Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 1 - Evidence - Meeting of February 25, 2004
OTTAWA, Wednesday, February 25, 2004
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-13, to amend the Criminal Code (capital markets fraud and evidence-gathering), met this day at 4:15 p.m. to give consideration to the bill.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: I call to order this meeting of the Standing Senate Committee on Banking, Trade and Commerce.
In our consideration of Bill C-13, we have with us today officials from the Department of Justice.
Please proceed, Mr. Piragoff.
Mr. Donald K. Piragoff, Acting Assistant Deputy Minister, Criminal Law Policy and Community Justice Branch, Department of Justice Canada: Honourable senators, it gives us great pleasure to appear before the committee on this topic, because the committee already has a very broad understanding of the diverse range of issues involved in the current crisis of investor confidence, not only in this country but also on this continent, and the various means of improving it.
The range of issues is clearly reflected in your report produced in June 2003, which was released just days after Bill C-46, the former version of this bill, was introduced in the last session.
Your report recognizes the complex inter-jurisdictional nature of regulating the financial system — which and forms the backdrop for the measures in Bill C-13.
The provincial governments, as you are aware, are responsible for regulating the securities industries, the conditions under which companies can issue securities in the province, the rules they must follow, if they do so, and for establishing securities commissions that investigate and prosecute the breach of those rules.
The federal government's proper jurisdiction in the securities sector is a controversial matter, one that is currently under discussion in various quarters. In December, the Wise Persons' Committee released its report, calling for a national securities regulator. Discussions continue in other arenas on such issues.
Unlike the complex matter of legislative jurisdiction over the securities industry, the criminal law is and always has been a matter of federal legislative authority. The bill before you today, Bill C-13, is the federal government's response to weakened investor confidence from a strictly criminal law perspective. The proposals are designed to enhance the ability of police and prosecution authorities to investigate and prosecute capital markets fraud cases and restore the confidence of Canadians and foreigners in the integrity of our financial markets.
Bill C-13 is a legislative package that complements a federal enforcement initiative that makes detecting and punishing capital market fraud a real and concrete priority. The 2003 budget allocated up to $30 million a year over the next five years to create integrated market enforcement teams (IMETs) in four key financial centres. These teams will be comprised of RCMP investigators, federal lawyers, and forensic accountants, working cooperatively with securities regulators and local law enforcement, to ferret out major cases of fraud affecting the capital markets on a national scale. Three such teams have recently become operational, one in Vancouver and two in Toronto.
Bill C-13, the legislative part of this strategy, is multipronged and addresses four separate areas of criminal law that I will briefly describe. The first component of Bill C-13 is comprised of new offences. Our review of the Criminal Code found that we already have strong and effective laws to deal with capital markets fraud, including a broad and effective fraud offence, obstruction of justice, filing a false prospectus, falsifying documents of various sorts, and others. However, we did identify two gaps in the law, which Bill C-13 seeks to fill.
Improper insider trading is prohibited by provincial securities laws, but not by the Criminal Code. Insider trading can cause significant damage both to individual investors and to the company whose securities are traded, as well as fuel the impression to investors that market transactions are unfair. The use of the criminal law now appears to be a necessary additional instrument for deterring this kind of corporate malfeasance because of its symbolic value and because of the more severe penalties available there.
The other new offence sometimes gets referred to as whistle-blower protection, which is a subject receiving much attention these days. The offence in Bill C-13 is a very targeted and narrow form of whistle-blower protection and should not be confused with the broader whistle-blowing issues and remedies currently being debated. The new offence provides a form of protection to employees through deterrence, by making it an offence for employers to make employment-related threats or to take retaliatory actions against employees, to stop them from providing information about unlawful acts to law enforcement authorities.
It should be noted that the offence does not apply where the employee wants to reveal information about an activity that is not illegal, such as information about financial mismanagement or where the employee wants to reveal it to anyone other than law enforcement, such as the media. It is very much a targeted offence dealing with a revelation of criminal activity and protection of employees in that regard.
The second component of the bill is comprised of sentencing enhancements. The bill proposes to raise the sentencing of capital market fraud offences and certain white-collar crimes in general to the level of serious crimes in our law. The maximum prison term for the primary fraud offence, section 380 of the Criminal Code, would be increased from 10 to 14 years, and fraudulent manipulation of stock exchange transactions, in section 382 of the Criminal Code, would be increased from the current 5 to a new 10-year maximum. A maximum prison term of 14 years is the highest maximum sentence under the Criminal Code, short of a term of life imprisonment. The bill also provides more guidance to judges in sentencing by spelling out certain aggravating factors, such as a large number of victims or the exploitation of one's reputation in the community in order to commit the offence, factors that demand harsher denunciation and tougher penalties in individual cases.
The third component of the bill is the proposal to give the federal government the jurisdiction to prosecute concurrently with the provinces fraud and certain market-related offences. Federal prosecution resources in this area would be restricted to a narrow range of cases that threaten the national interest and the integrity of our capital markets and does serious damage to investor confidence in institutions that are critical to the Canadian economy.
This amendment would enable the federal government to add resources to these prosecutions to ensure that all of these cases can be prosecuted effectively. The federal government does not intend to replace or overtake provincial prosecutorial jurisdiction, but rather to complement it. That is an important point, senators. We want to work together with the provinces, not supplant the provinces.
Justice officials are currently working with provincial prosecution services to establish protocols to ensure coordinated and effective implementation of federal jurisdiction in a form that is satisfactory to all parties. These protocols would affirm the provincial primacy in this area, beginning with a provincial right of first refusal in each case and a partnership approach throughout.
The last component of the bill is the creation of new measures to enhance evidence gathering in regard not only to fraud-related offences but all criminal offences. For a number of years, law enforcement has been asking for the addition of production order powers to the Criminal Code, and Bill C-13 would add this tool to the investigative toolbox of all law enforcement officers. Whereas a search warrant allows police officers to search a certain place for evidence, a production order would compel a person in possession or control of relevant information to produce that information, even if the individual stores it outside of Canada. The person would be required to produce the information to the police within a specified period of time. It should be noted that these production orders could only be served on persons in possession of evidence but that are not the subject of the investigation — that is, served on third parties to the investigation, not suspects.
The bill creates two forms of production orders. The first is a general type of production order, which may be used in circumstances where a search warrant would normally be used and would be based on the same general standards and protected by the same constitutional safeguards. The second, a specific production order, has been designed as a first-step investigative tool that would be limited to specific types of information for which there is a lower expectation of privacy. A judge or justice will have to be satisfied that there are reasonable grounds to suspect that the information will assist in the investigation of an offence.
In particular, the narrow scope of the specific production order would target only general threshold information related to bank accounts, such as, the name, the address, the account number or the date that an account was opened, but it would not relate to the account transactions or the amounts within an account.
Hence, a distinction is made between information that has a high expectation of privacy and information that has a lower expectation of privacy.
Again, both production orders will be available for investigating all criminal offences but will be particularly useful to the efficient and effective gathering of the financial information that is critical to investigating capital markets fraud cases.
Senators, those are the main features of the bill. The bill, together with the focus commitment of additional enforcement resources in the integrated market enforcement teams will help to deter and punish fraudulent activity that affects the capital markets and restore confidence here and abroad in the integrity of our Canadian capital markets.
Thank you, honourable senators, and we welcome your questions.
Senator Baker: Honourable senators, I am concerned about this general measure that covers not just the crimes you are attempting to target but all criminal offences, and that is a major change in proposed new subsections of section 487 of the Criminal Code, concerning search warrants, but this time they are called production orders.
A recent decision of the British Columbia Supreme Court struck down section 492.2 of the Criminal Code, which is the search warrant for number recorder warrants, as being unconstitutional. They did this because, according to the Supreme Court of British Columbia, the Supreme Court of Canada has judged in many cases that there should at least be reasonable grounds to believe that evidence would be obtained concerning a specific offence.
In other words, if you look at all of the search warrant provisions now in the Criminal Code, the judge must have reasonable grounds to believe or suspect — or a justice, depending on what section you are talking about — that evidence will be found concerning a particular offence as identified in the warrant. Here you are changing that section of the Criminal Code to give a judge or a justice — it says both, there you go — the power on the basis that the issuing judge or justice suspects that there is evidence to assist an investigation.
In your opinion, is that constitutional?
Mr. Normand Wong, Counsel, Criminal Law Policy, Department of Justice Canada: Honourable senators, the recent case of the B.C. Supreme Court dealt with a 492.2 warrant, which is a dial number recorder warrant. There were some interesting facts in that case, in that the police were able to obtain toll records for various phone numbers that were not actually suspects in the investigation. As a result of those facts, the judge said that the warrant was overreaching, in that it provided that information when it should not have.
Senator Baker also alluded to the judge referring to Supreme Court cases talking about when there is an expectation of privacy and certain personal information that there should be reasonable grounds to so believe. The Supreme Court has also said in a number of cases that, where there is a lower expectation of privacy, that standard of reasonable grounds to believe does not have to be met, that it should be somewhat lower.
In developing this provision, what we sought to do was to keep the status quo. Currently, many police forces around Canada have good relationships with financial institutions or other institutions where they can get this threshold information. In many instances, they do not need any sort of warrant to get this information. This information is critical to begin an investigation and to keep it going in order to get a search warrant or any other type of warrant that requires reasonable grounds to believe.
If police are hamstrung by having to go to a higher threshold in order to get this information, they will be stopped at step one. They will not be able to get that information and will not be able to conduct an investigation.
Senator Baker: Two questions come to mind. First, you cannot get somebody's bank account number or identify somebody's bank account number today without a search warrant. That is a violation of section 8 of the Charter. A police officer cannot phone up a bank and say, ``I want the bank account number of so and so.''
At present, you would use a 487 warrant, 487.1 or 487.01, if you were seeking that information. There are other warrants that you could get, but these are the two principal means. Section 487.01 was passed in 1996, when I was in the House of Commons and serving on the Justice Committee. Section 487.01 said that that warrant could only be issued if the warrant could not issue under any other act of Parliament or the Criminal Code; is that not right, Mr. Wong?
Mr. Wong: That is correct.
Senator Baker: That is right. The reason given for that change to the Criminal Code at that time was that you could, if you were looking for somebody's banking information or their telephone records, have the judge, given a reason for it, issue a particular type of warrant that would not work under any other section of the code. I will give you an example.
If you wanted information in Montreal, from the telephone company, and you are in Ontario, the judge would issue the warrant that covers for two months, for one issue, to be issued by a justice or a judge in Quebec. It would be issued for one time only. That would be the special thing that qualifies you for that warrant.
If you were using that section, the judge would have to have reasonable grounds to suspect that there was evidence there on the commission of a crime. What this is, is that there is evidence that would assist in an investigation. Under this provision, I can see now why you could not use a 487.01.
Have you consulted with associations of defence lawyers in Canada or the Canadian Bar Association? Have they passed judgment on this proposed new section of the Criminal Code? The B.C. court decision was to strike down section 491.2, because it is unconstitutional.
The Chairman: Senator Baker, for your information, we will have the Canadian Council of Criminal Defence Lawyers before us tomorrow and the Criminal Lawyers' Association.
Senator Baker: I wonder what they told them.
The Chairman: We can speculate; he is free to say, but we can hear directly also what they have to say.
Senator Baker: Do you agree that the British Columbia Supreme Court, in January, struck down section 492.2 search warrants because they violate section 7 of the Charter, I believe it was, in that it is unconstitutional — not, as you suggested, that it was because of the way the information was obtained, that it was not just the target telephone number information but all the phone numbers that phoned in and out of that target phone, their names and addresses, which would be contrary to section 492.2 anyway? However, section 492.2 was struck down because it was contrary to case law as established by the Supreme Court of Canada; is that correct?
Mr. Piragoff: Section 492.2 is a totally different issue. That is a provision that talks about the collection of prospective information into the future, a provision that talks about a DNR order, ability to collect telephone numbers from a certain period of time from today forward.
The case that the honourable senator was referring to is a case where, as a result of that order, more than just telephone numbers were collected. That is why the court said that, to that extent, the provision was unconstitutional.
The provision before honourable senators does not talk about prospective evidence. It talks about records that already exist. It is not a provision that says, ``In the next 90 days, the bank must disclose certain information.'' It asks, ``Do you have information with respect to a particular holder?'' In other words, ``Does he have an account?'' — that is basically what we are asking about, the small, specific order. The judge — not just the police — has reasonable grounds to suspect that the bank is in possession of information that will facilitate the investigation. The type of evidence is whether this particular individual has a bank account; if so, what is the number of that bank account?
That is it. You cannot get from this order the amount of money in the bank account or the transactions in that bank account. You have to use a search warrant or a general production order to get that information. Those are at a higher threshold.
As I indicated, the scheme is based on differentiating between information that has high expectations of privacy, such as actual amounts and transactions, as opposed to lower expectations of privacy, which is, the existence of a bank account.
Senator Kelleher: I want to go to a much lower level of questioning because I am not familiar with any of those sections of the Criminal Code. However, I am familiar with the Criminal Code, and I am also familiar with securities matters, securities frauds and things of that nature.
I commend you for bringing forth this new legislation. A certain amount of it is in response to what our American friends south of the border are doing in their area. I think that we have pretty good legislation on the books right now, even without this new bill, which is great. In the States, they lay the charges, get convictions, out come the orange suits and these people go to jail.
Perhaps you can explain to me, since you are under the prosecutorial area, why do we not seem to get many convictions? Frankly, if we do get convictions, nobody ever goes to jail. I just do not understand this.
I am a believer in orange suits. I am a great believer that things are not going to change much here in Canada. God knows, we have had our share of scandals here. Nobody has even been charged yet in Bre-X.
What is the problem here? Are we not pursuing the cases to trial? When we get there, are we being met with a judiciary that does not regard these crimes as serious and that does not put people in jail?
Can you perhaps try to explain to me what our problem is here compared with the record in the States? I am not saying that things are not a bit overboard in the States — they may be. However, surely to goodness we could do a little better than we are doing at the present time.
Mr. William Bartlett, Senior Counsel, Criminal Law Policy, Department of Justice Canada: I agree with you that the record in the United States seems to be better in terms of the speed with which charges are laid and the speed with which they are resolved, either through guilty pleas or trial. Without a doubt, the sentencing in the United States is significantly harsher.
There are a number of differences in Canada, including a very different approach to sentencing. We simply do not have the very harsh maximums and the relatively harsh minimums, particularly in the federal level. The American sentencing provisions provide for the sentencing ranges. You will have seen this on any TV show where the police get the person into the District Attorney's office, and they say, ``For your offence, you will get six to 12.'' That comes out of a grid. Plug in a few factors, and you get both a floor and a ceiling for sentencing.
The experience has been mixed in the United States. Many American states are now abandoning their sentencing grids for a number of reasons, including the fact that they cannot build the prisons fast enough. They have to release people before the sentence is up, including some quite violent offenders, because they simply run out of room to house them, even at four to a cell.
The American system is different. In Canada, we leave the sentencing to the discretion of the sentencing judges. The American sentencing system, I must admit, because it is so harsh, does provide a significant motivation to people to plead guilty and offer information on others at a fairly early stage.
In Canada, that would be regarded as improper duress. I am told that Law & Order is a fairly accurate depiction of what occurs in plea-bargaining in the United States. The prospect of the place where the person would wind up in the sentencing grid is a powerful incentive to turn or plead to the charge.
I should like to address the way in which we will deal with this in Canada. The bill addresses sentencing, but not with minimum sentencing because our experience with minimum sentencing is that it does not work well. They rather distort things. The sentences become ceilings rather than floors. They become the maximum, rather than the minimum. Judges simply do not accept that kind of imposition on their sentencing indiscretion and find various ways to get out of it, frankly.
This bill raises the maximum sentence with respect to fraud from 10 to 14 years. That is the largest maximum sentence we have in the Criminal Code, short of a term of up to life imprisonment. We would add some sentencing factors, both aggravating and non-mitigating factors, that will point the judges towards higher sentences in any major fraud cases, not just capital markets fraud cases. It should produce sentences that better reflect the seriousness of these cases.
However, people do get significant jail terms in Canada. It is not as well reported as it is in the United States — they do not get sentences of quite that order, but sentences of five to nine years are not that uncommon. The sentencing data is a little sketchy on that, but they do certainly occur.
The accompanying program of an intensive enforcement effort with integrated teams in all the major financial centres, some significant resources to the RCMP, with legal advisors and additional resources for prosecutions, will put the priority on these cases, at both the investigative and prosecutorial stages, to ensure that they are investigated with as much alacrity as possible, that charges are laid where appropriate and that the cases are prosecuted as effectively and as quickly as they can be.
We have certain constitutional safeguards in place, including constitutionally mandated disclosure, causes some challenges at these trials. They are very complex trials.
There are problems with getting these trials dealt with in any relatively short period of time, but they can be made more effective and efficient. We hope the measures, both on the operational and legislative sides, will address that.
Senator Kelleher: Will there be sufficient money to supply the resources so that we have the people to prosecute white-collar crime? As a former solicitor general, I have some knowledge of this area, and I have knowledge of the fact that there is not much money allocated for white-collar crimes within Canada. I am just concerned that not much is going to happen if we do not have people out there to handle these cases. Also, frankly, I think we have a bit of a problem with our judiciary, who are not prepared to give any lengthy sentences, or any sentences at all, for jail.
I should like to have your comments on those.
Mr. Bartlett: Well, senator, part of the IMET program, the integrated market enforcement team, includes resources for federal prosecutors. There will be some challenges in coming to amicable arrangements with the provinces, to allow these federal prosecutorial resources to be employed, but there is money for additional federal prosecutors to be employed.
There is some money in the program to assist the provinces with some of the unusual costs that they face. We have to deal with the concerns the provinces have that this may involve some infringement of their turf, but we are making some progress on that. We hope there will be additional skilled personnel available to ensure that these cases are all prosecuted, and prosecuted effectively.
Senator Kelleher: What about the apparent — I say apparent — problem with the judiciary not wishing to ever incarcerate these people who are convicted? I know we do not like to ever criticize the judiciary, but it has never bothered me in the past.
Mr. Bartlett: There is case law, particularly in the last few years, indicating that the courts do recognize, at higher levels particularly, that large-scale fraud is a serious offence that does require a prison sentence for deterrence and denunciation. Part of the effect that raising the maximum sentence and providing for these sentencing factors should have is that it is a new element that prosecutors will be putting before the courts, and arguing that the intent of Parliament, as it clearly is, is that there should be higher sentences in these cases. If the result is not higher sentences, that is something that could be taken to an appellate level to get guidance from appellate courts about how to implement the clear intent of Parliament in this regard.
[Translation]
Senator Hervieux-Payette: Mention is made in one section of the bill of protecting employees. However, persons who obtain information about stocks, at gatherings of family and friends, for example, and who may wish to share that information have only two options. Either they can say nothing and buy some stock, or, they can make a complaint. To whom should a person with inside information direct their complaint? To the former Quebec Securities Commission, which now goes by another name, to the Montreal Stock Exchange or to law enforcement personnel? I do not see how filing a complaint with the police would be very useful. I am not talking about a employee as such, but about someone with inside information that should not be disseminated, information that could have a major impact on a stock's performance.
As far as the stock market is concerned, given the way information spreads like wildfire these days, one person may have some information, and yet the next day, 90 people have the same information. Disclosure sets off a chain reaction. Therefore, let me repeat my question: To whom should a person in this situation direct their complaint?
[English]
Mr. Bartlett: Senator, nothing will have changed insofar as any citizen who has information that a criminal offence has occurred can and should go to the police. Any citizen who is aware of insider trading could now go to a securities commission and make a complaint. If an offence of insider trading is added to the Criminal Code, an individual could go to the police with that information.
The offence that we have in here addresses employees, because their employment situation is often quite vulnerable if they disclose illegal conduct that is occurring in the company in which they work. However, certainly anyone else with information would have the option of either going to the securities commission, the regulators in the province, if what they fear has occurred is a provincial offence, or a regulatory matter. If it is a matter of fraud, or the new insider trading offence, or something that constitutes an offence under the Criminal Code, an individual could certainly go to the police with that information.
In the case of a fraud, or insider trading, in the four major financial centres they could certainly go to these new market enforcement teams, and report it to the RCMP in those teams.
Senator Hervieux-Payette: For Quebec and Ontario, we have different police forces — provincial police forces, not the RCMP. Are you assured that there is a special training program for the police force in these two provinces, and are you aware that there will be special training for the RCMP around the country?
Mr. Bartlett: Certainly the RCMP officers who will be involved in this program will be specially selected and specially trained. I know that the investigators in the OPP anti-rackets branch, and the parallel section of the Sûreté du Québec are quite experienced and well trained.
The IMET program will do everything it can to coordinate with these existing police forces — the OPP, the Sûreté and the municipal police forces, like the Metro Toronto police force, the metro fraud squad — to ensure that all of them are working effectively together and that all of them are as aware as possible of what the others are doing and of the tools that are available, and using them as effectively as possible.
Senator Hervieux-Payette: It means that you have consulted with them and they are in agreement with the new law?
Mr. Bartlett: We have had no particular comments from the Sûreté. We have discussed this with representatives of the OPP anti-rackets and the metro fraud squad, and they were certainly supportive, yes.
Senator Prud'homme: Did you have discussions with the Sûreté?
Mr. Bartlett: We had no discussions with the Sûreté, no.
Senator Prud'homme: So, of course, you did not receive any comments.
Mr. Bartlett: The bill has been on the table for some time, but, no, we have not had any particular discussions with them.
The Chairman: With respect to the IMET teams, who is in charge?
Mr. Bartlett: The IMETs will be led by the RCMP, if you will, but the management of the unit will take the form of a joint management team, with representatives from the RCMP, the federal prosecution service, which will be supplying the legal advisors, other police forces and attorneys general who have been brought into the program and are cooperating with and coordinated with the program, and perhaps some of the industry stakeholders, on some basis. They cannot be brought in entirely because there are sensitive issues that would be discussed, but they might be brought in to discuss certain strategic issues. There will be a fairly broad-based management team that will manage these units. The chair will be the RCMP. The actual investigating will be done by RCMP officers or other provincial or municipal police officers that are brought into the units to do the investigation.
Senator Massicotte: Honourable senators, I have a couple of questions. I want to support Senator Kelleher on the importance of such legislation, the importance for efforts to clean up. There is still a bit too much looseness in our policing of securities commissions and infractions.
My friends at the RCMP would suggest that the problem so far has not been a lack of legislation but a lack of resources to even pursue and find out if one did wrong — never mind bring the person to jail. I also share the same opinion, that I do not see much visibility. If you want there to be a deterrent, it must be visible, where we do put these people in jail. Somehow, we have to find a way to make it a deterrent, because if it is written there but is not known, it does not have much effect.
Let me ask you two more questions. Included in Sarbanes-Oxley were specific provisions, wherein the CO and CEO had to sign an affidavit stating that the financial statements represent fairly the financial position of the company. It had specific provisions for jail terms if that representation was deemed to be inaccurate.
We do not deal with that. OSCE requires that more recently, but it is not in our proposed act. Why would that not be the case?
Mr. Bartlett: That is a matter of securities regulation. At the moment, securities regulation falls entirely to the provincial and territorial securities commissions and the laws that they enforce that regulate securities in all of the provinces and territories. There are 13 of them. There are proposals to create a national securities regulator. The Department of Finance commissioned the Wise Persons' Committee, which reported some months ago recommending such a national securities regulator. However, several provinces have strong reservations about the idea. Hence, whether or not that will come to fruition remains to be seen, and there are a lot of discussions ahead. However, those are not criminal matters.
In the United States, the jurisdiction at the federal level, in particular, is very mixed. In fact, the American federal government has no direct criminal law jurisdiction. It does make tremendous criminal law as an adjunct to its other heads of power, and, in this case, it has power over interstate commerce, which includes securities matters, because they almost invariably cross state lines. Sarbanes-Oxley has a great deal of regulatory provisions, as well as offence provisions supporting those regulatory provisions. In Canada, at the moment that falls entirely to the provinces; it is not a criminal matter that would be appropriate to deal with in the Criminal Code.
Senator Massicotte: If the certification is proven to be wrong or erroneous, would that not be a fraud and, therefore, it falls under the act?
Mr. Bartlett: There are provisions, certainly in the Criminal Code, for making false documents. For example, there is section 397 of the Criminal Code, where you simply submit any kind of document with intent to defraud. So, in a general sense, yes, if they submitted the certification with the intent to defraud, there would be offences in the Criminal Code to cover it.
What we do not have is something that directly focuses in on an obligation to submit a financial statement and an offence for failure to do so or failure to do so according to the required process or time, or that sort of regulatory provision that goes much further than making a false document with intent to defraud.
Senator Massicotte: On the whistle-blower stuff, I can appreciate that if an employee blows the whistle, resulting in an infraction against the employer, the employee is protected. However, if, for some reason, good or bad, the employer is not convicted of an infraction, is there any protection for the employee in that circumstance?
Mr. Bartlett: The employee is protected through the deterrent effect of the criminal law. The criminal law cannot get into the civil matter of requiring that employees be reinstated, and so on. That is the sort of thing that, for example, the federal government is looking at in terms of a broad-based whistle-blower policy and, perhaps, whistle-blowing legislation that would actually protect the employment situation itself.
The Criminal Code can deter this conduct by making it an offence and punishing employers when they do it so that they will be deterred from taking that sort of action.
Senator Massicotte: I am not sure I understood your answer. Your answer is that the employee is protected if there is an infraction, however, the employee is not protected if, for some reason, the infraction is not proven; is that accurate?
Mr. Bartlett: All employees are protected to the extent that, if any employee is threatened or retaliatory action is taken, the employer is liable to a criminal offence. The criminal law attempts to deter anyone from taking that sort of action for fear of the criminal law consequences. If you are asking whether we can step in and stop the employer from taking the action, the criminal law cannot do that. That would be a civil matter, although, if what the employer is doing constitutes a criminal offence, that would have some impact on the civil remedies that the employee could then pursue.
Senator Massicotte: I am not sure I understand.
If an employee accused his or her employer of an infraction but for some reason the court does not agree with that accusation can the employer fire the employee? Just a yes or no will be good enough.
Mr. Bartlett: Yes. And the employer could fire the employee even if the court did agree that it was an infraction, but the employer would then be liable to punishment.
Senator Massicotte: And if there is no infraction, there is no recourse?
Mr. Piragoff: If there is no infraction, senator, then the court has basically said that the state has not taken away the cloak of innocence from the employer. Everyone, including the employee, is presumed innocent until proven guilty in a court. If the prosecution cannot prove that the employee is guilty then the employee is innocent.
Mr. Bartlett is saying that this is not a civil code or a labour code issue. It deals with the criminal liability of the employer. If the employer committed an offence, he can be prosecuted. This does not mean that the employee cannot be fired — the employee may be fired. However, if the employer committed a crime in doing so, the employer can be disciplined or punished, but that does not reinstate the employee in his or her job.
Senator Massicotte: I am not a lawyer, but I think the answer was no, right?
Mr. Piragoff: Yes.
Senator Fitzpatrick: I believe this is a step in the right direction. However, I am not sure that it is not necessary to take other steps.
One of the areas that concern me is offshore trading and the potential for offshore insider trading. First, I do not know whether you have any idea how much offshore insider trading might or might not take place. I think that is pretty tough to determine. It is a complicated process, with nominees and banks and the CDS system. However, how would you go about identifying offshore trading other than through whistle blowers? If you do identify them, how do you go after offshore insider trading and how do you punish offshore insider traders?
Mr. Piragoff: The key issue with respect to the bill is that this legislation would apply to some conduct occurring in Canada. The question is: How much conduct must occur in Canada?
There are common law rules developed by the courts, by the Supreme Court of Canada, which say that Canadian courts can exercise their jurisdiction with respect to conduct occurring cross border if there is a significant connection to Canada. The courts would look at the transaction in question, and the significance of the individual.
We would be talking about individuals in Canada who may be advised in Canada of certain information but they traded on the New York Stock Exchange, for example. The courts would look at that situation. There have been cases of fraud, for example, where Canadians, by telephone, have created false impressions or made false pretences to investors in the United States, and the Canadian courts have said that that is enough to give Canadian courts jurisdiction. The courts will deal with situations of cross-border criminality.
Senator Fitzpatrick: You spoke about the United States. I guess a lot of trading takes place, whether it is insider trading or otherwise, in the form of offshore trading from Europe. I think what I hear you say is that this does not necessarily reach into those jurisdictions. Therefore, if a person wants to inside trade and has some information but does not want to get caught, the individual does it offshore?
Mr. Piragoff: I was just using the United States as an example.
The principle is that if there is a significant connection to Canada, the courts can exercise jurisdiction irrespective of where that other jurisdiction may be. It could be on the other side of the world. If there is a significant connection in Canada, then the courts may exercise jurisdiction over the offence.
Senator Fitzpatrick: Would you say it is harder to reach insider trading if it comes from offshore than within Canada? You have real difficulty getting information on bank accounts in certain countries in Europe. Do you have a program to track that information down with a reasonable cost?
Mr. Piragoff: We have, senator. It is not so much a legal problem, it is more a problem of trying to gather evidence from foreign authorities. We do have mutual legal assistance treaties with a number of countries that permit us to request those authorities to use their judicial process to acquire information from banks for an investigation in Canada, and vice versa. We are able to execute search warrants, for example, on Canadian banks in order to provide information with respect to a foreign investigation.
Senator Harb: In your answer to Senator Prud'homme, you gave two conflicting answers. Would you care to correct that for the record? When he asked you whether or not you consulted with the Sûreté you said ``yes'' and then after that you said ``no.'' Is it ``yes'' or ``no''?
Senator Prud'homme: It is ``no.''
Mr. Bartlett: We have not talked directly to the Sûreté yet.
Senator Harb: My question is along the same lines as Senator Massicotte. Did you state that you cannot put protections in place for whistle-blowers?
Mr. Bartlett: If you are talking about labour code protections, we cannot do that in the criminal law. The federal government is presently considering whistle-blower legislation that might put in place exactly those sorts of protections vis-à-vis federal government employees, protections that would deal exactly with that sort of job protection.
Provinces would certainly have that right and the federal government might have some jurisdiction to do so in regard to federally regulated industries. However, that is not something we could do in the criminal law.
Senator Harb: In a bill that deals with the Competition Act, we introduced an amendment to the act to deal specifically with whistle-blowers when it comes to price fixing and price manipulation. Are you aware of that aspect of the Competition Act component?
Mr. Bartlett: Yes, we are certainly aware of the provisions in the Competition Act dealing with price fixing and a number of other related matters.
Senator Harb: There is a mechanism for protection of whistle-blowers in that act. Are you aware of that protection mechanism that is being put in place that introduces not only a penalty in civic terms, but also in criminal terms, for an employer who takes measures against an employee who may come forward with information as it relates to price fixing or price manipulation?
Mr. Bartlett: The Competition Act is based on several heads of power. There is not only the criminal law power, but also there are civil and administrative provisions in the Competition Act, as well as provisions of a criminal nature based on the criminal law power. The Criminal Code is based purely on the criminal law power, and we cannot get into civil or administrative matters in the code.
Senator Harb: Your bill deals mostly with penalties. Are there any plans to deal with preventives in terms of education, awareness and things like that? If that is the case, at what point in time will that come forward?
Mr. Bartlett: Much of the focus of the IMET program, which is an enforcement program, has been based on bringing the criminal law enforcement people together with the securities enforcement people and the industry. The RCMP members involved in setting up these IMET units have had many consultations with the securities industry. We have met with the securities industry, the investment dealers association and particularly their enforcement wing. That coordinating exercise will provide the opportunity for the sort of education exercise that you are talking about.
The industry is very concerned about any sort of criminality in its ranks. It has its own programs. There will be, as part of this overall program, an attempt made to coordinate the industry's programs with what law enforcement is doing.
Senator Meighen: Mr. Bartlett, put in its simplest terms, one of the main elements of this proposed legislation is to introduce a criminal penalty for improper insider trading, a penalty that did not heretofore exist; is that correct?
Mr. Bartlett: That is correct, senator.
Senator Meighen: By way of editorial comment, I think that would come as a great surprise to most Canadians — that there was no criminal penalty for insider trading.
We will now introduce a criminal penalty element for fraud and increase the maximum sentence from 10 to 14 years, which, in effect, would mean that if a person was guilty and got the maximum sentence they would be eligible for parole after four years rather than three years, if the one-third rule were to apply. That is not a significant amount of change, I do not think.
In terms of criminal prosecution, can you tell me why in your view — and I do not think this requires anything more than knowledge of the system — there were no criminal charges laid in such an egregious affair as the Bre-X case? Is it because of lack of legislation? Is it because of lack of resources? Is it because of lack of evidence?
Mr. Bartlett: I really cannot comment on a particular case. I can only say that there was an extensive investigation.
Senator Meighen: Is it not a fact that people were told that something existed when it did not exist?
Mr. Bartlett: That would certainly seem to be the case, senator, yes.
Senator Meighen: That seems to be, at its simplest, a reasonably clear case of fraud; is that correct?
Mr. Bartlett: It certainly would seem to be, yes, senator.
Senator Meighen: I ask my question again: Why would there not have been a criminal charge laid for fraud?
Mr. Piragoff: Honourable senators, the responsibility for prosecuting fraud under the Criminal Code lies with the provincial authority, provincial Attorneys General. We have no knowledge as to the investigation, the strength of the investigation or what reasons in the public interest the Attorney General of a province may or may not have decided to prosecute.
This bill would give the federal government concurrent jurisdiction with the provinces to prosecute serious fraud. The federal government would be able to prosecute in a situation even if a province did not.
Whether the federal government would do it or not, as we indicated earlier, we are involved in negotiating protocols with the provinces because this traditionally is an area of their responsibility.
We said at the beginning that this legislation is to complement their authority, not supplement their authority. Some provinces do not have the resources to investigate or prosecute complex frauds because of the paperwork involved and the complexity. The federal government has offered its prosecutors and resources to those provinces. Other provinces have sophisticated anti-fraud investigative teams and prosecutors and would be able to undertake a complex fraud.
I cannot speak about the past. I cannot speak about why a particular investigation went right or wrong. All I can say is that this legislation would provide another alternative to deal with complex fraud cases in situations where a province might not be able to proceed because of lack of resources.
Senator Meighen: Is that sine qua non? They have to demonstrate that they have no resources or they merely have to ask for them?
Mr. Piragoff: We are negotiating protocols with them as to when they would want us to step into their ballpark and take up the bat. We do not want to just walk in and take the bat when we feel we should take it; we want to ensure that we are not stepping on their toes. We are involved in discussions with the provinces to respect their primacy but still ensure that we have the power to ensure that Canadians have confidence that, if the provinces do not or cannot prosecute these cases, the federal government will ensure that there is a national standard and that there is national confidence across the country in our Canadian markets.
Senator Meighen: The first part of your answer is the one I anticipated. The second part at least gives some ray of hope.
Was it you, Mr. Bartlett, who mentioned that in the bill there is some provision for resources to hire prosecutors, or somewhere there is a provision for the hiring of prosecutors? Can you give me some idea of the magnitude of this resource?
Mr. Bartlett: It is not in the bill, but for all components of the IMET program the funding that was announced in Budget 2003 amounts to up to $30 million a year. That includes the investigative resources, some federal prosecutorial resources and some funding for assisting provinces with exceptional prosecutorial costs.
Senator Meighen: It is hard to judge whether $30 million will make a significant difference or not.
Mr. Bartlett: Obviously, the more resources the better. It is $30 million more than there was before, and it is concentrated resources, which I would suggest is the key. It is concentrated on this area with these specialized integrated enforcement teams and with legal advice along the way. If things work out as we hope, the prosecutors will be earmarked to be ready to handle these cases when they arrive and they will develop some special expertise in them. Perhaps the resources will have a greater effect than simply throwing more resources into the system, because they will be targeted on this particular problem.
Senator Meighen: Let us hope so.
Senator Prud'homme: My question is supplementary to that of Senator Meighen. You said that in these cases prosecution is a provincial matter. I did well in criminal law at university, but I have not practised criminal law. Do you mean to say that under the Criminal Code there is currently no provision for the federal government to intervene if a province does not sue in the case of such a financial debacle?
Mr. Bartlett: At the moment, senator, although the federal government has the full constitutional authority to prosecute any federal criminal offence, including under the Criminal Code, Criminal Code prosecutions have traditionally been within the purview of the provinces under their authority under the Constitution for the administration of justice, and the definition of ``Attorney General'' in section 2 of the Criminal Code gives jurisdiction over most offences under the Criminal Code to the provincial Attorney General.
In recent years, Parliament has given concurrent jurisdiction to the federal Attorney General over some of the criminal organization offences and all of the new terrorism offences that were created in Bill C-36.
Senator Prud'homme: That is where I wanted you to lead me.
Mr. Bartlett: However, most of the Criminal Code still lies solely with the provincial Attorneys General pursuant to that definition. The bill would change that definition for fraud and the related market offences.
Senator Prud'homme: It is more important to have amended the Criminal Code to allow the government to sue the Hells Angels than to sue for white-collar crimes, which are more fancy, I suppose?
Mr. Piragoff: This bill would do that, senator.
Senator Prud'homme: Yes, I read it.
Mr. Piragoff: This bill recognizes that some things are in the national interest, such as fighting terrorism and fighting organized crime. They are not crimes of a local nature but crimes of a national nature and the bill recognizes that the federal government should be involved in their prosecution. This bill adds capital market fraud to that list of crimes against the state rather than only against individuals.
Senator Baker: Much of this money would go to the RCMP, I presume, for investigative purposes such as hiring forensic accountants.
Mr. Bartlett: That is correct.
Senator Baker: Of course, the laying of charges and the investigation would be done by the RCMP.
Mr. Bartlett: That is correct.
The Chairman: With that, let me thank the witnesses for their presentations.
I would ask committee members to stay to deal with a couple of administrative matters. One will be dealt with publicly, and the other quickly in camera.
You have before you the proposed legislation budget that must go to Internal Economy for approval.
Senator Prud'homme: I move the adoption of the budget.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried. We will now go in camera.
The committee continued in camera.