Raising the bar on responsibility | KPMG | CA

Raising the bar on responsibility

Raising the bar on responsibility

The U.S. is becoming more aggressive in ensuring individuals do not avoid prosecution for corporate crime



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Raising the bar on responsibility - Who Is Responsible?

While the focus of corporate crime cases is to punish corporate entities—a commitment that continues to increase—recent sentiments from the Department of Justice (DOJ) assert a strong emerging position: it’s time to hold individuals accountable for misconduct that is clear and demonstrable.

This position was asserted in a memo from U.S. Deputy Attorney General, Sally Yates, released on September 9, 2015. The memo includes the following statements:

  • Criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  • To qualify for any cooperation credit, corporations must provide to the Department of Justice all relevant facts relating to the individuals responsible for the misconduct.
  • The Department of Justice will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation except in extravagant circumstances.
  • Civil attorneys should consistently focus on individuals as well as the company.

One key aspect of this shift is that the DOJ has historically given corporations credit—reflected in goodwill and consideration regarding sentencing guidelines—for self-reporting discovered misbehaviour and being cooperative during investigations. As is clear in the above directive, however, it is now saying this credit to corporations will only be available if the corporation identifies the individuals involved in the situation.

How is Canada affected?

To be clear, this remains an evolving situation. Regulatory scrutiny on individuals is still ramping up in the U.S.—and it is definitely not at the same level in Canada. However, for Canadian companies that are subject to investigation in the U.S.—that is, listed or doing business there—this issue is relevant and should be on directors’ radars.

While there is no imminent indication that Canadian regulators will adopt this position, it is likely that some increase in the recognition of individual culpability is on the way.

A matter of anticipation

For boards and their audit committees, the question of individual responsibility means staying abreast of developments on the U.S. scene. If your organization does business in the U.S., it’s critical to know what you may be facing—both for the company and any individuals involved—should a serious corporate transgression occur. Even if your operations are confined to Canada, keeping tabs on the broader investigative and prosecutorial environment as it develops is wise.

This is the second part of a three-part series.

Authored by:
John A. Gordon, Canadian Managing Partner, Quality and Risk Management
Christopher J. Cummings, Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP
Shea T. Small, International and Business Strategy Leader, Partner, McCarthy Tétrault LLP

Next Steps:

Read Part 1: Cross-border impacts—U.S. legal developments affecting Canada

Read Part 3: Executive compensation clawback rules in Canada

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