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Proper governance and compliance are critical in mitigating financial crime risks

Author(s): Stéphane Eljarrat

May 20, 2021

Stéphane Eljarrat is a partner in Osler’s Litigation group and leads the national White-Collar Defence practice. Based in Montréal and Toronto, he works closely with Osler’s Risk Management and Crisis Response team and represents corporate clients and institutions in a wide range of internal investigations as well as criminal investigations and proceedings. Stéphane is known for his expertise in white-collar defence with decades of experience in both private practice and the public sector.

Quote by Stéphane Eljarrat: Every corporation should look at their overall business and see where the risks are, especially if you do business primarily in the U.S. or the U.K. where they have encompassing legislation on bribery and financial fraud that could apply extraterritorially to Canadian corporations.

Q: Stéphane, you represent corporate clients and institutions in a range of proceedings. What’s the focus of your practice right now?

Stéphane: My practice has three areas of focus: internal investigations concerning allegations of wrongdoing, whether criminal, regulatory or breach of ethics, compliance or fraud; defence of white-collar matters, including defending corporate clients facing regulatory or criminal investigation, and providing compliance and governance advice to clients in relation to the issues that could arise out of an investigation.

We cover a wide scope of issues. For example, handling securities investigations but also anti-corruption matters both internationally and domestically, money laundering matters for financial institutions, sanction and trade violations matters, as well as tax evasion. We also handle competition investigations and proceedings in cooperation with our competition group, as well as national security matters. For example, foreign state actors or competitors may try to steal company trade secrets or government information, in the case of government contractors. We have broad knowledge of international processes in the context of criminal investigations and experience representing senior management and directors of public companies facing international arrests warrants (Interpol Red Notices).

Q: What types of issues are you seeing with Canadian organizations right now?

Stéphane: With the pandemic, early financial intelligence at the outset of the COVID-19 pandemic indicated that the volume of internal and external fraud would be increasing. This was due to the economic and other societal issues facing employees, combined with the fact employees working from home are under the impression that they’re under less scrutiny. These early indications turned out to be correct as we’ve seen an increase in internal fraud, but also external fraud has significantly increased, such as cyber fraud.

Q: You were recently recognized by Benchmark Canada as White-Collar Crime/Enforcement Litigator of the Year for the second consecutive year. What was that for?

Stéphane:  This last year, we’ve been particularly busy working on internal investigations related to fraud within financial institutions. We have the unique ability to not only assist the client with related criminal proceedings, but also working with litigation colleagues on recovery proceedings and related class-actions. We’re also currently working in other areas such as foreign corruption matters and securities investigations.

Q: How have you seen your practice evolve over the years?

Stéphane: The practice of white-collar law is still an emerging practice in Canada – it’s been more active for about a decade. Compared to the United States where they have been more aggressively pursuing financial crimes investigations, Canada has been criticized in the past for its lack of enforcement in this area. But we’re noticing a trend where we are seeing an increase in financial crimes investigations in Canada, which also appears to be a global trend.

Since the recent introduction of the remediation agreement scheme in Canada (also known in other jurisdictions as Differed Prosecution Agreements), we expect to see a significant number of corporate criminal matters being resolved without going to trial. When you have a system that allows corporations to amend themselves and move forward, I think that’s a great result and a great way to address financial crime. When you punish a corporation, innocent employees, creditors, investors, suppliers and other stakeholders will face serious financial consequences. You want to give corporations that engaged in wrong-doing in the past, the opportunity to deal with the past and to become compliant.

Q: Is white-collar crime more top of mind for clients right now?

Stéphane: Companies are becoming more attuned to these issues. It’s now a global issue. The United Kingdom, France, Australia, New Zealand — most jurisdictions around the world have become more serious about prosecutions. If you look at Europe, years ago, you didn’t see corporations being routinely charged or executives going to jail with serious financial crimes. Now you are seeing it happening more often. It’s a world movement and Canada is part of it.

Q: Are companies becoming more proactive around the prevention of white-collar crime matters?

Stéphane: More companies are reviewing their compliance policies, their codes of conduct, and their information technology-permitted use policies. Employees working from home may have, for example, opportunities to steal important proprietary information. The inherent stress and strain caused by work at home conditions is creating opportunity for crimes to be committed. I often refer to the MICE principle (money, ideology, coercion, and ego) to explain the various motivations that cause human beings to behave in ways that are unethical or criminal. Sometimes people will commit a crime, not for the money, but because they have become disenchanted with the company they are working for, or someone wants to prove they can solve a problem and, by doing so, it gets the corporation into trouble.

Q: Are there areas of internal enforcement companies should focus on right now?

Stéphane: In Canada we are at the stage where it’s important that risk assessments be performed not just for regulatory risk, but also for corporate criminal liability exposure. If a corporation, for example, requires licensing to operate in another jurisdiction, the risk is higher. If you’re doing business in a higher risk jurisdiction for corruption, your analysis should certainly factor that in. Every corporation should look at their overall business and see where the risks are, especially if you do business primarily in the U.S. or the U.K. where they have encompassing legislation on bribery and financial fraud that could apply extraterritorially to Canadian corporations. Companies must take a step back and look at where the potential exposure might reside. That’s not to say that corporations have to be dishonest as an entity, but they could employ individuals or agents who, at some point, could decide to do something that’s against the corporation’s interest and land it in big trouble. There are always ways to have better compliance programs in place.

Q: Canada has been criticized for lagging other jurisdictions when it comes to enforcement of its anti-corruption legislation. Do you think things are improving?

Stéphane: We’re still lagging in terms of enforcement – law enforcement remains underfunded, which impairs the ability to move cases forward. International corruption matters are typically quite complex and entail long investigations in several jurisdictions. The good news for law enforcement is there’s no statute-barred period for this type of criminal offences. Often the enforcement action starts in another jurisdiction and there is a Canadian component, and that’s how Canada gets involved.

Q: What should organizations be doing right now to protect themselves?

Stéphane: Implement best practices in terms of governance and compliance – it starts by having the best policies in place and by setting the right tone from the top. That’s the glue that keeps everyone together and helps create a culture of compliance built around ethical values. With time, economic pressures and overall stress can erode this culture. This is especially true in the current COVID-19 environment. Corporate values are at risk as most employees may be working remotely. That’s when it can become dangerous, especially when people are under financial stress or facing mental health issues related to the pandemic.

The Corporate code of ethics is not a document people should only sign once a year – you have to really live the code of ethics and believe in it. Canada has been criticized in the past for its lack of enforcement in this area of the corporate culture. I see it in investigations all the time – people refer to “that annoying document I have to sign every year.” It’s an essential document for keeping the corporation out of trouble. Also, don’t be lax on enforcement because it always starts small. One day that same person who did something small will end up doing something worse – be consistent with enforcement.