Canadian companies operating in environmentally sensitive industries face a complex set of regulatory obligations that may transect federal, provincial, and municipal governments. Regulatory compliance requires ongoing diligence that includes a robust environmental risk management system, and the penalties and reputational risk for non-compliance can be substantial.
In recent years, federal and provincial governments have signalled increasing emphasis on environmental protection, and consistent with that intent, government regulators appear to have ramped up compliance inspections and investigations. Monetary penalties arising from non-compliance have risen dramatically, as demonstrated by the Teck Coal Limited ("Teck") guilty plea entered in the British Columbia Provincial Court on March 26, 2021, in which Teck agreed to pay $60,000,000 for repeated violations in 2012 of the Federal Fisheries Act. This fine is the largest financial penalty imposed in Canadian history on liability for an environmental offence.
The $60,000,000 fine paid by Teck clearly signals to industry participants the material exposure to financial loss that may materialize as a consequence of regulatory compliance inspections and investigations. Entities subject to an environmental inspection or investigation should accordingly treat them with the utmost attention, and boards and management should give sufficient regard to the prospect of financial loss and reputational harm to adequately discharge their obligations as directors and officers.
An important way to protect against reputational harm and risk of financial loss is to make and implement organizational plans and policies to appropriately act in, and respond before, any environmental compliance inspection or investigation begins.
Below, we briefly discuss 10 tips your organization may wish to consider when developing a plan for when the government regulator calls. They comprise information that, when contextualized with legal advice tailored to your organization's environmental compliance obligations, should assist to devise and implement investigation response plans to safeguard the interests of regulated entities.
1. Before an inspection/investigation occurs – designate a company representative
Regulated entities should designate a representative at each facility, office, or other place of business, with authority to engage with government regulators if and when they attend at the site to administer or enforce public law powers. Representatives should have knowledge of the company's protocol intended to govern its conduct with government regulators, and should have express authority to act for the company. All other staff should be instructed to direct government regulators to speak to the company's designated representative(s).
2. Ascertain purpose of visit – inspection or investigation?
When government regulators attend upon site of a regulated entity, the company's designated representative should immediately ascertain whether the regulator is present to carry out an inspection or an investigation. There are meaningful differences between the two, and the government regulator's response will dictate how the representative should act as a consequence:
- Inspection: The purpose of an inspection visit is to gather information and verify compliance with regulatory obligations. Government regulators are variously empowered to search, inspect records, and in some cases take samples without a warrant. A regulated entity's failure to comply with legislatively authorized demands made during an inspection may constitute an offence.
- Investigation: The purpose of an investigative visit is likely to collect evidence to be used in prosecuting an alleged statutory offence. In that event, certain substantive and procedural protections of the Canadian Charter of Rights and Freedoms are engaged. A regulated entity's cooperation is generally not required, subject to some limited legislative requirements or judicial requirements provided by a warrant.
3. Facilitating an inspection
During an inspection, a regulated entity's designated representative should accompany government regulators on the company premises at all times. The representative should attempt to determine and document what is being inspected and under what statutory or regulatory power the inspection is being conducted. The company's protocol for engaging with government regulators should account for legislated inspection powers, including what actions the company must take to facilitate the regulator's administration of the relevant legislation. A company may seek timely legal advice, but the prudent course is to know in advance of an inspection what actions should be taken on behalf of a regulated entity.
4. Be wary of the transition from inspection to investigation
The designated representative should remain vigilant during an inspection as to whether the government regulators have transitioned into an investigation. If the designated representative suspects that a transition has occurred, they should ask the government regulator to confirm whether they are now conducting an investigation.
5. Investigation – contact legal counsel
If a regulated entity's representative is informed that the government regulator is conducting an investigation, they should seek and act upon legal advice without delay.
6. Investigation – determine authority for search
In an investigation, a regulated entity's representative should require government regulators to demonstrate the judicial (i.e. a warrant) or legislative authority for the regulator to collect evidence and/or exercise other public powers that the government regulator contends are engaged. Without judicial or legislative authority, a government regulator may only lawfully search and seize property with a regulated entity's consent.
7. Investigation – obtain details regarding scope
If a government regulator carries out a compliance investigation, a regulated entity's representative should attempt to obtain as much information as possible from the regulator regarding the nature of the investigation, including who is being investigated (e.g. the company or specific employees) and what regulatory violation the regulator suspects has occurred or is occurring.
8. Document the regulatory visit
A regulated entity's representative should take timely notes and otherwise document each action taken by government regulators during an inspection or investigation. A regulated entity should also request copies of any photographs or video records made by government regulators, and the company should reproduce copies of any company records seized or voluntarily provided to the government regulator.
If a government regulator seeks or demands oral or written statements from a regulated entity's employees, the steps to be taken depend on whether the regulator is conducting an inspection or investigation:
- Inspection: Generally, a regulated entity has no right to silence, and the company is required to provide compliance related information required for the government regulator to administer its empowering legislation.
- Investigation: A regulated entity should in this case only write or utter statements as required by a warrant or by legislation, or as the company may consent to provide after obtaining legal advice. It is advised that legal counsel be present during questioning.
10. Do not read into silence following an investigation
Following an investigation to gather evidence for a prosecution, the government regulator will prepare a brief for Crown counsel and it is then up to Crown counsel to pursue charges against the regulated entity. Under most statutes, there are long limitation periods associated with filing charges after an offence is committed (e.g. Section 82 of the Fisheries Act creates a five-year limitation period for summary conviction prosecutions).
To ensure that a regulated entity complies with its environmental regulatory obligations, minimize its risk of reputational and financial loss, it would be prudent for the company to make and implement a detailed plan or policy providing for the actions to be taken when government regulators attend the premises to carry out environmental inspections or investigations.
Establishing such plans or policies company-wide in your own organization may limit legal and financial risk, and ensure that your company presents an informed response to an environmental inspection or investigation. If your organization is looking to develop a robust inspection and investigation response strategy, or is currently the subject of an environmental investigation, we encourage you to reach out to us.
Our environmental law practitioners have assisted many regulated entities, across a multitude of industrial and commercial sectors across Canada, to appropriately navigate environmental inspections, limit legal risk in compliance investigations, and defend against environmental prosecutions. If such matters concern your organization, we would be pleased to discuss your legal needs.