Multijurisdictional investigations: challenges for Canadians
July 2015 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
Regulatory investigations increasingly involve cooperation among authorities from multiple jurisdictions. In Canada, it is now routine for provincial securities commissions to share information with each other, and also with their counterparts in the US. Canadian securities legislation also permits provincial securities commissions to appoint staff of foreign regulators to domestic investigation orders, allowing them to compel testimony from Canadian residents for use in foreign proceedings.
These arrangements pose special risks to Canadians because of the differing ways in which the protection against self-incrimination is afforded in each country. In the US, a witness may ‘take the Fifth [Amendment]’ and refuse to answer a question because the answer is incriminating, at the risk of an adverse inference being drawn against him at a subsequent proceeding. In Canada, the witness must generally answer all questions when compelled to testify by a securities regulator unless the examination is for the purpose of establishing the witness’ criminal liability. However, the use that can be made of answers that tend to incriminate in subsequent proceedings is circumscribed. This is referred to as ‘use immunity’.
The danger that testimony compelled from a witness in Canada may be used to expose him to criminal liability in the US is significantly heightened absent certainty that US courts will recognise use immunity in proceedings initiated in that country. By acquiring evidence that was compelled in Canada, American authorities may avoid Fifth Amendment protections and deny witnesses the right to refuse to provide incriminating answers.
Canadian courts have permitted domestic regulators to share compelled evidence with American regulators even where the institution of criminal proceedings against the witness in the US may be possible. For example, in Global Securities Corp vs. British Columbia, the Supreme Court of Canada upheld the ability of the British Columbia Securities Commission to compel a registrant to produce records to assist in the administration of the securities laws of the US, emphasising the “indispensable nature of inter-jurisdictional co-operation among securities regulators”. The provision of the British Columbia securities legislation authorising Commission staff to make an investigation order to assist in the administration of the securities laws of another jurisdiction was aimed at furthering the effective enforcement of domestic securities laws and accordingly fell within the province’s powers under the Canadian Constitution Act, 1867.
In Beaudette vs. Alberta, the Alberta Court of Queen’s Bench determined that provisions of the Alberta Securities Act which authorise investigators to summon witnesses and compel them to testify under oath, and permit Commission staff to provide such evidence to other regulators and law enforcement agencies in Canada and the US, do not offend protections against self-incrimination in the Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, notwithstanding the possibility that the evidence so disclosed could be used against the witness in a criminal prosecution in the US. “The process in a foreign jurisdiction, including the question of what evidence will be admissible, is to be determined by the foreign law.”
Ontario courts have taken a somewhat more nuanced approach. For example, in Catalyst Fund General I Inc vs. Hollinger Inc the Ontario Superior Court of Justice granted an application by an Inspector appointed under the Canada Business Corporations Act R.S.C., 1985, c. C-44 to examine three officers of Hollinger Inc over their objections that compelling them to submit to an examination would violate their right against self-incrimination given the possibility that their testimony would be used against them in potential criminal proceedings in the US. The respondents failed to discharge the burden of demonstrating that the examination was for the predominant purpose of incriminating them in US criminal proceedings. However, to protect against the potential for incrimination, the respondents were invited to seek directions from the Court concerning the conduct of their examinations. Any objection to answering a specific question on the basis of its potential for self-incrimination would be subject to review by the court before an answer was given. The decision was upheld by the Ontario Court of Appeal.
In Mr A vs. Ontario Securities Commission, Mr A was summoned to attend at a compelled examination before an OSC forensic examiner pursuant to an investigation order issued by the OSC pursuant to s. 11(1)(a) of the Ontario Securities Act, R.S.O. 1990, c. S. 5 (the ‘Act’) authorising an investigation by OSC staff for the due administration of Ontario securities law. As well, the Commission had issued an investigation order relating to the same matter pursuant to s. 11(1)(b) to assist in the due administration of the securities laws of the US. That order appointed both OSC and United States Securities and Exchange Commission (SEC) staff members as investigators.
Mr A brought an application for a declaration that he could not be compelled to testify as it would infringe his constitutional right against having to incriminate himself. The Court dismissed the motion, concluding that the framework set out in the Act was sufficient to safeguard Mr A’s rights and that there was no evidence to suggest that the information obtained from him pursuant to the s. 11(1)(a) summons would be shared with the US authorities in circumstances where he would lose his Fifth Amendment protections. He would be entitled to statutory notice and a hearing under section 17 of the Act if the OSC wanted to disclose his compelled testimony to the SEC or any other person. To the extent that further protection was appropriate, the Court could be engaged to intervene. The Court did, however, suggest that the Commission should have separate investigation teams to deal with each of the s. 11(1(a) and 11(1)(b) investigations.
Credit for cooperation policies further complicate matters for witnesses and their counsel. The OSC’s 2014 Staff Notice 15-702: Revised Credit for Cooperation Program provides that staff expect that market participants seeking credit for cooperation will fully cooperate with staff or any other regulator when asked to provide information, and that the employees, officers and directors of such market participants will make themselves available for interviews.
The danger in cooperating by volunteering oral evidence is that the protections against self-incrimination afforded by provincial and federal evidence statutes, and in the Canadian Charter of Rights and Freedoms cannot be invoked or relied upon. The loss of these protections should give pause to any individual who volunteers to give evidence, for to do so may very well expose the individual to legal proceedings (including potential civil liability) not only Canada but also in other jurisdictions.
How can Canadian counsel representing a witness protect his client when a foreign regulator comes calling? If a witness in Ontario is served with a summons under Canadian law to provide compelled testimony to foreign investigators, consultation with a lawyer in the foreign regulator’s jurisdiction to understand the powers of the foreign regulator and the protections against self-incrimination available in that jurisdiction is advisable. Seeking an undertaking from the foreign regulator or order of the domestic regulator or court restricting the use that can be made of the witness’ evidence in the foreign country also should be considered.
Where staff of an American regulator are appointed as investigators in an investigation ordered by a Canadian securities regulator, and it is likely that the client would assert the Fifth Amendment if the examination was being conducted under US law, counsel should demand that staff of each regulator examine the client separately, and undertake not to share the evidence given during each examination. This preserves the ability of the client to invoke the protection of the Fifth Amendment during the examination by staff of the American regulator and refuse to answer questions that would incriminate the witness, yet claim the protections against self-incrimination available under Canadian law during examination by staff of the Canadian regulator.
In the alternative, counsel should indicate on the record that the witness has been compelled to give evidence pursuant a summons issued under Canadian law, claims the protections against self-incrimination available to him under the laws of the province and Canada, and that as a result of the summons having issued under Canadian law, the American regulator is obtaining testimony that it would not otherwise have been able to obtain in the US. The witness reserves the right to challenge the use of any of his statements in any subsequent proceeding in the United States. Whether this approach will result in the exclusion of the testimony in subsequent proceedings in the United States is, however, still unclear.
Linda Fuerst is a partner at Lenczner Slaght. She can be contacted on +1 (416) 865 3091 or by email: firstname.lastname@example.org.
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