Guideline on Controlled Goods Program compliance inspections

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  1. 1. Compliance inspections
  2. 2. Preparing for a compliance inspection
  3. 3. Activities for non-compliance

1. Compliance inspections

The security of controlled goods is a responsibility that is shared between government, industry, their respective associations and consumers. Registrants in the Controlled Goods Program (called the program in this guideline) have the primary responsibility for ensuring that the controlled goods listed in the schedule to the Defence Production Act (called the act in this guideline), which they manufacture, import, export or distribute, are not examined, possessed or transferred to unauthorized persons. Registrants must comply with all legislative and regulatory requirements. The program has the legislative authority to conduct compliance inspections. While exercising any authority under part 2 of the act, inspectors may be accompanied by another person of their choosing. Compliance inspections are conducted to ensure that registrants are compliant with the act and the Controlled Goods Regulations (called the regulations in this guideline).

2. Preparing for a compliance inspection

An inspector from the program will contact the authorized individual and/or the designated official of a registered person (called a registrant in this guideline) to schedule a compliance inspection. These inspections are usually conducted during normal business hours.

There are four types of compliance inspections:

2.1 Site inspection

A site inspection will be conducted for registrants who examine, possess or transfer controlled goods at their facilities. A site inspection includes a visual review of the site and the physical security measures in place (a walk-through will be conducted).

An inspector issues a compliance inspection form to the registrant upon the completion of a site inspection. The compliance inspection form indicates whether the site inspected is compliant with the regulations or identifies deficiencies which must be addressed on or before a specified due date. Once the registrant addresses all deficiencies, a subsequent compliance inspection form is issued indicating that the registrant is compliant.

The inspection will focus on the following areas:

  • a validation of the registration information as follows:
    • legal name and business name
    • name and position of the registrant's directors and officers, including their residential addresses
    • ownership
    • address and mailing address for all sites where controlled goods are kept
    • contact information of the authorized individual and the designated official
    • confirmation of the designated official’s certification under the Designated Official Certification Program
    • a description of the controlled goods the registrant accesses
  • the security plan
    • the inspector will determine if the security plan is a true representation of the procedures observed on location
    • when possible an inspector will review the security plan prior to the inspection
  • the registrant's records pertaining to the receipt and transfer, including disposition, of controlled goods
  • the registrant's records pertaining to exemptions for temporary workers, international students and visitors (if applicable)
  • the registrant’s submission to the program every 6 months of a list of individuals who were security assessed by the designated official in the previous 6 months
  • a verification that the security assessments have been conducted for all employees examining, possessing or transferring controlled goods. Each security assessment record must contain the following:

2.2 Telephone inspection

A telephone inspection is generally conducted on registrants that do not examine, possess or transfer controlled goods at their facilities. In most cases, these are registrants who only have access to controlled goods at another registrant's site(s), for example, at a client's site. A telephone inspection will focus on the following areas:

  • a validation of the registration information as follows:
    • legal name and business name
    • name and position of the registrant's directors and officers, including their residential addresses
    • ownership
    • confirmation of the designated official’s certification under the Designated Official Certification Program
    • contact information
  • a validation that the registrant does not examine, possess or transfer controlled goods at their site
    • if they do, the telephone inspection is stopped and the designated official is advised that an on-site inspection will be required
  • the registrant's submission to the program every 6 months of a list of individuals who were subject to a security assessment by the designated official in the previous 6 months
  • a verification that the security assessments have been conducted for all employees examining, possessing or transferring controlled goods at a client's site. Each security assessment record must contain the following:

Note

A follow-up inspection to the registrant's site may be required in some instances to validate the security assessment records.

2.3 Follow-up inspection

A follow-up inspection is a subsequent inspection of a registrant conducted on-site which focuses on the following areas:

  • deficiencies identified during the initial inspection have been addressed
  • security assessments identified in the course of a telephone inspection have been completed

2.4 Close-out inspection

A close-out inspection is conducted by telephone or on-site for registrants that no longer need to be registered with the program. It will focus on the following areas:

  • the registrant is no longer required to be registered in the program
  • the registrant is no longer in possession of controlled goods
  • the registrant will maintain records as per section 10 of the regulations

3. Activities for non-compliance

Where non-compliance is brought to the attention of a registrant by the inspector or others, it is the registrant's responsibility to take timely and appropriate action to comply with legislative and regulatory requirements. As the certification under the Designated Official Certification Program is a condition of registration, failure for a company to have at least one certified designated official will be treated as non-compliance with that company’s conditions of registration. Compliance will primarily be achieved via a close cooperative approach between the registrant and the program inspector. However, when this is not possible or when the registrant is unwilling to correct deficiencies, a number of enforcement options may be used.

When discussing non-compliance with a registrant, the inspector will clarify what is necessary to achieve compliance. The primary objective is to mitigate the risk of unauthorized access and to have the responsible registrant comply with the act and the regulations using the most appropriate level of intervention, starting from the least intrusive level of intervention, to the most invasive (for example, the removal of controlled goods). Exceptional circumstances are defined as the risk of an immediate transfer of controlled goods to an unauthorized person or when there are reasonable grounds to believe an imminent danger to public safety exists.

Program inspectors will evaluate instances of non-compliance to determine the most appropriate action(s) to be taken. This determination will consider the various circumstances of each case and will take into account, along with other applicable information, the following factors or any combination of these factors:

One or more of the following actions may be taken to achieve compliance for violations of the act and the regulations:

3.1 Voluntary disposal

A voluntary disposal is a decision by a non-registrant to destroy a controlled good or to have the controlled good transferred to an authorized person. A voluntary disposal is normally reserved for persons who are not registered with the program, but are in possession of controlled goods. In considering whether to seek a voluntary disposal, the inspector will take into account the following factors:

  • the degree of cooperation offered by the non-registrant
  • the possibility to transfer the controlled good to an authorized person
  • the possibility of conversion into a non-controlled good
  • the extent to which the disposal can be monitored

Prior to any voluntary disposal taking place, the non-registrant will be given the opportunity to register in the program.

3.2 Suspension or revocation of registration or the exemption certificate

The Minister of Public Services and Procurement Canada, upon receiving credible information that a registrant or an individual who is exempt under a certificate of exemption meets one of the criteria listed below, may suspend or revoke a registration or exemption certificate as the case may be due to one of the following:

  • having contravened any provision of the Defence Production Act or its regulations, the Export and Import Permits Act, the Security of Information Act or the Technical Data Control Regulations
  • having omitted from a security assessment or an application for registration or exemption, any material fact or having misstated any material fact
  • posing an undue risk of transferring controlled goods to a person who is not registered or exempt from registration
  • having failed to comply with any condition of registration or exemption
  • becoming insolvent or bankrupt or being unable to conduct their normal business activities for a period greater than 30 days

The program is responsible for initiating the suspension or revocation process on behalf of the Minister. In each case, a complete evaluation is made in order to decide on the appropriate course of action. The program can either initiate the suspension or elect to revoke a registration certificate, based on whether the matter can be rectified or not.

The suspension or revocation process is divided into 3 steps described as follows:

Intent to suspend or revoke the registration or exemption certificate
This step involves sending a letter of intent to the registrant to either suspend or revoke the registration or exemption certificate. The registrant is given 30 days to make representation or to rectify the matter. If the problem persists and no representation is made, recommendations are forwarded to the Minister of Public Services and Procurement to either suspend or revoke the registration or exemption certificate.
Suspension of the registration or exemption certificate
A notice of suspension is served on the registered person. In the case of an exemption certificate, it is the registrant's responsibility to serve the visitor, temporary worker or international student, within one business day, a copy of the notice of suspension. The registrant has 30 days to make representation. If representation is received, the program will elect a reviewing board for a decision. However, if no representation is made and the problem continues to persist, the registration or exemption certificate will be subject to revocation.
Revocation of the registration or exemption certificate
A notice of revocation is served on the registrant. The process in respect to the exemption and representation is the same as the one outlined under the suspension above. If no representation is made, a close-out inspection will follow to ensure the registrant or the exempt individual can no longer access controlled goods.

Note

A registrant who is subject to a suspension or revocation will lose the privilege to examine, possess or transfer controlled goods.

3.3 Removal or detention of controlled goods

Under paragraph 42(2)(c) of the act, an inspector may detain or remove any controlled good, until the inspector is satisfied that the requirements of the act or the regulations are met. Removal and detention of controlled goods are immediate tools for controlling non-compliance, but are only used as a last resort.

When determining whether to implement a removal and/or detention, the inspector will consider the risk of unauthorized access and the compliance history of the registrant.

3.4 Prosecution

The program may refer incidents where an offence is suspected to the Royal Canadian Mounted Police (RCMP). The RCMP will determine if an investigation is warranted and if charges will be laid. Factors considered by the program when submitting a referral include:

  • non-compliance is creating a risk of unauthorized access
  • non-compliance is continuing in nature
  • non-compliance was deliberate, indifferent, reckless or a marked departure from a reasonable standard of care
  • other enforcement activities have proven unsuccessful

A prosecution is a legal proceeding in which the criminal courts determine whether the applicable legislation has been contravened, and if so, may apply an appropriate penalty. As stated in subsection 45(1) of the act, every registrant who knowingly transfers a controlled good to, or permits the examination of a controlled good by a person who is not registered or exempt from registration, is guilty of either:

  • an offence punishable on summary conviction and liable to a fine not exceeding $100,000 or to imprisonment for a term not exceeding two years, or to both
  • an indictable offence and liable to a fine not exceeding $2,000,000 or to imprisonment for a term not exceeding 10 years, or to both

Prosecution may be undertaken in conjunction with other enforcement measures, such as removals, depending upon the circumstances.

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