Good afternoon, Mr. Chairman, members of the committee. Thank you for inviting the RCMP to participate in today's proceedings. I am pleased to have this opportunity to speak about the RCMP's efforts to address financial crime in Canada.
White-collar crime is local as well as global, and it comes in many different forms. We have mass marketing and payment card frauds, identity theft, and identity fraud. There are capital markets frauds, including Ponzi schemes and insider trading, and money laundering. Whether it is local or global, white-collar crime has devastating effects on individuals and communities. When businesses and individuals are victims of fraud, we see an increase in personal and corporate bankruptcies. With the loss of investments, homes, and life savings, the social damage can be severe and can undermine the trust people have in their society.
Many financial crimes are complex and difficult to uncover. They are time-consuming and labour-intensive to investigate and to prosecute. For example, a couple of recent investigations consumed between 50,000 and 70,000 person-hours, involved the gathering of millions of documents, and incurred combined forensic accounting costs of several million dollars.
The reality is that many of these investigations are lengthy, complex, and costly. Although the external environment in which law enforcement operates continues to pose challenges, as a national organization the RCMP has the experience and expertise to carry out these long and complex investigations. It is important to highlight that enforcement of the fraud-related provisions in the Criminal Code of Canada, including enforcement related to capital market fraud, is a mandate that the RCMP shares with every police service in Canada.
Our ability to carry out this work is clearly strengthened by our partnerships with regulatory and other law enforcement agencies within Canada and internationally. Our efforts to combat white collar crime reside in the RCMP's Financial Crime Directorate's three programs: the Commercial Crime Program, the Integrated Proceeds of Crime and Money Laundering Programs and the Integrated Market Enforcement Program.
I would now like to speak about how each is working to combat financial crime.
The mission of the RCMP's commercial crime program is to detect and prevent threats to the Canadian economy and to help ensure the integrity of Canadian institutions. Commercial crime investigators deal primarily with fraud, offences against the Government of Canada, the corruption of public officials, the insolvency process, and bank note counterfeiting.
The RCMP has 26 commercial crime units strategically located across the country. These units are staffed with experienced investigators and employees who are supported by subject matter experts in different fields, such as forensic accounting and criminal law.
In terms of financial crime trends, the RCMP is seeing an increase in the volume and complexity of mass marketing frauds and identity thefts. Payment card and counterfeit payment card frauds have also increased substantially.
In recent years the Canadian Anti-Fraud Call Centre has documented an increase in the overall number of reported incidents of mass marketing fraud in almost all provinces. Mass marketing fraud also remains a significant cross-border crime issue between Canada and the United States.
To combat it, the RCMP has established several specialized teams. Project Emptor in Vancouver and Project COLT in Montreal are teams that involve U.S. and Canadian law enforcement partners, while our investigators in Toronto take part in the Toronto strategic partnership, which is made up of various law enforcement agencies in the greater Toronto area.
In addition, according to PricewaterhouseCoopers' 2009 global economic crime survey that was released last week, 56% of Canadian companies say they have been a victim of economic crime in the past 12 months, which is 4% higher than in 2007. Of those companies, 24% indicated their direct fraud losses were greater than $500,000. Approximately 59% indicated that the perpetrator was from outside of the company.
The cost to an individual whose identity has been stolen can be enormous. Financial loss and the investment of hundreds of hours spent trying to re-establish identity and good credit all take their toll. In 2008 the Canadian Anti-Fraud Call Centre received identity fraud reports from more than 11,000 Canadian victims, who collectively lost more than $9.6 million. While this figure indicates an increase of more than 48% over the losses reported during the previous year, it's estimated that the complaints received by the call centre represent just a small portion of the problem.
A study by McMaster University estimated that in 2008, 1.7 million Canadian victims of identity theft spent 20 million hours and $150 million clearing their names. The McMaster study also indicated that only 19% of identity frauds are ever reported to the police or the credit agencies. With the vast majority--roughly 81% of all identity frauds--going unreported, the actual losses are probably staggering.
In consultation with key stakeholders and other law enforcement agencies, the RCMP is developing an identity fraud strategy to address criminal intelligence and analysis; prevention through education and awareness; and disruption, enforcement, and prosecution of identity fraud cases.
We are also heading up the creation of an international identity fraud working group, the objective of which is to obtain an overview of other countries' identity fraud strategies, discuss related joint priorities, and develop an international strategy.
In 2004 Canada had the highest level of currency counterfeiting among G10 countries. In 2005 the RCMP, in cooperation with the Bank of Canada, developed a national counterfeit enforcement strategy to combat counterfeiting by providing national focus in three key areas: enforcement, prosecution, and prevention. By using new and existing resources, the RCMP established integrated counterfeit enforcement teams in Toronto, Montreal, and Vancouver.
I am pleased to report that this effort has resulted in a dramatic decrease in the level of counterfeit activity in Canada. The National Anti-Counterfeiting Bureau statistics indicate that since 2004, currency counterfeiting has dropped approximately 80%, from more than 500,000 notes in 2004 to just 107,000 notes in 2008. Even lower numbers are forecast for 2009.
When you eliminate profit, you eliminate the incentive to commit profit-driven crimes. Therefore, the main objective of the integrated proceeds of crime program is to identify, restrain, and forfeit all illicit and unreported wealth accumulated through criminal activities. Across the country the RCMP operates in partnership with other law enforcement and government agencies in 13 integrated proceeds of crime units. Since 2003 these units have obtained the forfeiture of more than $64 million in cash and property. They have an additional $142 million seized and waiting for disposition.
The mandate of the RCMP's Money Laundering Program is to implement specific measures to detect and deter money laundering and to facilitate the investigation of these types of activities. The RCMP Money Laundering Program participates in the exchange of information between initiative partners, such as FINTRAC and the Canada Border Services Agency. It also provides an investigative assessment of money laundering intelligence and monitors national and international money laundering trends.
In 2003 the integrated market enforcement teams, or IMETs, were established in Toronto, Montreal, Vancouver, and Calgary. The teams are made up of RCMP investigators, Public Prosecution Service of Canada legal advisers, forensic accountants, and, at some locations, representatives of security regulators and local law enforcement agencies. The IMETs investigate serious Criminal Code market fraud offences that threaten investor confidence or economic stability in Canada.
In 2007, Mr. Nick Le Pan, former federal Superintendent of Financial Institutions, was appointed by government as the senior expert adviser to the RCMP to help develop and guide the implementation of recommendations aimed at improving the IMETs. His report was tabled in October 2007, and key to the recommendations made throughout his report is the challenge of equipping an IMET with the tools and resources it needs to succeed in the environment it operates in.
Since his report was tabled, the RCMP has implemented Mr. Le Pan's recommendations. Today the IMET program is achieving results and working effectively. Over the last year the IMETs have laid criminal charges in a number of major investigations, and more investigations are proceeding.
As I indicated in my opening remarks, white-collar crime is pervasive and increasingly complex, but we do have the experience, expertise, and partnerships to get results. As Canada's national police service, the RCMP will continue to play a critical role in combatting economic crime and helping to protect Canada's economic integrity.
Thank you. We look forward to answering your questions.
: Merci, monsieur le président.
Thank you to the witnesses for appearing here today. I want to repeat my own apologies for the fact that it has been a bit of a struggle to get you here. We do appreciate your patience.
I want to zero in on one particular part of your presentation, Superintendent White.
Often we hear the notion that crime rates are going down in Canada, and therefore, if crime rates are going down, what in the heck is the government doing by trying to tweak up our justice system?
The logic of that has always escaped me. If only a thousand people are being defrauded instead of two thousand, it seems to me that the government still ought to be improving our justice system.
Your evidence today is very important, and I'm going to repeat some of it. You say, in terms of financial crime trends, the RCMP is seeing an increase in the volume and complexity of mass marketing frauds and identity thefts. Payment card and counterfeit payment card frauds have also increased substantially. An increase in Ponzi schemes is also emerging. In recent years, the Canadian Anti-Fraud Call Centre has documented an increase in the overall number of reported incidents of mass marketing fraud in almost all provinces.
I'm glad we were able to hear that evidence. It serves to buttress our government's approach, in my opinion, in making some much-needed changes to the law on sentencing and fraud.
Apart from that, as you know, Superintendent White, our committee is currently undertaking a study on organized crime. If I'm not mistaken, you have appeared before us on that. Can you tell me how involved organized crime groups are in these kinds of frauds that I've just mentioned? In terms of mass marketing fraud, identity theft, and payment card and counterfeit payment card frauds, how much of that is coming out of organized crime groups?
Members of the panel, most of my questions will centre on the integrated market enforcement teams, or IMETs.
You covered a lot of territory in your submission, so I think we need to drill down on what IMETs have been doing since 2003. In particular, since we're discussing whether there has been a growth in commercial crime activity—and I think there has been—it might be useful to put more flesh on the IMET bones.
I understand they were established in 2003 in Toronto, Montreal, Vancouver, and Calgary. Is there a plan to expand to other locations? Are they cooperating well with the prosecution services, forensic accountants, and financial advisers? Are there any statistics on the number of crimes that have been detected and brought to conviction by IMETs? Does this bill do anything for IMETs? Are you sufficiently resourced to do what you do?
What were Nick Le Pan's recommendations? He tabled a report, I understand, in 2007. He talks about tools and resources. You say that you're trying to meet those needs. How's that going? I wonder if in his 2007 report any of the aspects of Bill were the tools asked for. I suspect that it had more to do with resources; with bringing down the barriers between the financial sector, commercial crimes units, and prosecution offices; and with encouraging more cooperation and an easier flow of electronic information.
We're very much in favour of IMETs. Could you give us a history of how this has gone since 2003 and tell us where you want to go in the future?
Certainly. I look forward to that opportunity.
I'll give you just a 30-second history. They were created in 2003. As with any new unit being created, there were a lot of challenges. You have to do everything from going out to identify individual staff, to getting locations, to building up investigative teams, and to getting them working. Even though the concept was created in 2003, there was still a period of emergence, and that took a bit of time.
We're cognizant that there have been a number of criticisms of IMETs over the last number of years in terms of the timeliness with which their investigations were completed, but from my perspective, from the law enforcement perspective, those investigations have progressed very much in line with any other major type of investigation that's conducted by law enforcement.
So from about 2005-06, they were really up and running and into their investigative stage, and they started doing a lot of these investigations. As I said earlier, the vast majority of these investigations are multi-year investigations, two- or three-year investigations. In 2009 we started to see with a lot of these investigations that the investigation phase came to a conclusion and resulted in the laying of criminal charges.
Over the last few years, in the four locations across Canada, of the 18 major investigations that were on the go, nine of them have now been completed and have resulted in criminal charges and are currently before the courts. We hope to have a number of other investigations conclude in the near future, and then we have a number of other investigations that are continuing.
I think the results over the last little while show that IMETs are now working effectively, and we are getting the results in, as I said, a number of major investigations.
With regard to Nick Le Pan, I think there were just over 30 recommendations in total, so there were quite a number of them. A lot of them dealt with, as I mentioned earlier, the new resources for those key components, the sort of labour-intensive components of investigations to help us. What we didn't want to do, for example, was major case management, transcribing, getting all the disclosure material together in an investigation. We didn't want to have our front line police officer investigators in the office doing that type of work, so that's why the additional support staff was critical to doing that. We brought in more support staff, and that freed up some time for our investigators to do the main investigations.
It's a huge topic that would take quite a while to go into. I can do a lot more, but I'm cognizant of time.
Thank you very much, Mr. Chairman.
I am pleased to have the opportunity to speak in favour of Bill and to provide the committee with some information with regard to our government's position on it.
Before I touch on Bill , I want to give you some background on our government's views with regard to our agenda on these matters and what has led us here today.
Part of my responsibility as Attorney General of New Brunswick is to support efforts that will increase the criminal justice system's efficiency and to promote reforms that will inspire a solid level of confidence in the system. I firmly believe that all law-abiding citizens have the right to live in a safe and secure community. They must be able to count on a criminal justice system that protects them against harm and the fear of harm. It is essential to maintain the public's confidence in our judicial system. They must be wholeheartedly convinced that the system protects them against harm and enables them to live free from the fear of becoming a victim of crime. They must have confidence that the system will deal appropriately with those who break the law.
Since I became Attorney General in June of this year--after three wonderful years as Minister of Health--I have supported many of the measures brought forward by here in Ottawa. I believe the laws with regard to our criminal justice system must have meaningful and proportionate consequences for those who offend. There are very serious offences of a violent nature out there, but of course there are very serious offences of a non-violent nature that cause complete disruption to certain lives. Often those crimes are committed against our most vulnerable.
Just to give you some past record, we have in New Brunswick supported Bill in terms of losing the two-for-one remand. We believe remand lost its purpose with regard to the reason that there was a two-for-one credit.
We supported Bill , with its mandatory minimum sentences for those involved in the production or trafficking of drugs, because it was to protect our most vulnerable, those being our children and those afflicted with drug use. I did see that close up as Minister of Health. That is a very sad picture across the country.
Of course, we're also pleased with Bill , the faint hope clause, and the progress being taken towards passage.
In New Brunswick we have taken some steps to make our communities safer. Last week we partnered with the Child and Youth Advocate in his request that there be a law in New Brunswick for consumer protection. This stems from the report that there ought to be a law protecting children's online privacy in the 21st century. We partnered with them for a working group that includes the Child and Youth Advocate's office and the Department of Justice. We also put on that working group a member of the opposition in New Brunswick, because we do not believe--I am sure members of this committee will agree--that this is in any way, shape, or form a partisan issue.
The working group will come forward with legislation in the spring of 2010. We hope to bring that into the Legislature next fall. We believe this will complement Bill , which, as you know, is the federal bill that will require mandatory reporting by Internet providers when it comes to child pornography.
For that reason, I have asked the officials in my department to form a working group with representatives of the Child and Youth Advocate's Office to study possible amendments to our province's legislation that would allow us to achieve these goals. The working group will be submitting its report to me in the spring of 2010.
With respect to the bill under consideration, Bill , we're pleased that this is a bit of a crackdown on white-collar crime, because white-collar crime is committed most often at the expense of the life savings of our most vulnerable. These victims are, by and large, the elderly, those who sometimes do not have the wherewithal to see some of the red flags that are there, but we know one thing: all of these victims are individuals who worked their entire lives for what savings they have. Those savings may be $15,000, $50,000, $300,000, or possibly $1 million, but it means absolutely everything to them, so I want to make three points with regard to Bill C-52.
First of all, the New Brunswick Securities Commission has been active and effective in taking steps to protect investors from unfair, improper, and fraudulent practices, and I'm confident that Bill will complement the work of the securities commission in New Brunswick by providing for a minimum two-year sentence for fraud exceeding, cumulatively or in a single instance, $1 million. It will send a very clear message to those who believe they can perpetrate this crime.
On this first point, though, I'd like to say that while there is an inclusion of additional aggravating factors that can be applied in sentencing, I'm going to urge this committee to consider a figure below $1 million, and I will get into a story very shortly. Suffice it to say that $20,000, $30,000, or $50,000 means absolutely everything to a person who's worked all his or her life. The person gets it and starts to use it at the age of 65 and plans to use it very sparingly between ages 65 and 85 to make ends meet. When they lose that money because of a fraud, it is just as devastating to them as the loss of several hundreds of thousands of dollars or a million dollars.
The second point I want to make with regard to Bill is that the bill will require judges to consider restitution. In New Brunswick we have a provincial proceeds of crime unit that's been very successful, but we are also bringing forward a civil forfeiture act in January that I think will complement Bill C-52 and our proceeds of crime unit. The civil forfeiture bill in January will allow the Department of Justice, through its lawyers, to sue individuals who have used their property--whether it's their home office, their computer, their small office building, their big office building, or whatever--essentially as a tool of crime. They will sue for that property.
We have, in this country and in New Brunswick, seen far too many times someone who was sentenced to six months--or a year and a half, or even two and a half years--go back to the very large home or office building or whatever property the person had that had been used to perpetrate the crime. The civil forfeiture act that we envisage in New Brunswick will be in compliance with the same civil forfeiture act that's been tested before the Supreme Court of Canada and found valid. The civil forfeiture act under a different name in Ontario and British Columbia has been very successful; 99% of the time the defendants walk away, because they don't want to sign an affidavit outlining that they have a $20,000 income and $1 million in assets. They were told, I think it was in Ontario, that they had three years to be self-sufficient, and in fact that was attained after 18 months. As you know, it is on a balance of probabilities, which is somewhat easier in that sense than the “beyond a reasonable doubt” onus.
Lastly, I want to point out that if we are to succeed in the fight against securities fraud, it is crucial to be able to count on sufficient resources to provide the expertise required in the complex fields of investigation and detection. Canada's other orders of government have said that federal assistance is essential for improving their detection and law enforcement capabilities, and I echo their arguments. Increased probability of detection can be a key deterrent to crime.
Look, ten minutes is not a lot of time. It usually takes one of the Murphys ten minutes just to clear our throats.
Suffice it to say, I would think there is no magic in this $1 million figure. I think this Bill C-52 is a very good bill, and I applaud the government for bringing it forward. At the same time, you know, if you have 30 acts against individuals who lost on average $30,000, that can be just as devastating to that family or to many families as a bullet would be to any of those victims.
I think it has been a long time that we have been looking at the rights of the offender. We've certainly considered and we respect the charter, and we respect the principles of the Criminal Code of Canada, but there is no reason why we should not be theming within our federal acts, and our provincial acts, the rights of the victims of crime. I think all of these bills—federal and provincial—should consider that.
It is because we want to set the record straight.
We want to bring the pendulum back so that the people in the communities across this country know those acts are designed to protect them on deterrence and punishment, and on restitution. The restitution aspect can be accomplished in some part by Bill C-52 but also considerably enhanced by a civil forfeiture act's being brought forward in all the provincial legislatures.
I'm asking the committee to consider a figure below $1 million. I'm certainly fine with the two-year minimum sentence, but I do believe we have to consider that there is just no magic in that. There are an awful lot of people who can tell you a story where their lives have been ruined and their extended families' lives have been ruined on figures of $30,000, $40,000, or $100,000.
I'll conclude by saying this. There was a gentleman who came to my office about two months ago, and he had been defrauded of a figure many times smaller than $1 million. He was embarrassed. He was 75 years old. He was crying. He didn't know what to do, and the fact was that all I could tell him was that there would be an investigation by the securities commission with regard to fraudulent practices and that the prosecutors would deal with this and would look at the statute. I would have liked to tell this individual that there was a minimum sentence of two years for something such as that, but I couldn't. I would have liked to tell him that there would be a minimum sentence of two years for the amount he had been defrauded, which was every bit as powerful to his family as a bullet right through any member of his family.
Sometimes it takes the visuals, and sometimes it takes the story and the face of a victim before you to understand the significance of the crime. While we have acts of violence that are looked after by the Criminal Code of Canada, the repercussions of acts of white-collar crime against our vulnerable can be every bit as devastating as the violent act.
I want to reiterate the thanks that Gaylene just expressed, both to the chair and to the committee, for allowing the Canadian Bar Association to express its views today on Bill .
I want to start by saying that the Canadian Bar Association certainly understands and supports the thought process and the concerns that went into this bill. Anything that would deter crime and anything that would deter people from being victimized by white-collar crime is certainly something that the Canadian Bar Association wants to support.
As a Montrealer, I can tell you I recently walked into the lobby of my office building and overheard a gentleman telling another gentleman at the elevator that he'd been a victim of Earl Jones. He had lost absolutely everything. He had thought he was going to retire, but it wasn't looking so good for him. I can tell you, both as members of the committee and on a personal level, that these are things we are certainly heartbroken about when we hear them.
The other thing the Canadian Bar Association certainly supports is the concept of making victims whole. If restitution could be effected to victims through our criminal justice system, that would be a phenomenal result.
We recognize legislation that recognizes the particular features of particular victims and recognizes that different victims are heard differently, depending on the nature of the crime and the nature of the offender. All of those sorts of concerns, which we see reflected in this bill, are good concerns.
That being said, you have our brief, and so I'm not going to surprise you when I tell you that the Canadian Bar Association does not believe this bill should be passed into law. I'll tell you why. It's not because we don't sympathize with the concerns that have gone into the drafting of this bill. It is because we feel that the tools already exist in the Criminal Code.
What the bill does is to make more complex an already very complex criminal justice system, and we think it creates a risk with regard to the administration of justice and justice efficiencies at a time when our resources are such that we need to be working towards justice efficiencies and not away from justice efficiencies.
The other thing I'm going to say, which will not be a surprise to those of you who I know have heard submissions from the Canadian Bar Association before, is that we do not support any legislation that would tie the hands of judges. We, the lawyers, the defence lawyers, the crown prosecutors, the academics on the committee, have enormous confidence in the judges who mete out sentences day after day in the various courtrooms across our country. The hallmark of the Canadian justice system is proportionality in sentencing and the individualization of sentences. When we impose mandatory minimums like the ones being proposed in this law, we by definition move away from those principles, and that is something the Canadian Bar Association has consistently advocated against.
If I can be more specific and concrete with reference to how we believe the administration of justice is an issue in this bill, one of the expressions that jumped out at us is the expression in clause 2, which creates the mandatory minimum sentence of two years' imprisonment for a fraud when the subject matter of the fraud is in excess of $1 million. We're concerned about the breadth and scope, and also the ability to define, really, what the subject matter of the fraud is.
I will remind everybody--and I know that you all know this--that the Supreme Court has said since 1978, in the case of Olan, that in order for there to be a fraud there doesn't have to be economic loss. So you have a situation where the subject matter of the fraud may have been $1 million, but there may have been absolutely no economic loss whatsoever by any individual victims or by any communities. It would seem to us, given the sorts of concerns that went into drafting this bill, that we are very far away from what the goal of this legislation is.
Again, given that we've said before that the subject matter of the fraud is the triggering effect here, and given how important that's going to be, particularly to accused who are looking at being subject or not subject to a mandatory minimum sentence of two years' imprisonment, we foresee, from the justice efficiency perspective, that sentencing hearings are going to become much more complicated and much more complex.
There is no longer going to be any sort of admission as to what the subject matter of the fraud, if you will, will be. We're going to have a situation in sentencing hearings where we're going to have to trot every single victim into the courtroom in order for the crown to be able to prove what the exact amount of the fraud may have been, be it a potential risk, a potential loss, or an actual loss.
In the Criminal Code now, you might point out, there already is this concept of $1 million as an aggravating factor, and that's true. It was already in the Criminal Code. But in practice, I can tell you that what happened is that it was used as a signal to prosecutors, to defence lawyers, and ultimately to judges that the more significant the amount of the fraud, the more significant the sentence would be.
In that $1 million mark, the legislators had sent a clear message that this was particularly aggravating. In practice, what that meant was that if the fraud was $900,000, or if the fraud was $1.1 million, it was a big fraud, and that was an aggravating factor, but it didn't really matter that it be quantified very specifically. What's going to happen now, because an offender is facing a potential two years' imprisonment upon this $1 million trigger, is that this amount is going to be very, very important to quantify. So again, we're concerned from a justice efficiency perspective that it's going to create all sorts of blockages.
As an aside, despite the fact that we are not at all in favour of this mandatory minimum or of this triggering of $1 million, I would submit to the committee that if this part of the bill remains intact, this committee may wish to at least consider adding a provision for notice to the offender, which would require the prosecutor to notify the offender that they consider that the subject matter of the fraud is in excess of $1 million and therefore they will be seeking this mandatory minimum term. We think that's a fundamental justice sort of addition to the law that can make the law fairer, so we would ask you to consider that.
In terms of other sorts of administration of justice issues, one of the things we're concerned about, despite being in favour of restitution, is that the restitution mechanisms already exist in the Criminal Code. As we know, it's already one of the options that exist in the sentencing provisions of the Criminal Code. Again, I can tell you as a defence lawyer that when our clients can make restitution, we make it, because we know that is going to be very positively looked upon by the judges and hopefully will yield a less significant and less harsh sentence.
The concerns about restitution that were shared among the criminal justice section of the Canadian Bar Association came, believe it or not, from prosecutors, who were concerned that victims were now going to confuse them as being their lawyers, and not advocates of the public interest, because victims were going to turn to them and expect that they would deliver restitution. There is certainly a renewed emphasis on restitution in this bill in that the judge “shall” make inquiries of the prosecutor and the prosecutor “shall” make inquiries of the victim. I can tell you that in practice it happens all the time, but by spelling it out, the crowns in our committee were concerned that it would put them in a somewhat difficult position.
The other thing that I can tell you as someone who is involved in the criminal justice system as a day-to-day practitioner is that when victims of crime and fraud go to the police to lay a complaint, they are routinely told by police officers that if their goal here is to get their money back, they're in the wrong place, because that's not the goal of the criminal justice system. Again, one of the concerns of this committee is that by emphasizing restitution, and by making it a sort of presumption of restitution, people may start to look at the criminal justice system as a sort of collection agency.
The last point, which flows from what I just said, is on the short title of the bill. The criminal justice committee of the Canadian Bar Association has noticed that we've moved away from neutral short titles of legislation and now have short titles like the one we have here, which talks about “retribution” for victims of crime. We would respectfully submit that we might want to consider going back to more neutral titles for our short titles of bills.
Thank you, Mr. Chair, and committee members.
We've given you three sets of documents. One is a statement, two is a short presentation deck that describes the enforcement world today, and the third is an expert panel report. Perhaps I can pick a few bits out of the statement and not read the whole thing. Then I'll be relatively brief.
I guess I'll start by saying that the fact I showed up with three people reflects the fact that we don't actually touch the Criminal Code very much, at least in my division. That may change.
First of all, perhaps I'll say that strengthening the integrity of Canada's capital markets is a key priority, of course, for the government and the Department of Finance. It's critical to both protecting investors and promoting healthy capital markets. It's from that vantage point that we come at this.
It's broadly recognized that capital market integrity requires effective regulation, sound governance, and strong enforcement. In that context it's important to distinguish between actions to improve criminal enforcement and those to improve regulatory enforcement.
You've just heard from the RCMP, and they touched on the criminal side of that.
Regulatory enforcement, on the other hand, is currently conducted by the 13 provincial and territorial securities regulators and supported by a number of self-regulatory organizations, SROs. I'll touch on the regulatory side for a moment to say that the government is taking significant action there. The centrepiece of that initiative is the establishment of the Canadian securities regulator with willing provinces and territories.
The final report of the Expert Panel on Securities Regulation--of which I was the executive director, by the way--released in January 2009, underscored that the Canadian securities regulator will help to improve enforcement by
consolidating enforcement resources and expertise of up to 13 provinces and territories into a single entity; eliminating unnecessary duplication and overlap; supporting greater consistency in investor protection across Canada; and improving cooperation with federal and international criminal enforcement authorities.
There are a couple of other points to make before I close.
The Canadian securities transition office, which was announced in June, is leading and managing the transition to a Canadian securities regulator. Consistent with its government mandate, the transition office is working to ensure that the Canadian securities regulator has legislative powers and appropriate organizational structure to properly enforce compliance with the securities regulatory system.
It is the transition office that's developing the securities act, which is to be completed in spring 2010, as well as the transition plan, with the input of the advisory committee of participating provinces and territories. At this point we have ten participating jurisdictions, which are each representing themselves on that advisory committee. The work of the transition office is expected to culminate in the establishment of the Canadian securities regulator sometime in 2012.
That concludes my opening statement, Mr. Chair.
My background is in investigating many of the big frauds in Canada. If you went through the list of major situations, I think you'd find we were probably involved in two-thirds of them.
I'm not unsympathetic to the comments from the minister in New Brunswick, but I think we have to get realistic about what it's going to take to prevent many of these Ponzi frauds and pyramid schemes and so on.
I have a handout. For full disclosure, I come from two directions. One is that Accountability Research represents research done for investors, and they are subscribers to our newsletters and so forth. The other is that, having testified in court over 100 times on various types of these issues, it's quite different listening to what I've heard from the previous three speakers versus the actuality of Canada.
I want to give some context to what's happening here. If you go back to the Ponzi schemes of 1910, 1920, and if you look into the stock market and trace through what happened in the 1920s leading to the 1929 stock market crash, the U.S. moved in and put in some fairly interesting and tough legislation at the time, in 1933, 1934, with some in 1935. If you look at what Canada has done over the past 80 years, it's not very much; I think that would be the polite expression.
I want to summarize what I think has to seriously happen if we want to protect the average person.
The first thing we have to do is to have an independent body, a Canadian equivalent of the SEC. It's going to be more than a national regulator--it has to be--to look at the prosecutions, the investigations, and all those aspects. We don't have that in Canada now, and there's no sense pretending that we do. I'm being very blunt about this situation.
About two or three years ago, we sent major packages across Canada showing what the problems were. We got very little in the way of response. This was at our cost. We kept at it. I've been writing for more than ten years, especially in Canadian Business magazine, and done dozens of other articles. So having been involved in these cases, I see the situation far differently from what I've heard this afternoon.
A perfect example of where we have a major problem in this country is something called international financial reporting standards. This has been adopted in Canada without the legislatures debating it. It's been brought in by the auditors of Canada.
I am astounded that it's gotten this far. And yet, in spite of all the material, the speeches and so on, there it is. IFRS is extremely full of holes that are going to make securities regulation just about impossible in Canada. The reason for that is that management has choices. The rules were written for a country other than Canada. We've adopted them here in spite of the U.S. going in its particular direction, which is forcing the U.S. companies to use Canadian accounting and reporting.
We have had enough problems over the years. I've published long lists of the cases in Canada where the prosecutions have not occurred; many of them are civil, and the restitution is essentially zero. I think we have to gather considerable facts—and they are available—before we assume that Canada is safe.
Now, not having an independent body to go to in order to ascertain whether some of the legislation going through the system--Bill 198 in Ontario, for example, or this IFRS material--is devastating. Let me explain why.
In December 1996, the Supreme Court of Canada heard a case called Hercules Management. The arguments from the Canadian Institute of Chartered Accountants and from the particular large auditing firm being sued in this case were that annual audited financial statements were not to be used for investment decisions.
So on that particular basis, you say to yourself, “Well, just a minute. This destroys what's in companies acts, what's in securities acts. Why do we have financial statements if that's the conclusion?”
The Supreme Court agreed with them. I automatically thought that each of the provinces in Canada would come in with legislation that would correct that matter. But it didn't happen.
That's just one issue. But unlike most of the rest of the world, Canada has allowed the auditors to set the accounting and auditing rules. Here they have a declared statement that they are not acting on behalf of shareholders. The whole concept of shareholders' auditors has disappeared.
So we then have a number of cases...and I have and pages and so on that I could show. If you look just at this decade, we've had Bre-X, Nortel, literally hundreds of income trusts that weren't tax problems first and foremost, they were Ponzi frauds. We've seen very little prosecution of those. We've had the asset-backed commercial paper, and now we have this IFRS.
We're not seriously addressing what is causing Canadians to lose money. On that basis, then, how can we possibly de-regulate, which is what's happening with this IFRS? The U.S. has rejected that, and we're living next door to them. If we want to seriously protect the investors across Canada, we need a whole revamping of the system and not some tinkering in a minor bill.
Let me try to look at some aspects that are particularly important on this.
The Hercules decision has devastated the plaintiff lawyers across Canada—I think devastate is the right word—because they will not pursue these types of lawsuits where there's a director, officer, auditor, defendant. If you need names, there are plenty of them around.
In terms of the costs of the class actions, this is a major problem as well. Bill 198, in Ontario, and the changes in the Securities Act are such that the costs of running these cases can be $5 million, $10 million, $40 million. We're just out of context with what's happening.
There's a case in Toronto with huge dollars involved. There's another one in Montreal, Castor Holdings. They've gone on for 20 years.
We've lost the respect of the international community.
That's the nature of what I'm saying. I would assume it's not going over very well to those listening, but that's the reality. I think we have to cease pretending and we have to face the issues.
He's the other Mr. Murphy here.
Thank you, Mr. Chair.
Mr. Rosen, I think we all are listening to what you're saying. You may be illustrating that what we have here is a bit of a silo mentality. We're a justice committee, but many of the questions you're talking about should probably be before the industry committee. At some point, we have to break down those silos and those walls and get into more international standards.
I am quite familiar with the case law on Hercules Management and Castor Holdings. In respect of Hercules, if there had been derivative action, I think there might have been some relief. Nonetheless, your point stands that we're not doing a good job of being modern in securities regulation.
I want to turn my attention to the Canadian Bar representatives, whom I thank for coming. We've had the debate on mandatory minimums. We could spend some time on that—we've been at this for three or four years and the debate goes on. But it's not really the gist of this bill.
I have to take you to task, Ms. Costom, for saying that people who look to the criminal justice system to repair financial loss are looking in the wrong place. I think we have to make it more the right place.
You commented that rewriting aspects of restitution that were already in the code might give people a false sense that something is being done about restitution. I don't think anything in this act helps to increase expectations of restitution. It says that the judge “shall” consider making a restitution order. I don't know any judge who wouldn't consider making a restitution order in most serious cases. So I think it's surplus. It gives the wrong impression, and we have to do more, perhaps by amending it at committee.
I'd like to ask my cousin and former law partner of 14 years a tough question. The reason you were here wasn't to compliment the government on all those bills. I asked you to be here to talk about restitution, about civil forfeiture, because I believe that people coming into the criminal justice system looking for restitution are misled by this bill. There's nothing in this bill that helps with restitution.
I would like you to elaborate on what New Brunswick, British Columbia, and Ontario are doing to help people recoup some of their terrible financial losses, which you describe quite dramatically. In these aspects of restitution, there's nothing—there are no teeth. What would you suggest we put in the act to help people get some of their lost money back? Would you agree that people aren't looking at the criminal justice system to get financial reparations, and that they shouldn't be looking at the system as a bill collecting agency?
Thank you, Brian, for that very difficult question; I appreciate it--especially its length.
Look, the Criminal Code of Canada of course is not a collection agency mechanism. Having the element of restitution within the bill arguably creates some redundancy, because the restitution provisions are already there in the Criminal Code and the judge can use them. But I don't think it hurts to have it there as something that a judge can consider. I'm not looking at this as an academic, and I'm not representing the elaborate and well-researched views of the Canadian Bar. I'm looking at this from the point of view of victims' rights in the federal legislation and the Criminal Code.
While we are not doing a full revision of the Criminal Code, all the laws we have—Bill , the Criminal Code, and its various amendments—are supposed to be a codification of community values. We might have to do this piecemeal, failing a full revision of the Criminal Code, with some emphasis on victims' rights.
Having it in there might lend some clarity to a judge's consideration in sentencing. According to my colleague from the Canadian Bar, if they can make restitution, they certainly will. So having it in there may affect the judge's views on sentencing.
I believe that Bill is a good start, but I also believe that it is an offer of partnership to the provinces. The civil forfeiture act that we envisage enacting in New Brunswick will allow us, where Bill C-52 fails, to go after these tools of crime. Sometimes it's a home; sometimes it's a larger property like an office building. Other tools include the mechanisms that they use, even the bank accounts. Whatever moneys are available could be tools of crime.
So it's a partnership, and I think it's a reasonably good start. It's not perfect, though, and we're doing things piecemeal.