Preventing Self-Incrimination In Cross-Border Investigations

This article was prepared for and presented at the ABA's National Institute on US-Canadian Securities Litigation conference held on May 18 in Toronto.

Introduction

As the number of cross-border investigations increases, a higher degree of cooperation between regulators in Canada and the United States is required to effectively enforce securities laws and regulations. While this cooperation has generally been recognized as necessary to the proper functioning and oversight of the securities regimes in both countries, how it affects the rights of individuals subject to investigation by a Canadian regulator merits discussion.

The laws protecting individuals and governing regulatory investigations in Canada and the United States differ. In Canada, for example, securities regulators are entitled to compel individuals to testify and produce documents relevant to an investigation. These individuals enjoy Charter and Evidence Act protections which prohibit the subsequent use of their compelled testimony to incriminate them. By contrast, in the United States, compelled individuals have the right to plead the Fifth Amendment and avoid testifying.

In the United States, the Securities and Exchange Commission ("SEC") is able to commence civil, injunctive and administrative proceedings; however, it can also refer matters to the Department of Justice ("DOJ"). The potential for information sharing with the DOJ raises the risk that information shared with the SEC by Canadian regulators could lead to an individual having his involuntary testimony used against him in the United States perhaps in breach of the Charter and Evidence Act protections.

Further clouding the landscape is the lack of guidance by the Ontario Securities Commission ("OSC") and other regulators, and scarce jurisprudence on the issue. It seems that individuals subject to an examination request by a Canadian regulator are left with three choices: (1) refuse to cooperate with the regulator and risk being held liable for contempt by the court;1 (2) cooperate and risk having the testimony used in the US and potential penal sanctions; or (3) cooperate while trying to negotiate additional protections and assurances.

The impression in Canada is that Canadian rights against self-incrimination are significantly diminished in comparison to the rights available in the United States. This paper focuses on how a Canadian resident, compelled to give evidence in a Canadian regulatory proceeding, can preserve his or her right to be free from self-incrimination in the context of a cross-border investigation. Its purpose is to: (1) provide an overview of the differing regimes in Canada and the United States with respect to self-incrimination; (2) examine how the courts in Ontario and Alberta have dealt with the issue; (3) consider how US courts have treated the use of foreign compelled evidence in US proceedings; (4) provide practical tips for defence counsel when faced with summonses in cross-border investigations.

Cooperation between Canadian and US Regulators

Cooperation between regulators in Canada and the US is increasing - a fact evidenced in statistics, recognized by the courts, and contemplated by multilateral memoranda of understanding. The OSC routinely receives requests for assistance from other Canadian and international jurisdictions. Since it began publishing statistics in 2010 regarding international cooperation, the amount of international requests for assistance has increased.2 The Supreme Court of Canada has noted that the "securities market has been an international one for years"3 and that "given the reality of interprovincial, if not international, capital market, '[t]here can be no disputing the indispensable nature of interjurisdictional co-operation among securities regulators today'."4

Interjurisdictional cooperation is also contemplated in the memoranda of understanding between Canada and the US. In January 1988, the OSC and the SEC entered into a Memorandum of Understanding5 ("1988 MOU"), which "recogniz[ed] the increasing international activity in securities markets and the corresponding need for mutual cooperation in matters relating to the administration and enforcement of United States and Canadian securities laws."6 The 1988 MOU was the first formal arrangement between Canadian and US securities authorities regarding the exchange of information. The signatories of the 1988 MOU agreed to provide one another with the "fullest mutual assistance" by (i) providing access to information in official agency files; (ii) taking evidence of persons; and (iii) obtaining documents from persons for investigations, litigation or prosecution of cases.7

The 1988 MOU requires authorities to take the testimony of persons "in the same manner and to the same extent as in investigations or other proceedings in the jurisdiction of the request Authority" and entitles all persons giving testimony to "all of the rights and protections of the laws of the jurisdiction of the requested Authority."8 Furthermore, it states that "[a]ssertions regarding other rights and privileges arising exclusively pursuant to the law of the jurisdiction of the requesting Authority shall be preserved for consideration by the courts in the jurisdiction of the requesting Authority."9

The 1988 MOU effectively facilitates the use of information obtained by a request, including compelled testimony, in civil, administrative, or self-regulatory enforcement proceedings, and potentially in criminal prosecutions.10 It is particularly troublesome for the subjects of the requests since it stipulates that, to the extent permitted by law, "[e]ach Authority will keep requests made under this Memorandum of Understanding, the contents of such requests, information gathered in response to requests, and any other matters arising during the operation of this Memorandum of Understanding, including consultations between Authorities, confidential".11

In December 2002, the OSC and the SEC, as members of the International Organization of Securities Commissions, executed a further Multilateral Memorandum of Understanding12, substantially the same as the 1988 MOU.

The Right against Self-Incrimination in Canada and the US

Protections for Canadians under the Charter & Evidence Acts The right against self-incrimination is derived from ss. 7, 11(c) and 13 of the Charter,13 which ground the basis for the following protections under the Charter and provincial Evidence Acts in respect of compelled evidence:

Use immunity, which provides that prior testimony cannot be used to incriminate a witness in a subsequent proceeding except in prosecuting perjury; Derivative use immunity, which prohibits the use of testimony as a means of obtaining incriminating evidence otherwise unavailable. Derivative evidence is not automatically excluded. The court must determine whether the evidence could have been obtained through alternative means; Constitutional exemption, which protects a witness from testifying if the purpose of obtaining the testimony is to establish penal liability.14 Under s. 7 of the Charter, "[e]veryone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice."15 The courts have not interpreted s. 7 of the Charter to automatically preclude "a securities regulatory authority from compelling an individual to testify during an investigation, notwithstanding that the individual's liberty interest is engaged."16 A witness may be able to obtain a Charter remedy if: (i) the witness is subsequently charged with an offence, and (ii) able to prove that the predominant purpose of the regulatory investigation was to determine whether he was guilty of a criminal offence or an offence under securities legislation.17

Pursuant to s. 11(c) of the Charter, "[a]ny person charged with an offence has the right not to be compelled to be a witness in proceedings against that person in respect of the offence."18 Unfortunately, s. 11(c) does not protect a witness compelled to give evidence in a securities regulatory investigation or an administrative proceeding because the individual is not "charged with an offence."19

Section 13 of the Charter, however, provides use immunity for compelled testimony...