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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?

A memo from U.S. Deputy Attorney General, Sally Yates, released on September 9, 2015 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 all relevant facts relating to the individuals responsible for the misconduct.
  • The Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.
  • Civil attorneys should consistently focus on individuals as well as the company.

While the focus in corporate-crime cases remains on punishing corporate entities—and indeed this commitment continues to increase—the above sentiments assert a strong emerging position for the U.S. Department of Justice (DOJ): they are becoming less willing to let individuals escape responsibility for misconduct that is clear and demonstrable.

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 investigation. As is clear in the above directive, however, they are now saying this credit to corporations will only be available if they identify the individuals involved in the situation. They are simply not interested in negotiating any immunity for the individuals involved.

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’ radar.

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. The process has been slowed by the fact that our regulators have not had as much success as their U.S. counterparts with enforcement in the corporate arena. That fact—combined with resource management challenges—helps determine the types of investigations they’re willing to take on.

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 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, CMP, 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: U.S. executive compensation clawback rules may impact Canadian companies

© 2018 KPMG LLP, a Canada limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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