3850 REGULATORY WELFARE OFFENCES
While corporations are capable of prosecution under the
Criminal Code, most often their offences are prosecuted under
welfare regulatory legislation. Criminal law requires proof of
guilty mind or mens rea (intention, recklessness or gross
negligence) on the part of the perpetrator. Regulatory offences
under, for example, environmental protection or workplace
health and safety laws usually require no mens rea. They are
“strict liability”. The perpetrator is typically guilty if she, he or
it performs the illegal act and fails to prove the exercise of due
diligence and care in attempting to avoid the breach of
regulation.
This produces two tiers of offences. Criminal ones, where the
perpetrators are stigmatized and regulatory ones, where the
perpetrators are penalized (usually by a fine) but are not
stigmatized and condemned as criminals. The absence of
*stigma is rather bizarrely illustrated by the case 65302 British
Columbia Ltd. v. Minister of National Revenue (1999) 248 N.R.
216 where the Supreme Court of Canada held that, unless
Parliament explicitly states otherwise, a fine imposed on a
corporation is tax deductible if the corporation can show that it
incurred the fine while engaged in earning income. The court
observed that bribes could also be deducted if provided in the
earning of income.
Some corporations responded to the regulatory system by
challenging the reverse onus of proof as against the Canadian
Charter of Rights and freedoms, sections 7, and 11(d). See R. v.
City of Sault Ste Marie 85 D.L.R. (3d) 161; R. v. Ellis Don
[1992] 1 S.C.R. 840; R. v. Wholesale Travel Group Inc. [1991] 3
S.C.R. 154. The Supreme Court of Canada upheld the
constitutional validity of the reverse onus on grounds that it
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was designed to protect real persons and was justified under
s.1 of the Charter.
While prosecution for regulatory offences causes little or no
stigma or condemnation, some corporations and now directors
and executives are occasionally punished by steep fines and
even imprisonment. See Hoffman-LaRoche and Exxon-Valdez
cases in the USA. There are also U.K. cases that indicate high
penalties for regulatory offences. In Exxon-Valdez, the fine was
$3.5 billion (about 30% of current quarterly profits) on top of
the cost of a clean-up order. Cases are rare in Canada.
These are exceptional penalties and are necessary to legitimize
corporations. Public scepticism about the benefit of corporate
activity requires government action in such cases, particularly
as it appears to be government policy to promote the activities
of corporations. However, frequently penalties are much less
severe. The “Heavy Electrical Equipment” conspiracy of the
1960s took about $1 billion out of consumers’ pockets. The
judge denounced General Electric particularly as it undermined capitalism at a time when it was fighting a “war” with
Soviet Communism. A fine of $437,500 was assessed for 7
admitted conspiracy charges and 12 others not contested.
(Punishment is made but no conviction registered). This fine
was the equivalent of a $3 parking fine for a person with
annual income of $175, 000 at that time.
Clinard & Yeager found that 80% of all fines on large US
corporations in 1976-78 were $5,000 or less. M. Clarke found a
similar pattern in UK. Ermann and Lundman calculated that a
US corporation with annual sales of $300 million and fined
$5,000 would pay the same proportionate amount as a $15,000
per annum wage earner who was fine 2.4 cents. If the
corporation was fined $100,000, this would be equivalent to a
fine of 50 cents for the $15,000 wage earner.
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Stanbury looked at fines in Canada under the Combines
Investigation Act for large-scale conspiracies and found these
to be a fine of $131 for a $15,000 wage earner.
The profits earned in the conspiracies were greater than the
fines imposed and of course considerable public money is spent
investigating and prosecuting such cases.
Glasbeek (CH10) notes that fines for breaches of regulatory
laws are based on the breach not the consequences of the
breach. So a breach of health and safety legislation that kills a
worker typically produces a fine that is no more than that
which slightly injures a worker. This differs from say a death
caused in the street by a drunk driver.
It is true that fines have increased for anti-competitive (viz.
Hoffmann La Roche). When corporations break the rules on
capital markets, the stock exchange or regulations governing
anti-competition practices, the regulators take a more serious
view of the offences. There is also the issue of non-payment of
fines. The Elan Corporation was fined $400,000 in 1992 for an
occupational health and safety violation. The corporation was
bankrupt by the time the fine was levied.
Smaller operations tend to be more frequently targeted by
regulators. One problem with large corporations is the
complexity of their operations. Also they have better access to
lawyers, can threaten to move if the law is strictly applied etc.
Some improvement of the regulatory system has occurred.
Penalties include jail time for directors, executives etc. Senior
managers must set aside money for revenue collection
authorities. They must ensure money is set aside for CPP and
EI premiums. Under the Business Corporations Act directors
can be personally liable for unpaid wages in insolvency of the
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corporation. Senior managers can be personally liable under
Occ Health and safety laws, environmental legislation
employment standards and the Competition Act. For this to
occur, there must be a breach of regulation by the corporation
and the senior manager must have authorized, assented to,
acquiesced in, or participated in the commission of the offence.
In some cases the senior manager can be liable BEFORE a
breach of regulation if he/she has allowed a situation to
develop where the corporation might commit a wrong. The
penalties include fines and jail time of up to one year.
This upholds the traditional position that senior officers have
been criminally and civilly responsible in their own right. Now
it is easier to find that corporate officers have made corporate
acts their own. It is now easier to lay charges if directors and
senior executives can be held responsible if they did not
actively seek to prevent the breaches of the law.
This is potentially more effective than the criminal law where
mens rea must be proven beyond reasonable doubt. In the
regulatory offences “due diligence” is a defence. See notes on
due diligence. Success of the regulatory process is dependent
on the extent of the duties and their enforcement. Potentially
the new whistleblower protection legislation may increase the
chances of successful prosecution. However, it is not clear how
much protection in practice the law gives to whistleblowers,
and how much potential whistle blowers will trust the law.
Another question is whether tougher responsibilities on
directors and executives will chill the willingness of the
brightest and the best to become directors. There is no
evidence of this to date. Much depends on our definition of the
brightest and the best.
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Argument against individual director or senior manager
liability comes from Ronald Daniels that it would not be
efficient to hold managers and directors liable. He argues it
should be the corporation that is liable. Such talent needs to be
encouraged to take business risks and be willing to serve in
such positions. Another argument is that shareholders can
discipline managers and directors – i.e. the market will
regulate behaviour of managers. Is this argument plausible?
This invokes an argument of corporation liability that was
originally rejected by corporate supporters, because the
corporation has no soul to damn and no body to punish.
See Amway 1989 (SCC) where senior executives were asked to
give evidence in the case against the corporation. They argued
that this was in breach of the Charter as they were the
corporation and could not be asked to give evidence against
themselves. SCC rejected the application of this provision to
corporations but did apply it elsewhere to unreasonable search
and seizures. Hunter v. Southam [1984] 2 S.C.R. 145.
Active shareholders?
Could or should this responsibility extend to shareholders.
Where directors and executives are already shareholders, there
is already a form of shareholder responsibility. In Canada
many publicly traded corporations have one or two primary
shareholders. If shareholders earn profits, why not have
responsibility? Shareholders are passive on breaches of law by
the corporation though less so if directors act against their
interests.
Is one of the ways forward to create new crimes to fit
corporations rather than try to twist regulatory and criminal
law to fit a structure that they were not intended for?
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