A bakery in Burnaby, B.C., was caught knowingly selling organic bread that was not actually organic, yet the Canadian Food Inspection Agency did not charge the bakery for misleading customers.

CBC News obtained nearly 200 documents in an access to information request regarding an investigation into Mediterranean Bakery. The bakery produces organic bread for local restaurants and specialty stores such as Bosa Food and Whole Foods.

The documents say Mediterranean Bakery falsely labelled breads as organic for three years, when it did not use organic flour. The discovery was made during a routine visit when an inspector noticed a large delivery of non-organic flour.

Owner Dung Nguyen was found in non-compliance and ordered to remove labels saying the bread was "organic."

The inspector wrote "all the organic claims on his packaging was false," and that there were "no bags of organic flour in the bakery."

Among the documents obtained by CBC News is a full prosecution brief prepared with a proposed charge under section 5.1 of the Food and Drugs Act. Mediterranean Bakery was accused of unlawfully labelling its bread and misleading customers by listing "organic white flour" on the ingredients list when conventional white flour was used.

Investigators wrote that Nguyen was "untruthful throughout this investigation, admitted he has not used organic flour in his bread products for at least three years."

According to a prosecution brief, Nguyen signed a statement admitting he hadn’t used organic flour between July 2006 to September 2009 due to its high cost.

'Betrayal of consumers' trust'

Inspectors wrote that this was a "betrayal of the consumers' trust." They included receipts from the bakery's supplier as evidence customers were deceived in what they called a classic case of "economic fraud."

The documents also say another product was found to contain canola oil and not olive oil as listed on the packaging.

According to emails obtained by CBC News, five managers approved the proposed charge but top officials at the CFIA decided not to prosecute.

Frustrated inspector

One inspector was so frustrated with this decision he wrote to the then-president of the CFIA to complain.

In a statement to CBC News, Elena Koutsavakis of the CFIA said the agency chose not to prosecute Nguyen.

"In this case, the regulated party was ordered to cover the word 'organic' on all of their products and was given a notice of non-compliance," she wrote. "The regulated party agreed to comply with regulatory requirements. A subsequent inspection in October 2009 found the bakery to be in compliance with regulatory requirements."

The agency said it will take action if a product poses a serious health risk but, in this case, it chose to work with the bakery to bring it into compliance.

This approach is concerning to a U.S. advocate and watchdog of the organic industry. Mark Kastel of the Cornucopia Institute said the CFIA should be making an example of cheaters in the organic industry.

"We need strict enforcement protocols to make an example of these scofflaws, so that it acts as a deterrent that if any other industry participants think they can play fast and loose with the law, that there will be monetary damages and penalties and or prison terms," Kastel said.

"It would be nice if CFIA were to let you know."

CBC News contacted vendors who sell Mediterranean Bakery products. They said the CFIA never informed them the company had been selling mislabelled products.

Shawna Jacques, the marketing team leader at Whole Foods on Cambie Street in Vancouver said, "If something like that happened we would love to know so we can educate ourselves and also our consumers." Whole Foods has strict guidelines for all organic producers and conducts its own inspections of its suppliers.

"If one has been a little misleading to us in the past, we're going to figure out what we can do to make sure our customers know and have transparency and we would work with the vendor to get the best products on the floor," said Jacques.

Mediterranean Bakery owner Dung Nguyen says his bakery now complies with all CFIA regulations. (CBC)

At an upscale Italian grocer where Mediterranean Bakery products are sold, Lui Bruschetta says the CFIA never provided any information about the bakery's non-compliance, but Nguyen did disclose a labelling issue with his product.

The manager of Bosa Foods said, "The owner did come forward and stated to me that he was in a situation where people were questioning his labelling." Nguyen provided proof he was in compliance. "From our end of it, he satisfied our concerns with what he showed us."

But Bruschetta said, “It would be nice if CFIA were to let you know about things like that if someone is non-compliant and then you can make a decision on whether or not you want to carry the product.”

The CFIA said consumers were not notified because the bread posed no health risk.

'No one is perfect'

When questioned by CBC, Nguyen claimed his use of non-organic flour in his bread products did not go on for three years, saying it was a shorter time.

"No one is perfect. We all make mistakes," said Nguyen. "What's done is done. I'm really sincerely sorry for what has happened."

Nguyen said he is thankful to CFIA inspectors who worked with him to bring his bakery into compliance.

"Today the bakery satisfies all the rules and requirements of the Canadian Food [Inspection] Agency."