Indicted in America

Been accused of wrongdoing in America? Conrad Black could tell you what to do.

Conrad Black was never a typical Canadian executive. He employed what might charitably be viewed as unconventional corporate governance practices. He attracted more critics and enemies than most. The literary and entertainment value of his memos knew few equals. But he had at least some characteristics in common with many other Canadian business people. He did business in the United States. He owned assets there. His company, Hollinger International Inc., was listed on the New York Stock Exchange.

These facts exposed Black—along with co-defendants John Boultbee and Peter Atkinson, and former associate David Radler—to American securities regulations, and American courts. After the Hollinger scandal erupted in 2003, they found themselves caught up in an alien regulatory and prosecutorial system. It changed the course of their lives.

Granted, the American and Canadian legal systems are similar in several important ways; after all, both countries (excepting Quebec and Louisiana) adopted English common law in the 18th century. But cultural, regulatory, legal and other distinctions between North America's neighbours have coloured each stage of Black's ordeal.

Steven Skurka, a Canadian defence lawyer with Toronto firm Skurka Spina Cugliari LLP, who's attending the U.S.A. v. Black et al. trial as a legal analyst, marvels at those differences. “As a Canadian lawyer, [being here] is really like being on a different planet,” he says. Canadian executives and companies with American ties ignore these contrasts at their peril.

Edward Greenspan, Black's lead Canadian counsel, is a fish out of water. Much to the amusement of the U.S. marshals who keep order in the Dirksen Federal Building in downtown Chicago, he sometimes offers a deferential bow toward the bench when entering or exiting the courtroom—a familiar affectation of Canadian barristers. Prosecutors have sometimes tripped up Greenspan's cross-examinations with a well-timed fusillade of objections—largely, it seems, to take advantage of his unfamiliarity with American court procedures. Unlike Greenspan, most of the prosecutors and defence lawyers in Courtroom 1241 are exclusive products of the U.S. legal system. So, too, is this trial.

Contrasts between the two systems become apparent from the moment allegations of corporate wrongdoing surface. Consider Canada's largest corporate scandal in recent memory, the Bre-X Minerals debacle. That company imploded in 1997 amid allegations it misled investors about the prospects of its Indonesian gold property, Busang. Following a long and much-criticized investigation, the RCMP determined there was insufficient evidence to proceed with Criminal Code charges against anyone. (The Ontario Securities Commission eventually filed a civil enforcement proceeding against chief geologist John Felderhof for insider trading. A ruling is expected later this year.) Bre-X's lawyer confirmed that the RCMP gave the company permission to shred company records soon after the scandal broke. The shredding allegedly took a day and a half. Remember what happened to accounting firm Arthur Andersen after it shredded documents in connection with the Enron matter?

“The Americans have been better at providing appropriate resources to law-enforcement agencies to investigate these allegations in a timely fashion,” says David Porter, a criminal litigator with McCarthy Tétrault LLP in Toronto. “One of the things everybody in the system finds very frustrating here [in Canada] is the very slow pace of investigations. Where there's an investigation here, it often hangs over the heads of companies and individuals for ages before we find out what's going to happen.”

American regulators are typically perceived as being more aggressive than their Canadian counterparts. But they are sometimes just the beginning. America's post-Enron corporate governance revolution resulted in an increasing tendency to resort to the criminal courts. Leonard Cavise, a law professor at DePaul University in Chicago, says white-collar criminal trials are a relatively new phenomenon. “If you want to look at the reigning law in a white-collar crime textbook, you start around 1995 or so,” he says. “You don't bother with anything before that, because back in those days they were fining [corporations].” He adds: “Since Sarbanes-Oxley happened, a number of major corporate executives have been prosecuted….They've been prosecuted differently than they would have been 10 years ago.”

How so? Consider the so-called Thompson Memorandum, sent in January 2003 by U.S. Deputy Attorney General Larry Thompson to senior prosecutors across the country. This controversial document contemplated new tactics to be used against business organizations and individual executives, and encouraged prosecutors to indict companies when they saw fit. For instance, Thompson advised that if a company paid the legal bills of an executive or employee accused of wrongdoing, it may be deemed unco-operative—which would weigh in favour of indicting the company. Prosecutors were also told that under certain circumstances, they should press corporations to waive their right to solicitor-client privilege—a right guaranteed by the U.S. Constitution. Such strong-arm tactics are not usually available to Canadian prosecutors.

Skurka observes that American “seize and freeze” practices are tougher. Black's bond was initially set at US$20 million and subsequently raised to US$21 million, which some have claimed is the highest on record. Prosecutors slapped a lien on his Florida mansion. And when he sold his New York apartment, the Federal Bureau of Investigation swooped in and seized the proceeds. “I don't think someone in a comparable situation to Conrad Black would have found themselves so depleted” in a Canadian proceeding, Skurka comments. Indeed, attempts to tie up Black's and Radler's Canadian assets have met with limited success.

U.S. prosecutors have another formidable tool in their arsenal: the Racketeer Influenced and Corrupt Organizations Act, or RICO. They can bring it against anyone they believe has committed two or more of 35 types of offence within a 10-year period with a similar purpose or result. Enacted in 1970 to combat organized crime, RICO soon found application well outside the Mob—and is now commonly applied in corporate trials, including U.S.A. v. Black et al. “It's so easy to use,” says Cavise. “You don't need to catch anybody in anything. All you have to prove is that they were part of a structure of criminality.”

Owing to the greater prominence of American prosecutors, a defendant can find himself up against a celebrity. Though he's not arguing the case at trial, U.S. district attorney Patrick Fitzgerald cuts a formidable figure in the courtroom during his periodic visits to observe underlings in action. “Canadian prosecutors aren't political animals,” Skurka says. “They're not appointed that way….If you asked 1,000 people in Toronto who's the Crown attorney, who's the senior person, I guarantee you [many] people wouldn't know the answer.”

Black was indicted in November 2005 and found himself on trial in little more than a year. The right of American defendants to a speedy trial is enshrined in the U.S. Constitution, and bolstered by the Speedy Trial Act of 1974. The underlying rationale recognizes that memories dull over time. Evidence deteriorates; witnesses die. But it also notes that people in jail create considerable public expense, and that delays can blunt the law's purported aims of deterrence and rehabilitation.

As with investigations, the Americans can bring far greater resources to a trial. Consider government witness Darren Sukonick, a lawyer with Torys, a Toronto-based law firm that served as outside counsel to Hollinger International. He wasn't a particularly important witness. Yet under cross-examination in April, Sukonick testified that between October 2003 and January 2007, he spoke with attorneys from the U.S. Attorney's Office and the SEC more than eight times.

But does the pace of America's system mean justice is rushed? In January, Boultbee, Atkinson and Kipnis asked that the Chicago trial be delayed two months. “With only two months before trial, the defence cannot possibly review and analyze the mountain of discovery produced…by the government in the manner necessary to effectively represent our client at trial,” they pleaded. A largely unsympathetic Judge Amy St. Eve gave them a one-week adjournment, and denied further requests for delay.

Black, for his part, expressed a desire to get to trial quickly. Would he have received that in Canada? Theoretically, Canada's Charter of Rights and Freedoms provides for a trial “within a reasonable amount of time.” Canada's Supreme Court has also ruled that court backlogs can violate that right. And yet, by Canadian standards, the U.S.A. v. Black et al. matter got to trial quickly, Porter says. And the perceived sluggishness of Canadian courts frustrates Black's prosecutors. In late March, assistant U.S. attorney Jeffrey Cramer complained to the court about the logistics of conducting video depositions in Canada. “Things take a long time north of the border,” he observed. Skurka, though, disagrees that Canadian courts operate more slowly. “I've certainly dealt with white-collar cases,” he says, “and I didn't feel there were protracted delays.”

There are structural distinctions between how trials are conducted in each country. The use of courtroom technology and demonstrative exhibits left Skurka impressed. The rapid-fire objections of the American courtroom, though, leave him mystified. “The Canadian approach is that when any side makes an objection, the other side has a chance to respond and the judge will rule accordingly,” he says. “Here [in the U.S.] the judge summarily makes decisions like an umpire calling strikes and balls.” And because of the frequency of objections, he says American lawyers receive considerably less leeway in cross-examining witnesses.

The criminal sentences applied to white-collar crime in contemporary America are remarkable. Ask Bernie Ebbers. The U.S. District Court for the Southern District of New York sentenced him to a quarter-century in prison for securities fraud, conspiracy and other convictions. He won't be eligible for parole until he's 85. A single RICO conviction alone can win two decades in the slammer. To get that kind of sentence from a Canadian court, you'd have to kill someone.

This kind of tough sentence is relatively new. “If you go back and look at the junk-bond scandals of the 1980s, for example, I think [American financier] Michael Milken wound up serving 22 months,” observed Houston Chronicle columnist Loren Steffy on a Conference Board of Canada webcast earlier this year. “Some of the savings-and-loans figures served maximums of five years.” But since Enron's demise—a scandal that threw thousands out of work and harmed countless shareholders—white-collar defendants have been treated more harshly.

Not that American judges have much choice. Beset by perceptions that repeat criminals were being treated with kid gloves, U.S. governments enacted sentencing guidelines in the 1980s that mandated specific sentences for particular convictions. “The sentencing guidelines took sentencing discretion away from the judge, who used to be able to look at the statutory range,” says Cavise. Last year, the U.S. Supreme Court ruled that the sentencing guidelines are discretionary, but Cavise says accused executives shouldn't take much comfort from the recent change. “White-collar defendants are still very unpopular,” he observes. “And judges are still very sensitive to public opinion. People are going to get smacked.”

Porter says the pressure created by lengthier American sentences may compel executives with arguable defences to cut deals with prosecutors. “People face the choice of pleading guilty for a short time in jail or running the risk of a trial and being sentenced perhaps five or six times that amount after trial if they are convicted,” he explains. “They may, practically speaking, have no choice but to plead guilty. This fundamentally undermines the presumption of innocence.” Porter also worries that the impetus to avoid punishing sentences increases the risk that prosecutors will receive unreliable evidence from informants, whose reward for helping convict a target executive is so compelling. Greenspan and other defence lawyers accused Radler, during his May testimony, of lying to prosecutors to save himself.

Black's theoretically possible sentence—were he to be convicted on all counts—might add up to a century. He's 62, so a long sentence could effectively put him behind bars for life. Skurka says that this has coloured the whole trial. “It's a white-collar case, but I feel I'm at a murder trial,” he says. “The tension in that room [in Chicago] is comparable.”

It's no surprise that Canadian executives often prefer allegations of wrongdoing against them be heard in their home country. But Porter says that Canadian companies and executives operating south of the border can't afford to ignore the legal contrasts between the two countries. “Many Canadian companies have sufficient connections to the United States that they should be greatly concerned about their potential exposure to the U.S. criminal investigations,” he says. Black and his colleagues would almost certainly agree.