The Changed Face of Corporate Criminal Liability - SSRN papers

The Changed Face of Corporate Criminal Liability Todd Archibald, Kenneth Jull and Kent Roach* In the dying days of the last Parliamentary session of 2003, Parliament enacted Bill C-4S amending the Criminal Code with respect to the liability of corporations and other organizations. The bill had all-party approval. It was also supported by the families of 26 miners who died in the Westray mine explosion in 1992, a disaster that might have been prevented by corporate compliance with health and safety regulations.' In that case, manslaughter charges were laid against two Westray managers, but were dropped after especially protracted legal proceedings. Bill C-4S was held out by the government as a response to Westray - a response that seems even more pressing after subsequent disasters such as the poisoning of water in Walkerton and the Enron scandal. The wide support for the bill was cited by the Halifax Herald as' witness to the rightness of the cause ... Holding corporations responsible for their decisions may not be the kind of redress Westray family members had in mind when they began their journey for justice, but they

*

1.

Justice Todd Archibald of the Ontario Superior Court and adjunct faculty

Osgoode Hall Law School, Kenneth Jull of Eberts Symes Street Pinto & Jull and of the adjunct faculty of Osgoode Hall Law School and the University of Toronto, Faculty of Law, and Kent Roach, Professor of Law, University of Toronto. This article is part of a book entitled Regulatory and Corporate Liability: From Due Diligence to Risk Management, which is to be published by Canada Law Book in 2004. The authors gratefully acknowledge the financial assistance of a grant from the Foundation for Legal Research. On the Westray saga see Harry Glasbeek, Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy (Toronto, Between the Lines, 2002).

2.

"Some Justice for Westray families", Halifax Herald, as reprinted in the Toronto Star (November 13, 2003), p. A28.

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can take comfort in the fact that the measore shonld be a strong deterrent to the recurrence of such a tragedy in workplaces across the nation. It is only too bad it took so long to bring justice to Westray families.

Bill C-45 constitutes a fundamental change, if not a revolution, in corporate criminal liability. It creates a new regime of criminal liability that applies not only to corporations, but unions, municipalities, partnerships and other associations of persons. It replaces the traditional legal concept of corporate liability based on the fault of the corporation's "directing mind(s)", the board of directors and those with the power to set corporate policy, with liability tied to the fault of all of the corporation's "senior officers". That definition includes all those employees, agents or contractors who play "an important role in the establishment of an organization's policies" or who have responsibility "for managing an important aspect of the organization's activities".' It will no longer be necessary for prosecutors to prove fault in the boardrooms or at the highest levels of a corporation: the fault even of middle managers may suffice. It also provides that the conduct of the organization's "representatives" will be attributed to the organization and defines a representative to include not only directors, employees and partners but also agents and contractors. In a word, Bill C-45 significantly expands the net of corporate and organizational liability. In many ways, the expansion of corporate liability is overdue. The legal concept of the "directing mind" within the corporate boardroom has become outdated by new forms of organic management. In addition, organizations should not escape responsibility for work that they contract out to those who are not their employees. The new sentencing provisions of Bill C-45 also allow a judge to place a corporation on probation.The corporation can be required to take steps to repair harms that it has caused and to prevent similar harms in the future. It is also sensible that the new law sets a lower standard for corporate criminal liability based on crimes of negligence as opposed to crimes of subjective fault. To this extent, the law preserves important gradations of liability. There are, however, some aspects of Bill C-45 that are more troubling. The new law blurs the traditional and important distinction between regulatory and criminal liability. A corporation can now be found guilty of a subjective intent offence because its 3.

Criminal Code, s. 2, as amended by Bill C-45, s. 1.

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senior officers (including some managers) knew that a representative of a corporation was or was about to become a party to the offence, but did not take all reasonable measures to stop that representative - an employee, agent or contractor - from being a party to the offence. The distinction between criminal and regulatory liability is also blurred with respect to criminal offences based on negligence. To be sure, prosecutors who bring criminal charges based on negligence will still bear the onus of proving both the actus reus and fault beyond a reasonable doubt. The new law also acknowledges that the standard of negligence in criminallaw requires proof not of simple negligence but of a marked departure from the reasonable standard of care. In contrast, regulatory offences will only require the prosecutor to prove the commission of the prohibited act or actus reus beyond a reasonable doubt, while requiring the corporation to establish due diligence on a balance of probabilities to escape liability. Although these differences are important in a court of law, they may not seem so significant in the wake of a tragedy. Lawyers will likely advise corporate officers, including middle managers, that their explanations for tragedies may be used against the corporation for both regulatory or criminal charges. A criminal charge - even one based on negligence may expose corporations and their shareholders to significant publicity and stigma. A manslaughter or criminal negligence charge against a corporation, let alone a murder or a fraud charge, will often be front-page news. The expansion of corporate criminal liability in Bill C-45 is bound to make relations between corporations and regulatory investigators far more adversarial than at present. Greater reliance on criminal liability might be worth it if the result was genuine deterrence and reparation for the harms caused. But there is some reason to doubt that this will be the case. Some corporations facing serious criminal charges may simply declare bankruptcy, ending the promise of Bill C-45 that the criminal law can be used to reform their practices and achieve reparation for the victims. Moreover, thereis reason to be concerned that the threat of criminal liability will lead those in regulated industries to invoke more frequently their right to silence and other Charter protections that are routinely available for those facing criminal charges and less likely to apply to

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regulatory charges. Finally, the difficulties of securing criminal convictions even under the enhanced law should not be underestimated, and the advantages of a regulatory prosecution which requires the corporation to establish due diligence should not be forgotten. The exact consequences of expanded criminal liability can only be determined by empirical research, but the blurring of criminal and regulatory liability should be carefully monitored.

1. The Old Law of Directing Minds and the Policy-MakinglManagerial Divide In order to understand the new and expanded law of corporate criminal liability in Canada, the old law that existed before Bill C-45 must be placed in context. The leading case was Justice Estey's judgment in R. v. Canadian Dredge & Dock Ltd.' This case involved a bid-rigging scheme for a tender. The identity or directing mind doctrine merges a series of minds to create the metaphysical concept of a corporate mind:' The corporation is but a creature of statute, general or special. and none of the provincial corporation statues and business corporations statues, or the federal equivalents, contain any discussion of criminal liability or liability in the conunon law generally by reason of the doctrine of identification. It is a court-adopted principle put in place for the purpose of including the corporation in the pattern of criminal law in a rational relationship to that of the natural person. The identity doctrine merges the board of directors, the managing director, the superintendent, the manager or anyone else delegated by the board of directors to whom is delegated the governing executive authority of the corporation, and the conduct of any of the merged entities is thereby attributed to the corporation. In R. v. St. Lawrence Corp. Ltd. and nineteen other corporations, [19691 3 c.c.c. 263, 5 D.L.R. (3d) 263, [1969] 2 O.R. 305 (Ont. C.A.), and other authorities, a corporation may, by this means, have more than one directing mind. This must be particularly so in a country such as Canada where corporate operations are frequently geographically widespread. The transportation companies, for example, must of necessity operate by the delegation and subdelegation of authority from the corporate centre; by the division and subdivision of the corporate brain, and by decentralizing by delegation the guiding forces in the corporate undertaking.

From a theoretical perspective, Justice Estey candidly described the identification doctrine as' 4. 5. 6.

(1985), 19 c.c.c. (3d) 1, [19851 1 S.C.R. 662,45 C.R. (3d) 289. Ibid., at p. 23. Ibid., at p. 29.

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inspired in the common law to find some pragmatic, acceptable middle ground which would see a corporation under the umbrella of the criminal law of the community but which would not saddle the corporation with the criminal wrongs of all of its employees and agents. If there were to be no outer limit on the reach of the doctrine, the common law would have established criminal corporate liability by the doctrine of respondeat

superior.

(1) Multiple Minds The doctrine developed by Estey J. contemplated the Canadian reality that a company might have multiple directing minds. This part of the judgment is sometimes forgotten, perhaps because few cases have explored this area. For example, the Department of Justice Canada is critical of the artificial logic required by the identification doctrine, as discussed in the government's response to the Fifteenth Report of the Standing Committee on Justice and Human Rights, released in November of 2002:' However, modern corporations may have structures that often bear only a passing resemblance to the simpler models considered by the courts in developing the conunon law. It is not easy to decide who is the corporation for the purposes of attributing criminal liability when a corporation has a head office in one city, regional operations around the globe, and various subsidiary corporations with their own subsidiaries and regional operations. The situation is complicated further when a board of directors meets only infrequently and issues only the broadest guidelines for senior management.

The modern and frequently multinational corporation has indeed evolved beyond geographic multiple minds to add a series of decision-making layers. At the same time, the directing mind doctrine as it existed before its recent legislative abolition had some ability to contemplate multiple directing minds and multiple decision-making layers. (2) Policy versus Operational Decisions A key distinction between the identification doctrine and vicarious corporate liability is the notion that the directing mind formulates corporate policy rather than carrying it out. The policy/operational distinction separates the notion of head office from the lower levels of the company. The case that delineated the distinction between policy and operational minds was 7.

Government Response to the Fifteenth Report ofthe Standing Committee on Justice and Human Rights Corporate Liability (November 2002) (hereafter "Response to

Fifteenth Report"), "Corporate Mens Rea" (updated version, April 24, 2003).


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"Rhone" (The) v. "Peter A.B. Widener" (The).' The litmus test articulated in that case was whether the discretion conferred on an employee amounts to "an express or implied delegation of executive authority to design and supervise the implementation of corporate policy rather than simply to carry out such policy".' This doctrine is functional in that it does not merely rest on title. In other words, a person might be neither on the Board of Directors nor an officer of the corporation, but could still be part of the directing mind if he or she is actively involved in formulating company policy. In The Rhone, the policy-making function was described by Justice Iacobucci as follows: lO the focus of [the] inquiry must be whether the impugned individual has been delegated the "governing executive authority" of the company with the scope of his or her authority. I interpret this to mean that one must determine whether the discretion conferred on an employee amounts to

an express or implied delegatiou of executive authority to desigu and supervise the implementation of corporate policy rather than simply to

carry out such policy. In other words, the courts must cousider who has been left with the decision-making power in a relevant sphere of corporate activity.

The tugboat captain in The Rhone had extensive responsibilities and discretion, but did not have the power to design and supervise the implementation of corporate policy. The majority of the Supreme Court of Canada concluded that the captain was not a directing mind of his corporate employer. II In R. v. Safety Kleen, the Ontario Court of Appeal concluded that a truck driver with "extensive responsibilities and discretion" was, like the tugboat captain, not a directing mind because "neither had the power to design and supervise the implementation of corporate policy"." The Westray disaster created a great deal of frustration with respect to the policy/operational distinction. The policy threshold was criticized by the federal government in its Response to the Fifteenth Report. The following example provided by the "Rhone" (The) v. "Peter A.B. Widener" (The), [1993J 1 S.CR. 497,101 D.L.R. (4th) 188, 58 F.T.R. 239n (hereafter The Rhone). 9. Ibid., at p. 521. 10. Rhone, ibid. at pp. 520-21, cited in R. v. Safety-Kleen Canada Inc. (1997), 145 D.L.R. (4th) 276 at pp. 281-82. 114 C.CC. (3d) 214, 16 C.R. (5th) 90 (ant. CA.). 11. See Safety-Kleen, ibid., at pp. 282-83. 8.

12. Safety Kleen, ibid.

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federal government illustrates its opposition to the policy threshold: 13 Corporations can only act through their employees and agents. For example, although we commonly consider that a bank makes a loan, in actuality it is the bank employees who gather information, check out security, authorize the loan and transfer money to the customer's account. The

question becomes whether a bank making a loan to a borrower who uses the money for a criminal purpose like importing drugs. is committing a crime? The bank has made a loan that is used for a crime, so clearly it committed a prohibited act. But did the bank know of the criminal purpose and intend to finance it? Over the years, the courts have dealt with criminal charges against corporations and other groups of persons, such as trade unions, and case by case, they have elaborated rules for determining when a corporation should be convicted of a crime.

Basically, a corporation is guilty of a crime if its "directing mind" committed the prohibited act and had the necessary state of mind. To be a "directing mind". a person must have so much authority in the corporation that the person can be considered the "alter ego" or "soul" of the corporation (terms used in recent case law). Determining who is a

directing mind depends on the facts of each case, but generally the person must have authority to set policy rather than simply having authority to manage. As well, the directing mind has to be intending, at least in part, to benefit the corporation by the crime.

In the above example, it is highly unlikely that the bank president and the board of directors would be aware of the loan. The bank makes many loans every month. If the borrower deceived the bank and no one knew of the criminal intent of the borrower, no crime has been committed by the bank. But what if the bank manager or the regional manager knew? Currently, whether they would be a "directing mind" would depend on how much authority they had to develop loans policy. Moreover, they would have to be acting at least in part for the benefit of the bank and not for their personal benefit in order for the bank to be convicted.

An interesting parallel to the distinction drawn in cases such as The Rhone between directing minds that set corporate policy and non-directing minds that only manage and implement such policies is the policy/operational distinction used in civil law by governments to insulate policy decisions from liability. I' There, the exact reverse logic applies. Policy decisions that would make 13. Department of Justice, A Plain Language Guide, Bill C-45, (last updated November 3, 2003), pp. 2-3. 14. Kamioops (City) v. Nielsen (1984),10 D.L.R. (4th) 641. [1984] 2 S.CR. 2, [1984J 5 WWR. 1; Just v. British Columbia (1990), 64 D.L.R. (4th) 689, [1989] 2 S.CR.

1228, [1990J 1 WWR. 385.

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corporations liable create immunity for governments on the theory that the democratic policy-making process must not be interfered with by courts. The policy/operational distinction in civil law has never been easy to apply in practice, since most decisions are hybrids lying between policy and operational spheres. As will be seen in the next section of this article, the dichotomy between establishing policy and managing the corporation has now been abolished with new legislation, which has replaced the common law concept of a directing mind with a much wider statutory distinction that attributes the fault of a corporation's senior officer to the corporation. Under the new amendments of Bill C-45, both the tugboat captain in The Rhone and the truck driver in Safety Kleen would likely have been found to be senior officers whose fault could be attributed to the corporation because they were "responsible for managing an important aspect of the organization's activities" even though they were not high enough in the corporation to be able to establish its policies. 2. The New Law of Expanded Organizational Criminal Liability (1) Expanded Definition of "Organization"

One of the more important yet neglected changes in the new law is that it extends far beyond the corporate world to include all "organizations". An organization is now defined in s. 2 of the Criminal Code to include a "public body, body corporate, society, company, firm, partnership, trade union or municipality". An organization also includes a less formal association of persons that is "created for a common purpose, has an operational structure and hold itself out to the public as an association of persons". By this definition, some organized criminal gangs could be prosecuted under these provisions and, if convicted, fined and/or placed on probation. The intent appears to be to widen criminal liability beyond formal corporations to include various types of collective organizations. In principle, this makes some sense. In the short term, it will require organizations, such as partnerships, to reconsider their executive structure and to acquire insurance coverage with respect to a much wider potential criminal liability. The real effect of these changes, if implemented, will be felt in circles outside of the corporation (which was already subject to

criminal charges under the common law of Canadian Dredge). Governmental institutions may be faced with criminal (and not just regulatory) prosecutions. Charitable organizations or trade unions may face criminal prosecutions. While previously it may have been possible under the common law to charge such organizations, the explicit reference to them in this legislation sends a green light to policing bodies and private complainants that they may now become potential targets. (2) Expanded Definition of "Representative"

Under the new law, organizations are held responsible not only for the actions of their senior officers, but also for those of their "representatives". Representatives are defined broadly to include not only directors, partners, employees and members, but also agents or contractors. In principle, this approach also makes sense given that modern organizations frequently contract out work in order to achieve efficiencies. In some cases, the actions of agents or contractors might have been attributed to the corporation under the common law. Nevertheless, the clarity of the new statutory definition makes it more likely that organizations could be charged on the basis of actions taken on their behalf by "agents" or "contractors". This reality may require organizations to rethink issues such as insurance and the supervision of the activities of agents and contractors. (3) New Definition of "Senior Officer"

The Department of Justice was critical of the doctrine that restricted the concept of directing mind to policy-making functions at the highest level. The new law now requires the prosecution to prove only that those who controlled the operation of the organization were criminally liable - not those who set policy in head office either on the board of directors or as senior executives.!5 The linchpin to the new legislative framework is the concept of a "senior officer". It is the mind of the senior officer that will bind the corporation. "Senior officer" is now defined in s. 2 of the Criminal Code as follows:!6 Respons~ to the Fifteenth Report, supra, footnote 7. See , Corporate Liability, Legislative Proposals. 16. Bill C-4S, s. 1(2) (emphasis added).

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"Senior officer" means a representative who plays an important role in the establishment of the 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.

The key distinction in the above definition is the disjunctive test that is established by the use of the word "or". A senior officer may play an important role in the framing of policies or be responsible for managing an important aspect of the organization's activities. This new test clearly overrules The Rhone, as it widens the liability of the corporation beyond the boardroom to encompass activities that are operational in nature, at the managerial level. The corporation can be liable if senior managers either created policies or managed an important aspect of the organization's activities that resulted in violations of the law. The policy/operational distinction has been eliminated as far as organizational liability is concerned, As to the resolution of what an "important role" will mean, this will be the subject of intense litigation in the future. I? The test will require the court to inquire into the organizational structure of a particular defendant. It may require either inside testimony from a whistleblower or expert evidence with respect to comparable positions in other companies or industries. It might be argued that the words "important role" are unconstitutionally vague under s. 7 of the Charter. A thre8hold problem with such an argument will be whether a corporation charged with a new offence even has standing to challenge a law that applies only to corporations that are not entitled to rights to life, liberty and security of the person under 8. 7 of the Charter. I ' 17. Hansard, Second Reading of Bill C-45, number 119, p. 1345. Mr. Paul Harold Macklin (Parliamentary Secretary to the Minister of Justice and Attorney General of Canada), stated as follows: While the courts would still have to decide in each case whether a particular person is a senior officer, I believe the proposal clearly indicates our intention that the guilty mind of a middle manager should be considered the guilty mind of the corporation itself. For example, the manager of a sector of a business such as sales, security or marketing, and the manager of a unit of the enterprise like a region, a store or a plant, could be considered senior officers by the courts. 18. Irwin Toy Ltd v. Quebec (Attorney General), [1989] 1 S.C.R. 927, 58 D.L.R. (4th) 577, 24 Q.A.c. 2; Dywidag Systems International Canada v. Zutphen Brothers Construction Ltd., [1990] I S.c.R. 705, 68 D.L.R. (4th) 147,97 N.S.R. (2d) 81.

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Although corporations have been able to defend crimina]!9 and even civil20 cases on the basis that the law might violate the right of natural persons, the definition of "senior officer" in s. 2 of the Criminal Code can only be applied in prosecutions of corporations that are not entitled to s. 7 rights of the Charter. Some commentators have observed that "a legislature that wanted to insulate a law from section 7 review would thus have to make that law only applicable to corporations, something that is not commonly done" 21 The new definition of "senior officer" in Bill C-45 is one of those rare laws that applies only to corporations. Even if a corporation has standing to challenge the definition of "senior officer" as unduly vague, the jurisprudence has been characterized by judicial deference. In other words, courts will consider that vague statutory language such as "an important role" is subject to subsequent interpretation by the courts that will make its meaning more precise." Although the definition of "senior officer" is undoubtedly broader than the old common law definition of "directing mind", the onus remains on the Crown to prove beyond a reasonable doubt that a senior officer had an "important role" either in establishing an organization's policies or managing an important aspect of its activities. Consistent with the principles of strict and purposive construction of the criminal law, courts may give the new concept a narrower reading in cases in which it is not fair and does not make sense to attribute the fault of an employee, low level manager, agent or contractor back to the corporation. The Crown'8 burden of proof, as well as the uncertainty as to the exact meaning of senior officer, highlights the continued advantage of a regulatory offence prosecution. In regulatory offence8, all the Crown must prove beyond a reasonable doubt is the commission of the prohibited act. The defence must show, as part of due diligence, that it designed and 19. R. v. Big M Drug Mart Ltd., [1985] 1 S.C.R. 925, 18 C.C.C. (3d) 385, [1985] 3 w.W.R. 481; R. v. Wholesale Travel Group Inc., [1991] 3 S.c.R. 154,67 C.c.c. (3d) 193,8 C.R. (4th) 145. 20. Canadian Egg Marketing Agency v. Richardson, [1998] 3 S.C.R. 157, 166 D.L.R. (4th) 1, 183 WAC. 201. 21. R.I. Sharpe, K. Swinton and K. Roach, The Canadian Charter of Rights and Freedoms, 2nd ed. (Toronto: Irwin Law, 2002), p. 182. 22. R. v. Nova Scotia Pharmaceutical Society, [1992J 2 s.c.R. 606, 74 c.C.C. (3d) 289, 15 c.R. (4th) 1. See generally Don Stuart, Charter Justice in Canadian Criminal Law, 3rd ed. (Toronto: Carswell, 2001), pp. 102-107.

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implemented systems to prevent the particular problem without the need to define either the corporation's directing mind or, now, its senior officer. The new concept of "senior officer" lies somewhere between vicarious liability and directing mind. 23 In the context of corporate liability, the new concept of senior officer makes some sense. Should an organization not be criminally responsible and be forced to pay a fine if its senior management is responsible? The elimination of the policy/operational distinction is reasonable when placed in the context of the modem organic organization. In the Westray example, the prosecution would be required to prove only that those who controlled the operation of the mine were criminally negligent. Again, this is logical. Why should the entire organization be excused from criminal liability (as is presently the case) because senior policy-makers were insulated from the negligence of operational managers? Modem corporate management no longer resembles the old pyramid, and the organization should not be exempt as a result of the evolution of corporate structures. The impact of the new definition of "senior officer" varies between subjective intent offences and negligence offences, and as a result these require separate treatment in our analysis. (4) Subjective Intent Offences

The case of Canadian Dredge dealt with the subjective intent offence of bid-rigging. This offence can be classified as a type of fraud. In Canada, charges against corporations for subjective intent offences are relatively rare. Post-Enron, it is perhaps easier to envisage a corporation being charged with such a crime. This scenario is reflected in the language used by the government in describing its reform initiative: 24 23. See "The Vicarious Liability Model", Response to Fifteenth Report, supra, foot-

note 7 (npdated April 24, 2003): The Government of Canada shares the concerns expressed by many witnesses that vicarious liability as applied in the United States is contrary to the principles that underlie Canada's criminal law. While its rigours are somewhat attenuated by the United States Sentencing Guidelines, which allow for reductions in the prescribed fine in accordance with the corporation's culpability score, many would argue that under Canadian law it would be wrong in principle to impose the stigma of a criminal offence on a corporation when its actions are not morally blameworthy. 24. A Plain Language Guide, Bill C-45, supra, footnote 13, (last updated November 3, 2003).

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The most obvious way for an organization to be criminally responsible is

if the senior officer actually committed the crime for the direct benefit of the organization. For example, if the CEO fudges financial reports and records, leading others to provide funds to the organization, both the organization and the CEO will be guilty of fraud. However, senior officers may direct others to undertake such dishonest

work. The Bill therefore makes it clear that the organization is guilty if the senior officer has the necessary intent, but subordinates carry out the

actual physical act. For example, a senior officer may be benefiting the organization by instructing employees to deal in goods that are

stolen. The senior officer may instruct employees to buy from the supplier offering the lowest price, knowing that the person who offers to sell the goods at the lowest price can only make such an offer because the goods are stolen. The employees themselves have no criminal intent but the senior officer and the organization could be found guilty.

The newly enacted s. 22.2 of the Criminal Code sets out three separate ways in which the organization can be found to have committed a crime requiring fault other than negligence:" 22.2 In respect of an offence that requires the prosecution to prove fault - other than negligence - an organization is a party to the offence if, with the intent at least in part to benefit the organization, one of its senior officers

(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 measures to stop them from being a party to the offence.

The above definition preserves the common law to the extent that it allows the fault of a senior officer who is the directing mind and acting within the scope of his authority to be attributed to the organization. The evolution in the law is that senior officers who are not directing minds can also have their conduct attributed to the corporation. Section 22.2 requires however that the senior officers act "with intent at least in part to benefit the organization". This means that the fault of a senior officer who has absolutely no intent to benefit the organization will not be attributed to the organization even though his or her actions may have unintentionally benefited the organization. This language 25. Bill C-45, s. 22.2.

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may be an important protection for organizations when senior officers act in a rogue fashion for their own gain and with no intent to benefit the organization even partially. Crimes such as fraud or money laundering have high levels of stigma. It is for this reason that subjective intent is generally a requirement for crimes with high stigma. In the area of fraud, the Supreme Court of Canada has maintained the requirement of subjective awareness of the risk to others, although this principle does not require a subjective appreciation of each element:" [t]raud by "other fraudulent means" does not require that the accused subjectively appreciate the dishonesty of his acts. The accused must knowingly, i.e. subjectively, undertake the conduct which constitutes the dishonest act, and must subjectively appreciate that the consequences of such conduct could be deprivation, in the sense of causing another to lose his pecuniary interest in certain property or in placing that interest at risk.

The government's legislation has spread the stigma of a conviction to the entire corporation, even if only one part of the corporation was at fault. This approach is consistent with the new organic corporate structures that have extended decisionmaking powers beyond the boardroom to diverse sectors. There is, however, something about the application of this approach to subjective criminal law intent offences that is troublesome. Subjective intent offences are more blameworthy and ought to be punished as such. The new law could dilute this notion. Our Supreme Court has always restricted the notion of a corporation's mind to a policy-making function while appreciating that there could be more than one mind that exercises this function. The new provisions extend the corporation's mind to important aspects of the corporation's activities outside of the boardroom. (Recall that the definition of "senior officer" includes someone who is responsible for managing an important aspect of the organization's activities.) To extend the notion to management at the operational level intuitively seems better suited to crimes of criminal negligence than subjective intent crimes that require some element of "thinking". The corporate mind will now encompass policy and important operational decisions. The following law school exam example shows the difficulty with this doctrine when it is pushed to its extreme limits, particularly where the crime is very serious. 26. R. v. Zlatic. [1993] 2 S.c.R. 29 at p. 49, 79 c.c.c. (3d) 466, 19 c.R. (4th) 230.

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Suppose the captain of The Rhone is a malevolent person who dislikes the competition so much that he purposely decides to ram another boat with the intent of sinking it, and then decides to run over the stricken sailors who are in the water. If several sailors died, then the Captain could properly be charged with the subjective intent offence of murder. Under the old definition, the company that employed the captain could not be charged with murder, unless there was evidence that it was board policy to ram competitors' ships or harm their workers. Under the new definition, the company could conceivably be charged with murder, since the Captain would qualify as a "senior officer" who was responsible for managing an important aspect of the organization's activities and because his actions were committed with the "intent in part to benefit the organization". The company could become a party to the offence of murder, as the criminal act was done with intent in part to benefit the corporation. What is troubling in this example is the stigma specifically related to the crime of murder, a subjective intent offence. The company's real fault lies in the domain of negligence in failing to perform the appropriate background checks on the captain (perhaps he has a criminal record for acts of violence). The legislation elevates corporate liability from negligence to the subjective crime of murder by virtue of the result. While this is not pure vicarious liability (as it only applies to senior officers), it borders on that principle. The example of first degree murder illustrates the problem at the highest level. First degree murder requires planning and deliberation. Under the new provisions, if the Captain planned the attack in advance, this would be sufficient. Yet the public perception of a corporation committing first degree murder would be that the board of directors met and planned active steps of violence. The corporation would suffer much stigma and its stock might fall dramatically in value. It is evident that the government decision to merge policy and senior operational authority may become more problematic as one travels up the scale of subjective intent offences. Section 22.2(b) makes the organization liable if the senior officer "having the mental state required to be 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

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the act or make the omission specified in the offence". The requirement that the senior officer has the mental state required under the parties provision of s. 21 of the Criminal Code will generally ensure some degree of subjective fault in relation to the crime. Section 21(2) does contemplate liability on the basis that the senior officer ought to have known that the commission of the offence would be a probable consequence of carrying out an unlawful purpose that he or she formed with some person. In such a case, a corporation could be convicted of a subjective fault offence in part on the basis of objective foresight of that particular offence by the senior officer. It should also be recalled that although the senior officer must be at fault under s. 22.2(b), the actual offence could be committed by any "representative" of the organization. That is a broad term encompassing not only all employees but also all agents and contractors of the organization. Section 22.2(c) even more directly than 22.2(b) makes it possible for an organization to be convicted of a subjective fault offence in part because of a failure of its senior officer to act in a reasonable fashion. Section 22.2(c) is a curious combination of a mens rea standard of knowingly being aware that a representative is or is about to be party to the offence, with the objective standard that the corporation is at fault if the senior officer "does not take all reasonable measures to stop [the representatives] from being a party to the offence". The rationale for this preventative section is described by the Department of Justice as follows: 27 Finally, an organization would be guilty of a crime if a senior officer knows employees are going to commit an offence but does not stop them

because he wauts the organization to benefit from the crime. Using the stolen goods example, the senior officer may become aware that an

employee is going to get a kickback from the thieves for getting the organization to buy the stolen goods. The senior officer has done nothing

to set up the transaction. But, if he does nothing to stop it because the organization will benefit from the lower price, the organization would be

responsible.

As an intuitive sentiment, it makes sense that managers ought not to condone illegal conduct of their employees, and if they do, the corporation ought to be responsible. Yet the requirement to take remedial action and the attachment of criminal liability for the omission to do so is anomalous for a subjective fault offence. 27. A Plain Language Guide, Bill C-45, supra, footnote 24.

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The result is that the corporation may be punished for a subjective fault offence in large part because its senior officer, knowing that a representative of the corporation is or is about to become a party to an offence, did not take all reasonable steps to prevent the offence. In the case of Wholesale Travel," the court upheld the provision placing the legal onus on the defendant to show that he took all reasonable precautions and exercised due diligence in the context of a regulatory offence. Bill C-45 does not shift the legal onus: the prosecution would still have to prove that the accused did not take all reasonable measures. A parallel can be drawn to recent legislation in the area of sexual assault requiring the accused to take reasonable steps, in the circumstances known to the accused at the time, to ascertain that the complainant was consenting." This legislation has been upheld as meeting minimum constitutional standards in the context that sexual assault is an offence requiring proof of subjective mens rea. The courts have pointed out in this context that the accused is not under an obligation to determine all relevant circumstances and is not required to have taken all reasonable steps.3O The issue is what the accused actually knew, not what he or she ought to have known. In contrast, s. 22.2(c) requires senior officers not only to stop themselves, but to take all reasonable measures to stop someone else from acting. The assumption seems to be that senior officers, including managers, will have enough legal knowledge and business acumen to recognize that conduct of lower level officials is criminal. There is a further assumption that they will have sufficient control over their employees, as well as contractors, to stop the conduct. The intent is to require senior officers and managers who know there is a problem in a mine or a problem with fraudulent records to do all that can reasonably be expected to stop the commission of offences. This is a laudable requirement, but it is one that has traditionally been 28. Supra, footnote 19. The details of the decision on this point are analyzed in Ruby and Jull, "The Charter and Regulatory Offences: A Wholesale Revision" (1992), 14 C.R. (4th) 226.

29. Criminal Code, s. 273.2. 30. Assuming that sexual assault is an offence requiring proof of subjective mens rea to meet minimum constitutional standards, sections of the Criminal Code requiring the accused to make reasonable inquiries have been upheld. See R. v. Darrach

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placed on those charged with regulatory offences and required to prove that they exercised due diligence to prevent the commission of the prohibited act. In contrast, the "all reasonable steps" requirement of s. 22.2(c) applies to a wide variety of fault offences, ranging from murder to fraud. In the end, the corporation could be convicted of the most serious offences because of a senior officer's failure to take all reasonable steps to stop or prevent an offence that he or she knows is being committed. With respect to offences recognized by the courts to have sufficient stigma to require proof of subjective fault in relation to all elements of the prohibited act, there are parts of s. 22.2(b) and (c) that may violate ss. 7 and 11 (d) of the Charter. As discussed, a corporation may not have standing to raise a s. 7 challenge given that s. 22.2 only applies to corporations. With respect to s. l1(d) of the Charter it could, however, be argued that the legislative substitution of an "all reasonable steps" requirement for subjective fault in relation to the commission of the prohibited act may violate the presumption of innocence. At the same time, the Crown can argue that the corporation will only be convicted of a subjective fault offence if one of its senior officers has subjective and guilty knowledge that a representative of the . organization is or is about to be a party to the offence. How will courts determine what senior officers should do to satisfy the new and onerous "all reasonable steps" requirement in s. 22.2(c)? Here the blurring of lines between regulatory offences and criminal offences of subjective fault becomes obvious. Courts will look to industry standards, risk management techniques and other factors that have traditionally been relevant to the determination of the due diligence defence. 31 Many of the same factors and evidence of corporate conduct that determines the due (1998), 122 CC.C (3d) 225, 13 C.R. (5th) 283 (ant. CA.), affd on other grounds [2000] 2 S.CR. 443,148 CCC (3d) 97, 36 CR. (5th) 223. The court held that this section does not put the accused under an obligation to determine all relevant circumstances - the issue is what the accused actually knew, not what he or she ought to have known. Further, the accused is not required to have taken all reasonable steps. While this section and s. 265(4) may have the effect of placing a tactical or

evidential burden on an accused to adduce some evidence capable of raising a reasonable doubt, this does not infringe the accused's right not to be compelled as a witness. Accordingly, this section does not infringe 5S. 7 and 11(c) of the Charter. 31. For a statement of 14 factors affecting the due diligence defence, see R. v. Commander Business Furniture Inc. (1992), 9 C.E.L.R. (N.S.) 185 (ant. Ct. (Prov. Div.)). For further commentary and analysis with a focus on risk

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diligence defence will now be relevant when the corporation is charged with a serious criminal offence of subjective fault. (5) Negligence Offences Section 22.1 of the Criminal Code holds organizations liable for crimes of negligence where the acts and omissions of its representatives, taken as a whole, constitute an offence and the responsible senior officer or manager departs "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". As with s. 22.2, this new section brings issues normally associated with the due diligence defence for regulatory offences into the centre of the determination of the criminal liability of a corporation or other organization. The intent of s. 22.2 to extend corporate criminal liability is clear from the government's explanation of the section: 32 With respect to the physical element of the crime, Bill C-45 (proposed s. 22.1 of the Criminal Code) provides that an organization is responsihle for the negligent acts or omissions of its representative. The Bill provides that the conduct of two or more representatives can be combined to constitute the offence. It is not therefore necessary that a single representative commit the entire act. For example, in a factory, an employee who turned off three separate safety systems would probably be prosecuted for causing death by criminal negligence if employees were killed as a result of an accident that the safety systems would have prevented. The employee acted negligently. On tbe other hand, if three employees each turned off one of the safety systems each thinking that it was not a problem because the other two systems would still be in place, they would probably not be subject to criminal prosecution because each one alone might not have shown reckless disregard for the lives of other employees. However, the fact that the individual employees might escape prosecution should not mean that their employer necessarily would not be prosecuted. After all, the organization, through its three employees, turned off the three systems.

The legislation implements the cumulative concept by permitting collective action to ground corporate liability provided that senior officers have departed markedly from the standards reasonably expected to police and prevent such action. assessment and management see Archibald, lull and Roach, Regulatory and Corporate Liability: From Due Diligence to Risk Management (Canada Law

Book, 2004) (forthcoming), c. 4. 32. A Plain Language Guide, Bill C-45, supra, footnote 24.

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Section 22.1 provides:" 22.1 In respect of an offence that requires the prosecution to prove negligence, an organization is a party to the offence if:

(a) acting within the scope of their authority (i) one of its representatives is a pany 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 pany 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, depan - markedly from the standard of care that, in the circumstances, could reasonably be expected to prevent a representative of the organization from being a pany to the offence.

As a fIrst point, the cumulative or collective concept in s. 22.1(a) (ii) makes good sense in the context of negligence offences. It should not make a difference to corporate criminal liability if the conduct of one, two or ten representatives of the corporation must combine to produce the prohibited act. The heart of these offences relates to a failure in risk management and within the corporate context, a failure of the organization as a whole to properly implement risk management systems to prevent negligence. The new defInition recognizes the organic structure of modem corporations. Some crimes, such as unlawful act manslaughter, have been interpreted by the Supreme Court of Canada as having stigma sufficient only to require the Crown to prove a marked departure from the norm. This standard nonetheless exceeds mere notions of negligence as found in the regulatory defence of due diligence. In fact, for true crimes, regardless of language employed in the Code that is suggestive of the standard of mere negligence, the application of the Charter forces these offences to be "read up" to require a marked departure from the norm." The wording that will be the subject of heated litigation is "could reasonably be expected to prevent". This wording could blur the line between the standard of due diligence in regulatory offences and the new criminal offences. The only difference would be the onus of proof. The Crown would still have the legal 33. Bill C-45, s. 22.1. 34. The following excerpt from the Supreme Court decision in R. v. Creighton, [19931

3 S.C.R. 3, 83 C.C.c. (3d) 346 at pp. 382-83, 23 C.R. (4th) 189, illustrates the point:

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onus in the criminal case of proving beyond a reasonable dOUbt that the corporation ~eparted from reasonable diligence. The practtcal result would likely be an evidentiary onus on the corporate accused to show that the violation could not have been reasonably prevented in light of industry standards. In determining ~hat.could reasonably be expected to prevent the offence, there IS a nsk that hindsight bias will be a factor. In o.ther words, what might have been done to prevent the commissIOn of the offe~ce may only emerge with the clarity of hindsight after the commISSIOn of the offence. At the same time, a fInding that the senior officer did not do all that could reasonably have been. expected to have prevented the offence will not be enough for liabIlity under s. 22.1. The Crown will still have to prove beyond a reasonable doubt that the senior officer was criminally negligent in the form of a marked departure from the standard of care t~at could :eas~mably have been expected to have prevented the cnme. Unlike III a regulatory prosecution, the Crown will have to prove both the negligence fault elements of marked departure and breach of a reasonable standard of care beyond a re~sonable doubt. A~though there is a convergence, especially in eVldenttal and practIcal terms, between criminal liability under s. 22.1 and regulatory liability, some legal distinctions remain. It is now established that a person may be held criminally responsible for negligent conduct on the objective test, and that this alone does not violate the principle of fundamental justice that the moral fault of the accused must be COmmensurate with the graVity of the offence and its penalty: R. v. Rundal, [1993] 1 S.c.R. 867. However, as stated in Manineau, it is appropriate that those who cause hann intentionally should be punished more severely than those who cause ~arm inadv~rtently. Moreover, the constitutionality of crimes of negligence IS also subject to the caveat that acts of ordinary negligence may not suffice to justify imprisonment: R. v. City of Sault Ste. Marie, [1978] 2 S.c.R. 1299; R. v. Sansregret, [1985] 1 S.c.R. 570. To put it in the tenos nsed in Rundal, the negligence must constitute a "marked departure" from the standard of the reasonable person. The law does not lightly brand a person as a criminal. For this reason, I am in agreement with the Chief Justice in R. v. Finlay, [1993] 3 S.C.R 103, that the word "careless" in an underlying firearms offence must be read as requiring a marked departure from the constitutional norm. It follows from this requirement, affirmed in Rundal, that in an offence based on unlawful conduct, a predicate offence involving carelessness or negligence must also be read as requiring a "marked departure" from the standard of the reasonable person. As pointed out in DeSousa [1992] 2 S.c.R. 944, the underlying offence must be constitutionally sound.

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(6) Protecting Workers A new s. 217.1 of the Criminal Code now provides: "Every one who undertakes, or has the authority, to direct how another person does work or performs a task is under a legal duty to take reasonable steps to prevent bodily harm to that person, or any other person, arising from that work."" The government has concluded that codifying a duty of reasonable care for the safety of workers is a better solution than making a special offence of "corporate killing". This provision imposes a duty on everyone who employs or directs another person to perform work to take reasonable care to avoid foreseeable harm to the person or the public. A breach of this duty is not in itself a criminal offence but may become an offence if the breach of the duty is done with criminal negligence as defined in s. 219 of the Code. The relevant charges would then be criminal negligence causing death under s. 220 or criminal negligence causing bodily harm under s. 221 or "manslaughter" under s. 222(5)(a). The new s. 217.1 remedies some of the problems arising from the law of omissions by creating a legal duty to protect. The problem, of course, is that unlike regulations, which specify safety precautions, reasonable steps are not defined. Here, there is a danger of hindsight bias after a tragedy has occurred. 3. A New Sentencing Regime for Organization One of the traditional shortcomings of corporate criminalliability has been the concept that only a fine can result from a conviction. The principle that a fine is the punishment when a corporation is found criminally responsible for causing death and serious bodily harm strikes many as inappropriate. The fact that the corporation can deduct the fine as a cost of doing business only adds insult to injury. Bill C-45 departs from the reliance on the fine. To be sure, the fine is still retained and can be awarded in any amount for an indictable offence and up to $100,000 for a summary conviction offence. 36 What is truly innovative about the new sentencing regime for organizations is a new s. 718.21, which is specifIcally 35. Bill C-45, s. 217.1. 36. Section 735 as amended by Bill C-45, s. 19.

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i

tailored to guide sentencing discretion with respect to corporations. As well, the new s. 732.1(3.1) specifically provides that organizations may be placed on probation to ensure that the harms of the past are not repeated. What is noteworthy about both provisions is that they recognize that organizations are different from individual offenders. It is the sentencing provisions of Bill C-45 that hold out the most promise to the victims of organizational cnmes. (1) Sentencing Principles for Organizations Section 718.21 cites a variety of principles and aggravating and mitigating factors for sentencing organizations. Although the factors are not specifically listed as aggravating and mitigating, they can usefully be classified in such a manner. The aggravating (or Emon) factors include: (a) any advantage realized by the organization as a result of the offence; (b) the degree of planning involved in carrying out the offence and the duration and complexity of the offence; (c) whether the organization has attempted to conceal its assets, or convert them, in order to show that it is not able to pay a fine or make restitution; (e) the cost to public authorities of the investigation and prosecution of the offence; (g) whether the organization was - or any of its representatives who were involved in the commission of the offence were - convicted of a similar offence or sanctioned by a regulatory body for similar conduct. Most of these aggravating factors are commonsensical and do not require elaboration. Section 7l8.2l(c) raises the interesting issue of a corporation that depletes its assets or declares bankruptcy in order to avoid criminal punishment. Consistent with the presumption of innocence, it is not possible to have an interlocutory injunction of a criminal nature to restrain a corporation from depleting its assets. Section 7l8.2l(c) responds to this danger by making corporate depletion of assets an aggravating factor. Query, however, how effective this principle will be if the main result is to increase a fine on a corporation that cannot be paid because the

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[Vol. 48

assets have been depleted or to lengthen and intensify a probation order over a corporation that may in any event be on its last legs. Section 718.21(e) is borrowed from many regulatory regimes. It includes the costs of investigation and prosecution as part of the penalty that the regulated entity must pay. This provision is common and quite important in the securities field and may provide police and prosecutors with more resources with which to conduct time intensive investigations and prosecutions of corporate crime. In sentencing a solvent organization, judges should not hesitate to take this factor into consideration. There are a number of potentially mitigating factors included in s. 718.21. They include: (d) the impact that the sentence would have on the economic viability of the organization and the continued employment of its employees; (f) any regulatory penalty imposed on the organization or one of its representatives in respect of the conduct that formed the basis of the offence; (h) any penalty imposed by the organization on a representative for their role in the commission of the offence; (i) any restitution that the organization is ordered to make or any amount that the organization has paid to a victim of the offence; and (j) any measures that the organization has taken to reduce the likelihood of it committing a subsequent offence. Section 718.21(d) recognizes the harsh reality that high fines may often harm the employees of a corporation even though they may not have been at fault. Much the same could be said of shareholders. The Enron scandal well illustrates how with increased investment in the stock market, the depletion of corporate resources can harm ordinary people and their pension plans. Section 718.21(f) is a recognition of the overlapping nature of regulatory and criminal prosecutions of corporations. It represents a corporate version of the totality principle that is used in ordinary criminal cases. This section works in conjunction with s.718.21(d). Section 718.21(h) attempts to encourage organizations to take responsibility for the conduct of their own employees and

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contractors by recognizing that any penalty imposed on such persons for their role in the commission of the offence will be a mitigating factor. Such responses may raise conflicts of interests within the organization but are generally to be encouraged. At the same time, such actions will generally only occur after the offence has been committed and the harm suffered. The due diligence defence also is determined in an ex post-facto fashion but is aimed more at ensuring the diligent organizational conduct that is necessary to prevent harms such as Westray and Walkerton. It is hoped that a combination of both sanctions and rewards will induce those within a corporation to act in a proper fashion to prevent harms. Section 718.21(i) is an important provision that encourages organizations voluntarily to make reparation and restitution payments to victims of the offence. As one of us has written previously: "A potentially simple and cheap way to advance the reparative purposes of sentencing is to amend the Code to recognize bona fide offer and acceptance of reparations and/or apologies from the offender to the victim as a mitigating factor in sentencing."" Although the section only refers to the amount paid to victims, the issue of an apology, which is so important in restorative justice, should not be ignored. Finally s. 718.21(j) recognizes the legitimate concern about the prevention of future harms by including as a mitigating factor any measures that the organization has taken to reduce the likelihood of committing a subsequent offence. Consistent with the logic of the due diligence defence, large and competent organizations may often be in the best position to know how to improve their risk management techniques. Unfortunately, a corporation that takes preventive measures after a tragedy may find itself in a bind. On the one hand, its actions will be a mitigating factor at sentencing. On the other hand, the actions may be used as evidence that the corporation and its senior officers could reasonably have been expected to have prevented the crime and that they did not take all reasonable steps to stop or prevent the crime. 37. K. Roach, "Crime Victims and Sentencing" in Stuart. Delisle and Manson, Towards a Clear and Just Criminal Law (Toronto: Carswell, 1999), p. 517.

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(2) Probation Orders for Organizations

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4. A Preliminary Evaluation of the New Law It is premature to evaluate the potential effectiveness of Bill C-45 and its important changes to corporate and organizational liability. In any event, the bill represents the most fundamental change to the regulatory regime since the Supreme Court's 1978

creation of a presumption that all regulatory offences will allow a defence of due diligence.40 What is clear is that Bill C-45 dramatically expands corporate criminal liability. How it will be used by investigators and prosecutors and the effect it may have on regulated industries remain to be seen. There are competing policy arguments as to whether the criminal acts of a senior officer ought to extend criminal liability to the corporation as a whole. In favour of the new proposals is the indoor management rule in basic corporate law. A senior officer may bind the contractual obligations of a corporation in its dealings with the outside world. It is not a valid excuse for the corporation to assert subsequently that the senior officer who was negotiating the deal did not have the support of the board of directors. The outside world is entitled to rely upon the authority of the senior officer, and cannot be expected to make inquiries about the internal governance of the corporation. The extension of criminal liability of the organization to the actions of the senior officer is consistent with the indoor management rule. This will cure the existing anomaly whereby a senior officer could bind the corporation to civil liability but not to criminal liability. From the victim's perspective (or in a case such as Westray, the families of victims), if it can be shown that criminal activity occurred it matters not which level of management authorized it or was ~ilfully blind to its commission. From the victim's viewpoint, the present legal system is flawed by the artificial dichotomy between corporate policy and operational authority. This dichotomy is viewed as a way of isolating the board of directors and the corporation. Some would argue that the present system encourages the board of directors to be wilfully blind to criminal conduct so that it does not enter the inner sanctum of corporate policy. The contrary model is the limited liability model. The corporate structure is artificial. Its limited liability makes it attractive for investment. Shareholders who invest in corporations have little control except for their power to vote for boards of directors. Shareholders do not vote for or have any control over senior officers who do not formulate policy but who manage important

38. K. Jull, "Reserving Rooms in Jail: A Principled Approach" (1999), 42 C.L.Q. 67. 39. Criminal Code. s. 732.1(3.1)(e), as amended by Bill C-45, s. 18.

40. R. v. Sault Sle. Marie (City), [1978] 2 S.CR. 1299,40 C.CC. (3d) 353, 3 CR. (4th) 30.

Section 732.1(3.1) provides a special regime under which judges can tailor probation orders for organizations. Unlike sentencing for individual offenders, specific mention is made of restitution orders for losses and damage suffered as a result of the offence. Provided that the organization remains solvent, this approach will serve the important reparative purposes of sentencing. 38 There is a range of probation conditions that can be used in an attempt to change organizational behaviour so as to prevent a recurrence ofthe harm of the offence. Interestingly, s. 732.1(3.2) contemplates that the court may subcontract out this work to a regulatory body that has special expertise in developing policies, standards and procedures that will "reduce the likelihood of the organization committing a subsequent offence". The subcontracting option recognizes that sentencing judges may not always be in the best position to develop the most effective risk management strategies. It also recognizes that both criminal and regulatory prosecutions will now often seek the common goal of changing organizational behaviour so that risks are more effectively managed. The judge has the power to require the organization to report back to the court on the steps taken and even to "identify the senior officer who is responsible for compliance with those policies, standards and procedure".39 This provision allows the court to alter the standard operating procedures of organizations by appointing compliance officers. In a nod to restorative justice, s. 732.1(3.l)(f) allows the judge to require the organization to inform the public about the conviction, sentence and procedures adopted to prevent a recurrence of the offence. This principle recognizes that the public and customers may play an important role in influencing and monitoring corporate behaviour.

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aspects of the business. The level of knowledge presently available to shareholders (or more realistically their brokers or mutual fund managers) may not permit adequate due diligence conceming the competence of senior persons with operational authority. Criminal prosecutions may dramatically hurt the interests of shareholders who do not have the resources to peer into the minds of the senior officers. A person's stock portfolio (and life savings) may be endangered by criminal charges and a conviction against the company for a subjective intent offence such as fraud or money laundering. The cases involving Enron, Arthur Anderson and others demonstrate that convictions for serious criminal offences are devastating to the corporation as a whole. In her book entitled Value Shift," Professor Paine of the Harvard Business School observes that the costs of scandals in any organization go far beyond the obvious legal fees and fines to also encompass lost customers, employees and productivity. "As most recently illustrated by the experiences of Enron, Arthur Anderson, Tyco, and others, a company caught in misconduct can quickly find its reputation in tatters and its core relationships shattered. It can also find itself saddled with millions of dollars in fines, litigation expenses, and legal fees."" Beyond the limited liability concerns, an argument against the extension of corporate liability for subjective intent offences to senior officers is that it is counter-intuitive to the notion of mens rea. The intent for fault crimes requires evidence of some thought. As illustrated by the Rhone example, senior officers may vary in quality and may not even communicate with each other. Corporations could be held responsible for the intentional crimes of important managers even though they were at most negligent in supervising and controlling the behaviour of the important managers. After a criminal conviction, the public perception may be that head office approved the policy that led to the crime, whether or not this is the case. Indeed, the threat of criminal conviction may lead some corporations to declare bankruptcy or otherwise deplete their assets. There is little that 41. Paine, Value Shift: Why Companies must Merge Social and Financial Imperatives to Achieve Superior Perfonnance (Toronto, McGraw-Hill, 2003), p. 31. 42. Paine, ibid., at p. 8.

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can be done in the criminal law to stop this from occurring. Bill C-45's promise to the victims of Westray that corporations will be made to pay for their harms and made to change their ways may at times prove illusory in large part because of the stigma and adverse publicity that will accompany criminal prosecutions and convictions. A further argument against the widening of the scope of corporate criminal liability relates to its effect on the level of cooperation with governmental officials. If an inspector attends on site to investigate a workplace injury, it will not be clear whether the inspector is investigating a potential regulatory offence or a more serious corporate crime. The distinction will be critical in terms of the path that the investigation will take. Privacy interests and expectations are lower in regulatory proceedings, but not generally in criminal proceedings. In this situation, counsel would likely advise a client to treat the situation as a potential criminal investigation. That advice will restrict the level of cooperation with investigators. The mere possibility of the laying of criminal charges may result in a corporate "chill" on cooperation with the authorities. Many corporations will instruct senior officials to insist upon their right to remain silent. That important right is provided to individuals in every criminal investigation and is protected within s. 7 of the Charter. John Braithwaite of the Australian National University is the world's leading scholar both of restorative justice and of corporate regulation. His book called To Punish or Persuade: Enforcement of Coal Mining Safety43 was in part motivated by tragedies similar to the Westray mine disaster. He admits that his original inclination was to stress the need to punish those responsible for such disasters. He grew up in a coal mining town and lost friends in such needless tragedies. After closely examining the matter he concluded that it was in the best interests of the coal miners to try to persuade management of the value of corrective action before punishment became necessary. He constructed enforcement pyramids that start with the presumption that most companies in regulated industries do not want their workers to die and are open to persuasion, cajoling and shaming to do the right thing. Braithwaite argues that regulators should only climb the 43. (Albany: State University of New York Press, 1985).

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pyramid with the escalated use of warning letters, civil penalties and criminal penalties to deter misconduct when the regulated have proven themselves unarnenable to persuasion. The final step to control incompetent or irrational actors is through incapacitation by means of licence suspensions, or perhaps, as in the new legislation, probation orders that allow a judge or an industry representative to effectively take over the corporation." Bill C-45 may have the effect of turning the pyramid on its head. In other words, if the starting point is the assumption that a corporation will be charged with criminal offences based on the actions of senior officials, there is less flexibility for good faith bargaining and cooperation. By widening the net of corporate responsibility, the underlying assumption may well become that bad faith exists throughout the corporation that has violated standards. One possible approach to dealing with this confusion is to allow the regulated and the regulators to create an enforcement pyramid that is clearer and more rational than the current jumble of criminal and regulatory liability. The regulated could, as an initial matter, refuse to co-operate with authorities unless assurances were provided that criminal prosecutions would not be commenced or that statements given would not be used in such proceedings. The authorities would then have an option to signal to the regulated exactly where they were located on the enforcement pyramid. Should the signal be that criminal prosecutions are a possibility, the state would not only have to shoulder the burden of proving the prohibited act and fault beyond a reasonable doubt but would also have to take the risk that a competently advised corporation and its officials may not co-operate with authorities. Should the authorities decide that a less punitive response is appropriate, then there would be more room for co-operation, especially in circumstances where voluntary responses by the corporation and its senior officials would not be used against them. Whether this occurs or not, it is clear that Bill C-45 has fundamentally changed the face of corporate criminal liability and blurred some of the distinctions between regulatory and criminal liability. 44. Braithwaite, Restorative Justice and Responsive Regulation (Oxford: Oxford University Press, 2002), pp. 31-32.