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Sentencing Options

Other amendments to the Code provide for stiffer penalties and corporate probation orders. A less serious summary conviction may result in a fine up to $100,000, an increase from the $25,000 level previously set for corporations, and fines for more serious indictable offences remain with no prescribed limits.

The purpose of corporate probation is to allow the court to oversee and regulate an organization's efforts to reform. A judge may impose certain conditions, most notably (i) restitution to a person for any loss or damage suffered as a result of the offence, and (ii) notice to the public of the offence committed, the sentence imposed and any measures that the organization has undertaken to reduce the likelihood of committing future offences.

2. Insider Trading Reforms of the Criminal Code

On September 15, 2004, two new amendments to the Code concerning insider trading and whistle-blower protection came into force.

Insider Trading

EThe legislation prohibits two forms of conduct relating to insider information: insider trading and tipping. For the purpose of the offences, "inside information" includes information not generally disclosed, relating to an issuer of a security to the public, which could reasonably be expected to affect the security's market price or value.

A person will be found guilty of insider trading under s. 382.1(1) of the Code if such person, directly or indirectly, buys or sells a security, knowingly using inside information which they possess:

• as a shareholder of the issuer of that security;

• through a professional relationship with that issuer;

• as a result of a proposed takeover, merger or reorganization with that issuer;

• by virtue of, or obtained in the course of, their employment, office, duties or occupation with that issuer or with a person referred to above; or

• obtained from a person who possesses or obtained the information in a manner referred to above.

Although insider trading is already an offence under provincial securities law and the CBCA, the Code offence of insider trading differs in that it is more difficult to establish. In addition to requiring that the individual charged was in possession of insider information when he or she bought or sold securities, the Code requires that the individual knowingly used the inside information in this course of action. Although more onerous to establish, if found guilty of insider trading under these provisions, an individual may be sentenced up to 10 years in prison.

The second offence of tipping is created under s. 382.1(2). A person will be guilty of tipping if he or she knowingly conveys inside information to another person, knowing that there is a risk that the person will use the information to buy or sell, directly or indirectly, a security to which the information relates or that he or she may convey the information to another person who may buy or sell the same security. Similar to the offence of insider trading, establishing tipping requires proof that the accused had knowledge that the person to whom the information was communicated may have used the information to deal with the securities as described above. The penalty for such an offence is up to five years in prison, and there is a saving provision that protects an accused if such information was offered in the ordinary course of business.

Whistler-Blower Protection

Corporate governance standards were also improved through the protection of employees who are willing to disclose information about unlawful conduct within the workplace. On September 15, 2004, the Canadian government enacted s. 425.1 of the Code, which resembles the U.S. efforts under the Sarbanes-Oxley Act ("SOX") to prevent employers from threatening or retaliating against these employees. Employers are prevented from taking, or threatening to take, disciplinary measures against an employee with the intent of compelling the employee to abstain from providing information respecting an offence that the employee believes has been committed by an employer or the directors of a corporation. It is also an offence if the employer takes such actions with the intention to retaliate against an employee after such employee has disclosed such information. If found guilty, there is a maximum penalty of up to five years imprisonment.

Although the above areas are currently regulated at the provincial and federal levels under securities law and the CBCA respectively, these amendments to the Code are to provide an alternative avenue of enforcement for the most serious cases that, according to the Department of Justice, "threaten the national interest in the integrity of the capital markets." One potential advantage of this federal legislation, as compared with provincial statutes, is that it applies to all organizations regardless of the provincial law governing the organization and provides an overarching mechanism to attack inappropriate conduct.

Provisions dealing with the jurisdictional issues of prosecution of these offences have not come into force as of yet. These amendments under the Code give the Attorney General of Canada concurrent jurisdiction with provincial Attorney Generals to prosecute capital market frauds cases; the federal government has indicated that a prosecution protocol is in the works to provide guidance as to the appropriate way to deal with the overlap.