CRIMINAL CAPITALI$M

Canada Bread banned from federal contracts over price-fixing scheme

Story by Jake Edmiston •

Loaves of Canada Bread Co. Ltd. Dempster's multigrain bread are displayed for sale as an employee stocks shelves at a grocery store in Vancouver.© Provided by Financial Post

Canada Bread Co. Ltd. has been added to the federal government’s list of banned suppliers for its role in one of most notorious price-fixing conspiracies in Canadian retail history.

Canada Bread — one of the country’s biggest commercial bakeries, behind brands such as Dempster’s and Villaggio, among others — in June pleaded guilty to four counts of price fixing and received a $50-million fine — the first major development in the case since news of the scheme first emerged in 2017. On Aug. 22, two months after the guilty plea, the federal government banned Canada Bread from bidding on government contracts for 10 years.

The move means Canada Bread can no longer supply bread and rolls to the Department of National Defence, though the reputational harm could be the tougher blow. Even before that decision, credit rating agency DBRS Morningstar said Canada Bread’s situation was a cautionary tale of how unethical business conduct can “erode consumer confidence” and hurt a company’s overall credit risk profile.

Canada Bread is now one of just five companies on the federal government’s list of “ineligible and suspended suppliers ” — a program that started in 2015 as a way of keeping unethical players away from the public purse.

“It’s not surprising,” said Robin Shaban, co-founder of the Canadian Anti-Monopoly Project, an Ottawa think-tank that focuses on competition policy reform. “If I was working in federal government procurement, I would totally blackball them.”

Public Services and Procurement Canada (PSPC), the department that maintains the list, said the government will not do business with any companies that are convicted of certain offences , including bid rigging, bribery and price fixing.

PSPC spokesperson Jeremy Link said the government is committed to taking action “against improper, unethical and illegal business practices and holding companies accountable for such misconduct.”

In a statement, Canada Bread said it respects the government’s policy on ineligible suppliers and is “working within such policy.” The company has been controlled by Mexican baking giant Grupo Bimbo S.A.B. de C.V. since 2014. In court documents earlier this summer, the company said it only learned about the price-fixing activity in 2017 when the Competition Bureau, a federal law enforcement agency, executed a search warrant against Canada Bread.

The court documents said the bureau found that a senior officer at Canada Bread co-ordinated two wholesale price increases between 2007 and 2011 with executives at the company’s main competitor, Weston Foods — a major commercial bakery controlled at the time by George Weston Ltd., which also controls Canada’s largest retailer, Loblaw Cos. Ltd.

In 2017, the bureau granted immunity to Loblaw and Weston in exchange for their co-operation with the investigation. The immunity appears to have kept those companies off the government’s banned supplier list, since neither company was charged with one of the crimes that makes a supplier ineligible.

Grupo Bimbo said it fully co-operated with the investigation, handing over documents that were not seized during the bureau’s raid. The company has publicly said the offences happened before Grupo Bimbo took over the bakery, when Canada Bread was majority owned and controlled by Maple Leaf Foods Inc.

“Grupo Bimbo is considering all legal options against those responsible for the conduct at issue,” the company said in a statement in June.

Maple Leaf Foods has said it was not aware of “any wrongdoing by Canada Bread or its senior leadership during the time that we were a shareholder.”

In exchange for Canada Bread’s co-operation, the bureau recommended leniency in sentencing. Ontario Superior Court Judge Maureen Forestell said Canada Bread’s fine of $50 million was below the maximum since the company’s co-operation and guilty plea saved “considerable time and costs.”

The judge said she took the bureau’s approach to leniency into consideration, since “much of the conduct would go undetected” without participants coming forward to confess in exchange for an easier sentence. Still, the $50-million fine was the highest on record, the bureau said.

“Effectively, this was a fraud on the public,” Forestall said in her reasons for sentencing. “These offences affected millions of consumers.”

Bureau spokesperson Sarah Brown said the agency isn’t involved in decisions about the government’s list of banned suppliers. But the bureau has previously advocated that anyone who gets immunity or leniency from the bureau shouldn’t be barred by the government.

In recommendations published late last year, the bureau said the threat of landing on the list could make it harder for a potential whistleblower to take a leniency or immunity deal.

As of now, only companies with immunity can avoid the list, according to John Pecman, the former head of the Competition Bureau who established the immunity and leniency program.

“We worked closely with Procurement Canada to ensure the immunity applicants would be excluded,” he said.

But parties who receive leniency — a lower tier in the bureau’s program — end up on the list because they’ve been convicted of one of the crimes that the government considers to be a red flag for suppliers.

“That’s one of the consequences,” Pecman said. “It’s part of your penalty.”

Canada Bread settles years-long price-fixing allegations

Investigation into infamous bread price-fixing scheme isn't finished

Inside the damning allegations of Canada’s bread price fixing scandal

Government records show that Canada Bread has supplied products to the defence department and Fisheries and Oceans Canada since 2008. The most recent supply contract was valued at $10,925 for Canada Bread Atlantic Ltd. to supply “miscellaneous food, food materials and food preparations” in July 2018.

In another contract, valued at $25,000, Canada Bread Co. Ltd. is listed as supplying fruits and vegetables to defence department between late 2016 and early 2017, according to a government database of contracts worth more than $10,000. In the fall of 2016, Canada Bread also had a deal to provide bread and rolls to the defence department. The database categorizes that contract as a “standing offer.”

— With files from Christopher Nardi and Barbara Shecter