Scheme shows distinction in sanctions

It drives a nail into the coffin of any argument that AMPs are unconstitutional

The Supreme Court of Canada ruled last week that administrative monetary penalties, or AMPs, are not criminal sanctions.

As Julius Melnitzer reported on Legal Post, the Supreme Court ruled AMPs do not offend constitutional rights because they are not criminal in nature and do not lead to the imposition of true penal consequences.

“Administrative monetary penalties are designed as sanctions to be imposed through an administrative process. They are not imposed in a criminal proceeding,” write Justices Marshall Rothstein and Thomas Cromwell in the case, Guindon v. Canada.

This case matters because it drives a nail into the coffin of any argument that AMPs are unconstitutional.

Let’s explain some of the basics. If you get arrested and charged with a crime, you have a number of constitutional protections under the Canadian Charter of Rights and Freedoms. You are not required to answer police questions and you can contact a lawyer without delay. You can only be convicted if the Crown proves its case beyond a reasonable doubt in court. These protections reflect our understanding that Canadian criminal convictions have serious consequences. A conviction tarnishes you with a crim- inal record, even if the penalty is a small fine and not jail time.

AMPs result from a different legal path. They can be issued by a regulator, as opposed to a court. Prosecutors in a regulatory tribunal only need to prove their case on the “balance of probabilities.” Tribunals don’t have the power to toss you in jail, so your personal liberty is never at issue.

Some regulatory tribunals have the power to issue AMPs that can reach into the millions of dollars. The size of those multimilliondollar penalties can blur the lines between what is merely an administrative sanction and a criminal fine: you know, looks like a duck, walks like a duck. This has prompted calls to rein in the regulators and grant individuals facing serious monetary penalties the same protections that are available to criminal accused.

That was the debate that found itself before the Supreme Court in the Guindon case.

Canada’s Income Tax Act has a provision, section 163.2, which enables the Canada Revenue Agency to penalize professionals, such as accountants and lawyers, who provide flawed advice to clients. The promoters of a leveraged donation scheme called the “Global Trust Charitable Donation Program” asked lawyer Julie Guindon to provide a tax opinion on the legality of their plan. She provided the opinion, even though she had no experience in tax law and did not review documents related to the program.

The tax scheme was a sham and Canadian tax authorities disallowed the charitable donation tax credits claimed by taxpayers. Guindon was charged under section 163.2, and the CRA assessed her with $546,747 in penalties.

The court’s ruling was a split decision. Four out of seven judges ruled AMPs constitutional. But it’s important to note that the three minority judges didn’t specifically have a problem with AMPs. They refused to rule on the question because they said the constitutional challenge hadn’t been filed properly.

Turning to the majority view, the court didn’t buy into the “looks like a duck, walks like a duck” argument. Canadian courts have used two tests to distinguish administrative cases from criminal matters: the “criminal in nature” test and the “true penal consequences” test. The majority applied those tests in the Guindon case, and the judges found there is little in the Income Tax Act procedure that overlaps with a criminal prosecution.

While they accepted that Guindon was hit with a hefty monetary penalty, and that it’s possible for a big fine to look like a “criminal consequence,” in this case they pointed out that the size of Guindon’s penalty resulted from a formula in the legislation.

Indeed, they saw little reason to confuse AMPs with criminal fines. Administrative tribunals work very differently from criminal courts. Regulated individuals face no charge, no arrest, no summons to court and, if convicted, no criminal record. The process under the Income Tax Act is a self-reporting regime that bears few of the traditional hallmarks of a criminal proceeding, the court found.

It turns out that “walks like a duck, talks like a duck” is the wrong metaphor: comparing administrative proceedings to criminal courts is a case of apples and oranges.