What, at first glance, is wrong with this picture? That's a legitimate question lawyers might have asked themselves after traipsing into a Toronto courtroom earlier this year to get a glimpse of the criminal fraud proceedings against former Nortel CEO Frank Dunn, former CEO Geoff Beatty and former corporate controller Michael Gollogly.
It's not that senior management of a failed, high-profile multinational are, so to speak, in the prisoners' dock. Conrad Black, after all, has just finished his sentence. And while white-collar criminal prosecutions have hardly been the rage in Canada, their ubiquity in the US and the growing worldwide enforcement focus on keeping wayward executives and corporations in line made it inevitable that Canada's regulators and police forces would soon have to join the rest of the real world.
Many of the faces in the courtroom are familiar too. Ontario Superior Court of Justice Frank Marrocco, a former icon of Ontario's criminal defence Bar, is presiding. Brian Greenspan and members of his blue-chip Toronto criminal law boutique are defending Gollogly, and Greg Lafontaine, a veteran of the Toronto criminal defence Bar, is counsel to Beatty.
But what are David Porter, Andrew Matheson and other members of McCarthy Tétrault LLP's Toronto office doing here? Well, as it turns out, they're defending Frank Dunn.
Don't we mean they're advising Dunn's team of criminal lawyers? After all, McCarthy Tétrault is a business law firm, the kind that knows all about the inner workings of corporations and whose lawyers would be invaluable in explaining the nuances and minutiae of corporate proceedings and documentation to hard-core criminal counsel.
Actually, no, the McCarthy Tétrault lawyers are not there to advise Dunn's team, and they are not just part of his team: they are Dunn's team. And yes, things have changed since the days when major Canadian law firms allegedly shunned criminals as clients, even the white-collar type, because — or so the myth goes — they couldn't very well have them sitting in the same reception area with regular clients.
The point is that big firms are less reluctant to take on individuals as clients. “It's relatively uncommon for a corporation to be indicted in Canada, and large firms historically didn't want to act for employees or directors because of the inherent conflict problems and other perceived issues,” says Lincoln Caylor of Bennett Jones LLP.
But as prosecutors and regulators became more active in charging individuals, law firms began to realize that there was a lucrative market for defending them. “There is now a need for trusted law firms to represent individuals, especially individuals on boards or in senior management,” Caylor says. “And the large firms are starting to fulfill that function and getting referrals from other large firms that represent the corporations involved — referrals that used to go straight to the criminal Bar.”
The upshot is that white-collar-crime departments are appearing embryonically in Canadian business law firms.
“Over the last 10 years, the historical reluctance of big firms to have white-collar defence capability has changed significantly,” says Joseph Groia, the former head of enforcement at the Ontario Securities Commission who now conducts a defence-side practice at Toronto's Groia & Company, a securities litigation boutique. “Their US counterparts, after all, were able to do this without damaging their reputations with corporate clients.”
But the evolution is Darwinian in its pace. Just how slow it is becomes evident from a study conducted by Douglas Cumming and Sofia Johan, academic researchers at York University and Holland's University of Tilburg, who studied “fraud risk” among the leading stock exchanges in Canada, the US and Britain.
In a report released in April 2012, they found that while financial fraud is committed at 7 per cent of Canadian publicly traded companies, only 0.3 per cent of Toronto Stock Exchange companies and 0.4 per cent of London Stock Exchange companies experienced fraud litigation between 2005 and 2011. By comparison, 1.9 per cent of New York Stock Exchange companies and 4.5 per cent of NASDAQ companies were subjected to such litigation. Cumming told the Toronto Star that the results indicated there was about 10 times less reporting or litigation of corporate fraud in Canada and the UK than in the US.
To make matters worse, the authors noted that, while the incidence of fraud was similar in all three countries, Canadian securities regulators were 8.9 per cent less likely to detect financial fraud than the US Securities and Exchange Commission. The Star also noted that the Ontario Securities Commission collected only $109.4 million of the $228 million in fines imposed between 2005 and 2011, and that the 126 enforcement cases started by Canadian securities regulators was down significantly from the 178 cases started in 2010.
In other words, the late arrival of major Canadian firms to the white-collar-crime scene can be explained in large part by the fact that prosecutorial attention in this country has only focused on white-collar crime relatively recently.
“In the US, the Department of Justice, the Securities and Exchange Commission and other…regulators are big and well funded,” says Glen Jennings, a former prosecutor and criminal defence lawyer now with Gowling Lafleur Henderson. “And although Canadian enforcement started to ramp up in the 80s, the fact is that authorities could barely keep up with violent crime, especially with the advent of the Charter and the sanctions for undue delay that came with it. But that's changing now, and we're getting a lot of sabre-rattling from prosecutors and regulators over white-collar crime.”
Securities regulators across Canada, for example, have been ramping up their criminal and quasi-criminal investigations and prosecutions. The Competition Bureau is intent on doing the same. And the recent spate of corruption-related RCMP investigations have produced high-profile takedowns of companies like SNC-Lavalin and a guilty plea from Niko Resources Ltd. that came with a $9-million fine and three years of onerous probation conditions.
“We'll see if our federal government starts behaving like the US federal government, and if they do, it's quite possible that career routes will open up at large business law firms for more lawyers with backgrounds in criminal law,” says Paul Schabas of Blakes, who defended Eurocopter on the only criminal charges that came out of the Airbus scandal in the Mulroney era.
Ironically, the emergence of white-collar-crime groups in Canadian law firms has to some degree been prompted, or at least accelerated, by specialization on the law enforcement side, and particularly by the creation of the RCMP's Integrated Market Enforcement Team, known as IMETs, devoted to the deterrence and detection of capital-market fraud. Ten IMETs are currently operational, four in Toronto and two each in Montréal, Calgary and Vancouver.
Although IMET got off to a rocky start when the press began lambasting what it saw as a lack of aggressiveness and results, doubts about the teams' utility and effectiveness are receding. Since June 2008, the IMET program has charged 21 individuals with Criminal Code offences in eight separate investigations. Three individuals pled guilty. One received a 13-year sentence, while the other two are awaiting sentencing. Six cases are still before the courts. The RCMP has also confirmed that it has some 30 ongoing investigations under the Corruption of Foreign Officials Act.
Legislative developments from 2004, meanwhile, are beginning to show their clout. These developments included sweeping amendments to the Criminal Code that addressed white-collar crimes, including provisions that expanded criminal liability for corporations, established new offences relating to conduct in the capital markets, expanded the power of law enforcement authorities to investigate white-collar crimes, and imposed harsher sentences for businesses, directors, officers and employees, including a two-year minimum jail sentence for frauds over $2 million.
Subsequently, the federal government expanded corporate criminal liability for occupational health and safety violations and, in 2009, amended the Competition Act by replacing the existing conspiracy provisions with a per se criminal offence prohibiting price-fixing among competitors whether or not the agreement was likely to lessen competition. “Removing the lessening of competition as an element of the conspiracy offence changed the offence from a battle of economists as to whether and how much competition was affected to a real criminal offense,” says Michelle Lally of Osler, Hoskin & Harcourt LLP.
So did the determination of current Competition Commissioner Melanie Aitken. “Melanie has really ratcheted up the criminal side of competition law enforcement,” Lally says.
International considerations have also impacted on the growth of white-collar crime practices. “When you consider areas like competition law, anti-corruption law and laws against money laundering, what strikes you is the long extraterritorial reach of such legislation in Canada, the US and the UK,” Lally says.
And last, but certainly not least, there's the global and financial crisis of recent years, which arguably has spurred greater white-collar scrutiny than ever, both domestically and internationally.
No surprise, then, that Canada's major firms finally began to organize white-collar-crime departments, be it formally or informally. “The major firms are enhancing their marketing efforts and pulling out anyone with a related background, especially the regulatory people, to give them the depth they need to assemble a credible white-collar-crime practice,” Jennings says.
Witness, for example, the recent publication from Blake, Cassels & Graydon, called White Collar Crime: A Primer for In-house Counsel. Included – indeed, at the very front of the 54-page glossy trade publication – is a chapter entitled Criminal Law 101, which takes up one-third of the book. Segments on Criminal Fraud, Bribery and Corruption Offences, Money Laundering and Securities-Related Offences follow.
“Recent high-profile prosecutions in the United States and Canada have demonstrated the substantial harm that criminal and regulatory investigations and prosecutions can have on a business organization,” writes Blakes Chair Brock Gibson in the foreword to White Collar Crime. “It is clear that familiarity with the law relating to white collar crimes is becoming increasingly important to in-house counsel to protect the best interests of their organizations.” Gibson goes on to assert that “Blakes was one of the first Canadian law firms to develop a national white collar criminal defence practice group.”
But Blakes is hardly alone. Historically, McCarthy Tétrault has a long tradition in white-collar-crime practice. The firm's lineage in criminal law includes the legendary John Robinette, who became a household name following his defense of Evelyn Dick against murder charges, before dominating the civil litigation Bar for years; the late Douglas Laidlaw, whose criminal law counsel credits include the Hamilton dredging and bid-rigging trial; John Brooke and George Finlayson, later judges of the Ontario Court of Appeal; and even former Supreme Court of Canada Justice Ian Binnie, who while at McCarthy Tétrault was involved in the proceedings that led to the ultimate acquittal of Guy-Paul Morin on murder charges. More recently, David Porter, who leads the Dunn defense team, has practised criminal law at the firm.
“Criminal law is a core practice for our litigation group,” says Porter's colleague Andrew Matheson in McCarthy Tétrault's Toronto office.
Some firms, like Osler, have quietly beefed up their white-collar-crime departments in specific areas such as competition law and tax evasion. “About 10 years ago, we felt we needed someone who understood not just competition law, but also criminal law practice and procedure, and had an understanding of prosecution policies and how they work,” says Osler's Lally.
Consequently, Osler recruited Graham Reynolds, who had an extensive background as a senior federal and provincial prosecutor, and who served as senior legal adviser to the Competition Bureau and Justice Canada.
It's only more recently, however, that the competition for white-collar-crime work has truly intensified. But just what it is that everyone is competing for is not quite as clear.
One of the reasons for the confusion might be found in the old axiom that the more things change, the more they remain the same. Search the websites of Canada's largest firms and you'll find nary a reference to “Criminal Law” included in lists of a firm's area of expertise. And of the seven firms interviewed for this article, only Borden Ladner Gervais LLP and Blakes list “White Collar Crime” as a practice area.
“We don't have a dedicated department,” says Blakes' Schabas. “But we are ramping it up and we're getting more and more calls. Whether we eventually brand the group as a white-collar-crime practice depends on the direction and intensity in which enforcement in various area proceeds.”
Gowling Lafleur Henderson LLP approaches the matter somewhat tangentially from a labelling standpoint, with its “global business integrity group.” But none of Bennett Jones, Miller Thomson LLP or Osler, Hoskin & Harcourt LLP list white-collar crime or anything remotely close to it under their main practice headings. There are mentions of “fraud law” here and there, but a click of the mouse reveals that the firms touting this practice area are talking about asset recovery or fraud prevention.
Even McCarthy Tétrault's website has no reference to white-collar crime as a standalone practice group. “Basically [the creation of a formal white-collar-crime group] is overdue,” admits one McCarthys partner.
Perhaps so, or perhaps white-collar-crime departments, to the extent that they exist, have to date been “service” departments in law firms, much as litigation departments used to be. Or maybe it's just a matter of Canadian firms proceeding at their usual cautious pace.
Whatever the optics, there's both a real sense and emerging evidence that Canadian firms are finally following in the paths of their American counterparts, who have long and unflinchingly boasted white-collar-crime or criminal defence departments, commonly staffed by former Department of Justice, Securities & Exchange Commission and other prosecutorial types.
“The bigger firms are seeing the addition of white-collar-crime expertise as a value-add given the increased demand for the eyes of the criminal lawyer to deal with issues such as criminal and regulatory investigations, protecting solicitor-client privilege, and dealing with search warrants,” Jennings says.
Other firms, like BLG, which in 2009 hired Tyler Hodgson, a former Crown attorney and defence lawyer, are also looking to the criminal Bar for talent. “There has been a concerted effort here to raise the white-collar-crime practice to a national level by the end of this year,” says Hodgson.
Like BLG, Blakes is taking a national approach, with lawyers in Toronto, Calgary and Vancouver included as part of the white-collar-crime team. But the talent has to be versatile. “Given the billing demands, there's no major firm that can keep a criminal defence lawyer busy full-time doing criminal defence work,” Matheson says. “The individual has to be a bit of a hybrid who can do some commercial litigation or regulatory work from time to time. But there is more pure criminal law than there has been in the past, and major firms are more willing to take on lawyers with that kind of experience or capability.”
Just how versatile white-collar-crime groups have to be is evidenced by a peek at the Blakes website. In his interview with Lexpert, Schabas mentioned six lawyers, including himself, as being involved in the practice. The five others were Tony Wong and Nigel Campbell in Toronto; Mark Morrison and Webster MacDonald in Calgary; and David Neave in Vancouver, who spent 20 years with the RCMP, including 11 years in the commercial crime section, and a stint as in-house counsel to the force's senior management.
On the website, Schabas is described as “primarily occupied by complex commercial litigation and arbitrations” who has “also developed expertise” in a number of other areas including “white collar criminal”; Wong has a “specialized practice in media law” and “significant experience litigating a broad range of other matters” including “defence of criminal and quasi-criminal charges”; Campbell, formerly Senior Investigation Counsel for the OSC, practises securities litigation including regulatory defence work; Morrison “practises in the Litigation & Dispute Resolution Group with an emphasis on white collar crime, anticorruption and commercial litigation”; MacDonald is a litigation lawyer with experience that includes “professional misconduct cases in numerous fields”; and Neave, who is involved in the Taser controversy, practises “competition-restraint of trade litigation, corporate commercial litigation and criminal law, including defending white collar crime offences.”
The combination, according to Schabas, is a team whose skills encompass what it takes to deal with white-collar crime. “These are people who know criminal law and know how to investigate, but also how to defend,” he says. “As a team, they have to know the process when the client calls because the cops are at the door. They need to be able to give immediate advice, to get on the scene when a search warrant is being executed, and even display the skill and knowledge necessary to do a bail hearing.”
Indeed, the need for a versatility that includes some sense of what the white-collar-crime investigative process involves may explain in part why so many former OSC lawyers are at the big firms. Apart from Campbell at Blakes, Emily Cole, formerly Senior Litigation Counsel at the Commission, is now Co-Chair of Miller Thomson's National Securities Litigation Group; James Douglas, former Senior Investigation Counsel at the Commission heads BLG's Securities Litigation Group; and Kelley McKinnon, formerly the OSC's Deputy Director of Enforcement and Chief Litigation Counsel, leads Gowlings' securities litigation practice.
“The white-collar expertise at the large firms has traditionally been on the regulatory side, not on the criminal side” says Bruce McMeekin in Miller Thomson's Toronto office, where he, Cole and a number of other lawyers focus on regulatory defence work in a variety of areas, including environmental and workplace-related matters. “But the stated intention of prosecutors and regulators to be more aggressive in pursuing criminal charges has caused these firms to consider the extent to which they should beef up their criminal law expertise.”
What's apparent from all this is that anyone delving into this subject in a Canadian context must be careful not to confuse criminal law with white-collar crime. Generally speaking, a criminal law practice embraces representing anyone charged with any kind of criminal offense. Criminal lawyers may and do take on quasi-criminal or regulatory offences, but for the most part their bread and butter is Criminal Code offences and offences designated as criminal under federal law.
A white-collar-crime practice, however, is in a sense broader. “It's hard to put a label on this basket of services, but for the most part it refers to the defence of an individual or a corporation that is either under investigation or being prosecuted by the state for conduct that, if proved, could result in penal consequences,” Hodgson says.
A white-collar-crime practice, then, is about representing white-collar types charged with white-collar-criminal, quasi-criminal or regulatory offenses, whose roots may be found in provincial or federal legislation as diverse as statutes dealing with securities, the environment, occupational health and safety, competition law, offshore corruption, copyright, water resources and a host of others. Sometimes it also includes extradition work and retainers related to mutual legal assistance requests stemming from cross-border investigations.
Because of the involvement of the state, what the quasi-criminal and regulatory processes have in common with criminal law is that, to varying extents, they incorporate concepts rooted in criminal law and due process, such as search and seizure, self-incrimination, evidentiary rules privilege and discovery.
“You can't defend senior management on a bribery charge if you've never prosecuted or defended a fraud,” Hodgson says. “Whatever the particular offense, what the criminal lawyer understands is the prosecutorial mentality and the framework of rights available to his client, which in turns leads to an understanding of when and when not to co-operate with prosecutors and investigators.”
Jennings is of similar mind. “We're now living in a world of production orders where lawyers need to know what they have to turn over, how much they have to turn over, and what is protected by privilege,” he says. “At the end of the day, these are really criminal law issues.”
What white-collar-crime offenses also have in common is that the stakes tend to be huge. In the case of individuals, incarceration is frequently on the horizon if the charges are proved, and in the case of corporations, fines in the millions and tens of millions are no longer extraordinary.
And if prison sentences for securities violations are any example, the stakes for white-collar crime – at least in Ontario – are certainly rising. According to the Toronto Star, sentences of only 45 days in prison were imposed by Ontario courts for securities violation in 2009. In 2010, the total rose to 6.5 months, and in 2011 reached almost 15 years.
From the perspective of the major firms, white-collar crimes have become inextricably linked to the act of doing business in one way or another. “What's changed and created a market for white-collar-crime groups is that stepped-up enforcement and regulations have made businesses recognize that they have to worry about compliance domestically and internationally on a day-to-day basis,” Schabas says.
Indeed, proactivity is the name of the game from a compliance perspective these days. “Companies want to be seen as proactive and on the right side of an issue from the outset,” Lally says.
The upshot is that in terms of white-collar practices – and somewhat counterintuitively – advocacy and litigation can take a back seat to designing compliance policies and conducting internal investigations. “My practice is primarily a combination of advisory and investigatory work,” Jennings says. “Litigation as it arises is secondary to that — nevertheless, clients are aware that my courtroom experience as a prosecutor is a significant value-add.”
What's clear, however, is that Canadian law firms will now be touting, rather than hiding, their criminal law expertise. “We're moving to the American model of a full-service firm, and to my mind that's healthy and long overdue,” Hodgson says. “With all the talk about commoditization of legal services these days, no one's ever talked about commoditizing criminal law.”
Julius Melnitzer is a freelance legal-affairs writer in Toronto.
