Coming In From the Cold of Digital Audits: The Need for Safe Harbours in the Sea of Misleading and Deceptive Marketing

Abstract

Deferred prosecution agreements (“DPAs”) encourage companies to come in from the cold. The idea of “coming in from the cold” is linked to the “zone of non-discovery by government”. In this zone, as the result of an internal investigation a corporation becomes aware of evidence of regulatory violations or criminal conduct before the regulator has discovered it or even has reason to be suspicious. If the company comes in from the cold, the government gains evidence of a violation or crime that it might never have discovered. From the corporation’s perspective, the DPA avoids the negative consequences of a formal conviction or the formal record of a violation. This paper considers the potential application of DPAs in the area of misleading advertising offences and deceptive marketing administrative violations. Despite the policy rationale of encouraging companies to come in from the cold, DPAs have been used sparingly for misleading advertising crimes, in contrast to the more serious offence of foreign bribery. In Canada, which is used a case study, the crime of misleading advertising is excluded from the DPA legislation, which may have been a drafting omission. Civil penalty regimes used to enforce deceptive marketing do not have parallel DPA programs at all. With respect to misleading advertising crimes, this paper argues that the Canadian government should fix the drafting omission and add the criminal offence of misleading advertising in the Competition Act to the list of eligible offences for which a DPA is available. This would bring Canada into line with other jurisdictions. There are some comparative international precedents for the use of deferred prosecution agreements for misleading advertising, although generally these cases rise to the level of criminal fraud cases that involved an element of misleading acts. The same policy rationales that support DPAs for serious criminal offences apply to misleading advertising offences. In particular, reducing the negative consequences for innocent parties who would be impacted by a debarment is an important consideration. With respect to deceptive marketing violations enforced by civil and administrative penalties, this paper argues that DPA parallel programs should be developed. This proposal would not, strictly speaking, be deferred prosecution agreements, as the administrative monetary penalty does not involve the criminal justice prosecution apparatus. But, the same policy rationales that support DPAs for serious criminal offences apply to deceptive marketing. When a company discovers evidence of deceptive marketing in the “zone of non-discovery by government”, there needs to be an incentive to self-report. Creative incentive programs within the administrative paradigm are discussed and proposed.