and inaction by officers such as branch managers, construction site supervisors, and subject-matter operations managers all can potentially expose an organization to corporate criminal liability (see e.g. R c Pétroles Global Inc, 2013 QCCS 4262; see also e.g. R v Metron Construction Corp, 2013 ONCA 541). Organizations should avoid falling into the trap of assuming the court will simply follow the labeling of their internal hierarchy.

Common Criminal Liability Risks

The criminal risks for corporations are as broad as the Criminal Code, and supplemented by a variety of quasi-criminal statues. Areas of particular concern will vary from business to business, however, fraud offences, bribery offences, and negligence offences are often areas of particularly elevated risk that need to be managed.

Moving Forward

Our criminal lawyers can help companies develop plans to reduce the risk of criminal liability and build the foundation of due diligence defences if the worst happens. Important steps in this process are identifying potential senior officers within their organization, developing policies and training programs around criminal compliance, and identifying areas of elevated risk. Where especially elevated risks are discovered, internal investigations may be warranted, along with lengthy discussions regarding minimizing harm going forward.