View All | August 2017 Newsletter Edition


Conducting business in another country can be an effective way to expand your company and boost its revenues. But before you indulge, you need to be clear on how the prospective country deals with internal fraud and white collar criminals.

Let’s take a look at Canada, where many U.S. companies do business. In that country, oversight and enforcement is somewhat fractured, split between provincial and territorial agencies as well as the federal government and its Criminal Code. As a result, the country’s white-collar law enforcement system is viewed, rightly or wrongly, as largely ineffective.

Its multi-agency system for market regulation and the enforcement of securities law involves nearly 50 agencies organized into six jurisdictional “pillars.” Many critics, including many in government positions, view the system as overly complex and badly resourced.

In addition, the country’s judicial system generally has a reputation for being easy on white-collar criminals. Two high profile cases may help illustrate that perception:

Sentencing disparity. Montreal financial advisor Earl Jones pleaded guilty to running a massive Ponzi scheme and bilking investors of $50 million. He was sentenced to 11 years in prison in 2009, with the possibility of parole in two years. In contrast, in the United States that same year, Bernie Madoff was sentenced to 150 years in prison for running the largest Ponzi scheme in history.

Financial gain at investors’ expense. John Felderhof, former Bre-X Minerals vice chairman and chief geologist, was acquitted after a seven-year trial on charges of insider trading and misleading investors. Felderhof sold $84 million in the company’s shares shortly before the mining concern collapsed under the weight of a fraud involving “salting” gold mines in Indonesia.

Whether or not Canada is lenient in its prosecution of white-collar crime — and given that there is no certainty your company would fall victim to such criminal activity — it is nevertheless prudent to take the following precautions before getting involved in a undertaking over the border:

Learn before you leap. Take time to understand the Canadian approach to white-collar crime law enforcement before committing investment capital. The information that you gather may not change your company’s investment decision, but it may help you prepare for future challenges. For example, take raising capital. If your business plan includes raising money, understand that there is a certain level of skepticism among the Canadian public and the business community at large. Perceived inconsistent or inadequate enforcement of laws can significantly affect the confidence of potential investors in Canada and abroad.

Gather business intelligence. As with any new business venture, it’s important to know as much as possible about the participants. Consider enlisting the help of a qualified law firm to conduct detailed background checks on all Canadian executives that your company plans to hire or invest with. In general, Canadians explicitly trust more than their U.S. counterparts. Such trust may be well placed, but in the event that a potential employee or business partner has a checkered past, it is better to know before risking investment capital.

Learn what fraud looks like. Corporate fraud schemes often share many of the same characteristics, regardless of where they are committed. The differences fall in the area of enforcement and even investigation. A fraud specialist experienced in Canadian-based schemes can help your enterprise set up proactive defensive measures.

Get to know the locals. During the due diligence phase before investing, you will undoubtedly come across Canadian attorneys and accountants. Ask them questions about the business environment and gather intelligence about their firms’ capabilities. Getting to know local professionals can help you grasp the realities of doing business in Canada and gain insight on pitfalls to avoid. In addition, if possible, U.S.-based executives from your company should join Canadian civic and business-related organizations. This can help them build a level of trust among other members. Then, they are more likely to hear of potentially fraudulent business practices your business should be aware of or avoid.

One last step: If, for some reason your company were to become directly or indirectly linked to allegedly fraudulent activity, your staff members need to be prepared and have a plan outlining in detail how to respond. Set up a cross-divisional team of employees who will serve as first responders to the incident. The team should include representatives from legal, corporate communications, corporate security, audit and operations. Give each member defined roles and responsibilities that should be well-rehearsed in advance of an actual problem developing.

Given the global nature of today’s economy, and the global threat of terrorism, be aware that U.S. law enforcement officials could launch an investigation of suspicious activities in Canada.

Copyright 2017