Analysis and Critique of Current Cases

Analysis and Critique of Current Cases

Amway Corporation

The Amway Corporation entered the Canadian market in October 1962 with the incorporation of Amway of Canada, Ltd. When Amway began exporting its products to Amway of Canada, Ltd., Amway (U.S.) was actually two separate corporations: Amway Manufacturing Corporation and Amway Sales Corporation. The Manufacturing Corporation produced products which it sold to the Amway Sales Corporation. The Amway Sales Corporation in turn sold the goods to Amway's Direct Distributors. On January 1, 1964, Amway merged these two companies in the United States and formed the Amway Corporation. As a result of the merger, the Amway Corporation ran into difficulties with the Canadian National Revenue over the value for duty of Amway goods shipped into Canada.

Canadian customs laws require that the value of good for duty be determined by ascertaining the price at which like goods are sold by the foreign exporter in his domestic market to arm's length purchasers who are at an equivalent level of trade and purchasing in the same or substantially the same quantities for home consumption as the Canadian importer.

Prior to the merger, Amway products exported to Amway of Canada, Ltd. were valued at the same price as the products sold by the Amway Manufacturing Corporation. This "transfer price" was acceptable to Canadian officials because the Amway Manufacturing Corporation and the Amway Sales Corporation were two legally separate entities each with separate and distinct functions. And the function of Amway of Canada, Ltd. was the same as the Amway Sales Corporation in the United States.

When the Amway Corporation was formed (after the merger) Amway's products were now sold directly to Direct Distributors in the United States. Amway shipped their goods to independent warehouses located around the country and there the products were received by Direct Distributors. The goods were sold to the Direct Distributors at higher prices than the "transfer price" previously used by the Amway Manufacturing Corporation in its transactions with the Amway Sales Corporation. Thus, the first arm's length transaction in the United States was no longer the Amway Sales Corporation but the Direct Distributors. This change in Amway's marketing practices meant that Amway goods exported into Canada would now be valued at the higher Direct Distributor Cost (Malmendier and Tate 2005).

Nortel

The acquittal of three former executives of bankrupt telecommunications company Nortel Networks in a high-profile fraud case is an embarrassing loss for Canadian prosecutors that could have a chilling effect on future efforts to pursue white-collar crime. The telecom equipment manufacturer fired Chief Executive Frank Dunn and top lieutenants Douglas Beatty and Michael Gollogly in 2004 amid an accounting scandal, and they were charged four years later with altering corporate results to trigger lucrative bonuses (Jensen2005).

On Monday, almost a decade after the accounting scandal broke, an Ontario judge ruled that prosecutors had failed to meet the burden of proof that a crime had been committed, leaving the entire prosecution in tatters. The delays brought back memories of snails-pace investigations in high profile fraud ...